Liability of Drawer, Drawee and Maker (Sections 30 to 32)

Each party to an instrument takes on a different kind of liability. The maker of a note and the acceptor of a bill promise to pay outright. The drawer of a bill or cheque does not promise to pay; he promises that the instrument will be paid, and that he will compensate the holder if it is not. The drawee of a cheque, the bank, owes duties to its customer, not to the holder. Sections 30 to 32 set out these liabilities, and Section 37 ranks them as principal or surety.

1. The Drawer (Section 30)

Section 30, Negotiable Instruments Act, 1881

The drawer of a bill of exchange or cheque is bound, in case of dishonour by the drawee or acceptor thereof, to compensate the holder, provided due notice of dishonour has been given to, or received by, the drawer as hereinafter provided.

Nature of liability: the drawer's liability is conditional. He must compensate the holder only if the instrument is dishonoured by the drawee or acceptor.
Notice of dishonour: the holder must give the drawer due notice of dishonour, unless notice is excused (Sections 93 to 98; Topic 30). Without notice, the drawer is discharged.
Measure: compensation is assessed under Section 117: the amount due with expenses and interest (Topic 21).
Principal debtor until acceptance: under Section 37, the drawer of a bill is liable as principal debtor until acceptance, and the drawer of a cheque, which is never accepted, remains the principal debtor.

2. The Drawee of a Cheque (Section 31)

Section 31, Negotiable Instruments Act, 1881

The drawee of a cheque having sufficient funds of the drawer in his hands properly applicable to the payment of such cheque must pay the cheque when duly required so to do, and, in default of such payment, must compensate the drawer for any loss or damage caused by such default.

Duty owed to the drawer: the bank's duty is to its customer. The holder has no claim against the bank on the cheque, because the bank never accepts it.
Conditions: the bank must pay where it holds sufficient funds of the drawer, properly applicable to the cheque (not subject to a lien, garnishee order, freeze or other restraint), and the cheque is duly presented (in proper form, within validity, not countermanded).
Wrongful dishonour: if it fails to pay, the bank must compensate the drawer for loss or damage, including damage to credit and reputation (Topic 37).

3. The Maker and the Acceptor (Section 32)

Section 32, Negotiable Instruments Act, 1881

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.

Unconditional liability: the maker and acceptor are bound to pay; no notice of dishonour to them is needed.
Apparent tenor: they pay according to the instrument as it appears on its face. An acceptor bound "according to the apparent tenor of the acceptance" is bound by any lawful qualification in it (Topic 18).
At maturity or on demand: an acceptance before maturity binds the acceptor to pay at maturity; an acceptance at or after maturity binds him to pay on demand.
Compensation: on default, they must compensate any party who suffers loss, such as an indorser who has had to pay the holder.
Contract to the contrary: the parties may agree otherwise, but such an agreement binds only those who are party to it, not a holder in due course without notice.

4. Principal and Surety (Section 37)

Section 37, Negotiable Instruments Act, 1881

The maker of a promissory note or cheque, the drawer of a bill of exchange until acceptance, and the acceptor are, in the absence of a contract to the contrary, respectively liable thereon as principal debtors, and the other parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be.

The principal debtor is the party who ultimately should pay: the maker of a note, the drawer of a cheque, and the drawer of a bill until acceptance, after which the acceptor. The other parties are sureties, entitled to the protections of suretyship (Topic 19).

5. Delay in Presenting a Cheque (Section 84)

The drawer of a cheque remains liable even if the holder is slow to present it, subject to one protection. Under Section 84, if the cheque is not presented within a reasonable time of issue, and the drawer, who had the right to have it paid when it should have been presented, suffers actual damage through the delay (for example because the bank has since failed), he is discharged to the extent of that damage. The holder then becomes a creditor of the bank in his place for that amount (Topic 28).

⚠ Key point

The drawer of a bill or cheque must compensate the holder on dishonour, provided due notice of dishonour is given (Section 30). The drawee bank must pay a cheque when it holds sufficient funds properly applicable and the cheque is duly presented, and on default must compensate the drawer, not the holder (Section 31). The maker of a note and the acceptor of a bill must pay according to the apparent tenor at maturity, or on demand if accepted at or after maturity (Section 32). The maker, the drawer of a cheque, the drawer of a bill until acceptance, and the acceptor are principal debtors; other parties are sureties (Section 37). A drawer damaged by unreasonable delay in presentment is discharged to that extent (Section 84).

6. Related Topics and Provisions

Acceptance (Topic 18)
Indorsers as principal and surety (Topic 19)
Notice of dishonour (Topic 30)
Wrongful dishonour by the bank (Topic 37)