Commercial Paper: Liabilities & Discharge of Duties

Question 1

Negotiable Instruments:

Contract Liabilitiy

Answer 1

Primary Party Liability:
- Makers of CDs
- Drawee's of Drafts (we do not skip the bank)
Secondary Liability:
- drawers of check or draft
- Indorsers (unqualified)
Accommodation Party Liability:
- accommodation party signs instrument to lend their name to guaranty liability of accommodated party
- they take primary liability
- treated as a surety or guarantor

Question 2

Negotiable Instruments:

Warranty Liabilitiy

Answer 2

Transferor Warranty Liability: General and qualified endorsers make the following warranties:
- Good Title
- All Signatures are Genuine
- Instrument has not been altered
- Not subject to claim or defense by another party against transferor
- No knowledge of any insolvency proceeding against maker, acceptor, or drawer.
Nonindorsers:
- give same warranties only to their immediate transferee
Presentment Warranties:
- person obtaining payment is authorized
- instrument not altered
- no knowledge that signature of drawer is unauthorized
Cannot be disclaimed by presenters of checks

Question 3

Negotiable Instruments:

Defenses

Answer 3

Personal Defenses:
- Mistake
- Misrepresentation
- Fraud in the Inducement
- Lack of Consideration
- Breach of Contract
- Product warranty issues
Real/Universal Defenses:
- Fraud in Execution: decieved into signing
- Minority
- Inability to pay and/or discharge in bankruptcy
- Void Events:
  - Illegality
  - Mental Incapacity
  - Duress

Question 4

Negotiable Instruments:

Effect of Material Alteration on Contractual & Warranty Duties to Pay

Answer 4

Complete Defense:
- against both holder and HDC
Partial Defense:
- original tenor is altered cleverly
No Defense:
- originally incomplete, but later completed

Question 5

Negotiable Instruments:

Unauthorized signatures

Answer 5

Forgery of Drawers:
- liability rests with drawee
Forgery of Payee/Indorsers
- next to accept
Exceptions:
- Impostors actions, while fraudulent, it is effective
- Fictitious Payees
- gernally a dishonest employee who has authority to draft checks
- are effective for any person who takes it for value in good faith