Chapter XI: Of Acceptance and Payment for Honour and Reference in Case of Need
Section 108: Acceptance for honour
This section defines the act of a third party stepping in to accept a Bill that has been refused.
1. Who Can Accept for Honour:
- Legal Terminology: 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.
- Simple English Translation (Intervening Guarantor): If a Bill is refused by the Drawee (and formally noted/protested), a complete stranger to the Bill can sign it, agreeing to pay when due. They must get the holder’s permission and write their acceptance directly on the Bill. They are doing this to protect the reputation (“honour”) of one of the parties (usually the Drawer).
- Practical Example: A Bill drawn by Company X is refused. Friend F, a third party, signs the Bill, writing, “Accepted for the honour of Company X.” This preserves Company X’s credit standing.
Section 109: How acceptance for honour must be made
This section details the formal requirements for the Acceptance for Honour signature.
1. Formal Declaration on the Bill:
- Legal Terminology: 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.
- Simple English Translation (Must State Intent Clearly): The intervening party must sign the Bill and explicitly state that they are accepting it under protest (meaning they are aware of the dishonour) and for whose honour they are doing it (e.g., the Drawer’s honour, or a specific Indorser’s honour).
- Practical Example: The intervener signs the Bill and writes: “Accepted under protest for the honour of Indorser C.“
Section 110: Acceptance not specifying for whose honour it is made
This section provides a rule to interpret Acceptance for Honour when the intervener is vague.
1. Default is for the Drawer:
- Legal Terminology: 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.
- Simple English Translation (Assume it’s for the Starter): If a third party accepts a Bill for honour but fails to specify which party’s reputation they are protecting, the law assumes they are doing it for the benefit of the original writer of the Bill (the Drawer).
- Practical Example: Friend F signs, “Accepted for honour,” but omits the name. Legally, this is considered as accepting for the honour of the Drawer.
Section 111: Liability of acceptor for honour
This section defines the legal obligations and rights of the person who accepts a Bill for the sake of another party’s reputation.
1. Obligation to Subsequent Parties:
- Legal Terminology: 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.
- Simple English Translation (Guaranteed to Pay Later Holders): The person who accepts for honour promises to pay the Bill if the original Drawee fails to do so. This promise is made to everyone who acquires the Bill after the person whose honour they are protecting.
- Practical Example: Friend F accepts for the honour of Indorser C. The current holder, D, and any future holders, E, can sue F if the original Drawee defaults. However, F is not liable to parties A or B, who came before C.
2. Right to Compensation from Prior Parties:
- Legal Terminology: …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.
- Simple English Translation (The Right to Recoupment): If the acceptor for honour ends up having to pay the Bill, they can turn around and demand repayment (with interest and expenses) from the person whose honour they protected, as well as every party before that person.
- Practical Example: Friend F pays the Bill for the honour of Indorser C. F can then demand repayment from C, or from Drawer A and Indorser B, but not from subsequent parties like D.
3. Condition for Charging the Acceptor for Honour:
- Legal Terminology: But an acceptor for honour is not liable to the holder of the bill unless it is presented, or… forwarded for presentment, not later than the day next after the day of its maturity.
- Simple English Translation (Must Be Promptly Demanded): Even after the Bill is due, the holder still has to be very quick. They must present the Bill to the acceptor for honour (or mail it for presentment) no later than the day after the Bill’s official maturity date. If they delay, the acceptor for honour is released.
- Practical Example: A Bill is due on Monday. The original Drawee dishonours it. The holder must present the Bill to the Acceptor for Honour by the end of Tuesday to hold them liable.
Section 112: When acceptor for honour may be charged
This section adds a critical procedural step before the acceptor for honour can be made to pay.
1. Necessary Pre-conditions for Liability:
- Legal Terminology: 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.
- Simple English Translation (Three Mandatory Steps): Before you can successfully demand money from the acceptor for honour, you must prove three things happened at maturity: 1) You demanded payment from the original Drawee (the party who was supposed to pay), 2) the original Drawee refused (dishonoured it), and 3) you got that final refusal formally noted or protested.
- Practical Example: If the holder forgets to formally protest the original Drawee’s refusal to pay, they cannot legally force the Acceptor for Honour to make the payment.
Section 113: Payment for honour
This section defines the act of a third party stepping in to pay a Bill that has been dishonoured by non-payment.
1. Who Can Pay for Honour (Proviso):
- Legal Terminology: 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.
- Simple English Translation (Honourable Rescue with Paperwork): If a Bill is refused and formally noted/protested, anyone (or their agent) can step in and pay the debt to save the reputation of any of the parties liable on the Bill. However, this payer must first tell a notary public which party’s honour they are protecting, and the notary must officially record that declaration.
- Practical Example: After a Bill is protested, Friend F goes to the notary and says, “I am paying this $10,000 Bill for the honour of Indorser C.” The notary records this statement, and only then does F pay the holder.
Section 114: Right of payer for honour
This section defines the legal rights of the person who paid the Bill for honour.
1. Inheriting the Holder’s Rights:
- Legal Terminology: 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.
- Simple English Translation (Stepping into the Holder’s Shoes): When the payer for honour pays the Bill, they take on all the legal rights the original holder had. They can immediately sue the party they paid for, plus all previous parties, to recover the full amount paid, plus interest and any legal expenses.
- Practical Example: Friend F pays for the honour of Indorser C. F now has the same right that the original holder had: the right to sue C (the person F paid for) or any party before C (like the Drawer).
Section 115: Drawee in case of need
This section clarifies the role of the backup Drawee named on a Bill (Section 7).
1. Must Be Dishonoured by Backup Drawee:
- Legal Terminology: Where a drawee in case of need is named in a bill of exchange, or in any indorsement thereon, the bill is not dishonoured until it has been dishonoured by such drawee.
- Simple English Translation (The Second Chance): If a Bill names a backup payer (Drawee in case of need), the Bill cannot be legally considered “dishonoured” until the holder has formally presented it to the original Drawee and presented it to the Drawee in case of need, and both have refused.
- Practical Example: The original Drawee refuses acceptance. The holder must then go to the Drawee in case of need (e.g., another bank). Only if the second bank also refuses is the Bill legally dishonoured.
Section 116: Acceptance and payment without protest
This section simplifies the process for the backup Drawee.
1. Backup Drawee Does Not Need Protest:
- Legal Terminology: A drawee in case of need may accept and pay the bill of exchange without previous protest.
- Simple English Translation (They Can Just Pay): The backup payer does not need to wait for the holder to get a formal Protest document before they can step in and accept or pay the Bill. They can simply honor the Bill as soon as the main Drawee refuses.
- Practical Example: The Drawee in case of need is notified that the main Drawee refused. They can immediately sign, “Accepted,” or simply pay the Bill, even if the holder hasn’t yet gone to a notary for a Protest.