Waiver of Demand

What it is

A waiver of demand is an agreement by an endorser of a check or bank draft to accept legal responsibility for payment if the original issuer (drawer) defaults. It shifts liability from the drawer to the endorser and can include responsibility for any fines, fees, or penalties resulting from the default.

Waivers can be:
* Express or implied.
* Written or, in some jurisdictions, verbal.

Parties involved

• Drawer — the person or entity who writes the check or draft.
• Payee — the person or entity to whom the check or draft is made payable.
• Drawee — the bank or financial institution on whose account the funds are drawn.
• Endorser — any party who signs the back of the check, potentially accepting liability under a waiver of demand.

How it works

When an endorser signs a check carrying a waiver of demand, they agree that if the drawer fails to pay (for example, the check bounces for insufficient funds), the endorser will honor the obligation. The bank may then seek payment from the endorser and may assess any applicable penalties or fees to them.

In the commercial banking context, a bank’s endorsement of short-term negotiable instruments (like drafts or banker’s acceptances) may be treated as a “waiver of demand, notice and protest.” That means the endorsing bank waives formal notice requirements when presenting instruments to the Federal Reserve or another party for rediscounting; if the original issuer defaults, the endorser-bank can be held liable.

Example

John (drawer) writes a check to Kevin (payee). Kevin signs the back of the check to endorse it to a third party or deposit it. By endorsing, that party accepts a waiver of demand: if John’s check bounces, the endorser must pay the amount due and any associated bank penalties.

Legal and practical implications

• Liability: Endorsers can be held legally responsible for the face amount of the instrument plus fees and penalties if the drawer defaults.
• Form: Some jurisdictions recognize verbal waivers; others require written endorsement. Whether a waiver is enforced depends on local law and the endorsement language.
• Bank procedures: Banks may rely on endorsements to collect on behalf of holders and, depending on the endorsement form, may not be required to give separate notice to the drawer before seeking payment from an endorser or guarantor.

How to avoid unintended liability

• Use restrictive endorsements (e.g., “For deposit only” with account number) to limit transferability and reduce risk.
• Avoid signing blank checks or endorsing instruments without recording the amount and payee.
• Verify funds and drawer identity before accepting an endorsed instrument.
• Require written disclaimers or indemnity agreements if agreeing to accept an instrument on behalf of another.
• Consult legal counsel for high-value or unusual instruments to clarify the scope of any waiver.

Key takeaways

• A waiver of demand makes an endorser responsible for payment if the original issuer defaults.
• Waivers can be explicit or implied and may be written or (in some places) verbal.
• Endorsers may also be liable for bank fees or penalties resulting from a dishonored instrument.
• Use restrictive endorsements and documentation to reduce the risk of unintended liability.