Legal Definitions - waiver of protest

Waiver of Protest refers to an agreement by a party involved in a financial document, such as a check or a promissory note, to give up their right to a formal legal declaration (known as a "protest") if that document is not paid or accepted when presented.

Normally, a formal protest, often conducted by a notary public, is a specific legal step required to officially establish that a financial instrument was dishonored (not paid or accepted) and to hold certain parties, like endorsers, legally responsible. By agreeing to a waiver of protest, a party essentially says they can still be held liable even without this formal, often time-consuming and costly, step being taken.

• Example 1: Promissory Note for a Small Business Loan

  Imagine a small business owner, Alex, borrows money from a private investor, Brenda, and signs a promissory note promising to repay the loan. To simplify the process if Alex defaults, Brenda includes a clause in the promissory note stating, "Protest Waived."

  This illustrates waiver of protest because if Alex fails to make payments on the note, Brenda does not need to hire a notary public to formally "protest" the note to establish its dishonor. The "Protest Waived" clause means Brenda can directly pursue legal action against Alex for the unpaid amount, as Alex has already agreed to forgo the right to that formal notification step.

• Example 2: Endorsed Check with a Waiver

  Sarah receives a check from a client and, instead of depositing it, endorses it over to her landlord, Mark, to pay her rent. On the back of the check, above her signature, Sarah writes, "Protest Waived." Mark deposits the check, but it bounces due to insufficient funds in the client's account.

  This illustrates waiver of protest because by writing "Protest Waived," Sarah has agreed that if the check is dishonored, Mark does not need to go through the formal legal procedure of having a notary public certify its dishonor. Mark can immediately seek payment directly from Sarah, holding her liable as an endorser, without the additional step of a formal protest.

• Example 3: International Bill of Exchange

  A company in Germany, Exporter GmbH, ships goods to a buyer in the United States, Importer Inc. Exporter GmbH draws a bill of exchange on Importer Inc.'s bank, requiring payment within 60 days. The bill of exchange explicitly states, "Protest of dishonor waived by all parties." When the bill is presented to Importer Inc.'s bank, the bank refuses to accept it.

  This illustrates waiver of protest because in international trade, formally protesting a dishonored bill of exchange can be a complex and expensive process involving foreign notaries and legal procedures. Due to the "Protest of dishonor waived" clause, Exporter GmbH can immediately hold Importer Inc. and any other liable parties responsible for the non-acceptance without needing to complete the formal protest, thereby streamlining the process of seeking payment for their goods.