Capacity of Parties under Negotiable Instruments Act, 1881
The parties to the negotiable instrument must possess the capacity to contract. They should be of the age of majority, have a sound mind, and not be disqualified by the law from making any contract. It may also be understood that the capacity to incur liability as a party to a bill has the same scope as in the case of the capacity to contract. In general, if the party doesn’t have the contractual capacity, he or she cannot be held liable to pay the holder of a negotiable instrument. In a case where any one or more parties to a negotiable instrument are not eligible to contract about their contractual capacity, the agreement will remain void. However, this does not reduce the liability of other competent parties to the contract. As per the Negotiable Instruments Act 1881, the legal position of various parties are as follows:
Capacity of Parties under Negotiable Instruments Act
A negotiable instrument is a signed document that promises a particular payment to a specified person or holder of the instrument. In India, negotiable instruments are governed under the umbrella of the Negotiable Instruments Act, 1881. This is a significant law that governs all means of negotiable instruments in India. The act establishes a regulatory framework for promissory notes, bills of exchange, and cheques. The act was enacted to provide uniform legal regulations to cover all aspects of negotiable instruments in India. Several times, the act has been amended to make sure that it is in line with changing business practices and new judgments.
According to Section 26 of the Negotiable Instruments Act, 1881, “Every person capable of contracting, according to the law to which he is subject, may bind himself and be bound by the making, drawing, acceptance, endorsement, delivery, and negotiation of a promissory note, bill of exchange, or cheques.” However, a minor may draw or endorse any instrument, and this will bind all parties except himself.
Geeky Takeaways:
- A negotiated instrument is a signed document that promises a particular payment to a specified person or holder of the instrument.
- The Negotiable Instruments Act, 1881 is the governing act to provide a regulatory framework for all types of negotiable instruments.
- It is important to understand the capacity of the parties while making, drawing, accepting, and endorsing any negotiable instrument, as the rights, obligations, and eligibility differ from case to case.
- The capacity to incur liability as a party to a bill has the same scope as in the case of the capacity to contract.
Table of Content
- Capacity of Parties under Negotiable Instruments Act, 1881
- 1. Minor
- 2. Insolvent
- 3. Joint Stock Company
- 4. Agent
- 5. Legal Representative
- Conclusion
- Frequently Asked Questions (FAQs)