Defenses and Liability

Question 1

Real Defenses

Answer 1

1. Infancy
2. Incapacity
3. Duress (or other illegality)
4. Misrepresentation
5. Discharge in insolvency proceedings
6. Any other discharge of which the holder has notice when he takes the instrument
7. FRAUD IN FACTUM

Question 2

Fraud in the Factum

Answer 2

A real defense that can be used against the HDC.

Where the individual is induced to sign by deception with respect to the character of the instrument.

*You must be excusably ignorant.

Question 3

Fraud in the Inducement

Answer 3

CANNOT BE RAISED AGAINST A HDC

Where an individual is aware of the character and essential terms of the agreement, but they’re deceived into signing.

Question 4

Suspended Obligation

Answer 4

Once an instrument is offered as payment (and is accepted) of an underlying obligation, the obligation merges with the instrument and the underlying obligation is suspended

Question 5

Maker’s Contract Liability

Answer 5

• Obligated to pay the instrument according to its terms at the time if was issued
• If more than one maker, makers are J&S liable on the instrument

Question 6

Endorsers Contract Liability

Answer 6

• Obligated to pay according to the terms of the instrument at the the time of endorsement.
• Those signing later in time can get complete reimbursement from those signing prior.
• Exception to this rule: Where the parties have made an “anomalous” endorsement, the endorsers and J&S liable Ex. When three corporate officer sign a note for their corporation to accomodate the Corp

Question 7

Endorser Contract Liability Primary or Secondary?

Answer 7

A drawer/indorser is only secondarily liable. An indorser is liable only after the instrument has been presented to the maker or the drawee, that party has dishonored the instrument, and a notice of dishonor has been given to the indorser and/or drawer.

*Drawers are not, generally, entitled to notice of dishonor.

Question 8

Notice of Dishonor

Answer 8

Notice of dishonor with respect to a check must be given by a bank (before it’s “midnight deadline”) (and by any person within 30 days following the day on which she herself received notice) within 30 days following the day on which dishonor occurs.

Question 9

Qualified Endorsement

Answer 9

An endorsement that adds the words “without recourse” is a “qualified” indorsement. It limits liability otherwise imposed on indorsers.

Question 10

Drawer’s Contract Liability

Answer 10

• Drawer is obligate to pay the draft according to its terms when the drawer signed the instrument.
• Like endorser, secondarily liable. Drawer is liable after presentment and dishonor

Question 11

Drawee’s Contract Liability

Answer 11

Generally no liability because they don’t sign

However would be different in the case of a cashier’s check