Ch 24- liability, defenses, and discharge

warranty liability

- Certain warranties implied on transferors of negotiable instruments - is imposed whether or not the transferor signed the instrument

Any person transferring an instrument for consideration warrants that:

- The transferor has good title to the instrument or is authorized to obtain payment or acceptance on behalf of one who does have good title - All signatures are genuine or authorized - The instrument has not been materially altered - No defenses of any party are good against transferor - The transferor has no knowledge of any insolvency proceeding against the maker, the acceptor, or the drawer of an unaccepted instrument

requirements for imposing secondary liability

- instrument is properly presented for payment - instrument is dishonored - notice of the dishonor is timely given to the person to be held secondarily liable on the instrument

presentment warranties example

A draws check 1000 payable to B B cleverly raises to 10,000 and negotiates it to C C goes to bank and gets 10,000 debit A account of 10,000 C can recover from B A can recover from bank

transfer warranties example

A signs promissory note to B, 1000 B raise 1000 to 10,000 and negotiates with C C negotiates with D A only pays D original amount of 1000 D can collect remaining from C C can collect remaining from B if lucky

Primary liability

Absolute liability to pay negotiable instrument subject to certain universal defenses - drawee that refuses to pay a draft or check is not liable to payee or holder until there has been wrongful dishonor of the instrument

signature

Any name, word, or mark used in lieu of a written signature - handwritten, typed, printed, stamped, symbol in any other manner - Executed or adopted by a party with intent to authenticate a writing - allows trade name or assumed name to be used on NI

presentment warranties

Any person who presents a draft or check for payment or acceptance warrants: - The presenter has good title to the instrument or is authorized to obtain payment or acceptance of the person who has good title - The instrument has not been materially altered - The presenter has no knowledge that the signature of the maker or drawer is unauthorized

personal defenses

Breach of contract Fraud in the inducement Mental illness that makes a contract voidable instead of void Illegality of a contract that makes the contract voidable instead of void Ordinary duress or undue influence Discharge of an instrument by payment or cancellation

forged exception: imposter rule

If an imposter forges the indorsement of the named payee, the drawer or maker, is liable on the instrument to any person who, in good faith, pays the instrument or takes it for value or for collection -사기꾼을 막을 수 있었던 사람 (첵을 써준사람)이 liable - 에이전트라고 하고 속였으면 스토어가 liable. may recover if imposter can be found

universal defenses

Minority Extreme duress Mental incapacity Illegality Discharge in bankruptcy Fraud in the inception Forgery Material alteration

effect of personal defenses

Personal defenses cannot be raised against a holder in due course

effect of universal defenses

Real defenses can be raised against a holder in due course

signature liability (contract liability)

a person cannot be held contractually liable on a negotiable instrument unless their signature appears on the instrument

guarantee of payment

accommodation party is primarily liable on the instrument -debtor can seek payment on the instrument directly from the accommodation maker without first seeking payment from the maker -크레딧이 없어서 엄마가 대신 사인해주면 엄마 - primary liable

guarantee of collection

accommodation party is secondarily liable on the instrument - must indicate words that he/she is guaranteeing collection rather than payment of the obligation only if 1. execution of judgement against the other party has been returned unsatisfied 2. other party is insolvent or in an insolvency proceeding 3. other party cannot b e served with process 4. otherwise apparent that payment cannot be obtained from the other party

Discharge

actions or events that relieve certain parties from liability on negotiable instruments

signor

acts in the capacity of endorser who endorses an instrument agent who signs on behalf of others accommodation party

personal defenses

breach of contract fraud in the inducement mental illness/illegality that makes a contract voidable instead of void

universal real defenses

can be raised against both holders and HDCS

holder

can use the court system to enforce the instrument if payment is not made on a negotiable instrument when it is due

implied warranties

certain warranties that the law implied on transferors of negotiable instruments

check is accepted when

certified by the bank -certification discharges drawer and all prior indorsers - The issuer of a cashier's check is primarily liable on the instrument

personal defenses

defense that can be raised against enforcement of a negotiable instrument by an ordinary holder bu t not against an HDC

presentment

demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder (can be made by any commercially reasonable means) - effective when it is received by the person to whom presentment i made

universal real defenses

discharge in bankruptcy fraud in the inception forgery and material alteration

no party is primarily liable when

draft or check is issued - drawer has secondary liability

if drawee signs "accepted"

drawee becomes primarily liable

fictitious payee rule

drawer is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer intends the named payee to have no interest in the instrument or when the person identified as the payee is a fictitious person -이웃에게 첵을 쓴 직원 --> 회사가 스토어 보다 liable

forged indorsement (위조)

forged signature of a payee or holder on a negotiable instrument - Forged indorsement of a person ineffective to bind that person (i.e. the one whose signature was forged). - loss falls on party who first takes forged instrument

notice of dishonor

formal act of letting the party with secondary liability to pay a negotiable instrument know that the instrument has been dishonored

accommodation party liability

guarantee of payment guarantee of collection

liable

if agent signed only his or her name and cannot show that the parties intended to bind only prinicpal

one exception to agent's signature rule

if an agent signs his/her name as the drawer of check without indicating the agent's representative status and the check is payable from the account of the principal who is identified on the check, not liable

Primarily liable

if drawee accepts a draft or check, drawee

not liable

if signature shows unambiguously that it is made on behalf of a principal who is identified in the instrument if signature shows that the agent signed on behalf of the principal

universal real defenses

minority extreme duress mental incapacity illegality

principal

not liable for unauthorized signature

Secondary liability

only when the party primarily liable on the instrument defaults and fails to pay the instrument when due - similar to that of a guarantor of a simple contract - if bank refuses to pay money for check, the drawer (수표써준사람) need to give money to drawee

personal defenses

ordinary duress or undue influence discharge of an instrument by payment or cancellation

accommodation party

party who signs an instrument and lends his or her name (and credit) to another arty to the instrument -accommodation party who may sign an instrument as maker, drawer, acceptor, indorser is obliged to pay instrument in the capacity in which he/she signs - can recover reimbursement from accommodated party and enforce the instrument against him or her

methods of discharges

payment of the instrument cancellation impairment of the right of recourse

signer

person signing an instrument who acts in the capacity of - a maker of notes or certificates of deposit - drawer (수표발행인) of drafts or checks - drawee (수표지급인) who certifies or accepts checks or drafts - An indorser who indorses an instrument - An agent who signs on behalf of others - An accommodation party

principal

person who authorizes an agent to sign a negotiable instrument on his or her behalf

agent

person who has been authorized to sign a negotiable instrument on behalf of another person

accommodation maker

primarily liable

Makers of promissory notes and cds have

primary liability for the instrument Unconditionally promise to pay amount stipulated in the note when due Absolutely liable to pay the instrument subject only to certain universal defenses

agents signature

principal is bound if agent signs either or both names - representative is agent - represented principal

FTC HDC rule

rule adopted by the Federal Trade Commission that eliminates HDC status with regard to negotiable instruments that arise out of certain consumer credit transactiosn

accommodation indorsor

secondary liable

unauthorized signature

signature made by a purported agent without authority from the purported principal

signature on the lower right corner of check means

signer is the drawer of the check

signature on the lower right corner of promissory note

signer is the maker of the note

impairment of the right of recourse

situation in which certain parties are discharged from liability on an instrument if the holder releases an obligor from liability or surrenders collateral without consent of the parties who would benefit by it

UCC

specifies when and how certain parties are discharged from liability on negotiable instruments

unqualified indorsers

those who are secondarily liable on negotiable instruments they endorse - he/she must pay any dishonered instrument to the holder or to any subsequent indorser according to its terms when issued or completed ex) A borrows 10 from B B negotiates it to C C negotiates it to D A refuses to pay to D C, secondary liable person, need to pay C goes to B, B needs to pay B can go to A, A needs to pay D could have skipped C and go to B because it was signed after payee

qualified indorsers

those who disclaim liability and are not secondarily liable on instruments they endorse - those who indorse with " without recourse" sign ; disclaim all liability

types of implied warranties

transfer warranties presentment warranties

dishonored instrument

when acceptance or payment of the instrument is refused or cannot be obtained from the party required to accept or pay the instrument within the prescribed time after presentment i duly made

signature on a negotiable instrument identifies

who is obligated to pay it -if it is unclear who the signer is, parol (구두) evidene can identify the signer