Commercial Papers (Delaware)

Question 1

Instruments: Note + Party Names

Answer 1

A note is a promise to pay money between TWO PARTIES

Borrower (owes money) = Maker
Person Who Receives Payment = Payee

Question 2

Instruments: Draft + Party Names

Answer 2

A draft is an order to pay between THREE PARTIES

Person Ordering Payment = Drawer
Person to Make the Payment = Drawee
Person to Receive the Payment = Payee

Question 3

***Instruments: Draft - Check Requirements

Answer 3

A draft will qualify as a check if: (i) a BANK is the drawee, and (ii) the instrument is payable on DEMAND

Question 4

Negotiability: Elements

Answer 4

To be negotiable, an instrument must be a WRITTEN and SIGNED, UNCONDITIONAL ORDER TO PAY A FIXED AMOUNT OF MONEY, and:

1) Is payable TO ORDER or bearer ON DEMAND or at a definite time, and
2) States no unauthorized undertaking or instruction by the person promising or order payment

Question 5

Negotiability: Unconditional Element - Items that Make A Promise or Order Conditional

Answer 5

An instrument is conditional if:

1) It contains an EXPRESS CONDITION to payment, or
2) It states the promise or order is “SUBECT TO” “GOVERNED BY” another record, or
2) The RIGHTS OR OBLIGATIONS with respect to the promise are stated in ANOTHER RECORD (not just merely referencing another record)

Question 6

Negotiability: Fixed Amount Element - Principal Amount Due

Answer 6

You MUST be able to see the PRINCIPAL AMOUNT DUE on the face of the document.

Question 7

Negotiability: Fixed Amount Element - Silent as to Interest + Ways That Do Not Violate Fixed Amount

Answer 7

A silent instrument ASSUMES NO INTEREST.

Interest stated in the following ways would NOT violate the “fixed amount requirement”:

1) Amount of Money (e.g., $20 interest),
2) Fixed or Variable Rate,
3) Reference to Outside Source (e.g., 2% above the prime rate reported in the Wall Street Journal), and
4) Plus Interest

Question 8

Negotiability: In Money Element - Goods or Services + Words Inconsistent With Figures

Answer 8

The payment CANNOT be in goods and services

Words prevail over inconsistent figures.

Question 9

Negotiability: No Other Undertaking or Instruction Element + Exceptions

Answer 9

Negotiable instruments are SOLELY for the purpose of paying money and NO OTHER obligation, EXCEPT for the following:

1) Promise to GIVE, MAINTAIN, OR PROTECT COLLATERAL,
2) An authorization or power given to the holder to CONFESS JUDGMENT or to realize on or dispose of collateral (one party agrees to let another party enter a judgment), and
3) WAIVER OF LAW meant to benefit obligor

Question 10

Negotiability: Payable On Demand Or At A Definite Time Element - Permitted Date Change Matters

Answer 10

The following date change matter’s don’t prevent an instrument from being payable at a definite time:

1) PREPAYMENT of instrument,
2) ACCELERATION of due date,
3) A LATER DEFINITE TIME STATED IN THE INSTRUMENT.

Question 11

Negotiability: Payable to Order or Bearer Language - To Bearer

Answer 11

An instrument is payable to bearer if it: (i) states that it is “payable to bearer,” (ii) does not name a payee, or (iii) is payable to “cash” or otherwise indicates an unidentified person

Question 12

Negotiability: Payable to Order or Bearer Language - To Order

Answer 12

An instrument is payable “to order” if it is payable to the order of an IDENTIFIED PERSON or to an identified person or order.

Question 13

Negotiability: Payable to Order or Bearer Language - Both Order and Bearer Language is Present + Check Exception

Answer 13

If both order and bearer language is on the document, BEARER paper controls

If this is the ONLY element of negotiability missing, the order or bearer language is WAIVED.

Question 14

Holders: What Is A Holder + How To Become A Holder

Answer 14

A holder is a person in POSSESSION of an instrument with a RIGHT TO ENFORCE IT.

Holder status is: (i) POSSESSION of the negotiable instrument, and (ii) GOOD TITLE, which depend on the words of negotiability used (BEARER = possession alone for good title/ORDER = possession + necessary endorsements for good title).

Question 15

Holder: Transfer of Instrument - Bearer Instruments

Answer 15

Bearer instruments are negotiated by TRANSFERRING POSSESSION of the instrument.

Question 16

Holder: Transfer of Instrument - Order Instruments

Answer 16

Order instruments are negotiated by POSSESSION PLUS NECESSARY INDORSEMENTS, meaning a signature on a negotiable instrument by someone other than the maker, drawer, or acceptor, normally on the back

Question 17

Holder: Transfer of Instrument - Indorsement - Blank v. Special + Bearer Paper

Answer 17

A blank indorsement is a signature that isn’t accompanied by the naming of a specific indorsee (e.g., back of a check)

A special indorsement is accompanied by PAYEE’S SIGNATURE PLUS A DESIGNATION OF A NEW PERSON to whom the instrument is payable

Once this occurs, the paper is turned into BEARER PAPER, regardless if original was order paper.

Question 18

Holder: Transfer of Instrument - Indorsement - Qualified Indorsement

Answer 18

An indorsement with the words “WITHOUT RECOURSE” is a qualified indorsement and LIMITS LIABILITY imposed on indorsers.

Question 19

Holder: Transfer of Instrument - Indorsement - Restrictive Indorsement

Answer 19

Any OTHER LANGUAGE added to an indorsement creates a restrictive indorsement, and are GENERALLY INEFFECTIVE to limit transfer

Question 20

Holder: Transfer of Instrument - Indorsement - Anomalous Indorsements

Answer 20

An anomalous indorsement is an indorsement made by a person who is NOT A HOLDER of the instrument, usually for accommodation (suretyship) purposes, who then BECOMES LIABLE on the instrument.

Question 21

Holder: Payee Lacking Capacity

Answer 21

Negotiation is EFFECTIVE EVEN IF the payee is a minor, incompetent, or unduly influenced

Question 22

Holder In Due Course

Answer 22

A HDC takes FREE OF MOST DEFENSES

Question 23

Holder In Due Course: Due Course

Answer 23

“Due course” requires the holder to take FOR VALUE, IN GOOD FAITH, AND WITHOUT NOTICE.

Question 24

Holder In Due Course: When HDC Status Is Relevant

Answer 24

This comes into play when the obligor RAISES A DEFENSE to payment.

Question 25

Holder In Due Course: Requirements

Answer 25

Requirements to become a holder in due course:

1) Must be a NEGOTIABLE INSTRUMENT,
2) Must be a HOLDER (possession + good title),
3) AUTHENTICITY of the instrument IS NOT QUESTIONED,
4) HOLDER PAYS VALUE (no gifts),
5) IS IN GOOD FAITH (subjective + objective standard), and
6) WITHOUT NOTICE of certain facts at the time the instrument is required

Question 26

Holder In Due Course: Holder Pays Value Requirement - What Constitutes Value

Answer 26

Any one of the following constitutes value:

1) PERFORMANCE of the agreed consideration,
2) ACQUISITION by the holder of a lien or a security interest in the instrument,
3) Taking the INSTRUMENT AS PAYMENT of or security for an ANTECEDENT DEBT,
4) TRADING for another negotiable instrument, or
5) Giving the instrument in exchange for incurring an IRREVOCABLE OBLIGATION to a THIRD PERSON by the person taking the instrument.

Question 27

Holder In Due Course: Holder Pays Value Requirement - Proportional Value to Payment of Consideration

Answer 27

If one pays LESS THAN THE AGREED UPON VALUE (not to be mistaken with less than the note), one becomes a PARTIAL HDC in proportion to the percentage of the value paid.

Question 28

Holder In Due Course: Good Faith Requirement

Answer 28

To be an HDC, the holder must take the instrument in good fait, meaning: (i) HONESTY in fact (SUBJECTIVE TEST), plus (ii) observance of REASOANBLE COMMERCIAL STANDARDS (OBJECTIVE TEST).

Question 29

Holder In Due Course: Without Notice Requirement - Types of Notice

Answer 29

Notice includes both ACTUAL and REASON TO KNOW from the facts and circumstances.

Question 30

Holder In Due Course: Without Notice Requirement - Facts Constituting Notice

Answer 30

1) Instrument Overdue (if: (i) any part of the principal is overdue, (ii) acceleration has been made, or (iii) more than a reasonable time has elapsed after issue of a demand instrument.
2) Instrument dishonored (instrument not paid upon proper demand)
3) Unauthorized signature or alteration,
4) Claims to the instrument, and
5) Defenses or claims in recoupment.

Question 31

Holder In Due Course: Shelter Rule + Exception

Answer 31

Even if a holder doesn’t qualify as an HDC, they may have the rights. A transferee acquires whatever rights their transferor had.

Exception: No HDC rights are given to persons who were parties to FRAUD or ILLEGALITY

Question 32

HDC Rights: Defenses That Will Apply to the HDC (Real Defenses)

Answer 32

(FIDDLE FIA, like a baby (infancy) saying Philadelphia)

1) Forgery
2) Infancy (minor)
3) Duress
4) Discharge & Insolvency
5) Lack of Legal Capacity (e.g., incompetent
6) Expiration of SOL

7) Fraud in the Factum (signor lacked knowledge of terms and did not have a reasonable opportunity to learn of its essential terms)
8) Illegality
9) Alteration

Question 33

HDC Rights: Real Defenses - SOL (3 years v. 6 years)

Answer 33

Six Years - (1) notes payable at a definite time or on demand, and (2) certificates of deposit

Three Years - All Other Claims – (1) on unaccepted drafts, (2) against issuers/acceptors of cashier’s checks, certified checks, etc., (3) for conversion, (4) for breach of warranty, and (5) to enforce other Article 3 rights.

Question 34

HDC Rights: Personal Defenses + Exception

Answer 34

Personal defenses CAN’T be asserted against one having rights of an HDC, but any transferee of a negotiable instrument without HDC rights takes the instrument subject to all personal defenses, they are as follows:

1) Lack of Consideration
2) Breach of Warranty
3) Fraud in the Inducement (arises when a party knew what they were signing, but were lied to)
4) Claims or Defenses of Another

Exception to Claims or Defenses of Another: Theft - a defense that the non-HDC acquired the instrument by theft must be raised IF KNOWN BY THE PERSON PAYING

Question 35

Contract Liability: Signature By Agents - Liability of Principal

Answer 35

If an agent signs their own name or the name of the principal, the PRINCIPAL IS BOUND if the agent had authority to sign.

Question 36

Contract Liability: Signature By Agents - When Agent Would Not Be Found Liable

Answer 36

An agent is NOT LIABLE IF: (i) the PRINCIPAL IS IDENTIFIED in the instrument, and (ii) the signature unambiguously shows it was MADE ON BEHALF OF THE PRINCIPAL.

Question 37

Contract Liability: Signature By Agents - When Agent Would Be Found Liable

Answer 37

If the principal isn’t identified in the instrument, the agent is personally liable on a contract if: (i) the holder IS AN HDC, unless the agent can prove that the HDC had notice of the representative nature of the agent’s signature, or (ii) the holder IS NOT AN HDC and the agent can’t prove that the original parties did not intend the agent to be liable

Question 38

Contract Liability: Signature By Agents - Agent Not Authorized

Answer 38

If the agent is not authorized to act for the principal, it amounts to FORGERY. Purported agent is bound, not purported principal.

Question 39

Contract Liability: Maker of Note Liability + Parties The Maker Is Obligated To

Answer 39

By signing their name, the maker of a note (the person who promises to pay) is obligated to pay the instrument according to its terms.

The maker is obligated to: (i) A PERSON ENTITLED TO ENFORCE the instrument, and (ii) An INDORSER WHO PAID the instrument.

Question 40

Contract Liability: Drawer of Draft Liability

Answer 40

A drawer has secondary liability, and can only be found liable if: (i) the draft is a CHECK, presentment within 30 days, and (ii) DISHONOR (drawee refuses to pay upon proper presentment)

Question 41

Contract Liability: Drawer of Draft Liability - Disclaiming Liability

Answer 41

A drawer can disclaim liability on any instrument EXCEPT FOR CHECKS

Question 42

Contract Liability: Indorser Liability - Disclaimer + Order of Liability

Answer 42

A liability disclaimer IS ALLOWED if the words “WITHOUT RECOURSE” are present.

Indorsers are liable TO EACH OTHER IN THE ORDER of their signatures

Question 43

Contract Liability: Indorser Liability - Secondary Liability

Answer 43

Before a holder can look to an indorser for payment, the holder must fulfill the following prerequisites:

1) Presentment (demand for payment),
2) Dishonor (drawee doesn’t pay), and
3) Notice of Dishonor

Question 44

Contract Liability: Indorser Liability - When Presentment Is Excused

Answer 44

Presentment is excused if: (1) the person entitled to present CANNOT DO SO within reasonable diligence ; (2) the maker has REPUDIATED the obligation to pay or is dead or insolvent; (3) by the instrument’s terms, presentment is UNNECESSARY; (4) the obligor has WAIVED presentment; or (5) the DRAWER INSTRUCTED DRAWEE NOT TO PAY or the drawee was not obligated to pay

Question 45

Contract Liability: Indorser Liability - Notice of Dishonor + Excusal for Delay in Notice

Answer 45

Notice of dishonor may be given by any commercial reasonable means, and generally must be given WITHIN 30 DAYS AFTER DISHONOR.

Delay in giving notice is excused if caused by circumstances BEYOND THE CONTROL of a notifier who exercised reasonable diligence after the cause of delay ceased to exist OR notice is entirely excused if the terms of the instrument make it UNECCESSARY or the OBLIGOR WAIVES NOTICE

Question 46

Contract Liability: Indorser Liability - Drawee

Answer 46

The drawee of a draft (bank) makes no negotiable instruments and CANNO BE FOUND LIABLE unless and until they sign the instrument.

Question 47

Contract Liability: Indorser Liability - Drawee - Acceptance and Certification

Answer 47

The drawee may agree to pay the draft by signing (acceptance)

Question 48

Contract Liability: Indorser Liability - Drawee - Final Payment Rule

Answer 48

Once a drawee bank finally pays a check, contract actions may NO LONGER be pursued and the drawee can’t recover from the person it paid UNLESS there is a breach of a presentment warranty.

Question 49

Contract Liability: Indorser Liability - Drawee Liability to Customer + Conversion Liability

Answer 49

A bank may be liable to the customer for failure to pay

A drawee who pays on a forged indorsement is LIABLE TO PAYEE in conversion

Question 50

Contract Liability: Indorser Liability - Death of Customer + Timing After Death

Answer 50

The customer’s death DOESN’T REVOKE the bank’s authority to pay a check until the bank: (1) KNOWS of the death, and (2) has a REASONABLE TIME TO ACT on the knowledge

After death, bank MY CONTINUE PAYING CHECKS 10 DAYS after death, even with knowledge of death, UNLESS someone claiming an interest in the account orders payments to stop.

Question 51

Contract Liability: Accommodation Parties

Answer 51

An accommodation party signs an instrument to lend credit to another party, but does not receive any direct benefit (i.e., SURETY)

Question 52

Contract Liability: Accommodation Parties - Liability

Answer 52

The accommodation party may sign in any capacity and IS LIABLE in the capacity they signed.

Question 53

Contract Liability: Accommodation Parties - Limiting Liability to Collection

Answer 53

The accommodating party may include express language limiting the contract to a guarantee of collection only (i.e., language present stating “COLLECTION GUARANTEED”). This will only make an accommodating party liable where there is a judgment claim or seeking judgment would be futile.

Question 54

Contract Liability: Accommodation Parties - Reimbursement

Answer 54

If an accommodating party pays the instrument, they will have an action against the party accommodated.

Question 55

Contract Liability: Accommodation Parties - Proof of Accommodation Status

Answer 55

A person signing an instrument is presumed to be an accommodation party, therefore language on the instrument may either EXPRESSLY state the accommodater or just by anomalous indorsement (signature of a person who wasn’t a holder)

Question 56

Warranty Liability: Transfer Warranties + Who They Run To

Answer 56

When a person transfers an instrument or a customer transfers an item for consideration, the transferor makes TRANSFER WARRANTIES

These run to:

1) The IMMEDIATE TRANSFEREE, whether or not the transfer is by indorsement,
2) All SUBSEQUENT TRANSFEREES, if the transfer is by indorsement, and
3) For banks, the liability runs to ANY SUBSEQUENT collecting bank, even without indorsement.

Question 57

Warranty Liability: Transfer Warranties - Drawees and Makers

Answer 57

Drawees and makers COULD NEVEER sue for breach of transfer warranty since they RECIEVE, NOT TRANSFER instruments.

Question 58

Warranty Liability: Transfer Warranties - Warranties Made

Answer 58

The transferor warrants:

1) The transferor is ENTITLED TO ENFORCE the instrument, meaning all indorsements are genuine,
2) Signatures are AUTHENTIC and AUTHORIZED,
3) NO DEFENSES OR CLAIMS of any party is good against the transferor, and
4) Transferor HAS NO KNOWLEDGE of any INSOLVENCY PROCEEDINGS against the maker

Question 59

Warranty Liability: Transfer Warranties - Disclaimers

Answer 59

Warranties can’t be disclaimed for checks, otherwise, warranty liability can be negated by a transferor by placing words that effect on the instrument (i.e., “WITHOUT WARRANTIES”)

Question 60

Warranty Liability: Presentment Warranties + Exclusive to Transfer Warranties

Answer 60

These warranties are made ON PRESENTMENT of the instrument.

A plaintiff can ONLY MAKE one claim of breach for either presentment or transfer warranty against ONE PERSON. A plaintiff may make either claim against more than one person, however.

Question 61

Warranty Liability: Presentment Warranties - Who Makes Presentment Warranty?

Answer 61

The defendants in an action on a presentment warranty are the presenter and previous transferors.

Question 62

Warranty Liability: Presentment Warranties - Who Is The Presentment Warranty Made To?

Answer 62

The plaintiffs in a presentment warranty action are parties who PAY IN GOOD FAITH (i.e., maker, drawee, or acceptor)

Question 63

Warranty Liability: Presentment Warranties - Warranties When Unaccepted Draft Presented

Answer 63

A drawee (i.e., bank) can recover for breach of a presentment warranty on unaccepted drafts. On unaccepted drafts, persons obtaining payment and previous transferors warrant that:

1) The warrantor is ENTITLED TO ENFORCE the draft or is authorized by one who is,
2) The draft has NOT BEEN ALTERED, and
3) The warrantor has NO KNOWLEDGE that the drawer’s signature is unauthorized.

Question 64

Warranty Liability: Presentment Warranties - Difference Between Forged Drawer’s Signature and Forged Indorsers Signature

Answer 64

On a forged drawer’s signature, if the drawee (bank) pays out, payment is FINAL and the bank cannot recover because no presentment is broken.

On a forged indorser’s signature, a presentment warranty is broken because the presenter didn’t have the right to enforce against the drawer because of the forgery.

Question 65

Warranty Liability: Presentment Warranties - Breach of Warranty v. Breach of Indorser’s Contract

Answer 65

To determine whether the plaintiff should bring suit against the indorser for breach of warranty or for breach of contract, determine the IDENTITY OF THE PLAINTIFF

Plaintiff is Holder - If the payor hasn’t paid the instrument (i.e., check bounces), then the holder will sue the INDORSER on the INDORSER’S CONTRACT

Plaintiff is Payor - If the payor has paid and later discovers the payor shouldn’t have (i.e., check was forged), the payor will attempt to sue the indorser for BREACH OF WARRANTY

Question 66

Other Issues: Discharge by Cancellation or Renunciation by Holder

Answer 66

The holder may discharge the obligation by DESTROYING an instrument, STRIKING OUT SIGNATURE, or RENOUNCING RIGHTS in a signed writing.

Question 67

Other Issues: Discharge - Payment By Certified Check v. Uncertified Checks & Notes

Answer 67

Certified Checks - If payment is made by certified check, the underlying OBLIGATION IS DISCHARGED as if the person paid in cash.

Uncertified Checks & Notes - For payment with uncertified checks and notes, the underlying OBLIGATION IS SUSPENDED, if later paid the obligation is discharged or if later dishonored the holder may sue

Question 68

Other Issues: Failure to Produce Original Instrument (Enforcement By A Person Not In Possession)

Answer 68

If a person can’t produce an instrument (i.e., lost or stolen), they can still enforce if they can prove:

1) They were ENTITLED TO ENFORCE when the loss occurred,
2) They were IN POSSESSION of the instrument when the loss occurred,
3) The TERMS of the instrument permit recovery, and
4) Facts that PREVENT PRODUCTION of original instrument.

Question 69

Other Issues: Overdrafts

Answer 69

A bank is obliged to honor its customer’s check even if there are insufficient funds, the customer would then be liable for the overdraft.

Question 70

Other Issues: Postdated Checks

Answer 70

A bank may pay a postdated check UNLESS the customer gives bank notice.

Question 71

Other Issues: Stop Payment Order + Elements + Cashier’s & Teller Checks Exception

Answer 71

A drawer may stop payment on a check for UP TO 6 MONTHS. The request must:

1) Be in WRITING,
2) In a REASONABLE TIME

A cashier’s check and teller check CANNOT BE STOPPED (remember, they are the drawer’s in that instance, not the customer), only a bank can stop it.

Question 72

Other Issues: Wrongful Dishonor + Defenses

Answer 72

If a bank dishonors a properly payable check, the customer may bring an action and collect damages for harm proximately caused by the wrongful dishonor.

Bank’s defenses:

1) payment would OVERDRAW the drawer’s account, and no obligation to pay when customer has insufficient funds, and
2) The check is MORE THAN 6 MONTHS OLD.

Question 73

Other Issues: Payment In Full Check + Exceptions

Answer 73

Here, drawer conspicuously indicates that cashing check is payment in full of an existing obligation that is subject to a bona fide dispute (i.e., accord and satisfaction)

Exceptions:

1) Payee RETURNS MONEY WITHIN 90 DAYS
2) The payee is an ORGANIZATION and NOTIFIES the payer to address payment in full checks

Question 74

Forgery: Marker’s Signature + Ratification

Answer 74

The purported maker IS NOT LIABLE because the maker’s signature doesn’t appear on the note (it is the FORGER’S SIGNATURE)

The maker’s conduct may ratify the forger’s signature as their own.

Question 75

Forgery: Drawer’s Signature + Bank’s Defenses + Repeat Offender Rule

Answer 75

If the drawer’s signature is forged, he CANNOT BE LIABLE, unless one of the following defenses are available to the bank:

1) Drawer was negligent in allowing the forgery to occur, or
2) Bank Statement Rule - if customer fails to promptly report forgery or alteration that shows up on the bank statement WITHIN 180 DAYS, they cannot recover

Repeat Offender Rule - If the SAME PERSON forges a series of checks, the drawer must report the forgeries WITHIN 30 DAYS of when the statement was available.

Question 76

Forgery: Forged Indorsements - Bearer v. Order

Answer 76

Bearer Paper - Since indorsements are NOT necessary to bearer paper, forgery on them is IRRELEVANT

Order Paper - Forgery BREAKS THE CHAIN OF TITLE and the check is NOT PAYABLE and drawer may demand drawee recredit account

Question 77

Forgery: Impostor Rule + Employees-Payee Rule

Answer 77

If an issuer, maker, or drawer is deemed to have ACTED CARELESSLY in issuing the check, they are PRECLUDED from denying validity of the indorsement

If an employer entrusts an employee with responsibility to an instrument (i.e., accountant), the employee’s fraudulent indorsement WILL BE EFFECTIVE

Question 78

Forgery: Liability of Drawee - Conversion Liability

Answer 78

The Payee whose name was forged can sue the payor bank for conversion

Question 79

Forgery: Liability of Drawee - Drawer

Answer 79

The drawer of a check with a forged indorsement can sue the payor/drawee bank since a check with a forged payee’s name is NOT properly payable

Question 80

Forgery: Liability of Drawee - Double Liability Protection

Answer 80

A successful conversion action by payee will PRECLUDE drawer’s not properly payable action

Question 81

Forgery: Liability of Drawee - Bank’s Defenses

Answer 81

1) Impostor rule,
2) Fraudulent indorsement by employee entrusted with check, and
3) Drawer’s negligence

Question 82

Forgery: Liability of Presenter

Answer 82

The drawee bank can sue the presenter for breaching the presentment warranty

Question 83

Forgery: Liability of Transferor

Answer 83

The presenter who loses to the payor for breach of presentment may sue entities further up the chain for breach of the various TRANSFER WARRANTIES of:

1) Entitled to enforce,
2) All signatures authentic and authorized, and
3) No good defenses

Question 84

Alterations + Types

Answer 84

An alteration is an UNAUTHORIZED change that purports to modify the obligation of any party

There are two types of alteration: (1) alteration of an existing instrument, and (2) unauthorized completion of an incomplete instrument.

Question 85

Alterations: Effect on Holder in Due Course

Answer 85

If the obligation on the instrument has been changed, an HDC MAY ENFORCE the instrument according to its ORIGINAL TERMS

If the instrument was completed in an UNAUTHORIZED manner, an HDC may enforce the instrument according to its terms as completed.

Question 86

Alterations: Effect on Non Holder in Due Course

Answer 86

If an alteration is fraudulently made by the holder, the obligor is TOTALLY DISCHARGED

If an alteration is NOT FRAUDULENTLY MADE, then the obligor remains liable to the original terms

Question 87

Alterations: Altered Check

Answer 87

An altered check is NOT PROPERLY PAYABLE

Question 88

Alterations: Defenses

Answer 88

1) negligence

2) Bank statement rule

Question 89

Alterations: Breach of Transfer and Presentment Warranties

Answer 89

Altered instruments breach the transfer and presentment warranties promising there have been no alterations.