Parties of Negotiable Instruments and their Liabilities, Negotiable Instruments Act 1881 Notes

Parties of Negotiable Instruments and their Liabilities

There are three parties in bills of exchange: Drawer, drawee and Payee.

a) Drawer: Drawer is a person who draws the bills of exchange against the amount due to him by the drawee. Drawer is also called creditor in case of a bills of exchange.

b) Drawee: Drawee is a person who accepts the bill of exchange drawn by the drawer and by accepting it he agrees to honour the bill on due date. Drawee is also called debtors in case of bills of exchange.

c) Payee: Payee is a person who receives the amount of the bill on due date. Drawer can be the payee of the bill if the bill is not endorsed by the drawer.

Liabilities of the parties of Negotiable Instruments:

1. Liability of drawer: According to Sec. 30 of the Negotiable Instruments Act, the drawer of the bills of exchange or cheque is bound to compensate the holder of the negotiable instruments if the bills of exchange or cheque is dishonoured on due date. In such a situation, notice of dishonour must be given to the drawer and unless and until notice is given the holder has no cause of action against the drawer of the cheque or bill of exchange. Sec. 30 of the Negotiable Instruments Act deals with civil liability in case of dishonouring of a cheque and the said section stipulates that the drawer has to compensate the holder of the cheque.

2. Liability of drawee: According to Sec. 31 of the Negotiable Instruments Act, the drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required to do so and in case of default in payment of funds, the drawee must compensate the drawer for any loss or damage caused by such default. Sec.31 also states that, if there was any actual loss or damage caused by to the petitioner bank, then certainly the respondent bank was required to pay the compensation.

3. Liability of Maker of Promissory note and acceptor of bill: According to Sec. 32 of the Negotiable Instruments Act, the maker of promissory and acceptor of bill are bound to pay the amount of the note or bill to the holder at maturity. If they defaulted in payment, then they are liable to compensate any party to the note or bill for any loss or damage sustained by him and caused by such default. This Section also states that the liability of the drawee arises only when he accepts the bill.

4. Liability of Endorser: Section 35 provides that in the absence of a contract to the contrary, whoever endorses and delivers a negotiable instrument before maturity without expressly excluding or making conditional his own liability, is bound thereby to every subsequent holder, in case of dishonour by the drawee, acceptor or maker, to compensate such holder for any loss or damage caused to him by such dishonour, provided due notice of dishonour has been given to or received by such endorser as hereinafter provided.