BLRB27 - Business Law and the Regulation of Business...

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Unformatted text preview: Business Law and the Regulation of Business Regulation Chapter 27: Liability of Parties Chapter By Richard A. Mann & Barry S. Roberts Topics Covered in this Chapter Topics I. Contractual Liability I. A. Signature A. B. Liability of Primary Parties C. Liability of Secondary Parties D. Termination of Liability D. II. Liability Based on Warranty II. A. Warranties on Transfer B. Warranties on Presentment Contractual Liability Contractual s Liability on the Instrument – no person has contractual liability on an instrument unless her signature appears on it. appears Contractual Liability Contractual Party Maker Acceptor Drawer Instrument Note Draft Unaccepted draft Draft accepted by a nonbank Cashier’s check Draft drawn on drawer Draft accepted by a bank Draft (not check) drawn without recourse Note or draft Draft subsequently accepted by a bank Note or draft indorsed without recourse Draft Liability Conditions Unconditional None Unconditional None Conditional Conditional Unconditional Unconditional None None Conditional None None None Dishonor Dishonor and notice None None Indorser Dishonor and notice Drawee Signatures Signatures s s s A signature may be made by the individual signature herself or by her authorized agent. herself Authorized– an agent who executes a negotiable instrument on behalf of his principal is not liable if the instrument is executed properly and as authorized. executed Unauthorized–forgeries and signatures forgeries made by an agent without power; generally not binding on the person whose name appears but are binding on the unauthorized signer. signer. Liability of Primary Parties Primary Liability – absolute obligation to pay a negotiable instrument. to s Makers – the maker guarantees that he will pay the note according to its original terms. terms. s Acceptors – a drawee has no liability on the instrument until she accepts it; she then becomes primarily liable. she s Acceptors Acceptors Acceptance – a drawee's signed engagement to honor the instrument. engagement s Certification – acceptance of a check by a bank. by s Effect of Acceptance – when a draft is accepted by a bank the drawer and all prior indorsers are discharged from contractual liability. s Liability of Secondary Parties s s s Secondary (Conditional) Liability – obligation to pay a negotiable instrument that is subject to conditions precedent. is Indorsers and Drawers – if the instrument is not paid by a primary party and if conditions are satisfied, indorsers and drawers are secondarily liable unless they have disclaimed their liability or have a valid defense. their Disclaimer by Secondary Parties – a drawer (except of a check) or indorser may disclaim liability by a qualified drawing or indorsing (“without recourse”). (“without Conditions Precedent to Liability Conditions Drawer – liability is generally only contingent upon dishonor and does not require notice. require s Indorser – liability is contingent upon dishonor and notice of dishonor. dishonor s Liability for Conversion s Tort Liability – conversion occurs (1)­ conversion when a drawee refuses to return a draft when that was presented for acceptance, (2)­ that when any person refuses to return an when instrument after he dishonors it, or (3)­ instrument when an instrument is paid on a forged when indorsement. indorsement. Termination of Liability s Effect of Discharge – potential liability of parties to the instrument is terminated upon: – – – Discharge Performance Tender of Payment – for interest, costs, and Tender attorney's fees attorney's – Cancellation – Renunciation – Liability Based on Warranty Warranties on Transfer Parties Warranties Warrantor – any person who transfers an instrument and receives consideration gives the transferor's warranties. warranties. s Beneficiary – if the transfer is by delivery, the warranties run only to the immediate transferee; if the transfer is by indorsement, the warranties run to any subsequent holder who takes the instrument in good faith. instrument s Warranties on Transfer Parties Warranties Entitled to Enforce s All Signatures Are Authentic & All Authorized Authorized s No Alteration s No Defenses s No Knowledge of Insolvency s Liability on Transfer Liability Transfer by Indorsement Pay to John Doe /s/Lilli Justin Transfer by Qualified Indorsement Pay to John Doe without recourse /s/Lilli Justin Transfer without Indorsement Pay to John Doe Transferor’s Warranties Subsequent Holders Modified Transsferor’s Warranties Subsequent Holders Transferor’s Warranties Subsequent Holders + Indorser’s Liability Subsequent Holders + Indorser’s Liability + Indorser’s Liability Warranties on Presentment Parties Warranties Entitled to Enforce s No Alteration s Genuineness of Drawer's Signature s Liability Based on Warranty Liability 1. Entitled to enforce 2. No alterations 3. No knowledge that signature of drawer is unauthorized Presenter’s Warranties (PW) PW PW PW Presents H2 $ TW TW $ Drawee Issues Drawer P Indorses H1 $ TW Indorses Transferor’s Warranties (TW) 1. Entitled to enforce 2. All signatures authorized and authorized 4. No defenses 5. No knowledge of insolvency proceedings 3. No alterations ...
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