Parties to a Negotiable
Instrument
by Asok Nadhani,
2.1
Capacity of Parties
a.
A person competent to contract can
become party to a negotiable instrument.
b.
If a party, who makes, draws, accepts,
indorses, delivers or negotiates a promissory note, bill of exchange or cheque
is incompetent to do so, the agreement is void as against him. But the liability of other competent parties
do not get diminished.
c.
The following may be parties to a
negotiable instrument:
i. Minors
ii. Person
of unsound mind
iii. Corporations
iv. Agents
v. Partners.
vi. Hindu joint family
vii. Legal representatives
2.1.1
Minors
a. A
minor may draw, indorse, or can negotiate an instrument so as to bind all the
parties except himself (Sec. 26).
b. The
instrument with Minor as a Party becomes binding to all other parties to it,
but minor does not become liable on an Instrument. Ex.2.1
2.1.2
Persons of unsound mind
a.
Bills and notes drawn or made by
persons of unsound mind are void as against them (though the other parties
remain liable) provided that, at the time of execution of such Instruments,
they were incapable of forming a rational judgment as to the effects of such
instruments.
b.
A person, though usually of unsound
mind, may bind himself by a negotiable instrument entered into by him during a
lucid interval.
2.1.3
Corporations
a. A
corporation can bind itself by negotiable instruments only if authorized by
Memorandum or Articles. Else it will be treated as void even though it is
approved by all the members.
b. A
trading company has implied power to bind itself by negotiable instruments
(unless prohibited by its Memorandum or Articles)
c. A
non-trading company can enter into such binding only if it is expressly
authorised by its Memorandum or Articles.
2.1.4
Agents
a.
An authorised agent on behalf of a
principal can make, draw, accept, indorse, deliver and negotiate a bill, note
or cheque. However, an authority to draw the bills does not imply an authority
to indorse or vise versa.
b.
General authority to transact business
and to receive and discharge debts does not confer upon an agent the power of
accepting or indorsing bills of exchange so as to bind his principal. (Sec.
27).
c.
The principal shall be bound a
negotiable instrument signed by his agent provided the agent
-
has acted in the name of the principal
(i.e. he must sign 'for and on behalf of the principal)
-
acted within the scope of his
authority.
d.
An Agent is personally liable in the
following cases :
i. Where
he signs an instrument without indicating thereon that he signs as agent. But
he is not personally liable to those who induced him to sign the instrument
upon the belief that the principal only would be held liable (Sec. 28). [Ramanathan v.Baldeo Singh], [Hazari Lal v. Sohan
Lal], Ex.2.2, Ex.2.3.
ii.
Where he signs instrument in excess of
the authority given to him.
2.1.5
Partners
i. In a
trading firm each partner has prima facie authority to bind his
co-partners by drawing, signing, making, indorsing, accepting, transferring,
negotiating bills, notes, and cheques in the name and on account of partnership.
ii. Partner
of a non-trading firm has no such implied authority, unless specifically authorized.
iii. A person
merely describing himself as a partner cannot bind the firm by such acts. [M.M. Abbas v. Chetandas]
2.1.6
Hindu joint family
i.
The manager or Karta of a Hindu
Joint family, has a right to borrow money on a note or bill, and all the members
of the joint family are binded by such act.
ii.
Minors are liable to the extent of
their share and are not personally liable.
2.1.7
Legal representative
A
legal representative :
i. is
entitled to sue or can give a valid discharge to all the instrument after the
death of holder.
ii. becomes
personally liable if an instrument bears his signature unless he expressly
limits
iii. has
its liability limited to the extent of the assets received by him as such.
(Sec. 29)
2.1.8
Inchoate Instrument (Sec.20)
i. A
negotiable instrument which is signed but incomplete in one or more respects is
called as an inchoate negotiable instrument.
ii. The
person signing the inchoate instrument gives the prime facie authority
to the holder thereof to make or complete the negotiable instrument.
iii. The
payments on the inchoate instrument can be claimed only if the banks are
subsequently filled in and the instrument is complete.
iv. The
liability on an inchoate instrument is restricted to the amount as was
authorised by the person signing such inchoate instrument provided such amount
is covered by the stamp. However, a person shall not be a holder in due course
unless he obtains the NI. Ex. 2.4, Ex.
2.5
2.2
Parties to Negotiable Instrument
The
parties to a negotiable instruments are :
a.
Bill of exchange. Drawer.
2) Drawee, 3) Acceptor (4) Payee (5) Holder, 6) Indorse (7) Indorsee, (8)
Drawee in case of need (9) Acceptor for honour.
b.
Promissory note. (1) Maker, (2)
Payee, (3) Holder, (4) Indorser, and (5) Indorsee.
c.
Cheque. (1) Maker, (2) Drawee, (3) Payee. (4) Holder,
(5) Indorser (6) Indorsee.
2.2.1
Maker & Drawer
The
person who makes a promissory note is called the Maker, while the person
who makes or draws a bill of exchange or cheque is called the Drawer.
(Sec. 7).
2.2.2
Drawee & Acceptor
i. The
person on whom the bill of exchange or cheque is drawn and who is directed to
pay is called the "drawee" (Sec. 7).
ii. In
case of a cheque, the drawee is always a bank.
iii. A
cheque does not require acceptance as it is intended for immediate payment.
iv. In
case of a Bill of Exchange, the drawee becomes the "acceptor" when he
accepts the Bill.
2.2.3
Payee
i. The
person named in the bill, note or cheque, to whom the money is payable is
called the "payee" (Sec. 7).
ii. In a
Bill or Cheque, the drawer and Payee may be same person.
iii. Where
the payee named in a bill is a fictitious or non-existing person, the bill is
treated as payable to bearer
2.2.4
Indorser and Indorsee
The
person who indorses the bill to another is called the Indorser and the
person to whom the Bill is indorsed is called the Indorsee.
2.2.5
Drawee in case of need
A
Bill may contain the name of a person other than drawee to be referred, called
‘Drawee in case of need’, if the bill is not honoured by the Drawee, In
such case, the bill is not dishonoured
until it has been dishonoured by such drawee in case of need (Sec. 115). A
drawee in case of need may accept and pay the bills of exchange without
previous pretest. (Sec. 116)
2.3
Holder (Sec. 8)
Holder of the instrument is entitled
to possess, receive or recover the amount due on the instrument in his own name
when he is named in the instrument as the payee (or the indorsee when
indorsed), or bearer (for bearer Instrument).
i. A
person acquiring an instrument by theft or forgery does not become a holder.
ii. Where
a person (e.g., the heir of a
deceased holder) in the absence of a holder can give a valid discharge to the
maker or acceptor of the Instrument, he acquires the status of a holder and can
sue on the instrument to recover the amount due thereon.
iii. In
case of loss (or destruction) of the instrument, the person so entitled at the
time of such loss becomes the Holder of the instrument.
As between
holders in due course of different parts of the same set, he who first acquired
title to his part is entitled to the others parts and the money represented by
the bill (Sec. 133).
2.3.1
Holder in due course (Sec.
9)
Any
person is a 'holder in due course’ when:
a.
he became the possessor (when payable to bearer), or the payee or indorsee
(when payable to order) of the instrument for consideration. [Exp Schofield]
b.
he became the holder of the instrument before
its maturity (if the instrument is taken after it is due, he acquires the
rights of his immediate transferor only.
c. became
the holder of the Instrument in good faith,(i.e. without knowledge or
cause to suspect any existent infirmity or defect in the title). [Braja Kishore Dikshit v. Purna Chandra Panda]
However,
a holder of a negotiable Instrument will not be considered to be a
Holder in due course if he has obtained the instrument :
i. by
gift, for an unlawful consideration or by illegal method
ii.
after its maturity
iii.
not obtained the instrument bona
fide.
2.3.2
Privileges of a holder in due course
The
privileges enjoyed by the holder in due course are as follows:
1.
Inchoate stamped instrument.
a. A
person delivering inchoate instrument is liable on the instrument (provided the
amount is covered by the stamp affixed on the instrument) to a holder in due
course.
b. No
person other than a holder in due course shall recover from the person
delivering the instrument anything in excess of the amount intended by him to
be paid there under. (Sec. 20)
2. Liability of prior parties. Every
prior party to a negotiable instrument is liable thereon to a holder in due
course until the Instrument is duly satisfied (Sec. 36).
3. Fictitious
payee. Where a bill is drawn is a fictitious
person, the holder in due course can still claim payment from the acceptor if
he can show that the signature of the drawer and first endorser are in the same
handwriting. (Sec.42).
4. Negotiable
instrument without consideration. Though normally a contract without consideration
creates no obligation between the Parties (No consideration, No Contract), but a
holder in due course of such instrument can recover the amount on it from any
of the prior parties thereto (Sec. 43).
5. Conditional
delivery. The parties
to an instrument cannot avoid their liability on the ground that the delivery
of the instrument was conditional or for a special purpose only (Sec
46).
6. Instrument
cleansed of all defects. Any defect in
title in the instrument does not affect the rights of the holder in due course
(even if he had knowledge of the defect but he himself is not a party to the
fraud) (Sec. 53). Ex. 2.6, Ex. 2.7
7. Instrument
obtained by unlawful means or for unlawful consideration. No
party can claim against a holder in due course that the instrument had been
lost or was obtained by him by unlawful means or consideration.
If a holder in
due course gives such instrument to another by the way of gift etc., the
successive person will not hold a good title of the instrument.( Sec. 58)
8. Every
holder is a holder in due course. The
law presumes that every holder is a holder in due course, although the
presumption is rebuttable (Sec. 118).
9. Estoppel
against denying original validity of instrument. In case of suit filed by a holder in due course, the
maker, drawer and the acceptor cannot deny the validity of the instrument as
originally made or drawn (Sec. 120), or the payee's capacity to indorse (Sec.
121)
10. Indorser
not permitted to deny the capacity of prior parties. When sued by a holder in due
course, the indorser of a instrument cannot, deny the signature or capacity to
contract of any prior party to the instrument (Sec. 122)
2.3.3 Difference between holder and holder in due
course
Some of the
differences of a holder and a holder in due course are enlisted below:
|
Holder
|
Holder in due course
|
|
1. A
person entitled in his own name, to possess, receive or recover the amount
due on the instrument is referred as Holder of the instrument.
|
1. Any person who
for consideration became the possessor of an instrument before maturity of
the Instrument in good faith, is Holder in Due Course.
|
|
2. A
person can become a holder even though he has acquired it without any
consideration.
|
2. A person
becomes a holder in due course if he obtains the instrument for
consideration.
|
|
3. A
person can become a holder even though he obtains the Instrument after the
maturity date.
|
3. A person cannot
become a holder in due course if the Instrument is obtained after the
maturity.
|
|
4. Even
though an Instrument is not obtained by a person in good faith or is
negligent can become a holder.
|
4. He can only
become a holder in due course if he has acted bonafide and without any
negligence.
|
|
5. A
holder doesn’t enjoy some of the privileges which a holder in due course
enjoys.
|
5. A holder in due
course enjoys many additional privileges.
|
|
6. The
title of the holder is not better than title of the person from whom he
obtains the instrument.
|
6. The title of
the holder in due course is better than title of the
person from whom he obtains the instrument.
|
|
7. A
holder cannot sue all the prior parties.
|
7. A
holder in due course can sue all the prior parties.
|
2.4
Liability of Parties to
a Negotiable Instrument (Secs. 30 to 32 and 35 to 42)
a.
Liability of drawer: In
case of dishonour, the drawer of a bill of exchange or cheque must compensate
the holder, provided due notice of dishonour has been given to, or received by,
the drawer (Sec. 30). [Union Bank of
India v. Swastika Motors], [Silchar bank v. Pioneer Bank]
i.
The liability of the drawer on a bill of exchange
is secondary in nature. The acceptor of the bill is primarily responsible to
make payment.
ii.
By drawing a bill, the drawer undertakes that
a. On presentment
of the same to the acceptor, it will be accepted and duly honored,
b. If dishonored by
the acceptor either by failure to make payment or by non-acceptance, he will
compensate the holder or any indorser provided due notice of dishonor has been given to him.
iii. The liability of
a drawer arises only when there is a dishonor of the bill. Until then the
drawer is not liable on the bill. In case the bill is dishonored and notice of
the same is given to him, the drawer will be liable to make payment to the payee.
The notice of dishonour of
the bill is given to drawer. If otherwise, the drawer is not only discharged
from his liability upon the bill, but also upon the original debt.
iv. The drawer of a
bill can limit his liability by using appropriate words ('Pay X or order sans recourse').
v. Where a bill has
been dishonored by non-acceptance and where notice of the said dishonour has
been given to the drawer, then the holder of the bill can sue the drawer
immediately without having to wait till the maturity date or without having to
present the bill to the drawer.
b.
Liability of Drawee: In case of cheque, the drawee banker
must pay the cheque when duly required to do so. In case the banker refuses to
pay the cheque without any sufficient reason, he is liable to compensate the
drawer for loss caused to him because of non-payment. (Sec. 31) [Jagjivan Mavji v. Ranchoddas]
i.
Where a customer has two accounts at a bank, the
banker cannot transfer funds from one account to the other without obtaining
the approval of the customer (Greenhalgh
vs. Union Bank of Manchester
A cheque book issued for
use on one account cannot be used to draw on another account of the customer (State Bank of India
ii.
Following are some of the instances where a banker
may refuse to honor the customer's cheques.
(a) Where a
postdated cheque is presented for payment prior to the date it bears.
(b)
Where a customer does not have sufficient funds to
his credit
(c)
If the funds of the customer are subject to a lien
by the banker
(d)
The cheque is ambiguous, unclear or contains a
material alteration.
(e)
Customer has been declared insolvent.
(f)The customer has
countermanded payment.
(g)
The banker receives notice of either the customer's
death or insanity.
c.
Liability of legal representative (Section 29):
i.
A person who sign as legal representative of a
deceased person becomes personally liable on the negotiable instrument (unless
he expressly limits his liability).
ii.
The legal representative who inherits estate,
including negotiable instruments of which the deceased person was the holder,
becomes personally liable for the negotiable instruments only to the extent of
the value of the estate inherited by him, unless he excludes personal
liability(e.g. by using the words ‘without recourse’, or ‘without resource
against me personally’).
2.4.1
Liability Inter Se
i. Maker,
drawer and acceptor: In the absence
of a contract to contrary, the maker and the drawer of a bill until acceptance,
are not discharged from the liability unless the payment of the instrument is
made. They are liable like principal debtors and the other parties to
the instrument are liable like sureties. Their liability arises only on
a default by the party primarily liable. (Sec. 37) [India Saree
Museum
ii. Inter
Party responsibility: As between the
parties liable as sureties, each prior party is a principal debtor in respect
of each subsequent party (in absence of a contract to the contrary). (Sec. 38) Ex. 2.8
iii. Suretyship: When
the holder of an accepted bill enters into any contract with the acceptor
resulting in discharge of other parties (u/s. 134 or 135 Contract Act), the
holder may expressly reserve his right to charge the other parties, and in such
a case they are not discharged. (Sec. 39)
iv. Discharge
of indorser's liability: Where the holder
impairs the indorser's remedy against a prior party (without the consent of the
indorser), the indroser’s liability is
discharged as if the instrument if had been paid at maturity. (Sec. 40) Ex. 2.9
v. Acceptor's
liability on a forged indorsement: An acceptor
cannot escape his liability in a forged indorsement where he knew (or had
reason to believe about the forgery at the time of endorsement. (Sec 41)
vi. Acceptor's
liability for a bill in a fictitious name: An
acceptor shall be liable to the holder in due course if it is proved that the
signature of the supposed drawer and that of the first endroser are in the same
handwriting. (Sec. 42)
2.4.2
Rules regarding Liability of Parties to Instrument
i. The parties to an instrument cannot avoid their
liability on the ground that the delivery of the instrument was conditional or
for a special purpose only.(Sec. 46, para 3)
ii. Even
if an instrument is obtained by fraud it will be considered as free from all
defects as soon as it passes through the hands of a holder in due course. A
person who derives title from him also enjoys the same right as the holder in
due course (Sec. 53).
iii. No
party can defend himself against a holder in due course in case the instrument
is lost or obtained from him by means of an offence or fraud (Sec. 58).
iv. No
maker, drawer or a acceptor for the honour of the drawer, is, in a suit thereon
by a holder in due course, permitted to deny the validity of the instrument as
originally made or drawn (Sec. 120).
v. No
maker, drawer or a acceptor for the honour of the drawer is, in a suit thereon
by a holder in due course, permitted to deny the payee's capacity at the date
of the note or bill, to indorse the same (Sec. 121).
2.4.3 Liability
of Drawee Bank
2.4.3.1 Liability
of Drawee Bank for Wrongful Dishonour
i. Where the bank
holds sufficient funds of customer but wrongfully dishonors the customer's
cheque, then it is liable for monetary loss suffered by the customer and also
for loss or injury to the reputation of the customer.
ii. A drawee bank is
liable only to the drawer in case of wrongful dishonor of a cheque. Thus, the holder
of a cheque cannot enforce payment upon the same from the bank as there is no
privity of contract between the two. In
such case, the holder can change the drawer of the cheque and not the bank.
2.4.3.2 Liability
of Drawee Bank for forged Signature
i. When bank makes payment
of a cheque bearing forged signature of the customer, the bank cannot claim
statutory protection, even when the forgery cannot be distinguished from the
customer's signature as per the bank's records.
ii. As per Section
85, to a drawee bank paying a cheque payable to order purports to be indorsed
by or on behalf of the payee bearing a forged signature, is discharged from its
liability notwithstanding the fact that the indorsement of the payee might turn
out to be forged.
iii. The customer
also should take reasonable care so as not to mislead the bank. If the bank makes
payment because of the negligence of the customer, the customer is liable to
bear the loss.
iv. If a cheque is
drawn in such a way so as to facilitate alteration of the same, the onus will
lie upon the customer and any loss incurred as a result of payment made by the
bank on the altered cheque will have to be borne by the customer.
v. Unless otherwise
provided by the banker-customer contract, it is not the duty of the customer to
bring to the notice of the banker any discrepancy in the passbook or the
statement of accounts. The banker cannot plead that the customer has not
checked the entries in the passbook/statement of accounts.
2.4.4 Liability of
'Maker' of Note and 'Acceptor' of Bill (Section 32)
i. In the absence
of a contract to the contrary, the maker of a promissory note and the acceptor
before maturity of a bill of exchange are bound to pay the amount thereof at
maturity, according to the apparent tenor of the note or acceptance
respectively and the acceptor of a bill of exchange at or after maturity is
bound to pay the amount thereof to the holder on demand.
In default of such payment,
such maker or acceptor is bound to compensate any party to the note or bill for
any loss or damage sustained by him and caused by such default.(s. 32) [Union Bank of India v. Ankur Corporation], [M.Ramnarain
Pvt.Ltd v.State Trading Corporation of India Ltd.]
ii. The liability of
the maker of a note is primary, absolute and unconditional and hence there is
no need to give notice of dishonor to him. However, a maker of the note will be
liable if he signs the note and delivers the same to the payee (like acceptor
of a Bill of Exchange).
iii. In the case of a
bill of exchange, the acceptor is primarily responsible for payment of the amount
due (like that of the maker of a note). However, the accepted bill must also be
delivered or notice of acceptance should be given to the holder.
iv. Payment by the
maker should be in accordance with the apparent tenor of the note, while
payment by the acceptor must be made according to the apparent tenor of his
acceptance.
v. The maker of a
note is its originator. Once made, he cannot modify it without the consent of
the other parties. In the case of a bill, the acceptor is not the originator. So,
when the bill is presented, the acceptor may give a qualified acceptance. When
the acceptance is general, the acceptor will have to adhere to payment as per
the bill. When his acceptance is qualified, he is to make payment in accordance
with the apparent tenor of his acceptance.
vi. Where there is a
default either by the maker or the acceptor holder as well as party to the
negotiable instrument who has incurred loss/damage because of the said default
are entitled to be compensated. [Benares
Bank Limited vs. Hormusji]
2.4.5 Liability
of Indorser (Section 35)
i. An indorser of a
negotiable instrument is in the position of a new drawer and his relationship
with the holder of the instrument is conditional. By endorsing a bill, the
endorser undertakes that the instrument will be accepted and paid according to
its tenor on presentment. If it is dishonored, he will compensate the holder or
a subsequent indorser who is compelled to pay for it, where due notice of
dishonor has been given to him.
ii. The undertaking
of an indorser of a note is similar to that of an indorser of a bill except
that in case of a note there is no undertaking-as to acceptance.
iii. Indorser's
liability will commence only after the indorsed instrument is delivered to the
transferee. Also due notice of dishonor of the instrument should be given to
him to make him liable on the instrument.
iv. In addition to
the amount due on the instrument, the indorser shall also compensate for the
loss suffered by the holder because of a dishonour. However, he may limit his
liability by using appropriate words (like sans resources). [LLoyd vs.
Howard]
2.4.6 Liability
of Prior Parties
i. When the
liability of all the parties to the instrument is extinguished and when payment
is made at or after maturity either by the acceptor/maker as the case may be,
then the instrument will be deemed to be duly satisfied.
ii. A payment which
is made prior to the date of maturity does not result in a discharge of the
instrument. Such an instrument can be re-negotiated by the acceptor. However,
he cannot enforce payment on it from a party to whom he was previously liable.
(Sec. 36) Ex. 2.10
2.5 Liability of Maker, acceptor or indorser of
foreign instrument
In the absence
of a contract to the contrary, the liability of the maker or drawer of a
foreign instrument is regulated by the law of the place where he made the
instrument, and the respective liabilities of the acceptor and indorser by the
law of the place where the instrument is made payable. (Sec. 134)
Ex:
2 Examples
Minor
Ex.2.1 X, Y and Z are the joint promisors of a note
payable to P. Y is a minor. So, Y is not liable on the note. P endroses the
note to Q, a minor, Q can enforce payment on the note against X, Z and P. [Ref.
2.1.1(b)]
Agent
Ex.2.2 Z an
agent of X borrows Rs.20,000 from Y on a promissory note without indicating
that the money is borrowed for and on behalf of X. Even if X gets the benefit
of the money so borrowed, Z will be liable to pay the debt [Ref. 2.1.4(d) (i)]
Ex.2.3 X,
the manager of Y Co. Ltd., accepted a bill and signed as 'X, manager.' Held,
he was personally liable. But if he accepts "For Y Co. Ltd. X,
manager," he is not liable [Ref.
2.1.4(d) (i)]
Inchoate Instrument
Ex. 2.4 Mr. X signs a
promissory note without filling in the name of payee and amount payable. He
keeps the promissory note in his drawer from where it is stolen by Mr. Y. Mr. Y
fills in the amount payable as Rs.10, 000, and the name of the payee as ‘Y or
order’. Thereafter, Mr. T transfers the promissory note (by way of endorsement
and delivery) to Mr. H, who takes it in good faith and without any negligence.
Although Mr. H is a holder in due course, he is not entitled to the payment of
the promissory note since Mr. X had not delivered the promissory note. [Ref: 2.1.8(iv)]
Ex. 2.5 Mr. M signs
and delivers to Mr. T a promissory note without filling in the amount payable.
The promissory note is payable to ‘T or order’. Thereafter, he instructs Mr. T
to fill in the amount payable as Rs.2000. However, if Mr. T fills in the amount
payable as Rs.10, 000. However, the stamp affixed on the negotiable instrument
is sufficient to cover 3000 only. [Ref:
2.1.8(iv)]
Instrument
cleansed of all defects
Ex. 2.6 A
bill, originally obtained by fraud from the drawer, gets into the hands of D (a
holder in due course). D indorses
the bill to E by way of gift. E can
sue the acceptor of the instrument. [Ref.
2.3.2(6)]
Ex. 2.7 X endorsed a
bill (originally acquired by fraud from Y) to Z , who takes it in good faith as
a holder in due course and subsequently indorses the note to X, for value. X
cannot sue Y as he himself is a party to the fraud. [Ref. 2.3.2(6)]
Inter Party
responsibility
Ex. 2.8 P
draws a Bill, payable to his own order, on Q who accepts and indorses the bill to R, R to S and S to
T. As between T and Q, Q is
he principal debtor and P, R and S are his sureties. As between T and P, P is
the principal debtor and R and S are
his sureties. As between T and R, R is the principal debtor and S is his
surety. [Ref. 2.4.1(ii)]
Discharge of
indorser’s liability
Ex. 2.9 .Sita is the holder of a bill payable to the
order of Rita with blank indorsements in the following order :"Rita",
"Gita ", "Mita". "Sujeta". In a suit by ‘Sita’
against ‘Sujeta’, ‘Sita’ strikes out, without Sujeta’s consent, the
indorsements by "Gita " and "Mita". ‘Sita’ is not entitled
to recover anything from ‘Sujeta’ [Ref.
2.4.1(iv)]
Liability of Prior Parties
Ex. 2.10 As between the sureties,
each prior party is the principal debtor of the succeeding party.
'A' draws a bill
payable to his own order on 'B'. On acceptance of the bill by 'B', 'A' indorses
the same to 'C', who indorses it to 'D' who subsequently indorses it to 'E'. As
between 'E' and 'A', 'A' is the principal debtor, while 'B', 'C' and 'D' are
the sureties. As between 'E' and 'B', 'B' is the principal debtor, while 'e'
and 'D' are the sureties. As between 'E' and 'C', 'c' is the principal debtor
and 'D' the surety. [Ref: 2.4.6 (ii)]
For more details, refer
to Business & Corporate Laws by Asok Nadhani, BPB Publications, www.bpbonline.com,
bpbpublications@gmail.com
