Liability of Various Parties

As you know, a contract with a minor does not create a legal contractual relationship between the parties. It is simply void. Therefore, negotiable instruments made or drawn or accepted by minors do not bind them. They are not precluded from denying their liability on the ground of want of capacity to contract, even against bonafied holders for value. Subsequent ratification by a person on attaining the age of majority, a transaction entered into while he was still a minor does not form a valid contract to maintain a suit. The property of a minor (not the minor as a person) is liable for debts arising out of ‘necessaries’ supplied to the minor.

The position of a lunatic is similar to that of a minor. A married woman is competent to enter into contract. She can enter into contract and render herself liable to the extent of her separate property. This Act also exempts husbands from liability for the debts of their wives incurred before marriage.

When a person is adjudicated as insolvent, his entire property including bills of exchange, promissory notes and other negotiable instruments pass to the Official Assignee or Official Receiver. Therefore, he loses power of disposal over his property and he becomes incompetent to sue and incapable of being sued in his own name.

An agent who signs his name to a negotiable instrument without disclosing the name of the principal, or without indicating that he is signing as agent, or that he does not intend thereby to incur personal responsibility, is liable personally on the instrument, except to those who induced him to sign upon the belief that the principal only would be held liable (section 28). Study the two signatures presented below and understand the difference:

i)         (Sd) XXXXX



Prakash & Co., Madras-2


ii)        For and on behalf of

Prakash & Co. Madras-2

Prakash (Sd) XXXXX


The first signature is an example in which Mr. Prakash will be held personally liable, whereas in the second signature there is an indication that he is signing as an agent (the partner being an agent of the partnership firm). Where a promissory note is executed by an agent there must be a clear suggestion or indication on the face of the note that the principal is the real debtor. An undisclosed principal cannot he sued. Where an agent signs in excess of his authority or without the authority of the principal, he is not personally liable on the instrument although he is liable to be proceeded against deceit or breach of authority.

A legal representative of a deceased person who signs his name to a promissory note, bill of exchange, or cheque is liable personally thereon unless he expressly limits his liability to the extent of the assets received by him as such (section 29).

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