CH33 - CHAPTER 33 LIABILITY OF PARTIES I OBJECTIVES The...

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CHAPTER 33 LIABILITY OF PARTIES I. OBJECTIVES: The objective of this chapter is to explain the various ways a person can become liable on a negotiable instrument and the nature of the liability incurred. The chapter also discusses the various ways that liability can be discharged. After reading the chapter and attending class, a student should: A. Understand contractual liability on an instrument, especially how it arises, and know the difference between primary and secondary liability. B. Understand the role of presentment in contractual liability. C. Know what warranties are made by transferors and presenters, and understand how these warranties operate. D. Know what events or actions discharge a signer or indorser from contractual liability. II. ANSWER TO INTRODUCTORY PROBLEM A. The first question following the hypothetical that appears at the beginning of the chapter ask what liability a person assumes by indorsing a check that is payable to you and then “cashing “ the check at a check-cashing service. An indorser is secondarily liable and obligated on dishonor of the instrument to pay the amount due on the instrument according to its terms at the time he indorsed it or if he indorsed it when it was incomplete, then according to its terms when completed, provided that it is completed as authorized. The obligation is owed to a person entitled to enforce the instrument or to any subsequent indorser who had to pay it. B. The second question asks what the liability of a drawer that makes a check out in a way that allows someone else to raise the amount of the check. If a person has been negligent in writing or signing a negotiable instrument, Article 3 precludes her from using the alteration as a reason for noting paying a person that in good faith pays the instrument or takes if for value C. The third question asks for the rights of an employer who has a dishonest employee who makes out checks payable to fictitious payees and cashes them for her own benefit. The UCC allows any indorsement in the name of the fictitious payee to be effective as the payee’s indorsement in favor of any person that pays the instrument in good faith or takes it for value or collection. This forces the loss back on the employer of the faithless employee unless he can locate and recover the money from employee. III. SUGGESTIONS FOR LECTURE PREPARATION: A. Introduction/Liability in General. Outline the various liabilities of persons who sign, transfer, or pay for negotiable instruments. This introduction should include the obligations of signers, warranties made by transferors and presenters, and liability for conversion of instruments. B. Contractual Obligations 1. Generally. Note that the obligation of signers is also termed liability on the instrument . These obligations are incurred by persons who sign instruments, and should be
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CH33 - CHAPTER 33 LIABILITY OF PARTIES I OBJECTIVES The...

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