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Liability of maker of note and acceptor of bill

Section 32 of the Negotiable Instruments Act,1881.

Liability of maker of note and acceptor of bill. 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 as aforesaid, 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.

This section as well as section 79 are affected and overridden by the provincial Money Lenders Acts where there are provisions regulating payment of loans and the rate of interest thereon and where such provisions have been made applicable to loans due on any kind of negotiable instruments Provincial legislations regulating money lending and the money lenders in so far, as they are made applicable to loans on a negotiable instrument are not ultra vires of the provincial legislatures.

Position of the maker

This section deals with the liability of the maker of a note and of the acceptor of a bill of exchange. Ordinarily, the liability of a maker of a note is absolute and unconditional from the time of making of the note. By executing a note in favour of a certain person and delivering the same to him the maker becomes a debtor and binds himself absolutely to make the payment to him according to the apparent tenor of the document. If the maker makes the payment such payment discharges him from all liability on the note1).

When for some reason a suit cannot be based on the note the liability of the maker is not determined as, subject to the law of limitation, the holder can sue him on the original consideration. But does this right to sue on the original consideration subsist when a note is executed either in discharge or in partial reduction of an existing debt? A note executed for such consideration is generally regarded as a conditional payment of the debt, and in the absence of proof to the contrary, such conditional payment only suspends the right of action which revives when the security is found worthless and this right can, subject to the law of limitation, be enforced and a suit will be maintainable on the original consideration. But the execution of such a note being only a promise to pay cannot operate as an absolute discharge of a debt. The execution of a note in lieu of a debt does not necessarily extinguish the original debt. But if the parties treat it as an absolute payment, no suit will he on the original consideration.

In a decision of the Calcutta High Court the position is clearly and succinctly summed up. Where a cause of action for money is once complete in itself whether for goods sold or for money lent or any other claim and the debtor then gives a note to the creditor for payment of the money at a future time, the creditor, if the note is not paid at maturity, may always, as a rule, sue for the original consideration, provided he has not endorsed or lost or parted with the note under such circumstances as to make the debtor liable upon it to a third person. The plaintiff can recover on the original consideration if the note that was executed is inadmissible in evidence on account of its being insufficiently stamped without proving any express promise to repay independently of the note as the loan itself implies a promise to repay. But the claim must be based on the consideration and not on the note.

Contract to the contrary

While in a promissory note the maker is the primary debtor and promises to pay himself, in a bill of exchange the drawer directs another to make the payment and undertakes to pay himself in case of dishonour, that is to say, the drawer takes up the position of a surety. This is the ordinary rule. But according to the present section a contract to the contrary may be entered into between these two parties inverting their positions and such contract may be proved in proceedings between them. The payee of a note if he has made a contrary contract with the maker is not entitled to sue on the note against the contract and the maker can plead that it cannot be enforced against him or that the payment is to be made by instalment. In dealing with negotiable instruments two principles have to be borne in mind.

  1. the moment it is admitted that the maker of a note or the acceptor of a bill made or accepted it the onus is upon him to get rid of its liability, and
  2. except under peculiar circumstances, the proof of which lies upon the defendant, a man who signs a bill is presumed to be liable for the whole amount appearing on the face of the document.

Where, however, one person executes a promissory note on the faith that another will also execute it jointly with him and the latter fails to do so the former will be relieved from his liability under the note.

Position of acceptor

The position of the acceptor of a bill is identical with that of the maker of a note. A drawee is not bound to accept a bill and no liability attaches to him so long as he does not accept. But once he accepts, his liability is fixed unconditionally and he undertakes to pay the amount according to the apparent tenor of the acceptance without presentment or notice of dishonour. His liability becomes independent of the drawer whose death, or insolvency, or non-receipt of the goods, does not affect the liability of the acceptor. Thus, in a pre-independence case, a bill of exchange against goods was accepted at Bombay before the outbreak of war but the goods were despatched in an enemy steamer which after arrival in Bombay departed to neutral port to avoid capture. The bill was presented in due time and dishonored. On the Government issuing a proclamation allowing British subjects to obtain delivery of goods on enemy steamer in neutral ports the defendants were held liable on the bill as soon as the proclamation was issued.

Acceptance means and implies that the acceptor agrees unconditionally to pay the amount and he is, therefore, not competent to prove that he has no funds of the drawer at his hand. But he can show that the document he has accepted is not a proper document. He cannot plead want of consideration for acceptance. It is sufficient if there is consideration between the drawer and the payee.

Compensation for loss

According to this section the maker of a note or the acceptor of a bill is bound to compensate the holder or any other person, who may have suffered loss on account of the default, but is not bound to compensate the party in the case of an accommodation note, for whose accommodation the note is made or the bill is accepted. But if the latter has supplied the maker of the note or the acceptor of the bill with sufficient fund to take the instrument at maturity he can claim compensation.

vide Section 78