Rules as to compensation:
In case of dishonor of a promissory note, bill of exchange or a cheque, the holder or an endorsee of the instrument is entitled to compensation by any party liable, according to the following rules:
1) The holder is entitled to the amount due upon the instrument with the expenses properly incurred in presenting, noting and protesting.
2) When the person charged resides at a place different from that at which the instrument was payable, the holder is entitled to such sum at the current rate of exchange between the two parties.
Compensation to holder: Holder is entitled do –
1) the amount of the instruments;
2) Interest on the principal sum in accordance wit section 79 or 80 of act.
3) Expenses properly incurred in presenting noting and protesting the instrument.
4) Such sum at the current rate of exchange between the two places when the person liable resides at different place from that at which the instrument was payable.
An endorser who, being liable has paid the amount due on the instrument is entitled to the amount so paid with interest at 18 per cent per annum from the date of payment until tender or realization thereof, together with all expenses caused by the dishonor and nonpayment. When the endorser and the person charged reside at different places, the endorser is entitled to receive such sum at current rate of exchange between two places.
Compensation to endorser: Endorser on paying the amount is entitled to:
1) The amount paid by him on the instruments.
2) Interest at 18 per cent per annum from the date of payment until tender or realization.
3) All expenses caused by the dishonor and nonpayment and
4) Such sum at the current rate of exchange between the two places when the person liable and the endorser reside at different places.
The party entitled to compensation may draw a bill of exchange upon the party liable to compensate him, payable at sight or on demand for the amount due to him together with all expenses properly incurred by him.
The holder may acquire the negotiable instruments (1) with prior notice of dishonor or (2) he may acquire the instrument after maturity. In both cases, he does not acquire the rights of a holder in due course i.e. he does not acquire an instruments free from defects. His title to the instrument against other parties is subject to the rights and equities of the transferor and is no better than that of his transferor.
In case of instrument acquired after maturity (that is after the instrument is overdue after the expiry of the day on which it falls due and after the expiry of last day of grace where days of grace are allowed), it is apparent that the instrument has either been paid or dishonored. The transferee therefore takes the instruments at his own risk and gets no better title the transferor.
Exception: This rule does not apply to an accommodation note and bill. The holder of an accommodation bill or note may recover the amount from any prior party even after maturity.
The acceptor of a bill of exchange, when he accepted it, deposits with the drawer certain goods as security for the payment of the bill with power to the drawer to sell the goods and apply the proceeds in discharge of the bill, if it were not paid at maturity. The bill not having been paid at maturity the drawer sold the goods and retained the proceeds but indorsed the bill to A. A’s title; is subjected to the same objection as the drawer’s title.