dishonor

Dishonor is the refusal to honor and pay an instrument (e.g. a check ) that is presented for payment or settlement . A bank or other financial institution can choose to dishonor an instrument if the institution has a valid reason to do so such as fraud , forgery , or insolvency of the person who originally gave the instrument to the drawer . When the institution chooses to do this however, it must give a timely notice of dishonor to the drawer or whoever has presented the instrument.

If the institution, specifically a bank, cannot provide a valid reason for why it has dishonored the instrument, it has wrongfully dishonored . Under the Uniform Commercial Code , the bank is liable to its customer for damages caused by the wrongful dishonor under §4-402 .

[Last reviewed in June of 2021 by the Wex Definitions Team ]

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