Trial Procedure/Liability Flashcards
Who may enforce?
i. a holder
ii. a nonholder in possession with rights of a holder
iii. someone not in possession, but entitled to enforce (e.g. lost, stolen, or destroyed instruments)
Burden of proof
Prima Facie case - Proof that:
i. signature’s are genuine
ii. person presenting instrument entitled to enforce
Liability: Indorser
Indorser may sign an instrument for:
i. negotiation
ii. restricting payment
iii. incurring indorser’s liability.
They are secondarily liable (first look to drawee or maker)
Indorser’s contract
Basic obligation to pay according to the terms of the instrument at the time of indorsement. Arises merely from indorser signing her name, but may be negated with words “without recourse” with indorsement.
3 Pre-req’s for holder to hold indorser liable
- Presentment
- Dishonor
- Notice of Dishonor
Presentment
Demand for payment by person entitled to enforce instrument. (usually made on drawee of draft or maker of note).
Checks: indorser liability discharged unless check given for payment/presented w/i 30 days of indorsement.
Dishonor
Occurs when maker or drawee does not pay w/i allowed time for presentment.
Demand instruments are dishonored if not paid on the date presented.
Checks: if depositing a check, it is dishonored if bank returns check or notice that it is dishonoring BEFORE:
i. final payment
ii. Bank’s midnight deadline
Notice of dishonor
An indorser is not liable on an instrument unless she is given timely notice that the instrument has been dishonored. Must be given w/i 30 days of dishonor.
Transferor - 5 warranties
Warranties are made by:
i. any person who transfers an instrument
ii. for consideration.
* *Consideration important. If transfer made gratuitously, it warrants nothing.
Run to all subsequent holders of transfer if by indorsement, or to immediate transferee if not by indorsement.
5 warranties, Transferor warrants:
- she is entitled to enforce the instrument
- all signatures are authentic and authorized
- instrument has not been altered
- no defense or claim is good against her
- no knowledge of any insolvency
Duties of bank
Bank must honor a check as drawn. It cannot charge account if:
i. no order by depositer (i.e. drawer’s signature forged)
ii. for more money than original order (if amount altered)
iii. if they pay the wrong person (forgery of payee or indorsee’s sig)
iv. item postdated, bank can’t pay until that date
Stop payment order
Oral stop payment effective for 14 days
Written stop payment effective for 6 months
Acceptor
Usually a drawee bank, who signs a draft and becomes primarily bound to pay the instrument.
Accomodation party
Someone who signs an instrument to lend his credit to another party to the instrument, and receives no direct benefit (a surety).
Liability: Never liable to party accommodated. But liable to other parties in the capacity in which he signed.
Surety defenses: Any defense available, except infancy, incapacity, or discharge in bankruptcy.
Parol evidence allowed to show accommodation, except against a HDC w/o notice of accommodation.
5 Instances a forgery or unauthorized sig will be validated:
- Fictitious payee
- Fraudulent Indorsement by employees/agents
- Failure to exercise ordinary care (negligence)
i. e. leaving blank spaces, failing to follow procedures) - Failure to examine bank statement
(customer may not assert forgery of his sig or alteration if he does not notify bank w/i 1 year after bank made instrument available to him. Can’t assert a forged indorsement more than 3 years after) - Estoppel by certification
(bank is estopped from claiming fraud if it certifies the check)
Presentment Warranties
Unaccepted draft:
Person obtaining payment and previous transferor’s warrant that-
1. Entitled to enforce (“good title”)
- No knowledge that drawer’s signature is unauthorized (forged indorser sig destroy’s good title, but forged drawer sig does not)
- No alteration
Other instruments or items:
- Entitled to enforce
