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CA Foundation · Business Laws · The Negotiable Instruments Act, 1881

Vikram Joshi, aged 16, signs a promissory note for Rs 20,000 in favour of Harish Traders in exchange for a motorcycle. Harish Traders endorses the note to Gupta & Co, who take it in good faith. Vikram refuses to pay when the note falls due. What is the legal position under the Negotiable Instruments Act, 1881?

Vikram is not liable. Under the Act a minor can be a party to an instrument and bind everyone except himself, so he cannot be held liable as maker, even by a holder in due course. Harish Traders stays liable as endorser because it is a competent party.

  1. AVikram is liable because Gupta & Co is a holder in due course
  2. BVikram is not liable, because a minor cannot be bound as maker, though the note binds the other parties who signed itCorrect
  3. CVikram is liable, but only up to the value of the motorcycle
  4. DThe note is wholly void, so Harish Traders is also not liable on the endorsement

Explanation

A minor may draw, endorse, deliver and negotiate an instrument so as to bind all parties except himself, but he cannot be bound as maker. The Act protects the minor even against a holder in due course. The final option is wrong because the minor's incapacity does not free Harish Traders from liability as an endorser.

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