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negotiable-instruments:note:estoppel

Estoppel against persons connected with negotiable instrument

Sections 120 to 122 of the Negotiable Instruments Act deal with estoppels against some persons who are connected with a negotiable instrument.

In the case of Abdul Shakur And Ors. vs Kotwaleshwar Prasad And Ors.1) the Hon'ble Allahabad High Court held that:

Sections 120, 121 and 122 enact special rules of estoppel barring particular persons connected with negotiable instrument from denying certain facts in suits filed by particular persons. Section 118 deals with the question of onus of proof and not of estoppel and is not restricted in its applicability to suits against particular persons.”

Estoppel against denying original validity of instrument

Section 120 of the Negotiable Instruments Act,1881.

No maker of a promissory note, and no drawer of a bill of exchange or cheque, and no acceptor of a bill of exchange for the honour of the drawer shall, in a suit thereon by a holder in due course, be permitted to deny the validity of the instrument as originally made or drawn.

This section applies the doctrine of estoppel against the maker of a note, drawer of a bill of exchange, or cheque and against the acceptor of a bill for honour of the drawer from denying the validity of the instrument as originally made or drawn. The conditions precedent to the application of this section are that there must be a properly stamped bill of exchange before the court, at which the court is entitled to look and that the person suing must show that he is a holder in due course. On account of the contract the maker, drawer or the acceptor is estopped from denying the validity of the original instrument in a suit by the holder in due course. This statutory estoppel is limited to the question of validity of the original instrument and does not extend to the question of making or drawing or acceptance of the instrument. He is at liberty to deny the one or the other as the case may be. He may also plead forgery of his signature or may set up that the conditions precedent have not been fulfilled. When a person endorses a bill he is estopped from denying to a holder in due course the existence of the payee and his capacity to endorse. An endorser of a bill is estopped as against the endorsee from setting up the invalidity of the instrument. But as the payee of a promissory note payable to bearer which is an illegal instrument is not a holder in due course, the maker of such a note is not estopped from questioning the validity of the instrument against such a payee.

In Jagbeer Singh vs. Rohit Kumar Sharma2) Delhi District Court held that:

section 120 of the Negotiable Instruments Act, as noted above, though presupposes the existence of an instrument which the Court has looked into, before applying the estoppel under the section, yet, this section does not preclude the drawer of the bill of exchange or the maker of a note from the setting up in a suit by the holder in due course, the plea that he never drew or made the instrument.”

Acceptor

Although the section mentions only the acceptor for honour of the drawer the rule of estoppel is equally applicable to the ordinary acceptor under section 117 of the Evidence Act. All the estoppels that bind the drawer operate against the acceptor for honour. An acceptor cannot deny the existence of the drawer.

Minor

Since under section 26 a minor may draw, indorse, deliver and negotiate an instrument to bind all parties except himself, an acceptor cannot set up the plea of minority and consequential invalidity of such an instrument3)

Estoppel against denying capacity of payee to indorse

Section 121 of the Negotiable Instruments Act,1881.

No maker of a promissory note and no acceptor of a bill of exchange payable to order shall, in a suit thereon by a holder in due course, be permitted to deny the payee’s capacity, at the date of the note or bill, to indorse the same.

The words “to order” have been substituted for the words “to or to the order of, a specified person” by section 5 of the Negotiable Instrument (Amendment) Act VIII of 1919.

This section deals with estoppels against denying the capacity of the payee of a pronote or a bill of exchange payable to order, to endorse the same. The maker of a note undertakes to make payment to the payee or to his order, that is to say, he admits the capacity of the payee to receive the payment or to make an order for payment of the amount due on the instrument, to some other by an endorsement. Having, therefore, once admitted the payee's capacity to receive or to make order for payment and allowed others to deal with him on that footing, it would be manifestly unjust to a holder in due course if the maker were allowed to resist the claim of the former on the plea that the payee had not the capacity to endorse the instrument on the date of the note as he was a minor or insane or that he had no legal existence. Nor can the maker urge against the holder in due course that the payee was an insolvent and, therefore, had no capacity to make the endorsement. In the same way the acceptor of a bill by his endorsement admits that the payee is entitled to receive payment or order the making of the payment to some one else by his endorsement on the bill. He cannot plead against the holder in due course that the payee was not competent, on the date of the bill, to endorse as he was an infant or that the payee was a married woman incompetent to enter into a valid contract.

Time of estoppel

These estoppels arise in relation to the capacity of the payee on the date of the instrument. The case will be different if the insolvency or insanity happens after the making of the note or the acceptance of the bill. All indorsement by such persons being a nullity can confer no title to the endorsee and, therefore, the acceptor will not be justified in making payment to an endorsee with such a defective title. These estoppels do not extend to the genuineness of the indorsement of the payee or the authority of the agent to endorse. This must be proved by the plaintiff. Nor do they relate to the question as to who is entitled to sue on the instrument and may be the creditor.4)

Estoppel against denying signature or capacity of prior party

Section 122 of the Negotiable Instruments Act,1881.

No indorser of a negotiable instrument shall, in a suit thereon by a subsequent holder, be permitted to deny the signature or capacity to contract of any prior party to the instrument.

An indorser of the bill, by his endorsement, guarantees that all previous endorsements are genuine and that all prior parties had capacity to enter into valid contracts. A bona fide holder for value can, therefore, maintain an action against all parties prior to him and none of them can be heard to say that it was a forged instrument although the document was tainted by the forgery of the endorsement prior to his own. The section is confined to the signature and capacity to contract of the prior parties. It is, therefore, no bar to such a party to plead that the instrument is illegal or invalid as, for instance, when a note or hundi is made payable to bearer offending against section 26 of the Paper Currency Act. The reason is that it is well established that there can be no estoppel against a clear injunction of a statute.

1)
AIR 1956 All 403
2)
CC No. 473190/16 decided on 22 July, 2020
3)
Chengalraya vs. Nainiappa, 117 IC 133
4)
Varaddrajan vs Krishnamurthi, 1941 Mad 321

Created on 2021/03/04 07:12 by LawPage • Last modified on 2021/04/09 22:26 (external edit)