Ft. Washington, MD asked in Contracts and Banking for Maryland

Q: Does the dawer of a negotiable instrument such as a check have the right to get the amount even if it’s not in the acc?

A bill of exchange such as a check is payable on demand and if it isnt, the bank is obligated to pay it according to the Bill of Exchange correct?

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1 Lawyer Answer
Kenesha A Raeford
Kenesha A Raeford
  • Business Law Lawyer
  • Columbia, MD
  • Licensed in Maryland

A: In your specific example, with a check, the answer is almost always no. I don't know of any bank that would issue payment to a check payee when there are insufficient funds in the account. When a customer sets up an account with the bank they usually sign an agreement that entitles them to be an account holder with that bank. That agreement typically includes some language that states that the bank will not permit the withdrawal of more funds than have actually been deposited into the account. When you receive a check, the bill of exchange creates a contract between yourself and the payor, not you, the payor, and the bank. The bank is simply a third party, that will move and transfer funds as directed, but subject to the terms of the agreement they share with the account holder. However, there are several different types of bills of exchange. A check is considered to be a trade draft which is one of the simplest and least secure bills of exchange. A bank draft, by contrast, will allow the bank to act as a guarantor of payment and should be payable on demand. This would include items like cashier's checks and money orders.

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