Negotiable Instruments Act, Section 28

Negotiable Instruments Act, Section 28: Liability of Agent Signing

Section 28 of the Negotiable Instruments Act, 1881 deals with the personal liability of an agent who signs a promissory note, bill of exchange, or cheque. 

This provision emphasizes the importance of clarity in execution and protects parties who rely upon the apparent liability of the person whose signature appears on the instrument.

1. General Principle Personal Liability of the Signing Agent

The section lays down that where an agent signs his own name on a promissory note, bill of exchange, or cheque, he will be personally liable on the instrument if he fails to indicate that he is signing in a representative capacity.

In other words, if the agent merely affixes his signature without stating that he signs as agent, for and on behalf of, or without otherwise showing that he does not intend to incur personal responsibility, the law treats him as personally bound.

The liability arises because negotiable instruments operate on the face value of what is written on them. 

If the instrument does not clearly disclose that the signature is made in a representative capacity, third parties are entitled to assume that the signer undertakes personal liability.

2. Requirement of Clear Indication of Agency

To avoid personal liability, the agent must clearly indicate on the instrument that he is signing in the capacity of an agent or on behalf of a specified principal. 

He must also make it evident that he does not intend to incur personal responsibility under the instrument.

The disclosure must appear on the instrument itself. Merely having an internal understanding or separate agreement is insufficient to protect the agent from personal liability.

3. Rationale Behind the Provision

Negotiable instruments circulate in commercial transactions and are often transferred from one holder to another. 

Parties who take such instruments rely primarily on what appears on the document.

If the signature does not disclose the representative capacity, subsequent holders may reasonably believe that the person whose name appears on the instrument is personally liable. Section 28 ensures that such holders are not prejudiced by undisclosed agency arrangements.

Thus, the law imposes personal liability on the agent in order to maintain certainty, transparency, and trust in negotiable transactions.

4. Inducement Based on Belief of Principal’s Liability

The section provides an important exception that an agent will not be personally liable to persons who induced him to sign the instrument on the belief that only the principal would be held liable.

This means that where the party dealing with the agent knew, at the time of execution, that the agent was acting solely on behalf of the principal and intended to bind only the principal, the agent may not be held personally liable against such party.

The exception operates where there is clear evidence that the other party understood and accepted that the principal alone would bear liability.

5. Effect of the Provision

Section 28 reinforces the principle that liability under negotiable instruments depends upon what is expressed on the instrument itself. It encourages agents to clearly disclose their representative capacity and ensures that principals are properly identified when liability is intended to attach to them.

If an agent neglects to make such disclosure, he assumes the risk of personal liability, subject only to the limited exception mentioned above.