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The act of formalizing the dishonour of a draft. Laws differ from country to country, but in general the procedure works as follows:
- The principal has instructed that dishonoured drafts be protested.
- A draft matures for payment and is not paid.
- Whatever applicable grace period in the drawee´s country expires.
- The banker, often accompanied by a public notary, formally presents the draft for payment. Notice of the dishonour is recorded by the notary.
The results of a protested draft vary from country to country, but the net result is often akin to the recording of a judgment entry. Further, in some countries, protested drafts enjoy preferred status over non protested drafts in case of bankruptcy liquidations. Some countries require that drafts covered by avals (third party guarantees) be protested if defaulted at maturity. This assures that the guarantor receives due notice that its contingent liability may be called.
