Commercial Paper- how does the defendant get sued?

Question 1

Two Theories

Answer 1

Contract or Signature Liability

Warranty or Transfer Liability

Question 2

Contract or Signature Liability

Answer 2

Defendant signed the negotiable instrument.

Drawee does not sign and therefore cannot be sued under this theory

Question 3

“Without recourse”

Answer 3

Term of art used by indorsors and drawers.

It represents a disclaimer or liability.

Passes title but assumes no signature liability.

Question 4

Warranty or Transfer Liability- Who can be sued?

Answer 4

Basically seller’s liability for selling a defective instrument.

Seller’s may be sued for breach of warranty, not donors.

Question 5

Who is entitled to sue for breach of warranty?

Answer 5

If defendant indorsed the instrument (i.e. signed on the back), any plaintiff in possession may sue. When Defendant indorses, warranties run with the instrument.

If D did not indorse, only the D’s immediate transferee may sue. The warranties will not run with the land.

Question 6

Five warranties made by defendant

Answer 6

1- Plaintiff has good title to the instrument
2- All sigatures are genuine and authorized (forgery is a breach)
3- No material alteration (tampering makes instrument defective)
4- No defense or claim good against the defendant, meaning it is enforceable
5- D has no knowledge of any bankruptcy or insolvency against the maker or drawer