What is drawer or maker liability for a negotiable instrument?

A drawer of a draft orders that at third-party drawee pay a specific amount to a payee who presents the instrument. The drawer, as creator of the instrument, is liable if the drawee dishonors (refused to pay) the draft. Likewise, a maker of a note is liable to a holder who presents the note for payment. If a maker or drawer wrongfully refuses to pay the instrument, any person entitled to enforce the instrument or any indorser who paid the instrument may sue for wrongful dishonor.

Example: Harry writes a check drawn of First Bank to Ira. If First Bank refuses to pay the check, Ira may present it to Harry for payment. If Harry writes a note to Ira, he is liable to pay the note when validly presented by a holder. In either situation, if Harry refuses to pay the draft or note, Ira may sue for performance. If Ira transfers the instrument to a later holder, the holder would be able to sue if Harry fails to pay. If Ira or a later holder received payment on the instrument from a previous holder or transferor of the instrument, the individual paying the instrument may seek reimbursement or payment from Harry.

Related Topics

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• Receive an instrument for value?
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• Personal Defenses?
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• Surety 
  
• Cosign
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• What is Indorser Warranty of a negotiable instrument?
• What is Presentment Warranty of a negotiable instrument?
• What is a warrantors liability for a dishonored note or draft?
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• When are the warranties of a negotiable instrument discharged?