Business Law Unit 4 Business Law Full Notes

Dishonour of Negotiable Instruments

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TOPIC- Dishonour of Negotiable Instruments


If negotiable instrument is presented for acceptance, sight or payment before the acceptor, maker, drawer or other party liable thereon by or on behalf of the holder but such persons refused to accept it or to make payment upon it.

Types of Discharge of Negotiable Instrument

A negotiable instrument may be dishonoured in two different way. (i) Non-acceptance (ii) Non-payment

I. Non-acceptance:

A bill of exchange is non accepted in the following cases.

I. When the drawer or one of several drawers fails to accept the bill within 42 hrs of its due presentment for acceptance.

II. When the presentment is exceeded and the bill remains unaccepted.

III. Where the drawee has not capacity to contract.

IV. Where the drawee gives the conditional acceptance.

V. Where a drawee in case of need is named in a bill of exchange, or any endorsement thereon, the bill not dischonoured until it has been dishonoured by such drawee.

II. Dishonour by non-payment:

A promissory note, bill of exchange or cheque is said to be dishnoured by nonpayment when the maker of the note, acceptor of the bill or drawee of the being duly required to pay the same.

III. Effect of dishonour:

The drawer and all the endorsers of the bill become liable to the holder if the bill is dishonoured either by non-payment provided that he gives them notice of such dishonour.

IV. Notice of dishonour:

The holder must give a notice of dishonour to all parties against whom he wants to file suit.

Persons Who Can Give Notice:

The following persons can give notice of dishonour.

(i) The holder of the instrument.

(ii) The authorized agent of the holder.

(iii) The party receiving the notice of dishonour to all prior parties to make them liable.

Persons to whom notice is given:

Notice can be given to the following persons.
(i) All the parties of negotiable instrument.

Maker of a note acceptor of a bill or drawee of a cheque.
(ii) In case of persons jointly liable, notice to any one of them is sufficient.
(iii) To the official assignee if the person has been declared insolvent.

Form of notice:
It may be (i) oral (ii) written.

Time of notice:
Notice must be given within reasonable time.

Effect of notice:
(i) When the party to whom notice of dishonour is dispatched is dead, the party dispatching the notice is ignorant of his death, the notice is sufficient.

(ii) If the notice is duly directed and sent by the post and miscarries, such miscarriage does not render the notice invalid.

Cases when notice of dishonour is unnecessary:

Notice of dishonour is unnecessary in the following cases.

(i) When it is dispensed with by the party entitled to notice.

(ii) In order to charge the drawer, when he has countermanded payment.

(iii) When the party charged could not suffer damage for want of notice.

(iv) When the party entitled to notice cannot after due search, be found.

(v) To charge the drawers, when the acceptors is also a drawer.

(vi) In case of promissory note.

(vii) When after knowing the facts, the party entitled to notice promises to pay unconditionally.

Business Law Unit 4 Business Law Full Dishonour of negotiable Instrument

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