Capacity of Parties:
When a person draws or makes a negotiable instrument he thereby contracts to fulfill certain obligations or liabilities. Making etc of a negotiable instrument is, therefore a contract which should fulfill the essential requirements of a contract.
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 promissory note, bill of exchange or cheque. Every person who is of the age of majority, and who is of sound mind and is not disqualified from contracting by any law to which he is subject is competent to contract and therefore can become a party to the negotiable instrument. It may be noted that incapacity of nay party to the instruments does not diminish or extinguish the liability of other competent parties thereto.
Let us examine cases and extent of their liability:
Minor: A minor may draw, indorse deliver and negotiate such instruments so as to bind all parties except himself. A person who accepts a bill when he is of full age is liable on it though it was drawn when he was a minor. A minor can however, acquire rights on the instrument. His rights as payee, endorsee or holder are not affected. All parties are liable to the minor . Minor can sue by his next friend prior parties upon the instrument. A minor on attaining majority, cannot renew the instruments executed by him when he was a minor. Minor will not be held liable even if he falsely represents that he is of full age.
On the same footing, negotiable instruments drawn by lunatic persons of unsound mind, drunken persons at the time when such a person was incapable of understanding it, cannot be enforced against such a person.
Legal representative: A legal representative of a decreased 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. Legal representative must by express writing on the instrument exclude or limit his personal liability by adding the words without recourse ailing which he will stand personally liable.
Corporation: Corporation can make, endorse or accept an instrument when it is empowered to do so by its Memorandum of Association. A trading company has an implied power to draw accept or negotiate negotiable instruments. A non trading company has to be given express powers to this effect. If the corporation exceeds is power so given by its Memorandum of Association, the act is ultra vires and incapable of ratification. The negotiable instruments shall, therefore be void. Even a bona fide holder for value cannot hold the corporation liable in case where the Corporation exceeds its powers. The Corporation should primarily be empowered by law for the time being in force to make, indorse or accept the negotiable instrument.
Agent: Every person capable of binding himself or of being bound may so bind himself or he bound by duly authorized agent acting n his name. A general authority transact business and to receive and discharge debts does not confer upon an agent the power of accepting or endorsing bills of exchange so as to bind his principal. An authority to draw bills of exchange does not itself impart an authority to indorse.
An agent who signs his name to a promissory note, bill of exchange or cheque without indicating thereon that he signs 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 liable. Therefore on who does not disclose the name of the principal and signs without indicating that he signs as an agent would be personality liable.
An agent in order that he may not be personally liable on the instruments must have an authority to so act and he must disclose the name of the principal on the instrument significantly. Principal will not be liable if the agent exceeds his authority, unless the principal ratified such an act of the agent. Agent may also exclude his liability by adding the words without recourse on the instruments. An agent will not be relieved of his liability by merely adding the words that he is signing as an agent unless he discloses the person for whom he is so signing.
Therefore, a secretary manager director or any such person must disclose the name of the firm or a company on whose behalf they are signing endorsing or accepting the instruments.