Legal Definitions - certificate of dishonor

Definition: A certificate of dishonor is a notice given to the indorser of a financial instrument, such as a check or promissory note, that the payment or acceptance of the instrument has been refused. This notice is a requirement for the indorser's secondary liability.

Example: If John writes a check to Jane, and Jane tries to cash it but the bank refuses to honor it due to insufficient funds, the bank will issue a certificate of dishonor to Jane. This notice informs Jane that the check was not accepted and that she may have to seek payment from John.

Explanation: The certificate of dishonor is an important legal document that protects the rights of the parties involved in a financial transaction. It notifies the indorser that they may be held liable for the payment of the instrument and gives them the opportunity to take action to protect themselves. In the example given, Jane can use the certificate of dishonor to demand payment from John or take legal action if necessary.