Contract Liability of Parties Flashcards
What is needed to argue contract liability on an instrument?
A person’s signature
When do signatures of agents bind principals?
Use agency law
* Even if the agent lacked authority, look for ratification or estoppel
When will an agent NOT be personally liable on an instrument?
Where: (1) principal is identified in the instrument and (2) the signature unambiguously shows it was made on behalf of the principal
When is an agent personally liable on an instrument?
Where there is not a disclosed principal, will be liable to HDC unless HDC had notice of representative nature of agent’s signature
If holder is NOT HDC and agent can’t prove that the original parties did not intend agent to be liable
What is the special rule of agency for checks?
The agent for the drawer isn’t personally laible if the principal’s name is on the check–even if the agent didn’t indicate agency capacity
What happens if the agent is not authorized to act for the principal?
It amounts to a forgery and the purported agent is bound but NOT the purported principal
What is the liability of a maker of a note?
By signing their name, the maker of a note makes a contract to pay the instrument according to its terms at the time it is issued
* Promise is unconditional, subject to defenses (unless HDC)
* Owes obligation to: (1) person entitled to enforce (holder) and (2) indorser who paid instrument after its dishonor
When is the drawer (secondarily) liable?
After (1) presentment within 30 days and (2) dishonor
On what instruments may drawee disclaim liability?
Any instruments except for checks
What is an indorser’s liability?
- Liability arises merely from the indorser’s signing their name on the instrument
- Can disclaim if include words “without recourse”
- Indorsers are liable to one another in the order of their signature
What prerequisites must the holder fulfill before looking to sue an indorser?
(1) Presentment
* Failure to present to the drawee/maker within 30 days discharges liability to indorser
(2) Dishonor
(3) Notice of dishonor
* Must be given to indorser within 30 days of dishonor
What is the drawee’s liability?
Drawee makes no negotiable instruments K and can’t have any liability unless and until they sign the instrument (e.g., certified check or accepted check)
* Holder generally cannot force a drawee to pay out on a draft
What happens if the bank pays on a forged instrument?
If a bank (drawee) erroneously pays out on a forged instrument to an HDC, bank is liable to payee in conversion
What is an accommodation party?
A party who signs an instrument to lend credit to another party to the instrument and receives no direct benefit (i.e., a surety)
Who are the parties in accommodation?
(1) The accommodated party (principal/debtor/obligor) is the person with the bad credit
(2) The accommodation party (surety/co-signer) is the person with good credit
* Accommodation presumed to be guarantor, and is never liable to party accommodated
(3) The holder (creditor/obligee) is the person who wants payment assured
* Can go directly to accommodation party
