DISHONOUR OF

NEGOTIABLE
INSTRUMENT
INTRODUCTION

Dishonour means failure to honour a negotiable instrument. A bill

may be dishonoured by non acceptance or non payment, A promissory
note and a cheque are dishonoured by non payment only. When a
negotiable instrument is dishonoured, the holder must give a notice of
dishonour to all the previous parties in order to make them liable on the
instrument. If he fails to do so, except in when notice of dishonour may be
excused, he forfeits his right of action against the prior parties.
Dishonour by non acceptance (sec 91)

A bill of exchange is said to be dishonoured by non acceptance in the

following cases

1) when it is presented to the drawee for acceptance and he does not

accept it within 48 hours from the time of presentment for acceptance.
2) When the drawee is incompetent to contract.
3) when the drawee is a fictitious person.
4) when the drawee gives a qualified acceptance.
5) When presentment for acceptance is excused and the bill is not
accepted.

If a drawee in case of need is mentioned in a bill, it is not deemed

to be dishonoured unless it is dishonoured by that drawee in case of
need also(sec. 115)
Dishonour by non payment(sec. 92)

A promissory note, bill of exchange or cheque is said to be dishonoured

by non payment,

If the acceptor fails to make payment when it is due, the bill is

dishonoured by non payment.

If the maker fails to make payment on the due date, the promissory
note is dishonoured by non payment.

If the banker refuses to pay when a cheque is presented, the cheque is

dishonoured by non payment.
Notice of dishonour

when a negotiable instrument is dishonoured either by non

acceptance or by non payment, the holder of the instrument must give
notice of dishonour to all prior parties in order to make liable on the
instrument. If he does not give notice, except in when notice of dishonour
may be excused, all the prior parties liable thereon are discharged their
liability.
Mode of notice

Notice of dishonour may be oral or written. It may be sent by post.

The rules for giving notice of dishonour are,

1. If the holder and the party entitled to notice of dishonour carry on

business in defferent cities the notice must be despatched by the next
post or on the day next after the day of dishonour.
2. If these parties carry on business in the same place, the notice must be
despatched in time to reach its destination on the day next after the day
of dishonour.
Notice of dishonour unnecessary (sec.98)

Notice of dishonour is not necessary, that is the parties are liable without any
notice of dishonour in the following cases;

• when it is dispensed with by the party entitled to the notice

• To charge the drawer, when he has countermanded payment
• When the party charged could not suffer damage for want of notice
• To charge the drawer when the accepter is also the drawer
• In the case of a promissory note which is note negotiable
Duties of the holder upon dishonour

1. When promissory note, bill of exchange or cheque is dishonoured by non

acceptance or non payment, the older must give notice of dishonour to
all the parties to the instrument.

2. when a promissory note or a bill of exchange has been dishonoured by

non acceptance or non payment, the holder may cause such dishonour to
be noted by notary public upon the instrument. The holder may also
within a reasonable time of the dishonour of the bill or note, get the
instrument protested by notary public (sec. 100)

3. After going through noting and protesting the holder may bring a suit
against the parties liable for the recovery of the amount due on the
instrument.
Noting and Protest

The term noting may be defined as recording of the fact of dishonour by a

Notary Public upon the negotiable instrument. A promissory note or bill
of exchange is dishonoured by non payment , the holder usually hands it
to Notary public. The Notary public notes the particulars of the bill. In
this note he will write the cause of non acceptance with date and fee.
Noting should specify the following on the instrument;-

• The fact of the instrument being dishonoured

• The date of dishonoured
• The reason, if any assigned to the dishonour
• The Notary charges for such noting
• A reference to the Notary register
Protest (Sec. 100)

When the promissory note or bill of exchange has been dishonored

by non acceptance or non payment, the holder may within a reasonable
time, cause such dishonor to be noted and certified by a Notary Public,
such certificate is called Protest.