Liability of Parties in Negotiable Instruments: Contractual Obligations and Warranties, Study notes of Business and Labour Law

Download Liability of Parties in Negotiable Instruments: Contractual Obligations and Warranties and more Study notes Business and Labour Law in PDF only on Docsity! CHAPTER 27 LIABILITY OF PARTIES
Chapter 27 LIABILITY OF PARTIES I. Contractual Liability c. Presentment and Notice of A. Signature Dishonor Excused 1. Authorized Signatures 6. Liability for Conversion 2. Unauthorized Signatures D. Termination of Liability a. Ratification of Unauthorized 1. Payment Signature 2. Tender of Payment b. Negligence Contributing to 3. Cancellation and Renunciation Forged Signature II. Liability Based on Warranty B. Liability of Primary Parties A. Warranties on Transfer 1. Makers 1. Entitlement to Enforce 2. Acceptors 2. Authentic and Authorized Signatures C. Liability of Secondary Parties 3. No Alteration 1. Drawers 4. No Defenses 2. Indorsers 5. No Knowledge of Insolvency 3. Effect of Acceptance B. Warranties on Presentment 4. Disclaimer of Liability by 1. Drawees of Unaccepted Drafts Secondary Parties a. Entitled to Enforce 5. Conditions Precedent to Liability b. No Alteration a. Dishonor c. Genuineness of Drawer's Signature b. Notice of Dishonor 2. All other Payors NOTES I. CONTRACTUAL LIABILITY Makers of promissory notes and acceptors (drawee on acceptance) of drafts are __primarily___ liable for payment on the instrument; their liability is absolute if they have no valid claim or defense against the holder. __Indorsers____ on any instrument are secondarily liable, i.e., subject to dishonor and notice of dishonor. The liability of drawers of drafts and checks is also ___conditional___ because it is contingent upon the drawee's dishonor of the instrument.
LIABILITY OF PARTIES CHAPTER 27 A. SIGNATURE This term is broadly defined to include any name, word, or ___mark___ — handwritten, typed, printed, or any other form, intended to ___authenticate___ the instrument. Authorized Signatures Although agents may sign negotiable instruments on behalf of their __principal___, they must do so in such a manner that their representative ___capacity___ is disclosed and the identity of the principal is given. Otherwise, the agent becomes personally liable on the instrument. The three most common incorrect forms of signatures by agents and the liability that results from each are: 1. An agent signs only ___his own name___ to an instrument. 2. An authorized agent indicates that he is signing as a representative but does not ___disclose____ the name of his principal. 3. An agent signs both his name and his principal’s name but does not indicate that he is an agent, making them appear as ____co-makers____. In all three situations, the agent is liable on the instrument only to a ___holder in due course___ without notice that the agent was not intended to be liable. Because contract and agency law determine the principal's liability on the instrument, the principal is liable to all holders. Under Revised Article 3, if a representative (an agent) signs his name as the drawer of a __check___ without indicating his representative status and the check is payable from an account of the represented person (the principal) who is identified on the check, the representative is not liable on the check if he is an authorized agent Unauthorized Signatures Includes forgeries and signatures by an agent who lacks the proper ____authority___. Unauthorized signatures will impose liability on the ___signer___ regardless of whose name appears on the instrument. ____RAtification____ of Unauthorized Signature — Makes the signature valid and relieves the actual signer from liability for the instrument, but not from action taken by the person whose name was forged. Negligence Contributing to Forged Signature — The person whose name has been forged is not bound unless his ___negligence____ contributed to the making of the unauthorized CHAPTER 27 LIABILITY OF PARTIES
within ___30 days following the day on which the person receives notice of dishonor. Presentment and Notice of Dishonor Excused — Presentment is __excused__ by the UCC in several situations, such as if the party to present the instrument cannot do so, or if the maker or acceptor will not or cannot pay. Notice of dishonor is excused if the instrument does not require notice to hold the party liable. NOTE: See Concept Review: Contractual Liability. Liability for Conversion A person who wrongfully takes control over another person's property is liable in ___tort___ for conversion. Conversion occurs where an instrument is “taken by transfer, other than negotiation, from a person not entitled to enforce the instrument or a bank makes or obtains payment ... for a person not entitled to enforce the instrument...” D. TERMINATION OF LIABILITY Payment When a party pays the holder, the liability on the instrument is discharged. The person making payment should take the instrument or have it canceled by marking __paid__or "___cancelled__" so that it cannot be transferred to a subsequent holder in due course. Tender of Payment Tender of __full__ payment discharges the party from all subsequent liability for interests, costs, and attorney's fees. Refusal of tender does not discharge liability for the face amount and interest accrued at the time of tender, but it does ___wholly___ discharge every party who has a right of recourse against the party making tender. Cancellation and Renunciation __Intentional__ destruction, mutilation, or the striking of a party's signature by the party with enforcement rights will effect a cancellation even without consideration. ___renunciation___ may also be effected by a signed writing that is delivered, except as against a subsequent holder in due course without knowledge. II. LIABILITY BASED ON WARRANTY Presentment and transferor warranties are effective even though the ___prior___ holder of the instrument fails to sign the instrument or signs without recourse. However, whether subsequent holders have indorsed the instrument will impact on the extent of warranty coverage. These warranties are __NOT__ disclaimed by a “without recourse” indorsement.
LIABILITY OF PARTIES CHAPTER 27 NOTE: See Figures 27-2 and 27-3. A. WARRANTIES ON TRANSFER Transferor warranties are operative if consideration is received in return for negotiation or assignment of the instrument. Transfers by ___delivery___ alone have warranties for the immediate transferee only; transfers by indorsement carry warranties to any subsequent transferee. Entitlement to Enforce A transferor warrants that he is entitled to __enforce___ the instrument. This warranty essentially guarantees that there are no unauthorized or missing indorsements. Authentic and Authorized Signatures __All__ signatures are warranted to be authentic and authorized. No Alteration This makes the transferor liable to the transferee for the __difference__ between the amount the instrument was originally written for and the forged amount. No ___defenses___ A guarantee that the instrument is not subject to a defense or claim in recoupment of any party. No Knowledge of Insolvency No knowledge of insolvency proceedings initiated by the maker, acceptor, or drawer of an unaccepted instrument; includes __bankruptcy__ and “any assignment for the benefit of creditors or other proceedings intended to __liquidate__ or rehabilitate the estate of the person involved.” NOTE: See Figure 27-1. B. WARRANTIES ON PRESENTMENT These warranties are made to a __drawee__ bank or maker by any person who obtains CHAPTER 27 LIABILITY OF PARTIES
payment. Drawees of Unaccepted Drafts Includes uncertified checks; receives a presentment warranty from the person obtaining payment or acceptance and from all prior transferors. These parties warrant to the drawee that: they are entitled to enforce the draft, it has not been altered, and they have no knowledge of an unauthorized signature. Entitled to Enforce — Same as transferor warranty except that it also covers the ___genuineness___ of the indorsers' signatures (but not that of the drawer or maker). No Alteration — If the presenter’s warranty of no alteration is breached, the drawee can collect the difference from all warrantors, but __cannot___ charge the drawer for more than was authorized. Genuineness of Drawer’s Signature — Warrants that there is no knowledge of unauthorized signatures by the drawer, putting the ___risk___ upon the drawee if the signature is indeed unauthorized. NOTE: See Figure 27-2. All Other Payors In all instances other than a drawee of an unaccepted draft (including an uncertified check), the only presentment warranty given is that the warrantor is ___entitled to enforce___ the instrument or receive payment.