A check is dishonored when it is presented for payment to the payor bank (for situations other than immediate payment over the counter) and the bank makes timely return of the check or sends timely notice of dishonor or nonpayment.

What Kinds of Questions Come up When a Check is Dishonored?

Four possible problems may exist where there is dishonor or other nonpayment of a check by a bank and these problems are typically dealt with in the policy form given to new bank customers when they open an account: 

  • Liability of a bank for wrongful dishonor
  • The requirement of giving notice of dishonor
  • The requirement of protest with respect to dishonored checks
  • The rights and duties of a bank in returning and charging back a check that is dishonored or otherwise unpaid

How often are Checks Dishonored?

Problems of dishonor or other return of unpaid checks probably embrace no more than .5% of all checks handled by banks for purposes of collection and payment and only about .025% in dollar amount of all checks handled. In addition, approximately 50% of all checks returned unpaid are eventually paid.

Is a Bank Liable if They Wrongfully Dishonor my Check?

When a bank receives funds for deposit in a checking account, the bank impliedly agrees to honor proper orders or checks on the account, as long as the depositor’s account has sufficient funds in it to cover payment. A bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item. When the dishonor occurs through mistake liability is limited to actual damages proved. If caused and proved, damages may include damages for an arrest or prosecution of the customer or other consequential damages related to the writing and dishonoring of the check.

Are Punitive Damages Available from a Bank When they Dishonor a Check?

The predominant law on the subject (the Uniform Commercial Code) does not specifically deny the right to sue for punitive damages for dishonoring a check. Therefore, a number of courts allow a punitive damages claim for a bank customers providing the customer can show malicious behavior on the part of the bank.