Acceptance and Payment for Honour; Drawee in Case of Need (Sections 108 to 116)

In the law merchant, a dishonoured bill damaged the credit of everyone whose name was on it. To protect that credit, a friend or correspondent of a party could step in and accept or pay the bill "for the honour" of that party. A drawer or indorser could also name, in advance, a drawee in case of need to whom the holder could turn if the drawee refused. Chapter XI of the Act preserves these devices. They are rarely seen in domestic practice today, but they remain part of the law and are regularly examined.

1. Acceptance for Honour (Sections 108 to 110)

• When: only after the bill has been noted or protested for non-acceptance or for better security (Topic 31).
• Who: any person not already liable on the bill.
• Consent: the holder's consent is required; he is not bound to accept an acceptor for honour in place of the drawee.
• Form (Section 109): the acceptor for honour must write on the bill, under his hand, that he accepts under protest the protested bill for the honour of the drawer, of a named indorser, or generally for honour.
• No party named (Section 110): where the acceptance does not state for whose honour it is made, it is deemed to be for the honour of the drawer.

2. Liability of the Acceptor for Honour (Sections 111 and 112)

• To whom he is bound (Section 111): he binds himself to all parties subsequent to the party for whose honour he accepts, to pay the bill if the drawee does not.
• His rights: the party for whose honour he accepted, and all prior parties, must compensate him for loss or damage caused by the acceptance.
• Presentment to him: he is not liable to the holder unless the bill is presented to him, or forwarded for presentment where his address is elsewhere, not later than the day after maturity.
• Conditions for charging him (Section 112): the bill must, at maturity, have been presented to the drawee for payment, dishonoured by him, and noted or protested for that dishonour. His liability is therefore secondary to the drawee's.

3. Payment for Honour (Sections 113 and 114)

• When: after the bill has been noted or protested for non-payment.
• Who: any person, including a party already liable.
• Declaration: the payer must first declare before a notary for whose honour he pays, and the notary must record it.
• Rights (Section 114): the payer for honour acquires all the holder's rights in respect of the bill at the time of payment, and may recover from the party for whose honour he paid all sums paid, with interest and expenses properly incurred.

In effect, parties subsequent to the party for whose honour payment is made are released, since the payer's recovery lies against the party honoured and those prior to him.

4. Drawee in Case of Need (Sections 115 and 116)

• Who: a person named in the bill, or in an indorsement, to whom the holder may resort if the bill is dishonoured by the drawee (Section 7). The drawer or an indorser often names a local agent or banker.
• Effect on dishonour (Section 115): where a drawee in case of need is named, the bill is not dishonoured until it has also been dishonoured by him. The holder must therefore present it to him before proceeding against the drawer and indorsers.
• No prior protest needed (Section 116): a drawee in case of need may accept and pay the bill without previous protest.
• Acceptance: a drawee in case of need is one of the persons who may bind himself by acceptance (Section 33; Topic 18).

5. Comparing the Two Devices

• Timing: a drawee in case of need is named in advance; an acceptor or payer for honour intervenes after dishonour.
• Protest: honour transactions require prior noting or protest; a drawee in case of need may act without protest.
• Holder's duty: the holder must present to a named drawee in case of need; he is not bound to accept an offer of acceptance for honour.

6. Related Topics and Provisions

• Acceptance (Topic 18)
• Dishonour (Topic 29)
• Noting and protest (Topic 31)