Dishonor

Dishonor refers to the refusal, whether rightly or wrongly, to make payment on a negotiable instrument when such an instrument is duly presented for payment.
On this page

Definition

Dishonor is the refusal or failure to pay or accept a negotiable instrument, such as a check or bill of exchange, when it is presented for payment or acceptance. This refusal can occur either because the party responsible for payment lacks the necessary funds, disputes the validity of the instrument, or decides not to honor the payment for another reason.

Examples

  1. Unfunded Check: John writes a check for a service he received, but upon presentation, it is returned by the bank due to insufficient funds in John’s account. This check is said to be dishonored.
  2. Disputed Invoice: A company issues a bill of exchange to a supplier, but disputes arise regarding the quality of goods received. When the supplier presents the bill for payment, the company refuses to accept it due to the dispute, thus dishonoring it.
  3. Bankrupt Business: A small business issues a promissory note to a creditor, but files for bankruptcy before the note is due. The note is dishonored when presented because the business cannot make the payment.

Frequently Asked Questions

Q: What are the legal consequences of dishonoring a negotiable instrument?
A: The holder of a dishonored negotiable instrument can seek legal remedies, including suing for the payment amount, along with additional charges for damages and interest.

Q: Can a dishonored check affect my credit rating?
A: Yes, repeated incidents of dishonored checks can negatively impact your credit rating and result in additional penalties from your bank.

Q: Is there any difference between dishonoring and bouncing of a check?
A: While often used interchangeably in a colloquial sense, “bouncing” typically refers specifically to a check returned for insufficient funds, whereas “dishonoring” encompasses all forms of refusal to pay or accept a negotiable instrument.

  • Negotiable Instrument: A signed document that promises a sum of payment to a specified person or the assignee. Examples include checks, promissory notes, and bills of exchange.
  • Presentment: The act of formally presenting a negotiable instrument to the responsible party (drawee, acceptor, or maker) for payment or acceptance.
  • Endorsement: A signature or instructions written on the back of a negotiable instrument, transferring rights to another party.
  • Holder in Due Course: A party that has acquired a negotiable instrument in good faith and for value, and thus has certain greater protections under the law.

Online Resources

Suggested Books for Further Studies

  • “Negotiable Instruments and Payment Systems” by Wayne K. Lewis
    This textbook offers an in-depth exploration of the laws governing negotiable instruments and practical issues related to payment systems.

  • “The Law of Negotiable Instruments” by James S. Rogers
    A comprehensive guide covering historical development, statutory laws, and case laws related to negotiable instruments.

  • “Business Law: Text and Cases” by Kenneth W. Clarkson, Roger LeRoy Miller, and Frank B. Cross
    Detailed discussions and real-world examples of business law topics, including dishonor of negotiable instruments.

Fundamentals of Dishonor: Business Law Basics Quiz

Loading quiz…

Thank you for planning to enhance your understanding of the intricacies of business law and taking our challenging quiz on the honor and dishonor of negotiable instruments. Keep striving for excellence in your legal knowledge!

Dishonour
Disguised Unemployment