Dishonor Negotiable Instruments

Dishonor Negotiable Instruments

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Dishonor Negotiable instruments
Dishonor Negotiable instruments
Introduction

Negotiable instruments include bill of exchange, cheque and promissory notes, foreign instruments and negotiable instruments. It is defined under the act of negotiable instruments act, 1881.

It is a kind of legal document or a contract which promises or guarantees the person of the payment without any sort of condition which may be paid at the demand or on future date.

Dishonor of Negotiable instruments
Dishonor of Negotiable instruments

What is meant by dishonor of negotiable instruments?

Dishonor of the negotiable instruments means that loss of honor or disrespect the tool on the part of the maker, drawer, or acceptor etc. which led to the consequence and that is non- realization of payment due on the instrument. To elaborate it means that when a bill of exchange is presented, and it is not accepted or it is no obtained by the acceptor it is called dishonor of cheque or any negotiable instruments.

There are two ways in which a negotiable instrument can be dishonored and that is dishonored by non- payment or by the non-acceptance of the cheque.

Dishonor by non-acceptance

A bill of exchange or any kind of negotiable tool is said to be dishonored by non-acceptance when it is not

  1. When the drawee or one of several drawees (not being partners) makes default in acceptance upon being duly required to accept the bill. It may be recalled that the drawee may require 48 hours’ time (exclusive of public holidays) to consider whether he will accept or not (Sec. 63).
  2. Where the presentment for acceptance is excused and the bill is not accepted, i.e., remains unaccepted.
  3. Where the drawee is incompetent to contract.
  4. Where the drawee makes the acceptance qualified.
  5. If the drawee is a fictitious person or after reasonable search cannot be found (Sec. 61).
  6. Where the drawee has either become insolvent or is dead and the holder does not present the bill to the assignee or legal representative of the insolvent or deceased drawee.

It is important to note that where a ‘drawee in case of need’ is named in a bill of exchange, the bill is not dishonored until it has been dishonored by such drawee accepted by the acceptor. (Sec 115) It is pertinent to know that when there is name of the drawee in the contract or the endorsement, then it cannot be dishonored until and unless it is dishonored by the drawee.

Dishonored by non-payment

A promissory note, bill of exchange or cheque is said to be dishonored by non-payment. When the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same (Sec92). Also, a promissory note or bill of exchange is dishonored by non-payment when presentment for payment is excused expressly by the maker of the note or acceptor of the bill and the note or bill remains unpaid at or after maturity (Sec. 76).

Notice of dishonor

When a negotiable instrument is dishonored then a notice is issued by the holder or the maker of the contract and he should send to all the prior parties who are related to the contract. If he does not do this then all the prior parties will be discharged from their liabilities.

The main aim of giving the notice is that to inform that particular instrument is dishonored whether it is by nonpayment or non-acceptance. That the holder holds the person notified of the instrument.

Sec 138 of the act defines that dishonor of the negotiable instruments results in the criminal liability and life imprisonment up to two years or fine or both.

Dishonor of Negotiable instruments
Dishonor of Negotiable instruments
Conclusion

Dishonor of negotiable instrument means that when a maker had refused to make the payment and or to accept it. a notice of dishonor is being issued and given to all the parties who are liable to the payment. In both the cases the holder is entitled to bring the suit against the endorser or drawer.

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