DISHONOUR OF BILL OF EXCHANGE
A bill is dishonoured either by non-accept ance or by non-payment. That is, where the person on
whom a bill is drawn (the drawee) refuses to accept it, or where the person who by accepting the bill
(the acceptor) agreed to pay it, fails to do so on the day on which it is due, the bill is said to be
As to dishonour by non-acceptance, the Bills of Exchange Act, 1882, provides as follows : " Section
42. When a bill is duly pre sented for acceptance and is not accepted within the customary time, the
person presenting it must treat it as dishonoured by non-acceptance. If he do not, the holder shall
lose his right of recourse against the drawer and indorsers.
" Section 43. A bill is dishonoured by non-acceptance " (a) When it is duly presented for accept
ance, and such an acceptance as is prescribed by this Act is refused or cannot be obtained : or • (b)
When presentment for acceptance is exy used and the bill is not accepted.
(2) Subject to the provisions of this Act. when a bill is dishonoured by non acceptance, an immediate
right of recourse against the drawer and indorsers accrues to the holder, and no presentment for
payment is necessary." Section Is. A bill may be accepted ' (2) When it is overdue, or after it has
been dishonoured by a previous refusal to accept, or by non payment : "• (3) When a bill payable
after sight is dishonoured by non-acceptance, and the drawee subsequently ac cepts it, the holder,
in the absence of any different agreement, is entitled to have the bill accepted as of the date of first
presentment to the drawee for acceptance." As to dishonour by non-payment, Section 47 provides : "
(1) A bill is dishonoured by non-pay ment (a) when it is duly presented for payment and payment is
re fused or cannot be obtained, or (b) when presentment is excused and the bill is overdue and
" (2) Subject to the provisions of this Act, when a bill is dishonoured by non payment, an immediate
right of recourse against the drawer and indorsers accrues to the holder." Notice of dishonour must
Section 48 provides as follows : " Subject to the provisions of this Act, when a bill has been
dishonoured by non acceptance or by non-payment, notice of dishonour must be given to the drawer
and each indorser, and any drawer or indorser to whom such notice is not given is dis charged ;
Provided that " (1) Where a bill is dishonoured by non acceptance, and notice of dishonour is not
given, the rights of a holder in due course subsequent to the omission, shall not be prejudiced by the
" (2) Where a bill is dishonoured by non • acceptance and due notice of dishonour is given, it shall
not be necessary to give notice of a subsequent dishonour by non-pay ment unless the bill shall in
the meantime have been accepted." Notice to the various parties of the dis honour of a bill must he
given in strict conformity with the regulations set forth in Section 49, otherwise the drawer and
indorsers may he discharged. The Suction is as follows :— " Notice of dishonour in order to be valid
and effectual must be given in accordance with the following rules : " (1) The notice must be given by
or on behalf of the holder, or by or on behalf of an indorser who, at the time of giving it, is himself
liable on the bill.
" (2) Notice of dishonour may be given by an agent either in his own name, or in the name of any
party entitled to give notice whether that party be his principal or not.
" (3) Where the notice is given by or on behalf of the holder, it enures for the benefit of all
subsequent holders and all prior indorsers who have a right of recourse against the party to whom it
" (4) Where notice is given by or on behalf of an indorser entitled to give notice as hereinbefore
provided, it enures for the benefit of the holder and all indorsers subsequent to the party to whom
notice is given.
" (5) The notice may be given in writing or by personal communication, and may be given in any
terms which sufficiently identify the bill, and intimate that the bill has been dishonoured by non-
acceptance or non-payment.
" (6) The return of a dishonoured bill to the drawer or an indorser is, in point of form, deemed a
sufficient notice of dishonour.
" (7) A written notice need not be signed, and an insufficient written notice may be supplemented
and validated by verbal communication. A mis description of the bill shall not vitiate the notice unless
the party to whom the notice is given is in fact misled thereby.
" (8) Where notice of dishonour is required to be given to any person, it may be given either to the
party himself, or to his agent in that behalf.
" (9) Where the drawer or indorser is dead, and the party giving notice knows it, the notice must be
given to a personal representative if such there be, and with the exercise of reasonable diligence he
can be found.
" (10) Where the drawer or indorser is bankrupt, notice may be given either to the party himself or to
" (11) Where there are two or more drawers or indorsers who are not partners, notice must be given
to each of them, unless one of them has authority to receive such notice for the others.
" (12) The notice may be given as soon as the bill is dishonoured and must be given within a
reasonable time thereafter.
" In the absence of special circumstances notice is not deemed to have been given within a
reasonable time, unless " (a) where the person giving and the person to receive notice reside in the
same place, the notice is given or sent off in time to reach the latter on the day after the dishonour of
the bill ; " (b) where the person giving and the person to receive notice reside in different places, the
notice is sent off on the day after the dishonour of the bill, if there be a post at a convenient hour on
that day, and if there be no such post on that day then by the next post thereafter.
" (13) Where a bill when dishonoured is in the hands of an agent, he may either himself give notice
to the parties liable on the bill, or he may give notice to his principal. If he give notice to his principal,
he must do so within the same time as if he were the holder, and the principal upon receipt of such
notice has himself the same time for giving notice as if the agent had been an independent holder.
" (14) Where a party to a bill receives due notice of dishonour, he has after the receipt of such notice
the same period of time for giving notice to antecedent parties that the holder has after the
" (15) Where a notice of dishonour is duly addressed and posted, the sender is deemed to have
given due notice of dishonour, notwithstand ing any miscarriage by the post office." Under certain
circumstances the Act excuses non-notice of dishonour, or delay in giving notice. Section 50
provides : " (1) Delay in giving notice of dishonour is excused where the delay is caused by
circumstances beyond the con trol of the party giving notice, and not imputable to his default, mis
conduct, or negligence. When the cause of delay ceases to operate the notice must be given with
' (2) Notice of dishonour is dispensed with " (a) When, after the exercise of reasonable diligence,
notice as required by this Act cannot be given to or does not reach the drawer or indorser sought to
be charged : (b) By waiver express or implied. Notice of dishonour may be waived before the time of
giving notice has arrived, or after the omission to give due notice : " (c) As regards the drawer in the
following cases, namely, (1) where drawer and drawee are the same person, (2) where the drawee
is a ficti tious person or a person not having capacity to contract, (3) where the drawer is the person
to whom the bill is presented for payment, (4) where the drawee or ac ceptor is as between himself
and the drawer under no obligation to accept or pay the bill, (5) where the drawer has
countermanded pay ment : " (d) As regards the indorser in the following cases, namely, (1) where
the drawee is a fictitious person or a person not having capacity to con tract and the indorser was
aware of the fact at the time he indorsed the bill, (2) where the indorser is the person to whom the
bill is presented for payment, (3) where the bill was accepted or made for his accommoda tion." As
the result of several decisions, it has been conceived that in all cases where, in consequence of the
dishonour of bills or notes, made or become payable to bearer, a remedy arises on the
consideration, the transferor is entitled to notice of dishonour.
The amount which a holder may recover in an action on a dishonoured bill is prescribed in Section
57 :— " Where a bill is dishonoured, the measure of damages, which shall be deemed to be
liquidated damages, shall be as follows : " (1) The holder may recover from any party liable on the
bill, and the drawer who has been compelled to pay the bill may recover from the acceptor, and an
indorser who has been compelled to pay the bill may recover from the acceptor or from the drawer,
or from a prior indorser " (a) The amount of the bill : (b) Interest thereon from the time of
presentment for payment if the bill is payable on demand, and from the maturity of the bill in any
other case : " (c) The expenses of noting, or, when protest is necessary, and the protest has been
extended, the expenses of protest.
" (2) In the case of a bill which has been dishonoured abroad, in lieu of the above damages, the
holder may recover from the drawer or an indorser, and the drawer or an indorser who has been
compelled to pay the bill may recover from any party liable to him, the amount of the re-exchange
with interest thereon until the time of payment.
" (3) Where by this Act interest may be recovered as damages, such interest may, if justice require it,
be with held wholly or in part, and where a bill is expressed to be payable with interest at a given
rate, interest as damages may or may not be given at the same rate as interest proper." The
following is a specimen of a form which may he used in giving notice of dishonour :— Please take
notice that the bill for Z100 upon John Brown of King Street, Leeds, drawn (or indorsed) by you
dated at months' date, due 1910, and payable at , upon which you are liable as drawer (or indorser),
has been dishonoured by non-acceptance (or non payment), and we request immediate pay ment
thereof, with expenses.
To John Jones, , Manager.
English Street, Leeds.
Where an inland bill has been dishonoured it may, if the holder think fit, be noted for non-acceptance
or non-payment, as the case may be, but it is not necessary to note such a bill in order to preserve
recourse against the drawer or indorsers neither is there any need to protest an inland bill, and it is
not usually done. (See NOTING.) Where a foreign bill, appearing on the face of it to be such, has
been dishonoured by non-acceptance, it must be duly protested for non-acceptance, and where
such a bill, which has not been previously dishonoured by non-acceptance, is dishonoured by non
payment, it must be duly protested for non payment. (See PROTEST). The bill must be noted on the
day of dishonour. The protest may be extended later.
Noting or protest does not do away with the necessity of giving the notices of dis honour to drawer
and indorsers. As soon as payment is refused on the due date, a holder may give notice of
dishonour. He need not necessarily wait till the end of the day before doing so. Where a bill is to be
noted, it is customary to wait till after the close of business before noting it, though , there is nothing
to prevent the bill being noted as soon as dishonoured. An action cannot be commenced till after the
end of the due date. In Kennedy v. Thomas (1894, 2 Q.B. 759), where an action was brought by the
holder of a dishonoured bill upon the last day of grace, it was dismissed as pre mature.
Where a bill, which a banker has dis counted for a customer, is dishonoured, the banker should debit
it to the customer's account and advise him at once, so that he may be in time to give the required
notices to prevent the release of other parties. But if the account does not justify the dis honoured bill
being charged to it, the banker should debit it to an account called " Dis honoured Bills," or "
Overdue Bills," and at once send notice of dishonour, and request for payment, to all the parties to
A note of the dishonour should be recorded in the discount ledger and the banker's opinion book.
1f a banker wrongfully dishonours a bill customer he wi, I be liable in an action by his or cheque for
damages, and if he dishonours it because certain cheques paid to the credit of his customer, have
not been cleared, he may also be held liable in damages if it has been the banker's practice to allow
the customer to treat uncleared cheques as cash.
As it is a serious matter to damage a customer's credit by dishonouring a bill or cheque which ought
to be paid, a banker will naturally make quite sure of the position before returning it. He should
ascertain that everything has been credited to the account and that the balance has been correctly
extended. When a cheque is returned simply from some irregularity in the document itself, such as
an incorrect indorsement, an alteration, a difference in amount, or any other similar kind of cause,
the banker should make the reason quite clear so that no reflection may be cast upon the customer's
credit. A cheque marked " refer to drawer " means, as a rule, that the drawer has not sufficient funds
in his account to meet it, and it would be wrong to mark a cheque " R /D " if the correct answer
should be " Indorsement irregular," or something of that nature. (See ANSWERS.) It is customary
(except where a special arrangement exists) to debit charges half- . yearly and until the usual time
for debiting them has arrived a cheque should not be dishonoured by anticipating the item for
charges, or debiting them at an unusual time.
Wrongful dishonour may, as stated above, render a banker liable to pay damages. Thus, if a
customer has a balance of L500 at his banker's, and the customer draws a cheque for f,300, or
accepts a bill for Q300, payable at his banker's, the banker is liable to be mulcted in substantial
damages if the cheque or the bill is dishonoured, and the customer is not bound to prove any actual
loss by reason of the dishonour. In the case of Rolin v. Steward (1854, 23 L. J.C.P. 14S), it was said
by Mr. Justice Williams : " Although no evidence is given that the plaintiff has sustained any special
damage, the jury ought not to limit their verdict to nominal damages, but should give such temperate
damages as they may judge to be a reason able compensation for the injury the plain tiff must have
sustained from the dishonour of his cheque." In Marzetti v. Williams (1830, I B. and Ad. 415), where
a sum of L'40 had been paid to credit about one o'clock and a cheque was dishonoured shortly after
three (although the banker had, after including the amount paid in at one, sufficient funds of the
drawer with which to pay the cheque), Mr. Justice Taunton said : " The jury have found that when the
cheque was presented for payment a reasonable time had elapsed to have enabled the bankers to
enter the /40 to the credit of the plaintiff, and, therefore, that they must or ought to have known that
they had funds belonging to him. That was sufficient to entitle the plaintiff to recover nominal
damages, for he had a right to have his cheque paid at the time when it was presented, and the
bankers were guilty of a wrong by refusing to pay it. Independently of other considerations, the credit
of the plaintiff was likely to be injured by the refusal of the defendants to pay the cheque. . . The
case put in the course of the argument, of the holder of a cheque being refused payment, and called
back within a few minutes and paid, is an extreme case, and a jury probably would consider that as
'equivalent to instant payment." When a cheque which has been credited to a customer's account is
returned unpaid, a banker debits it to that account if the balance permits of it, and advises his cus
tomer that he has done so. Some bankers -obtain a cheque from the customer when handing him a
returned cheque. If the customer wishes it to be re-presented, a fresh paying-in slip should be
signed. When a cheque which has been returned is recalled by wire, it is advisable for a banker to
advise his customer of the circumstance in order that he may be on his guard.
Cheques paid to credit are often when payable to bearer or indorsed in blank) not indorsed by the
customer, hut the fact that the cheque was not indorsed by the customer when placed to his credit
does not affect at all the banker's right to debit his account with it when returned dishonoured.
A cheque received in the Local Exchange must, if not to be paid, he returned on the day of receipt.
Where a cheque received through the London Clearing House for collection cannot be paid, by Rule
4 of the Clearing House, " Any country bank not intending to pay a cheque sent to it for collection, to
return it direct to the country or branch bank, if any, whose name and address is across it." And by
Rule 5, " Each country hanker to write by return of post to its London agent in reply, ' we credit you I;
for cheques forwarded to us for collection in yours of Adding in case of non-payment of any such
cheques, ' having deducted f for cheque returned to Messrs. at When a banker dishonours a
customer's cheque, the balance on the drawer's account is available to pay any cheque, which may
be presented subsequently, up to the amount of the balance or sum available, but in Scot land when
a cheque is dishonoured, any funds that there may be in the drawer's account are attached in favour
of the person presenting the cheque, the amount being transferred by the banker to a suspense
A cheque paid to the credit of a customer of the X. & V. Bank, drawn by another customer of the
same bank, may be returned on the following day. Even if the paying in-slip counterfoil is initialled by
the bank cashier, as it often is, it would not affect the banker's right to return the cheque. The banker
is not obliged to inform the person paying in to credit a cheque drawn on the banker by another
customer, that the cheque may not be paid. He may take the cheque without comment and, after he
has looked into the position of t he drawer's account, may return it dishonoured. In practice a country
banker either pays or dishonours such a cheque on the day he receives it.
If a cheque presented across the counter is refused payment, the banker does not, as a rule, write
anything upon the cheque. He may simply refer the presenter to the drawer.
H a cheque cashed for a person who is not a customer is returned unpaid, the banker will, of course,
at once endeavour to regain the amount from the party to whom it was paid, but if this is not
immediately possible he should debit it meanwhile to a returned bill (or cheque) account.
Where a customer has two accounts, one in credit and one overdrawn, and the credit balance is
regarded as a set off to the debit, cheques on the credit account may be dishonoured if their
payment would reduce the balance below the amount owing on the overdrawn account, unless there
is some arrangement or custom to the contrary.
Where a customer has a deposit receipt and a current account, and cheques are drawn upon the
account in excess of the balance, a banker usually pays such cheques so long as they do not
exceed the amount of the deposit receipt. Should such cheques be inadvertently dishonoured, the
banker would, probably, not be liable, seeing that deposit receipts are not intended to be drawn
against by cheque. (See BILL OF EXCHANGE.)
notice, cheque, dishonoured, drawer, banker, payment, customer and holder