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What happens when a drawee fails to pay a bill of exchange?
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Portrait of King Louis XIV, by Charles Le Brun, c. 1655.
When a drawee fails to pay a bill of exchange upon its maturity, the instrument is considered dishonored.
Following this failure, the holder of the bill must provide a notice of dishonor to the drawer and any endorsers. It is essential to provide this notice promptly, as a failure to do so generally discharges the legal obligations of those parties to the holder.
In some cases, to protect the credit of the primary debtor, a third party may intervene to provide a payment of honor, which involves paying the protested bill or draft on behalf of the debtor.12