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negotiable-instruments:note:acceptance-for-honour

Acceptance for honour

Section 108 of the Negotiable Instruments Act,1881.

When a bill of exchange has been noted or protested for non-acceptance or for better security, any person not being a party already liable thereon may, with the consent of the holder, by writing on the bill, accept the same for the honour of any party thereto.

The section has been enacted for saving the honour and credit of, and to prevent legal proceedings from being taken against, parties to the bill, who may be away from the place of dishonour by non-acceptance by the drawee. When for the default of the drawee in accepting a bill the parties thereto become liable to be proceeded with, a person, who is not a party to the bill, and, therefore, not liable on it, can step in and accept the bill for honour in place of the defaulting drawee with the consent of the holder. The result of an acceptance for honour will be that, under certain conditions, such an acceptor makes himself liable to all the parties subsequent to the party on whose behalf such acceptance is made.

This section has no application to promissory notes and, therefore, if a person accepts such a note he does so at his own risk and the maker of the note or any other party thereto does not make himself liable to him for reimbursement.

This rule has not been extended to promissory notes by the Law Merchant as such notes are not made payable in a foreign country and the necessity of intervention like the one provided for here does not arise. In the case of bills there can be a series of such acceptances for honour but there cannot be an acceptance for honour of a part of the bill.

Permission of Holder

It is only a stranger who can accept a bill for honour, but he must do so with the consent of the holder. Such consent is necessary for obvious reason. On dishonour the holder acquires an immediate right of recourse against all the prior parties and he can forthwith recover his money by suit. But in the case of acceptance for honour this right of the holder is waived and it will be manifestly unjust to allow such an important right of the holder to be curtailed without his consent. He is given an opportunity to consider whether, having regard to the financial position of the stranger, he would be satisfied with his acceptance and would forego his present right of recourse. It is possible that the stranger, willing to accept the bill for honour, is not a man of substance and has no credit but still on account of his acceptance the holder will have to wait for payment till maturity of the bill and meanwhile the drawer or any other indorser may become insolvent to the prejudice of the holder. To avoid all this the consent of the holder has been made a condition precedent to such an acceptance.

Who can accept

It has been stated before that only a stranger, who has no present liability under the bill, can accept a bill for honour. A drawee of a bill who does not accept it when presented to him is a person who is not a party to the bill and is not liable under it. By non-acceptance he reduces himself to the position of a stranger and, therefore, can be an acceptor for honour. But if the drawee after refusal to accept promises to pay before noting and protest, he will not be an acceptor for honour because there cannot be an acceptor for honour before noting and protest.

The Amendment

Not only noting or protesting and consent of the holder were formerly necessary for acceptance for honour but a notarial certificate of a declaration was also necessary stating that a third party would accept the dishonoured bill for the honour of some party. The second part of the section ran thus,

unless the person who intends to accept supra protest declares, in the presence of a notary, that he does it for honour and has such declaration duly recorded in the notarial register at the time, his acceptance shall be a nullity”.

By the Amending Act II of 1885 this clause has been repealed.

How acceptance for honour must be made

Section 109 of the Negotiable Instruments Act,1881.

A person desiring to accept for honour must, by writing on the bill under his hand, declare that he accepts under protest the protested bill for the honour of the drawer or of a particular indorser whom he names, or generally for honour.

The words “by writing on the bill under his hand” have been substituted for the words “in the presence of a notary public subscribe the bill with his own hand and,” and the words “and such declaration must be recorded by the notary in his register“ which occurred after the words “generally for honour” have been repealed by section 8 of the Amending Act II of 1885. The result of the amendments is that the person desiring to accept for honour need not now appear before a notary to make a declaration that he is accepting a bill for honour and to get it noted in the notarial register.

The law as it stands at present requires the acceptor

  1. to write on the bill itself under his own hand
  2. that he accepts the protested bill for the honour of so and so or generally for honour.

There is no form of such acceptance. If the formalities noted above are complied with, the acceptance is valid. Such acceptance may be written across the bill or on any part of the bill ”Accepted supra protest“ or ”accepted S P“ , or ”Accepted supra protest for the honour of A B for Rs _____“ are sufficient but in each case it must bear the signature of the acceptor.1)

Acceptance not specifying for whose honour it is made

Section 110 of the Negotiable Instruments Act,1881.

Where the acceptance does not express for whose honour it is made it shall be deemed to be made for the honour of the drawer.

When a bill is not accepted for the honour of any particular party but is accepted generally for honour as laid down in the previous section it will be presumed to have been accepted for the honour of the drawer.2)

Liability of acceptor for honour

Section 111 of the Negotiable Instruments Act,1881.

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

But an acceptor for honour is not liable to the holder of the bill unless it is presented, or (in case the address given by such acceptor on the bill 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.

This section deals with the rights and liabilities of the acceptor for honour. The acceptor for honour virtually places himself in the same position as the party for whose honour he accepts. He is liable to the holder and all parties subsequent to the parly for whose honour he accepts. His liability is, however, a qualified one. The acceptance for honour is in its nature qualified and amounts only to a collateral engagement, that is, an undertaking to pay, if the original drawee, upon presentment for payment, should persist in dishonouring the bill.

The liability of the acceptor for honour will arise if,

  1. the bill is presented to the drawee for payment at its maturity,
  2. the drawee refuses payment and the bill is noted or protested for non-payment3) and
  3. the bill is presented to acceptor for honour.

If these conditions are not fulfilled an acceptor for honour will not be made liable.

Rights

The acceptor for honour being a person who does not derive any personal advantage out of the bill but only goes to do some gratuitous good to the person for whose honour he accepts the bill it is only just and proper that he shall not suffer eventually but shall be allowed to be reimbursed for any payment he has to make for such acceptance. He is, therefore, entitled to recover from the party for whose honour he accepts the bill and all parties prior to such party.

Estoppel

The acceptor for honour being liable to all the parties subsequent to the one for whom he accepts, an estoppel which can be pleaded against such party can be pleaded against him also, or, in other words, he subjects himself to all the equities and liabilities to which the party for whose honour he accepts the bill was subjected to. Therefore, if he is an acceptor for honour for the drawer he cannot, like the drawer, plead that the payee is a fictitious person but can, as the drawer himself can, set up the plea that the signature of the drawer is not genuine.4)

Presentment to acceptor for honour

We have seen that one of the conditions precedent to the liability of an acceptor for honour is that the bill should be presented to him for payment. The question that arises is when is such presentment to be made. It is laid down in the second paragraph of this section that the instrument should be presented to the acceptor for honour not later than the next day following the day of dishonour, but when the address given by such acceptor is at a place different from the one where it is payable it will be sufficient to forward the bill for presentment on the day next after the day of maturity.5)

In case of acceptance for honour of a bill payable after sight its maturity is calculated from the date of acceptance for honour.

When acceptor for honour may be charged

Section 112 of the Negotiable Instruments Act,1881.

An acceptor for honour cannot be charged unless the bill has at its maturity been presented to the drawee for payment, and has been dishonoured by him, and noted or protested for such dishonour.

An acceptor for honour can be made liable only when the bill has been presented to him after it has been presented for payment to the drawee and noted and protested for dishonour by non-payment. Therefore, if the acceptor for honour pays the money before presentment to the drawee or before it is noted and protested for non-payment by the drawee, he cannot recover the amount so paid from the person for whose honour he has accepted it or from any party prior to such party.

Presentment to drawee when essential

Whether presentment to the drawee for payment by him is or is not essential as a pre-requisite to an action against the acceptor for honour depends upon the nature of obligation of an acceptor for honour of the drawer or the indorser. If an acceptance in terms be an engagement by the party giving it that he will pay the bill when it becomes due and entitles the holder to look to him in the first instance without a previous resort to any other person then no presentment to the drawee for payment is necessary. But if the acceptance is in its nature qualified and amounts to a collateral engagement only it is an undertaking to pay if the original drawee upon presentment do not pay and in such a case a protest and presentment to the drawee will be an essential pre-requisite to an action against the acceptor for honour. A second resort to the drawee for payment is necessary, for, effects often reach the drawee who has refused acceptance in the first instance out of which the bill may and would be satisfied if presented to him again when the period of payment has arrived. And the drawer is entitled to the chance of benefit to arise from such second demand, or, at any rate, to the benefit of evidence that the demand has been duly made without effect. When the bill on presentment by the holder to the drawee for payment is dishonoured, a further noting or protest is necessary before the acceptor for honour can be made liable.6)

1)
Bill of Exchange Act, Sec 65(3)
2)
Bill of Exchange Act, Sec 65(4)
3)
section 112
4)
Indian Evidence Act, section 117, Explanation 1
5)
Bill of Exchange Act, Sec 67(2)
6)
Bhashyam and Adiga page 494

Created on 2021/03/02 08:05 by LawPage • Last modified on 2021/04/09 22:26 (external edit)