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.
