Business Law Chapter 27

accommodation indorsers

signs on behalf of a payee or the other holder, and held secondarily liable.

accommodation maker

signs on behalf of the maker, and is held primarily liable on the instrument.

discharge by impairment of recourse

discharge can also occur when a party's right of recourse is impaired.

general rule to signature liability

every party (except qualified indorsers) who sign a negotiable instrument is either primarily or secondarily liable for payment of that instrument when it comes due.

agent

a person who agrees to represent or act for another

transfer warranties

1) the transferor is entitled to enforce the instrument 2) all signatures are authentic and authorized 3) the instrument has not been altered 4) instrument is not subject to a defense or claim of any party that can be asserted against the transferor 5) transferor has no knowledge of any bankruptcy proceedings against the maker, the acceptor, or the drawer of the instrument

types of unauthorized signatures

1) when a person forges another person's name on a negotiable instrument 2) when an agent who lacks the authority signs an instrument on behalf of a principle

federal limitations on the rights of HDC

FTC Rule 433 severely limits the rights of HDCs that purchase instruments arising out of consumer credit transactions. makes the buyer's duty to pay conditional on the seller's full performance of the contract. reduces the degree of transferability of negotiable instruments resulting from consumer credit.

.................April fools. Continue studying.

I got a secret...

Stop!

It's Hammer Time!

acceptor

a drawee, such as a bank, that promises to pay an instrument when it is presented later for payment.

right of recourse

a right to seek reimbursement.

warranty liability

in addition to the signature liability, transferors make certain implied warranties regarding the instruments that they are negotiation. _____ arises even when a transferor does not indorse the instrument. it is not subject to the conditions of proper presentment, dishonor, or notice of dishonor.

discharge by cancellation or surrender

intentional cancellation of an instrument discharges the liability of all parties. Any of the following will discharge liability: 1) writing "PAID" across the face of an instrument 2) intentionally tearing up an instrument 3) crossing out a party's signature. Doing this will discharge that party's liability and the liability of subsequent indorsers who have already signed the instrument. 4) surrendering the instrument (such as a promissory note) to the party to be discharged.

presentment

occurs when a person presents an instrument either to the party liable on the instrument for payment or to a drawee for acceptance.

principal

one who calls upon a agent to act for them

accommodation party

one who signs an instrument for the purpose of lending his or her name as credit to another party on the instrument.

imposter

one who, through deception, induces a maker or drawer to issue an instrument in the name of an impersonated payee.

imposter rule

provides that an imposter's indorsement will be effective - that is, not a forgery - insofar as the drawer or maker is concerned.

marker

refers to the one who creates a promissory note. (When I say 'maker' you say 'note'! Maker! Note! Maker! Note!)

signature

the key to liability on a negotiable instrument. defined as to include any name, word, mark, or symbol that is executed or adopted by a person.

Makers and Acceptors

these two terms refer to people who are the only ones in a part that can be held primarily liable.

presentment warranties

these warranties protect the person to whom the instrument is presented. when a person who presents an instrument for payment or acceptance makes this to another person who in good faith pays or accepts the instrument. 1) person obtaining payment or acceptance is entitled to enforce the instrument or is authorized to obtain payment or acceptance on behalf of a person who is entitled to enforce the instrument. 2) instrument has not been altered 3) person obtaining payment or acceptance has no knowledge that the signature of the drawer of the instrument is unauthorized

recovery for breach of warranty

transferee or holder can recover damages for the breach in an amount equal to the loss suffered (but not more than the amount of the instrument), plus expenses and any loss of interest caused by the breach

primarily liable

unconditional liability. absolutely required to pay the instrument. liability is immediate when the instrument is signed or issued.

personal defenses

used to avoid payment to an ordinary holder of a negotiable instrument. sometimes called limited defenses. are not a defense against an HDC or a holder through an HDC. 1) breach of contract or breach of warranty 2) lack or failure of consideration (the absence of value) 3) fraud in the inducement (ordinary fraud) 4) illegality 5) mental incompetence 6) ordinary duress or undue influence rendering the contract voidable 7) discharge by previous payment or cancellation 8) unauthorized completion of an incomplete instrument 9) nondelivery of the instrument

universal defenses

valid against all holders, including HDC's and holders though HDCs. also called real defenses. 1) forgery of a signature on the installment 2) fraud in the execution (deceived into signing by being told that it is something else) 3) material alteration 4) discharge in bankruptcy 5) minority 6) illegality, mental incapacity, and extreme duress

secondary liability

when a party is under contingent liability (when a drawer or an indorser will be liable only if the party that is primarily responsible for paying the instrument refuses to do so). Parties that can be held this are drawers and unqualified indorsers. Conditions that has to happen: 1) instrument is properly and timely presented 2) instrument is dishonored 3) timely notice of dishonor is given to the secondarily liable part

dishonors

when a party refuses to pay for an instrument

fictitious payee

when a person causes an instrument to be issued to a payee who will have no interest in the instrument. can be a person or firm that does not truly exist, or it may be an identifiable party that will not acquire any interest in the instrument. arise when... 1)a dishonest employee deceives the employer into signing an instrument payable to a party with no right to receive payment on the instrument 2) when a dishonest employee or agent has the authority to issue an instrument on behalf of the employer and issues a check to a party who has no interest in the instrument.

first party

when an indorsement is forged or unauthorized, the burden of loss falls on the ____ to take the instrument with the forged or unauthorized indorsement. (this is the best solution in order to prevent loss).