Section 113 of the Negotiable Instruments Act,1881.
When a bill of exchange has been noted or protested for non-payment, any person may pay the same for the honour of any party liable to pay the same: provided that the person so paying or his agent in that behalf has previously declared before a notary public the party for whose honour he pays, and that such declaration has been recorded by such notary public.
This section provides for payment for honour and is an exception to the ordinary rule that a voluntary payment of debt of one by another is not enforceable in law, that is to say, when a person makes a voluntary payment of the debt of another he cannot recover the amount from the latter. In the case of some negotiable instruments, however, this ordinary rule of law does not apply and the person who makes such voluntary payment that is, a payment for honour, can recover the amount from the person for whose honour the amount is paid and from all parties prior to him. This exceptional rule in favour of bills of exchange has been made in the interest of trade and commerce to enable friends and relations to save the prestige and credit of the drawers and indorsers in the mercantile world by making voluntary payments, after dishonour and noting or protest. This rule does not, however, apply to all negotiable instruments, e.g., promissory notes which are not meant for circulation and, therefore, a person who makes a voluntary payment of a debt due on a promissory note may not recover it from the drawer or indorser. But according to Chalmers a promissory note is sometimes but very rarely paid supra protest.1) The section does not apply to a “drawee in case of need” in a bill of exchange.2)
We have seen that under section 108 an acceptance for honour can be made only by a stranger, that is, one who is not a party to the instrument and has no existing liability under it. But unlike acceptance for honour, a payment for honour can be made by any person, a stranger as well as a party to the instrument having an existing liability under it.
Thus, the drawee or any endorser may pay for honour but such payment does not, in fact, place him in a better position than he will be, if he makes the payment on his own behalf and not for honour. It would, therefore, seem that payment for honour by a party to the bill is almost a misnomer having had no practical advantage for it. On payment supra protest the bill ceases to be negotiable.
As in the case of acceptance for honour so in the case of payment for honour there must be dishonour, i.e., refusal to pay the bill. And after this dishonour the bill should be noted or protested for non-payment before any payment for honour of any party liable under it can be legally made. Any payment made before noting or protest will not be payment for honour and will be without the attendant rights of payment for honour.
Previous to the payment, the party making the payment or his agent
If either of the two formalities, e.g., the declaration and the recording be not complied with, the payment will not be a payment for honour but a voluntary payment The words “or by his agent in that behalf” in this section have been inserted by section 9 of Amending Act II of 1885.
Unlike an acceptance for honour, which requires the consent of the holder and which the holder may or may not allow, a payment for honour does not require any such consent. The holder cannot refuse to accept any such payment for the simple reason that by such acceptance of payment his position cannot be prejudicially affected and the reasons which can be urged against an acceptance for honour without the holder’s consent cannot obviously exist here. If, therefore, a holder refuses to accept such payment he loses his right of recourse against the party who would be discharged by such payment.3) On payment the payer becomes entitled to the bill and the protest.4)
When there are more than one person willing to make payments for honour of different parties the position admits of some difficulty. There is no express provision in this Act as to what the holder should do. Under the English law, however, the holder is to accept the payment of the person who will discharge the largest number of persons liable under the bill.5) It is submitted that the same rule should be followed here.
Section 114 of the Negotiable Instruments Act,1881.
Any person so paying is entitled to all the rights in respect of the bill, of the holder at the time of such payment, and may recover from the party for whose honour he pays all sums so paid, with interest thereon and with all expenses properly incurred in making such payment.
The payer for honour acquires all the rights of the holder whom he pays and becomes entitled to all the remedies of such holder on the instrument. His position is the position of an endorsee although there is no endorsement. A person who takes up a bill supra protest for the benefit of a particular party to the bill, succeeds to the title of the person from whom, and not for whom he receives it and has all the title of that person to sue upon the bill, except that it discharges all the parties subsequent to the one for whose honour he takes it up, that is, he succeeds to both the rights and the duties of the holder as regards the party for whose honour he pays and all parties prior to him. He can, therefore, enforce his rights and remedies against the person for whose honour he pays and all parties prior to him. The payer steps into the shoes of the holder and is, therefore, subject to the same disabilities as the holder, that is, he cannot sue prior parties if they have not received notice of dishonour, nor can he recover anything if an endorsement turns out to be a forgery. He cannot recover the amount from the holder unless he gives notice of the mistake on the very day of payment.
The person making payment for honour can only recover the amount he has paid with interest thereon plus the incidental costs including the notarial charges. He cannot recover more than that or what is due on the bill. On making the payment he is entitled to the bill and the protest.