DISHONOUR OF A CHEQUE

The relation between a banker and his customer is that of a debtor and a creditor. Money
deposited will always belong to the customer and the bank will be bound to return its
equivalent to the customer or to any person to his order. But in certain cases a banker
refuses to honour his customers cheque. When the payment of the cheque is refused by
the bank, it is said to be dishonoured.

REASONS FOR DISHONOUR

A cheque may be dishonoured under the following circumstances.

i. When balance to the credit of the customer is insufficient to meet the cheque.

ii. When money deposited cannot be withdrawn on demand in the case of fixed deposit.

iii. When the customer closes the account before the cheque is presented for encashment.

iv. When the cheque is not properly drawn.

v. If the cheque is crossed but presented on counter for the payment.

vi. When the cheque is post dated.

vii. If death information of the A/C holder is received.

viii. If the A/C holder is declared insolvent by the law.

ix. If the A/C holder has stopped the payment.

x. If the signature on the cheque is different with the specimen signature.

xi. If the amount written in figures is different from the amount written in words.

xii. If the cheque is presented for payment at a branch other than the one where the
customer has the account.

COUNTERMAND OF PAYMENT. A banker is obliged to honour the cheque of his

customer, if there is a sufficient balance in the account to meet it, and the cheque is in
order. The drawer may, however, instruct the banker to stop payment of a cheque, and the
banker will be liable if he neglects to attend to the instructions.

The Bills of Exchange Act, 1882, Section 75, states that the duty and authority of a
banker to pay a cheque drawn on him by his customer are determined by countermand of
payment.
A countermand of payment can be given only by the drawer, but notice from a holder that
a cheque has been lost by him would put a banker on his guard, pending instruc tions
from the drawer.

An order to stop payment of a cheque should be in writing and be signed by the customer,
and if the order is subsequently cancelled, the fresh instructions should also be in writing.
The drawer cannot stop payment of a cheque which a banker has, at the drawer's request,
already certified, or marked, for payment.

MEANING OF NOTICE
• By notice of dishonor is meant bringing either verbally or by writing, to the
knowledge of the drawer or indorser of an instrument, the fact that a specified negotiable
instrument, upon proper proceedings taken, has not been accepted or hasn’t been paid,
and that the party notified is expected to paid it

NECESSITY AND PURPOSE OF NOTICE

• When an instrument is dishonored by NON-ACCEPTANCE or NON-
PAYMENT, notice of such dishonor must be given to persons secondarily
liable, as the case may be. Otherwise, such parties are discharged

BURDEN OF PROOF
• It is upon the plaintiff who seeks to enforce the defendant’s liability upon a
negotiable instrument as indorser to establish said liability by proving that notice was
given to the defendant within the time and in the manner required by the law that the
instrument in question had been dishonored
• Where these facts are not proven, the plaintiff doesn’t sufficiently establish the
defendant’s liability
• Where there is no proof in record tending to show that the plaintiff gave any
notice whatsoever to the defendant that the instrument in question had been
dishonored, said plaintiff hasn’t established its cause of action

PERSONS PRIMARILY LIABLE NEED NOT BE NOTIFIED

DOES FAILURE TO GIVE NOTICE OF DISHONOR OF A PREVIOUS

INSTALLMENT TO PERSONS SECONDARILY LIABLE ALSO DISCHARGE
THEM ON THE SUCCEEDING INSTALLMNETS?
• It depends on whether the instrument contains an acceleration clause
RULE WHERE THERE IS NO ACCELERATION
CLAUSE
• Where the instrument contains no acceleration clause, failure to give notice of
dishonor on previous installment doesn’t discharge drawers and indorsers as to the
succeeding installments, and therefore, the holder can file an action against
them for such succeeding installments, notice is given
• The reason is that each separate installment is equivalent to another note

RULE WHERE THERE IS AN ACCELERATION

CLAUSE
• It depends whether the clause is optional or automatic
• If it is automatic, failure to give notice of dishonor as to a previous
installment will discharge the persons secondarily liable as to the succeeding
installments
• If it is optional and it is not exercised, the rule would be the same as where there is
no acceleration clause

EXCEPTIONS TO REQUIREMENT OF NOTICE

• The law provides for exceptions on failure to give notice would discharge
drawer or indorsers

Sec. 90. By whom given. - The notice may be given by or on behalf of the holder, or
by or on behalf of any party to the instrument who might be compelled to pay it to
the holder, and who, upon taking it up, would have a right to reimbursement from
the party to whom the notice is given.

NOTICE MAY BE GIVEN BY

1. The holder
2. Another in behalf of the holder
3. Any party to the instrument who may be compelled to pay it to the holder—
against any party whom he has a right of reimbursement should such party
giving notice pay the instrument
4. Another person in behalf of such party

Sec. 91. Notice given by agent. - Notice of dishonor may be given by any agent
either in his own name or in the name of any party entitled to given notice, whether
that party be his principal or not.

NOTICE OF AGENT
• Notice may be given by the agent and it is not necessary that the agent be
authorized by the principal
• He may give the notice in his name or in the name of his principal
• A collecting bank may give notice, and where it has done so, no notice from the
owner is necessary
• And where the cashier of the drawee bank which had refused to pay a check gave the
check to a notary to protest, which was done, it was held that the possession of the check
by the cashier was evidence of his agency of the holder to present it for protest

Sec. 92. Effect of notice on behalf of holder. - Where notice is given by or on

behalf of the holder, it inures to the benefit of all subsequent holders and all
prior parties who have a right of recourse against the party to whom it is given.

MEANING OF BENEFIT
• Benefit refers to the right to charge the person secondarily liable who received notice

• The party to whom this benefit inures can charge the party receiving notice of
dishonor, even if himself didn’t give the notice

INURES TO THE BENEFIT OF THE FOLLOWING

1. All parties prior to the holder, who have a right of recourse against the party to
whom the notice is given
2. All holders subsequent to the holder giving notice

Sec. 93. Effect where notice is given by party entitled thereto. - Where notice
is given by or on behalf of a party entitled to give notice, it inures to the
benefit of the holder and all parties subsequent to the party to whom notice is
given.

APPLICATION OF THIS SECTION

• Follows the same principle as the preceding section but this time, the person giving
notice is not the holder but a party to the instrument who might be compelled to
pay it to the holder, and who, upon taking t up, would have a right of reimbursement
from the party to whom notice is given

Sec. 94. When agent may give notice. - Where the instrument has been dishonored
in the hands of an agent, he may either himself give notice to the parties liable
thereon, or he may give notice to his principal. If he gives notice to his
principal, he must do so within the same time as if he were the holder, and
the principal, upon the receipt of such notice, has himself the same time for
giving notice as if the agent had been an independent holder.

WHEN AGENT’S NOTICE MUST BE GIVEN

• When an instrument is dishonored in the hands of an agent, he can do either of the
following
o Directly give notice to the persons secondarily liable thereon
o Give notice to his principal
• If the agent decides to give notice to the principal, he must give notice within the
time ed by law as if he were a holder
• The principal has also the same time to give notice to the persons secondarily
liable

Sec. 95. When notice sufficient. - A written notice need not be signed and an
insufficient written notice may be supplemented and validated by verbal
communication. A misdescription of the instrument does not vitiate the notice
unless the party to whom the notice is given is in fact misled thereby.

Sec. 96. Form of notice. - The notice may be in writing or merely oral and may be
given in any terms which sufficiently identify the instrument, and indicate that it
has been dishonored by non-acceptance or non-payment. It may in all cases
be given by delivering it personally or through the mails.

FORM AND CONTENTS OF NOTICE

• It may be oral or in writing
• Whether oral or in writing, it must contain
1. SUFFICIENT DESCRIPTION OF THE INSTRUMENT TO IDENTIFY IT,
and
2. A STATEMENT THAT IT HAS BEEN PRESENTED FOR PAYMENT AND FOR
ACCEPTANCE, AND THAT IT HAS BEEN DISHONORED, and
3. A STATEMENT THAT THE PARTY GIVING NOTICE INTENDS TO
LOOK FOR THE PARTY ADDRESSED FOR PAYMENT

EFFECTS OF DEFECTS IN NOTICE

• If the notice is not signed, it will not invalidate it
• If the notice is written and doesn’t contain #2 and #3, it can be supplemented
by oral communication stating the things lacking
• If there is misdescription, it would only vitiate the notice if the person is misled
thereby

NOTICE BY PHONE
• This could be done however it must be shown that the party to be notified
was really communicated with, that is, fully identified as to the party at the receiving end
of the line

MANNER OF GIVING NOTICE

• May be given by personal delivery or by mail

Sec. 97. To whom notice may be given. - Notice of dishonor may be given either to
the party himself or to his agent in that behalf.

NOTICE MAY BE GIVEN

1. To the party himself
2. To his agent in his behalf
• An accommodation indorser is entitled to notice
• An irregular indorser must also be given notice if he is to be charged
• And if notice is given to an agent, he must be duly authorized to receive the
notice of dishonor

AGENT DISTINGUISHED FROM PERSON

PRESENT IN ABSENCE OF PARTY
• Notice to agent must be distinguished from notice attempted to be given to
party himself where he is absent at his place of business or residence. In such a case, the
notice may be left with anyone found in charge therein

Sec. 98. Notice where party is dead. - When any party is dead and his death is
known to the party giving notice, the notice must be given to a personal
representative, if there be one, and if with reasonable diligence, he can be
found. If there be no personal representative, notice may be sent to the last
residence or last place of business of the deceased.

REQUISITES FOR NOTICE TO REPRESENTATIVE

1. Death is known to the party giving notice
2. There is a personal representative
3. If with reasonable diligence he could be found

WHEN NOTICE MAY BE SENT TO THE LAST

RESIDENCE OR PLACE OF BUSINESS
1. If his death is not known to the party giving notice
2. Or although his death is known to the party giving notice but there is no
personal representative
3. If there be one but he cannot be found with reasonable diligence

Sec. 99. Notice to partners. - Where the parties to be notified are partners, notice
to any one partner is notice to the firm, even though there has been a
dissolution.

Sec. 100. Notice to persons jointly liable. - Notice to joint persons who are not
partners must be given to each of them unless one of them has authority to receive
such notice for the others.

PROVISION WOULD APPLY ONLY TO JOINT DRAWERS

Sec. 101. Notice to bankrupt. - Where a party has been adjudged a bankrupt or an
insolvent, or has made an assignment for the benefit of creditors, notice may be
given either to the party himself or to his trustee or assignee.

APPLICATION OF SECTION
1. Where the party secondarily liable has been declared a bankrupt or an insolvent
2. Where he has made an assignment of his properties for the benefits of creditors

• In such cases, notice be given to the party himself or his trustee or assignee

Sec. 102. Time within which notice must be given. - Notice may be given as soon as
the instrument is dishonored and, unless delay is excused as hereinafter provided,
must be given within the time fixed by this Act.
MAY NOTICE OF DISHONOR BE GIVEN BEFORE
THE DATE OF MATURITY
• No, such notice would be insufficient because an instrument cannot be said to be
dishonored for non-payment unless presented and presentment must be made on
the date of maturity unless of course, presentment is excused
• But even in such cases, the instrument cannot be said to be dishonored by
non-payment unless it is overdue and unpaid
• Notice of dishonor can be given only after the instrument has been actually
dishonored, and notice given before the paper due is premature and insufficient,
regardless of the indorser’s knowledge that the maker was in default

MAY NOTICE OF DISHONOR BE GIVEN ON THE

DATE OF MATURITY?
• Yes, provided that the instrument has been presented for payment and is has been
dishonored
• But if the instrument is payable at a bank, it is not dishonored if the maker deposits
the amount of the instrument before the close of banking hours. Hence, notice of
dishonor must be given after the close of banking hours on the date of maturity

PURPOSE OF PROMPT NOTICE

• To give the persons secondarily liable every opportunity to secure themselves
such as to enable the party to be charged to preserve and protect his rights against prior
parties

Sec. 103. Where parties reside in same place. - Where the person giving and the
person to receive notice reside in the same place, notice must be given within
the following times:

(a) If given at the place of business of the person to receive notice, it must
be given before the close of business hours on the day following.

(b) If given at his residence, it must be given before the usual hours of rest on the
day following.

(c) If sent by mail, it must be deposited in the post office in time to reach
him in usual course on the day following.

Sec. 104. Where parties reside in different places. - Where the person giving
and the person to receive notice reside in different places, the notice must be
given within the following times:

(a) If sent by mail, it must be deposited in the post office in time to go by

mail the day following the day of dishonor, or if there be no mail at a convenient
hour on last day, by the next mail thereafter.

(b) If given otherwise than through the post office, then within the time that
notice would have been received in due course of mail, if it had been
deposited in the post office within the time specified in the last subdivision. (TO
REACH HIM IN USUAL COURSE THE DAY FOLLOWING)

TIME FOR GIVING NOTICE IN GENERAL

• The law provides for a different period for giving notice of dishonor
depending on whether—the party giving notice and the party to receive notice
reside in the same place; or the party giving notice and the party to receive reside in
different places

MEANING OF “THE SAME PLACE”

• Refers to the corporate limits of a town or city where the presentment is made or
where the holder resides

EFFECT OF NOTICE GIVEN OUT OF TIME

• Unless excused, notice given out of time would be considered not to have
been given
• Hence, the party to receive notice would be discharged

Sec. 105. When sender deemed to have given due notice. - Where notice of
dishonor is duly addressed and deposited in the post office, the sender is
deemed to have given due notice, notwithstanding any miscarriage in the
mails.

APPLICATION OF SECTION 105

• A party giving notice is deemed to have given due notice where the notice of
dishonor is duly addressed and deposited in the post office, even when there is
miscarriage of mail

CONCLUSIVE PRESUMPTION
Sec. 106. Deposit in post office; what constitutes. - Notice is deemed to have
been deposited in the post-office when deposited in any branch post office or in any
letter box under the control of the post-office department.

DEPOSIT IN LETTER BOX

• The letter box must be under the control of the post office department
• Otherwise, notice wouldn’t deemed to have been deposited in the post office
• Thus, a notice of protest properly addressed and left in a place in a notary’s
office where mail was usually collected by his postman was held not a mailing of
the notice as required by the statute

Sec. 107. Notice to subsequent party; time of. - Where a party receives notice
of dishonor, he has, after the receipt of such notice, the same time for giving
notice to antecedent parties that the holder has after the dishonor.

Sec. 108. Where notice must be sent. - Where a party has added an address to his
signature, notice of dishonor must be sent to that address; but if he has not
given such address, then the notice must be sent as follows:

(a) Either to the post-office nearest to his place of residence or to the post-office
where he is accustomed to receive his letters; or

(b) If he lives in one place and has his place of business in another, notice
may be sent to either place; or

(c) If he is sojourning in another place, notice may be sent to the place where he
is so sojourning.

But where the notice is actually received by the party within the time
specified in this Act, it will be sufficient, though not sent in accordance with
the requirement of this section.

Sec. 109. Waiver of notice. - Notice of dishonor may be waived either before
the time of giving notice has arrived or after the omission to give due notice,
and the waiver may be expressed or implied.

WHEN WAIVER MAY BE MADE

1. Before the time of giving notice, such as express waiver in the body of the
instrument or added to the signature of the party
2. After omission to give due notice
IMPLIED WAIVER
• Waiver may be implied from acts, declarations, or silence

Sec. 110. Whom affected by waiver. - Where the waiver is embodied in the
instrument itself, it is binding upon all parties; but, where it is written above the
signature of an indorser, it binds him only.

WHOM AFFECTED BY WAIVER IN GENERAL

• The persons affected by waiver depends upon whether the waiver is in the
instrument itself or is written above the signature of the indorser
• If the waiver is embodied in the instrument itself, it is binding upon all parties
• If the waiver is written above the signature of an indorser, it binds him
only

Sec. 111. Waiver of protest. - A waiver of protest, whether in the case of a foreign
bill of exchange or other negotiable instrument, is deemed to be a waiver not
only of a formal protest but also of presentment and notice of dishonor.

WHERE PROTEST IS WAIVED, THE

FOLLOWING ARE INCLUDED AND ARE
DEEMED WAIVED ALSO
1. Presentment
2. Notice of dishonor
• Where presentment for payment is waived, notice of dishonor is also waived
• But where notice of dishonor is waived, presentment for payment is not
waived

Sec. 112. When notice is dispensed with. - Notice of dishonor is dispensed with
when, after the exercise of reasonable diligence, it cannot be given to or does not
reach the parties sought to be charged.

WHEN NOTICE EXCUSED

• When political disturbances interrupt and obstruct the ordinary negotiations
of trade, they constitute a sufficient excuse for want of presentment or notice, upon
the same principle that controls in cases of military operations or interdictions of
commerce
• Prevalence of a malignant, contagious, infectious disease…

Sec. 113. Delay in giving notice; how excused. - Delay in giving notice of
dishonor is excused when the delay is caused by circumstances beyond the
control of the holder and not imputable to his default, misconduct, or negligence.
When the cause of delay ceases to operate, notice must be given with reasonable
diligence.

Sec. 114. When notice need not be given to drawer. - Notice of dishonor is not
required to be given to the drawer in either of the following cases:

(a) Where the drawer and drawee are the same person;

(b) When the drawee is fictitious person or a person not having capacity to
contract;

(c) When the drawer is the person to whom the instrument is presented for
payment;

(d) Where the drawer has no right to expect or require that the drawee or
acceptor will honor the instrument;

(e) Where the drawer has countermanded payment.

Sec. 115. When notice need not be given to indorser. — Notice of dishonor is not
required to be given to an indorser in either of the following cases:

(a) When the drawee is a fictitious person or person not having capacity to
contract, and the indorser was aware of that fact at the time he indorsed the
instrument;

(b) Where the indorser is the person to whom the instrument is

presented for payment;

(c) Where the instrument was made or accepted for his accommodation.

WHEN NOTICE RELATIVELY EXCUSED

1. Where he has knowledge of the dishonor by means other than through a
formal notice, as when he is both the drawee and drawer or when presentment is
made to him
2. Where he has no reason to expect that the instrument will be honored, as
when he has countermanded payment or where the drawee is fictitious or without
capacity to contract

NO RIGHT TO EXPECT OR REQUIRE PAYMENT

AS TO DRAWER
1. Where the drawer of the check has no account with the drawee bank
2. When the drawer of a check payable abroad has no funds with the drawee bank to
meet it
3. When the knowledge that previous drafts on the same consignee had been
dishonored.
• In the foregoing, the drawer has no right to receive notice of dishonor

DRAWER HAS COUNTERMANDED PAYMENT

• A drawer tells drawee B not to pay the bill. F holder need not give notice
to A drawer. An allegation that payment of a check had been countermanded is
sufficiently set out where the check was set forth with the indorsement across the
face “Payment stopped”

DRAWEE FICTITIOUS, ETC. MUST BE MADE

KNOWN AS TO INDORSERS
• The indorser must be aware of the fact that the drawee is fictitious or not having
capacity to contract. Otherwise, notice of dishonor must be given to such indorser to
charge him. But the fact that that the indorser knew the maker to be insolvent
or that the instrument was dishonored doesn’t dispense with the necessity of notice

Sec. 116. Notice of non-payment where acceptance refused. - Where due

notice of dishonor by non-acceptance has been given, notice of a subsequent
dishonor by non-payment is not necessary unless in the meantime the instrument
has been accepted.

Sec. 117. Effect of omission to give notice of non-acceptance. - An omission to give

notice of dishonor by non-acceptance does not prejudice the rights of a
holder in due course subsequent to the omission.

SUMMARY AS TO NOTICE OF DISHONOR

1. Like presentment for payment, notice of dishonor need not be given to persons
primarily liable in order to charge them
2. But aside from presentment for payment to persons primarily liable, notice of
dishonor to persons secondarily liable is necessary to charge the latter except—
a. When notice is waived
b. When dispensed with under Section 112
c. As to drawer, under Section 114
d. As to indorser, under Section 115
e. Where due notice of dishonor by non-acceptance has been given
f. As to a holder in due course without notice

Sec. 118. When protest need not be made; when must be made. - Where any
negotiable instrument has been dishonored, it may be protested for non-
acceptance or non-payment, as the case may be; but protest is not required
except in the case of foreign bills of exchange.

WHEN PROTEST NECESSARY

• Protest is necessary with regard foreign bills of exchange
• Mere fact of protest is not conclusive upon the dishonor of the instrument
and due notice to the indorser; other evidence is competent on these questions
• While protest is not required in cases of promissory notes and inland bills, it is
usual to protest these instruments also when dishonored since the notary’s
certificate of protest is the most convenient and certain mode of proving the facts

Revocation of banker’s authority to pay cheques

section 112-A

Countermand of payment
Receipt of notice of customer’s death.

Notice of adjudication of customer insolvent

notice of customer’s insanity

Besides the above, the operations in the account

shall be stopped on receipt of garnishee order

from
the court. If the order contains instructions to pay
a
certain amount to third party, the said amount
shall
be paid out of the customer’s account as per
direction of the court.