Page 118 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Unit 6: Law of Negotiable Instruments

6.8 Dishonour Notes

Dishonour of a Bill

A bill of exchange may be dishonoured either by non-acceptance or by non-payment. A negotiable
instrument is said be dishonoured by non-payment when the maker, acceptor or drawee, as the
case may be, makes default in payment upon being duly required to pay the same (Sec.92). The
effect of dishonour of a negotiable instrument whether by non-acceptance or non-payment is
to render the drawer and all the endorsers liable to the holder. However, their liability can be
invoked only if the holder gives them notice of such dishonour. The drawer is liable only if the
instrument is dishonoured by non-payment.
When a negotiable instrument is dishonoured by non-acceptance or non-payment, the holder
must give notice of dishonour to the drawer and all other parties whom he seeks to make liable.

D draws a bill of exchange on A, payable to P. P transfers it to X, X to Y and
Y to Z. The bill is dishonoured. Who has to give notice of dishonour to whom?
Who may transmit the notice to the other parties? [Hint: On dishonour, Z
may give notice to Y; and Y may transmit the notice to the other
parties (s.95).]

Noting

Noting is a convenient method of authenticating the fact of dishonour. Where an instrument is
dishonoured, the holder, besides giving the notice as referred to above, should get the bill or
promissory note ‘noted’ by the notary public. The notary public presents the instrument, notes
down in his register the date of its dishonour and the reason, if any, given by the acceptor. If the
instrument has been expressly dishonoured, the reason why the holder treats it as dishonoured,
and the notary’s charges should be mentioned. ‘Noting’ must be made within a reasonable time
after dishonour. The holder may cause such dishonour to be noted by the notary public upon
the instrument or upon a paper attached thereto or partly upon each (Sec.99). Every notary is
required to have and use a seal, and an act can only be deemed a notarial act if it is done by a
notary under his signature and offi cial seal.

Protesting (Sec.100)

The protest is the formal notarial certificate attesting the dishonour of the bill and based upon the

noting. After the noting has been made, the formal protest may be drawn up by the notary at his
leisure. When the protest is drawn up it relates back to the date of noting.

D draws a cheque for ` 5,000 though he had a credit balance of ` 1,000 only.
No notice of dishonour is given to D. Can he avoid liability on the cheque?
[Hint: D cannot avoid liability on the cheque. (s.98).]

6.9 Crossing of Cheques

Meaning of Crossing

Crossing is a unique feature associated with a cheque affecting to a certain extent the obligation
of the paying banker and also its negotiable character. It is a peculiar method of modifying the

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