Also known as: notice of dishonour · notices of dishonor · notices of dishonour · dishonor notice
Written by attorneys · grounded in primary & secondary sources — see below
A communication informing an indorser or drawer that a negotiable instrument has been dishonored upon presentment for payment or acceptance. The communication preserves the secondary liability of the indorser or drawer by satisfying the statutory precondition to enforcement of that liability.
Nolan Nunez indorses a check payable to Nova Pharmaceuticals and transfers it for value. Nova presents the check to the drawee bank, which returns it unpaid. Nova never notifies Nolan of the dishonor. Nova cannot enforce Nolan's indorser obligation because the required notice was never given.
Nyah Ndlovu deposits three checks at Nexus Financial drawn on an out-of-state account. The payor bank stops payment at the drawer's request and returns the checks unpaid. Nexus immediately notifies Nyah by telephone that the instruments have been dishonored. Nyah's secondary liability remains enforceable because the bank supplied the required notice.
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An indorser must receive notice before its obligation can be enforced. A drawer generally need not receive notice except when the draft is accepted by a non-bank acceptor.
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Any person may give notice by any commercially reasonable means, including oral, written, or electronic communication, provided the notice reasonably identifies the instrument and states that it has been dishonored.
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The indorser's liability is discharged. Return of the instrument to a collecting bank is itself sufficient notice when the instrument was taken for collection.
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