What is a 'Waiver Of Demand'

A waiver of demand is an agreement by the party that has endorsed a check or draft to accept legal responsibility, without being formally notified, should the original issuer of the check or draft default. In other words, the payee of a bank draft or check takes on responsibility for the draft or check that he or she has endorsed. The waiver of demand may be express or implied; it may also be oral or written unless oral waivers are specifically prohibited by law. The waiver of demand acknowledges that a bank draft or check is valid to the extent that the payee has faith in the issuer of that draft or check. If the draft or check does not clear, the waiver of demand allows the bank to post a penalty to the payee’s account.

BREAKING DOWN 'Waiver Of Demand'

Waiver of demand also refers 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.

How Waivers of Demand Work

When a check or bank draft is written, three parties are usually involved. These are the drawer, or original writer of the check; the payee, to whom the check or draft is written; and the drawee, the person or institution to whom the draft or check is addressed and who is asked to pay the amount specified. When Rob writers a check to John, Rob is the drawer, John is the payee, and Rob’s bank, which will be paying the check, is the drawee.

When John endorses the back of the check, he is executing a waiver of demand and accepting responsibility for the check if it bounces due to insufficient funds or for another reason. This may be the most common example of a waiver of demand. When John endorses the check to his bank, he becomes liable to his bank if the check doesn’t clear. The drawer, Rob, is liable to John in this case. The waiver of demand allows John’s bank to penalize him if Rob’s check doesn’t clear. The bank will send John a Bad Check Notice to let him know that Rob’s check bounced and what the penalty will be.

RELATED TERMS
  1. Payable Through Draft

    Payable through draft is a payment by a specific bank. Corporations ...
  2. Waiver Of Inventory Clause

    A waiver of inventory clause says the insurance company will ...
  3. Waiver Of Premium For Payer Benefit ...

    A waiver of premium for payer benefit clause says that an insurance ...
  4. Bank Endorsement

    A bank endorsement is an endorsement by a bank for a negotiable ...
  5. Waiver of Premium Rider

    A waiver of premium rider is a policy clause that eliminates ...
  6. Pay to Order

    Pay to order describes a check or draft that must be paid via ...
Related Articles
  1. Personal Finance

    Do This When Bad Weather Disrupts Your Flight

    Getting a "weather waiver" when a storm threatens can save your trip – and your travel budget.
  2. Investing

    ETF Gross vs. Net Expense Ratios: How They Differ

    If you're going to invest in ETFs, you should know the intricacies of expense ratios.
  3. Investing

    Bill of Exchange

    A bill of exchange is a document used in international trade to pay for goods or services. It is signed by the person promising to pay, and given to the person entitled to receive the money. ...
  4. Investing

    IRS Cuts Some Savers a Break on IRA/401(k) Rollovers

    The Internal Revenue Service is providing some relief to certain taxpayers who may have missed the 60-day window allowed for IRA and 401(k) rollovers.
  5. Investing

    A Rollover Mulligan for Your 401(k) Distribution

    The IRS announced that it has established a sort of Mulligan designed to help recipients of retirement plan distributions.
  6. Retirement

    Managing Social Security Payments When the Beneficiary Can't

    Social Security Representative Payee program is for anyone who cares for a loved one who is unable to manage their own Social Security benefit checks.
  7. IPF - Banking

    Top Premium Checking Accounts of 2015

    Which banks offer the best deals for premium checking accounts – and what do you have to do to qualify for one?
  8. Investing

    The Best Small Business Checking Accounts in 2016

    Accounts with big banks offer frills, such as mobile and text-based banking – but for small businesses, local banks and credit unions can save money.
  9. Insights

    Don't Sign That! Legal Pitfalls of Signatures

    Learn why using the wrong-color ink or signing for your spouse or child could trigger a fraud alert, nullify a check or get you in trouble. Find out all the legal pitfalls to signatures.
RELATED FAQS
  1. How can I cancel a bank draft that I have purchased?

    Learn about a bank draft, how it works, the circumstances under which a bank draft may be cancelled, and what the cancellation ... Read Answer >>
  2. When do checks expire?

    There is a legal grace period for cashing checks, but depositors and issuers may risk overdraft fees if a late check is presented ... Read Answer >>
  3. How long does it take a check to clear?

    It usually takes two days for a check to clear, but in some cases it may take longer. Discover how banks treat large deposits ... Read Answer >>
Trading Center