Chapter 29

Chapter 29 - Chapter 29: Chapter Liability of Parties BUL...

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Unformatted text preview: Chapter 29: Chapter Liability of Parties BUL 3350 - Chapter 29 1 Topics Covered in this Chapter 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 BUL 3350 - Chapter 29 2 Contractual Liability Liability on the Instrument – no person has contractual liability on an instrument unless her signature appears on it. unless BUL 3350 - Chapter 29 3 Contractual Liability 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 BUL 3350 - Chapter 29 4 Dishonor Dishonor and notice None None Indorser Dishonor and notice Drawee Signatures 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. properly Unauthorized–forgeries and signatures made forgeries by an agent without power; generally not binding on the person whose name appears but are binding on the unauthorized signer. but BUL 3350 - Chapter 29 5 Liability of Primary Parties Liability Primary Liability – absolute obligation to pay a negotiable instrument. to Makers – the maker guarantees that he Makers will pay the note according to its original terms. terms. Acceptors – a drawee has no liability on Acceptors the instrument until she accepts it; she then becomes primarily liable. then BUL 3350 - Chapter 29 6 Acceptors Acceptance – a drawee's signed Acceptance engagement to honor the instrument. engagement Certification – acceptance of a check by Certification a bank. bank. Effect of Acceptance – when a draft is Effect accepted by a bank the drawer and all prior indorsers are discharged from contractual liability. BUL 3350 - Chapter 29 7 Liability of Secondary Parties Liability Secondary (Conditional) Liability – obligation Secondary to pay a negotiable instrument that is subject to conditions precedent. conditions Indorsers and Drawers – if the instrument is not Indorsers 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. or Disclaimer by Secondary Parties – a drawer Disclaimer (except of a check) or indorser may disclaim liability by a qualified drawing or indorsing (“without recourse”). (“without BUL 3350 - Chapter 29 8 Conditions Precedent to Liability Drawer – liability is generally only Drawer contingent upon dishonor and does not require notice. require Indorser – liability is contingent upon Indorser dishonor and notice of dishonor. dishonor BUL 3350 - Chapter 29 9 Liability for Conversion Liability 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. BUL 3350 - Chapter 29 10 Termination of Liability Termination 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 BUL 3350 - Chapter 29 11 Warranties on Transfer Parties Warrantor – any person who transfers Warrantor an instrument and receives consideration gives the transferor's warranties. gives Beneficiary – if the transfer is by Beneficiary 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 BUL 3350 - Chapter 29 12 Warranties on Transfer Parties Entitled to Enforce All Signatures Are Authentic & All Authorized Authorized No Alteration No Defenses No Knowledge of Insolvency BUL 3350 - Chapter 29 13 Liability on Transfer 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 BUL 3350 - Chapter 29 14 + Indorser’s Liability Subsequent Holders + Indorser’s Liability + Indorser’s Liability Warranties on Presentment Parties Warrantor – all people who obtain Warrantor payment or acceptance of an instrument as well as all prior tranferors give the presenter's warranties. presenter's Beneficiary – the presenter's warranties Beneficiary run to any person who in good faith pays or accepts an instrument. or BUL 3350 - Chapter 29 15 Warranties on Presentment Parties Entitled to Enforce No Alteration Genuineness of Drawer's Signature BUL 3350 - Chapter 29 16 Liability Based on Warranty 1. Entitled to enforce 2. No alterations 3. No knowledge that signature of drawer is unauthorized Presenter’s Warranties (PW) PW PW Issues Drawer P Indorses H1 $ TW Indorses H2 $ TW TW PW Presents Drawee $ 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 BUL 3350 - Chapter 29 17 ...
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