Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Waiver of Demand

What it is:

Under a waiver of demand, a payee assumes responsibility for a check or bank draft that he or she endorses.

How it works (Example):

Sometimes, the bank account a check or bank draft is drawn against does not contain the funds necessary to cover the payment amount. When a payee endorses a check or bank draft, a waiver of demand is consummated. This means that if the writer of the check does not have enough money in his/her account to cover the check, the payee assumes liability for the overdraft.

For example, suppose Bob has a check from Jack for $50. Bob executes a waiver of demand by signing the back of the check. This means that if Jack has less than $50 in his checking account, Bob is responsible for the check bouncing.

Why it Matters:

A waiver of demand can be written or oral. It acknowledges that the account backing a check or bank draft is only as good as the payee's faith in the payer who issued it. Banks typically charge a substantial penalty to the payee's account if a check or bank draft fails to clear.