The different cases of incapacity to incur liability as a party to negotiable instrument are discussed below:
1. Minor:
Section 26 declares that a minor may draw, indorse, deliver and negotiate a negotiable instrument so as to bind all parties except himself. Accordingly, a minor can be a party to negotiable instrument but he does not incur any liability himself although other adult parties to the instrument remain liable thereon.
ADVERTISEMENTS:
Thus, though the minor cannot originate title or liability he can well serve as a channel or conduit pipe to pass it on to others. When an instrument is signed by a minor and adult jointly, the minor is not liable but the adult is.
As in the case of every other contract, so in the case of a negotiable instrument, the minor is in a privileged position. For, although he cannot incur liability under a negotiable instrument, he can acquire rights under it.
He can be a promisee and therefore an instrument can be drawn or made in his favour as payee. He can also become an indorsee by subsequent transfer of the instrument in his name. He can thus be a holder ‘entitled to sue’, through his guardian, all parties liable under the instrument.
ADVERTISEMENTS:
2. Insolvent:
An insolvent is not competent to draw, make, accept or indorse a negotiable instrument so as to bind his estate which now stands vested in the
Official Receiver but if he indorses an instrument of which he is the payee or indorse to a holder in due course, the indorsement is valid as against all prior parties liable except himself (i.e., the insolvent).
3. Joint stock company:
ADVERTISEMENTS:
A company being an artificial person is competent of doing only such acts as are expressly or implied allowed by its Memorandum of Association. Hence if a company executes (i.e., draws, accepts or negotiates) a negotiable instrument without being authorised to do so by its Memorandum of Association, the instrument is void and even holder in due course cannot enforce the same against the company.
A trading company has an implied power to execute negotiable instruments, but a non-trading company has no such power unless expressly authorised by its Memorandum of Association.
Although a company cannot incur liability under a negotiable instrument unless expressly or impliedly (as being incidental or ancillary to the attainment of its main objects) permitted by its Memorandum of Association, but it can always acquire rights under it.
It can be a payee, or indorsee or holder and can enforce payment of the amount of the instrument. The position of the company as regards rights under a negotiable instrument is similar to the case of a minor.
4. Agent:
Every person who has the capacity to incur liability as a party to negotiable instrument (i.e., who can himself make, draw, accept or negotiate an instrument) may draw, make, accept or negotiate so as to become a party to a negotiable instrument through a duly authorised agent acting in his name.
But a 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. Further, an authority to draw bills of exchange does not of itself import an authority to indorse (Sec. 27).
Thus, an agent can execute negotiable instruments so as to bind his principal in that capacity (i.e., as a drawer, maker, acceptor or indorser) only for which he is expressly authorised by the principal in very clear terms.
Further, while signing an instrument, the agent must make it clear that he is signing as an agent by using words like ‘for and on behalf of’ or ‘per pro,” otherwise he will be personally liable, except to those who induced him to sign upon the belief that the principal only would be held liable. (Sec. 28)
5. Legal representative:
A legal representative of a deceased person who signs his name to a negotiable instrument (either as a maker or drawer or acceptor or indorser) is liable personally thereon unless he expressly limits his liability to the extent of the assets inherited by him from the said deceased (Sec. 29).
Thus, in order to avoid personal liability a legal representative must, while signing an instrument, use words to indicate that he is not personally liable, e.g., he may add words like ‘without recourse to me personally’ or ‘with recourse against the estate of the deceased only.’