When the bill of exchange is not accepted or not paid on maturity the bill is said to have been dishonored.
From the above it is clear that the bill is dishonored on two accounts:
- Dishonor by non-acceptance
- Dishonor by non-payment
Dishonor by Non-Acceptance: When the drawee refuses to accept the bill, it stands to be dishonored. The dishonor by non-acceptance may have the following reasons:
- The drawee doesn’t accept the bill within 24 hours of its receipt.
- When the drawee is not entitled to accept it.
- When the drawee is a fake person.
- If the bill is to be conditionally accepted.
- When the drawee disappers.
- In case there are many drawees, and all the drawees do not sign the bill.
Dishonor by Non-Payment: Another reason for the dishonor of a bill is its non-payment at maturity. The drawee may refuse to make the payment of the bill when it is presented at maturity; this refusal gives rise to dishonor by non payment.
The dishonor affects all the parties to the bill. They include the drawer, all endorsers and endorsees, who are all accountable and liable to the holder.