what is wrongful dishonor 
the term wrongful dishonor refers to a bank s failure to honor a valid negotiable instrument such as a check or draft that has been presented to it for payment if the instrument is valid and there are enough funds to cover it a bank s failure to honor the instrument within the time period stipulated by the uniform commercial code ucc would constitute wrongful dishonor understanding wrongful dishonorthe uniform commercial code is a set of laws and regulations that outline how to conduct business the code was created and adopted to help make it easier for companies to do business across state lines the code contains nine articles that cover things like general provisions letters of credit the sale of goods and services and investment securities the fourth article covers checks drafts and other negotiable instruments under article 4 section 402 of the code a bank wrongfully dishonors a negotiable instrument such as a check or a draft if it refuses payment even though the instrument is properly payable meaning that it has been authorized by the customer and is in accordance with the bank s agreement with that customer a bank may choose to dishonor an instrument due to insufficient funds at any time between the receipt of that instrument and the time that the payer bank returns the instrument or when it gives notice of dishonor only one such determination is necessary however if the bank later decides to reevaluate that decision to dishonor it should use the customer s account balance as it stands at that later time in its reevaluation it s up to the courts to decide whether consequential damages are in fact the result of the wrongful dishonor a payer bank is liable to its customer for damages caused by the wrongful dishonor of an instrument the bank s liability is limited to actual provable damages including any potential consequential damages the damages can include those for actions such as arrest or prosecution of the customer caused by the wrongful dishonor of the instrument in question special considerationsthere are cases when a bank may dishonor a negotiable instrument without violating the terms of the ucc under the rules of the code a bank may dishonor an instrument if honoring it would create an overdraft of the customer s account that is of course unless the bank has a preexisting agreement to honor that customer s overdrafts so if a customer has overdraft protection on their account the bank will generally honor the check or draft example of wrongful dishonora widely studied case of wrongful dishonor is that of loucks v albuquerque national bank the plaintiff loucks owned l m paint and body shop with a partner martinez as a partnership they held a checking account with the defendant bank albuquerque national bank loucks owed the bank an individual debt of 402 but the bank charged that debt to the partnership s checking account even though it knew that it was not a partnership debt the bank began dishonoring multiple checks drafted against the partnership s account because the debit of 402 left the account with insufficient funds the two plaintiffs sued the bank for the 402 plus several thousand in damages they were ultimately awarded only the 402 as the court found that there was no basis for wanton conduct on the part of the defendant bank 