General Studies · Negotiable Instruments and Partnership Accounts
A partnership firm has four partners: A, B, C, and D. The mandate specifies operation by any two partners jointly. Partner C dies on January 10. On January 12, a cheque signed by A and B (dated January 5) is presented for payment. Simultaneously, Partner D instructs the bank to stop payment. How should the bank legally handle this?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank must return the cheque because the death of Partner C automatically dissolves the firm under the Indian Partnership Act, 1932.
- 2The bank can honor the cheque signed by A and B as they had a valid mandate and the cheque was issued before C's death, provided the firm continues.✓
- 3The bank must stop all operations and demand a fresh account opening form signed by all surviving partners and legal heirs of C.
- 4Partner D has no legal standing, so the bank must ignore his instructions unconditionally.
Correct answer
The bank can honor the cheque signed by A and B as they had a valid mandate and the cheque was issued before C's death, provided the firm continues.
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