Demand draft

A demand draft is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified party (payee).[1][2]

A specimen demand draft.

A demand draft can also be compared to a cheque. However, demand drafts are difficult to countermand. Demand drafts can only be made payable to a specified party, also known as pay to order. But, cheques can also be made payable to the bearer. Demand drafts are orders of payment by a bank to another bank, whereas cheques are orders of payment from an account holder to the bank.[1]

Definitions and regulations by region

Demand drafts are also known as sight drafts, as they are payable when presented by sight to the bank.[2] Under UCC 3-104, a draft has been defined as a negotiable instrument in the form of an order.[2][3] The person making the order is known as the drawer and the person specified in the order is called the drawee, as defined in the UCC 3-103. The party who creates the draft is called the maker, and the party who is ordered to pay is called the drawee.[2][4]

In US, remotely created cheques are also called demand drafts. Remotely created cheques are orders of payment created by the payee and authorized by the customer remotely, using a telephone or the internet by providing the required information including the MICR code from a valid cheque. They do not bear the signatures of the customers like ordinary cheques. Instead, they bear a legend statement "Authorized by Drawer". This type of instrument is usually used by credit card companies, utility companies, or telemarketers. Remotely created cheques are susceptible to fraud.[5][6]

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See also

References
  1. S S Gulshan (1 January 2009). Business Law. Excel Books India. p. 285. ISBN 978-81-7446-689-1. Retrieved 1 January 2015.
  2. Roger Miller; Gaylord Jentz (26 September 2007). Cengage Advantage Books: Business Law Today: The Essentials. Cengage Learning. p. 417. ISBN 0-324-65454-5. Retrieved 1 January 2015.
  3. "Uniform Commercial Code: 3-104 Negotiable Instrument". Legal Information Institute. Retrieved 1 January 2015.
  4. "Uniform Commercial Code: 3-103 Definitions". Legal Information Institute. Retrieved 1 January 2015.
  5. The Code of Federal Regulations of the United States of America. U.S. Government Printing Office. 2006. pp. 662–663. Retrieved 1 January 2015.
  6. "Remotely Created Checks". Federal Financial Institutions Examination Council. Archived from the original on 2 January 2015. Retrieved 1 January 2015.
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