1. Home
  2. Knowledge Base
  3. Business Law
  4. Commercial Paper Law
  5. Drawer or Maker Liability to Pay Negotiable Instrument

Drawer or Maker Liability to Pay Negotiable Instrument

Cite this article as: Jason Mance Gordon, "Drawer or Maker Liability to Pay Negotiable Instrument," in The Business Professor, updated January 20, 2015, last accessed April 9, 2020, https://thebusinessprofessor.com/knowledge-base/drawer-or-maker-liability-to-pay-negotiable-instrument/.
Video Thumbnail
Drawer or Maker Liability - Negotiable Instrument
This video explains who is principally liable to pay a negotiable instrument - the Drawer or Maker.

Next Article: Transferor Warranty of Negotiable Instrument


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.

•    Discussion: How do you feel about the ability of any holder or payor of an instrument to seek payment of an instrument from the maker or drawer? What objective does these rules serve?

•    Practice Question: Ida issues a promissory note to Jim. Jim negotiates the note to Kyle. Kyle presents the note for payment and Ida refuses payment. What are the rights of Ida and Kyle in this situation?

Was this article helpful?