Page 103 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes 4.7 Dishonour

4.7.1 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 (s.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.

4.7.2 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 (s.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 official seal. However, noting is not compulsory in the case of an inland bill or
note, but foreign bills must be protested, if so required by the law of the place where drawn.

4.7.3 Protesting (S.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.
Sometimes, a bill is protested for better security. This may happen when the acceptor of a bill
has become insolvent, or has suspended payment or his credit has been publicly impeached
before the maturity of the bill. It should, however, be noted that the acceptor is not bound to
give such security, nor can the holder sue the endorsers or drawers before maturity in spite of
protest.

Self Assessment

Fill in the blanks:
13. 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…………….

14. The ……………..is the formal notarial certificate attesting the dishonour of the bill and
based upon the noting.

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