Question

Classification of Negotiable Instruments
A signs, as maker, a blank stamped paper and gives it to B and authorizes him to fill it as a note for Rs. 5,000 to secure an advance which C is to make to B. B fraudulently fills it up as a note for Rs. 20,000 payable to C, who has in good faith advanced Rs. 20,000. Decide, whether C is entitled to recover the amount, and if so, up to what extent?

• A. Rs. 5,000
• B. Rs. 15,000
• C. Rs. 20,000
• D. Rs. 10,000

Answer 1

The correct option is C Rs. 20,000

Section 20 of the Negotiable Instruments Act, 1881 provides that when one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instrument then in force in India and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamps. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same to any holder in due course for such amount. A person other than holder in due course is not authorised to recover anything in excess of the amount intends by him to be paid thereunder.

In the given problem ‘A’ is estopped from setting up B’s fraud, and ‘C’ is entitled to recover Rs. 2,000/- from ‘A’ because ‘C’ has obtained it as a holder in due course. This liability does not stand of a person other than the holder in due course. ‘C’ as a holder in due course is entitled to enforce payment of the full amount even though the authority has been exceeded but it is necessary that the sum ought not to exceed the amount covered by the stamp.