Key Takeaways

  • A notice of dishonor informs relevant parties that a financial instrument, such as a check, bill of exchange, or promissory note, has been refused for payment or acceptance.
  • The notice serves to preserve the right of the holder to seek payment from secondary parties like the drawer or endorsers.
  • Under the Uniform Commercial Code (UCC), specific rules govern when, how, and by whom notice must be given to remain valid.
  • Notice of dishonor may be excused in certain situations, such as waiver by the party entitled to notice, or circumstances making notice impossible.
  • Both oral and written notices are legally valid if they effectively communicate the dishonor.
  • The timing of the notice is critical—it generally must be given within a reasonable time after dishonor to maintain enforceability.

What Is Notice of Dishonor?

The notice given by the holder of a bill of exchange or promissory note, to a drawer or endorser on the same, that it has been dishonored, either by not being accepted in the case of a bill, or paid in due of an accepted bill or note.

It is proper to consider

1. The form of the notice;

2. By whom it is to be given;

3. To whom;

4. When;

5. Where;

6. Its effects;

7. When a want of notice will be excused;

8. When it will be waived.

What Types of Instruments Require a Notice of Dishonor?

A notice of dishonor typically applies to negotiable instruments, including:

  • Checks: When a bank refuses to honor a check due to insufficient funds or a closed account.
  • Bills of Exchange: If the drawee refuses to accept or pay the bill.
  • Promissory Notes: When the maker of the note fails to pay on the due date.

The notice is crucial for instruments where secondary liability exists, such as when endorsers or drawers might be required to pay if the primary obligor fails to do so​.

What Must a Notice of Dishonor Convey?

Although no precise form of words is requisite in giving notice of dishonor, yet such notice must convey,

1. A true description of the bill or note so as to ascertain its identity; but if the notice cannot mislead the party to whom it is sent, and it conveys the real fact without any. doubt, although there may be a small variance, it cannot be material, either to regard his rights or to avoid his responsibility.

2. The notice must contain an assertion that ther bill has been duly presented to the drawee for acceptance, when acceptance has been refused, or to the acceptor of a bill or maker of a note for payment at its maturity, and dishonored.

3. The notice must state that the holder or other person giving the notice looks to the person to whom the notice is given for reimbursement and indemnity.

Although in strictness this may be required where the language is otherwise doubtful and uncertain, yet in general, it will be presumed where in other respects the notice is sufficient.

Who Can Give a Notice of Dishonor?

In general the notice may be given by the holder or some one authorized by him or by some one who is a party and liable to pay the bill or note. But notice given by a stranger is not sufficient. On the death of the holder, his executor or administrator is required to give notice, and if none be then appointed, the notice must be given within a reasonable time after one may be appointed.

When the bill or note i's held by partners, notice by any of them is sufficient; and when jointholders have the paper, and one dies, the notice may be given by the survivor; the assignee of the holder who is a bankrupt must give notice, but if no assignee be appointed when the paper becomes due the notice must be given without delay after his appointment; but it seems the bankrupt holder may himself give the notice. If an infant be the holder the notice may be given by him, or if he has a guardian, by the latter.

What Must the Holder Do?

The holder is required to give notice to all the parties to whom he means to resort for payment, and, unless excused in point of law, as will be stated below, such parties will be exonerated, and absolved from all liability on such bill or note. But a party who purchases a bill, and without endorsing it, transmits it on account of goods ordered by him, is not entitled to notice of its dishonor. In cases of partnership, notice to either of the partners is sufficient. Notice should be given to each of several joint endorsers, who are not partners.

Notice to an absent endorser may be given to bis general agent. The notice of dishonor must be given to the parties to whom the holder means to resort within a reasonable time after the dishonor of the bill when it is dishonored for non-acceptance, and he must not delay giving notice until the bill has been protested for non-payment. Though formerly it was doubtful whether the court or jury were to judge as to the reasonableness of the notice in respect to time yet it seems now to be settled that when the facts are ascertained it is a question for the court and not for the jury.

When Is Notice of Dishonor Excused?

The requirement to provide notice of dishonor may be excused in certain scenarios, including:

  • Waiver: If the party entitled to notice has explicitly waived the right to receive it.
  • Impossibility: If circumstances make it impossible to provide notice despite reasonable diligence (e.g., death or disappearance of the party).
  • Lack of Knowledge: If the party giving notice does not know the identity or location of the person entitled to notice.
  • Direct Liability: If the drawer has no reason to expect that the instrument would be honored (e.g., issuing a check with knowledge of insufficient funds)​.

Where Should the Notice of Dishonor Be Given?

In considering as to where the notice should be given, a difference is made between cases where the parties reside in the same town, and where they do not.

1. When both parties reside in the same town or city, the notice should either be personal or at the domicil or place of business of the party notified, so that it may reach him on the very day he is entitled to notice. If the notice be put in the post office, the holder must prove it reached the endorser. But in those towns where they have letter carriers, who carry letters from the post office and deliver them at the houses or places of business of the parties, if the notice be put in the post office in time to be delivered on the same day, it will be sufficient.

2. When the parties reside in different towns or cities, the notice may be sent by the post, or a special messenger, or a private person, or by any other suitable or ordinary conveyance. When the post is resorted to, the holder has the whole day on which the bill becomes due to prepare his notice, and if it be put in the post office on the next day in time to go by either mails, when there is more than one, it will in general be sufficient.

Methods of Delivering Notice of Dishonor

The law allows flexibility in how notice of dishonor is delivered. Acceptable methods include:

  • In-Person Delivery: Handing the notice directly to the person entitled to receive it.
  • Mail: Sending through certified or regular mail, especially when the parties reside in different locations.
  • Telephone or Electronic Communication: Oral notice or electronic messaging (including email) may be valid if it provides clear information about the dishonor.

The Uniform Commercial Code (UCC) permits both oral and written notice as long as the communication sufficiently informs the party of the dishonor​.

What Is the Effect of a Notice of Dishonor?

The effect of the notice of dishonor, when properly given, and when it is followed by a protest when a protest is requisite, will render the drawer and endorsers of a bill or the endorsers of a note liable to the holder. But the drawer and endorsers may tender the money at any time before a writ has been issued; though the acceptor must pay the bill on presentment and cannot plead a subsequent tender.

The same reasons which will excuse the want of a presentment will in general excuse a want of protest.

A want of notice may be waived by the party to be affected after a full knowledge of the facts that the holder has no just cause for the neglect or omission.

Legal Consequences of Failing to Provide Notice

Failing to provide a timely notice of dishonor may have significant legal consequences, including:

  • Release of Secondary Liability: The drawer, endorsers, or other secondary parties may be discharged from their obligation if proper notice is not given.
  • Loss of Right to Recover: The holder may lose the right to collect payment from endorsers or the drawer if notice is omitted or delayed.
  • Enforceability Issues: Without proper notice, courts may find the instrument unenforceable against certain liable parties​​.

Frequently Asked Questions

  1. What does notice of dishonor mean?
    Notice of dishonor refers to formally informing relevant parties that a negotiable instrument like a check or promissory note has been refused for payment or acceptance.
  2. Who is responsible for sending the notice of dishonor?
    The holder of the instrument or their authorized representative must send the notice to any parties against whom they intend to seek payment.
  3. Does notice of dishonor have to be in writing?
    No, the notice may be oral or written, provided it clearly communicates the dishonor and identifies the instrument involved.
  4. How soon must notice of dishonor be given?
    It must be given within a reasonable time after dishonor. For parties in different locations, mailing the notice by the next business day is typically considered timely.
  5. Can a notice of dishonor requirement be waived?
    Yes, notice may be waived either explicitly by the party entitled to notice or impliedly through actions that suggest waiver.

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