Honor and Dishonor of Bills

26/12/2020 0 By indiafreenotes

Honor of Bill

An acceptor for honor binds himself to all parties subsequent to the party for whose honor he accepts to pay the amount of the bill if the drawee does not; and such party and all prior parties are liable in their respective capacities to compensate the acceptor for honor for all loss or damage sustained by him in consequence of such acceptance.

But an acceptor for honor is not liable to the holder of the bill unless it is presented, or (in case the address given by such acceptor on the bills is a place other than the place where the bill is made payable) forwarded for presentment, not later than the day next after the day of its maturity.

When the drawee (a person who is liable to pay) is not able to make the payment on the date of maturity of a bill, a bill is said to be dishonoured. In this situation liability of drawee is restored. Dishonour of a bill can be either by non-acceptance or non-payment. A dishonoured bill is equivalent to the bounced cheque.

Bill of exchange requires acceptance by the drawee when it is presented, however, if on presenting the bill of exchange, it gets non-acceptance, it will amount to dishonour.

Dishonour by Non-Payment

When the drawee of the bill of exchange commit default in making the payment of the bill on maturity to the drawer, it is said to be dishonoured of a bill of exchange by non-payment.

Possible reasons why the bill is dishonoured by non-payment?

  • Due to insufficient funds in the drawee’s a/c.
  • The drawee is unable to pay because of insolvency, or
  • The drawee simply does not want to pay

When the bill gets dishonoured, entries that were made at the time of receipt of a bill are reversed.