What Is a Waiver of Demand?

A waiver of demand is a legal agreement given by a party who has endorsed a check or a bank draft. It states that, should the original issuer of the check or draft default, the endorser will take responsibility for honoring that check or draft on the issuer’s behalf.

Waivers of demand can either be expressed or implied, and can come in both written and verbal forms. In the event of default, the affected bank reserves the right to charge any applicable penalties or fees to the endorser.

Key Takeaways

  • A waiver of demand is a legal agreement causing the endorser of a check or draft to become responsible in the event of its default.
  • The party endorsing the check can also be responsible for fines and penalties incurred.
  • Waivers of demand can be issued explicitly or implicitly, and can be conveyed verbally in some jurisdictions.

How Waivers of Demand Work

Typically, there are three parties involved when a check or bank draft is written: the drawer, the payee, and the drawee. The drawer is the original writer of the check or daft, the payee is the party to whom the check or draft is written, and the drawee is the party from whose account the funds will be withdrawn.

If a particular check or draft carries a waiver of demand, then this means that the endorser has accepted legal responsibility for its fulfillment. Should the drawer of the check or draft default, then the endorser will take responsibility for honoring the check and paying any fees or penalties that may have been incurred.

In the context of banking, the term waiver of demand can also refer to a bank’s waiver of its right to formal notification when it presents short-term negotiable debt instruments such as drafts or banker's acceptances to a Federal Reserve Bank for rediscounting. In such instances, the Federal Reserve considers the bank's endorsement as a "waiver of demand, notice and protest" if the original issuer defaults on its debt obligation.

Real World Example of a Waiver of Demand

To illustrate, suppose John writes a check to pay for goods purchased from Kevin. In this situation, John is the drawer, Kevin is the payee, and John’s bank is the drawee.

If another party provides an endorsement to John by signing the back of his check, then that party is executing a waiver of demand. Accordingly, the endorser would be responsible for honoring John’s check if it bounces due to insufficient funds or any other reason.

Similarly, the waiver of demand would cause the endorser to become responsible for any fees or penalties triggered by the bounced check. In that scenario, the bank would send John a “bad check notice” indicating that the check bounced and informing him of any applicable penalties.