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Dishonor is the refusal to honor and pay an instrument (e.g. a check) that is presented for payment or settlement. A bank or other financial institution can choose to dishonor an instrument if the institution has a valid reason to do so such as fraud, forgery, or insolvency of the person who originally gave the instrument to the drawer. When the institution chooses to do this however, it must give a timely notice of dishonor to the drawer or whoever has presented the instrument. 

If the institution, specifically a bank, cannot provide a valid reason for why it has dishonored the instrument, it has wrongfully dishonored. Under the Uniform Commercial Code, the bank is liable to its customer for damages caused by the wrongful dishonor under §4-402

[Last updated in June of 2021 by the Wex Definitions Team]