Dishonour occurs when a negotiable instrument is not accepted or not paid upon presentation.
Types of Dishonour:
- Dishonour by Non-Acceptance
Occurs when a bill of exchange is presented for acceptance and the drawee refuses to accept it. - Dishonour by Non-Payment
Occurs when the acceptor of a bill, the maker of a note, or the drawee of a cheque fails to pay upon maturity.
Notice of Dishonour:
- Must be given to all parties liable, except the maker or acceptor.
- Can be oral or written.
- Should be given within a reasonable time.
- Not required in cases where:
- It is expressly waived
- Party entitled to notice cannot be found
- Drawer and drawee are the same person
Effect of Dishonour:
- Holder can sue liable parties
- Instrument becomes evidence of liability
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Discharge of Negotiable Instruments
Discharge of the Instrument:
When the rights under the instrument come to an end and it ceases to be negotiable.
Modes of Discharge:
- By Payment in Due Course: Payment made by the liable party to the holder.
- By Cancellation: Holder cancels the instrument intentionally.
- By Release: Holder releases the party from liability.
- By Material Alteration: Unauthorized alteration of instrument invalidates it.
- By Renunciation: Holder voluntarily gives up his right.
- By Merger: When the acceptor becomes the holder at or after maturity.
Discharge of Parties:
Occurs when some or all parties to the instrument are freed from liability, but the instrument may remain negotiable.
Examples:
- Cancellation of a party’s name
- Delay in presentment or notice of dishonour
- Material alteration without consent
Mind Map (Text Format)
Dishonour & Discharge of Negotiable Instruments
→ Dishonour
↳ By Non-Acceptance (for bills)
↳ By Non-Payment (notes, bills, cheques)
↳ Requires Notice of Dishonour
↳ Holder can sue liable parties
→ Notice of Dishonour
↳ Must be given to all liable parties (except acceptor/maker)
↳ Exceptions apply
→ Discharge of Instrument
↳ Payment in due course
↳ Cancellation
↳ Release
↳ Material Alteration
↳ Renunciation
↳ Merger
→ Discharge of Parties
↳ Delay in presentment or notice
↳ Cancellation of names
↳ Alteration without consent