Wrongful Dishonor

DEFINITION of 'Wrongful Dishonor'

A bank's failure to honor a valid negotiable instrument such as a cheque or draft that has been presented to it for payment. If the cheque is valid and there are sufficient funds in the account to cover it, a bank's failure to honor it within the time period stipulated by the Uniform Commercial Code would constitute wrongful dishonor.

BREAKING DOWN 'Wrongful Dishonor'

A payor bank is liable to its customer for damages caused by wrongful dishonor of an instrument. Liability is limited to actual damages proved and may include potential consequential damages.