Chap 29

Question 1

contractual liability

Answer 1

imposed only on those who sign negotiable instruments either personally or through agents

signature is broadly construed and includes any name, word or mark whether handwritten, typed, printed or otherwise, made with the intention of authenticating the instrument

Question 2

authorized proper signatures

Answer 2

agent not liable if she acts with authority and properly signs the instrument

eg smith signs the instrument “jones, principal, by smith, agent”

Question 3

authorized improper signatures

Answer 3

a. agent signs own name but does not name principal nor indicate signature is in a representative capacity. agent alone is liable (e.g. smith signs the instrument smith)
b. agent signs the instrument in a representative capacity,, but does not name principal. principal is liable if payee is an immediate party who knows agent represents principal, but as to subsequent holders and to payee if payee is unaware of agency, agent is liable (e.g. smith signs the instrument smith, agent) under rev. art. 3, if agent with authority signs a check payable from the account of the principal (who is identified on the check), agent is not liable
c. agent signs his own name and name of principal, but does not indicate representative capacity. principal is liable if payee is an immediate party and knew or should have known that agent was acting in a representative capacity and agent is not liable. as to subsequent holders, both principal and agent are liable (e.g. agent signs the instrument jones and smith)

Question 4

unauthorized signatures

Answer 4

forgeries and unauthorized signatures. 1. no person is liable on an instrument unless his name appears thereon

2. exceptions: no person is liable on an instrument unless his signature appears thereon
3. an unauthorized signature operates as the signature of the unauthorized signers. agent signs principals name to instrument without authority. agent is liable, and in the absence of negligence (e.g. failure to keep a signature stamp secure) or ratification, principal is not (e.g. agent signs instrument “jones” without authority, or forger forges jones signature

Question 5

primary liability

Answer 5

acceptors of drafts and makers of notes

accommodation parties incur liability based on their capacity (i.e. accommodation makers incur liability and anomalous endorsers incur secondary liability)

Question 6

primary liability also applies

Answer 6

to issuers of cashiers checks and to issuers of drafts drawn on the drawer (i.e. where drawer and drawee are the same person)

Question 7

primary liability is according to

Answer 7

instrument terms at time of issuance, or if instrument is incomplete, according to its terms as completed

Question 8

if acceptor does not state the amount accepted and the draft is subsequently raised

Answer 8

acceptor will be liable to HDC according to terms of draft at the time of the HDCs taking

Question 9

drawee as drawee

Answer 9

has no primary liability on the instrument

when drawee accepts, liability is as acceptor

Question 10

although no particular form of acceptance is prescribed

Answer 10

acceptance must be on the face of draft, therefore, no acceptance by separate instrument is allowed, nor is an oral acceptance effective

Question 11

certification by a bank

Answer 11

is a special type of acceptance

applies to checks

bank has no obligation to certify

acceptance and certification are promises to pay the instrument when presented for payment at a future time

Question 12

under primary liability

Answer 12

drawee does certifying

Question 13

secondary liability

Answer 13

ie conditional liability

drawers of drafts and endorsers of notes and drafts

drawer of unaccepted draft is liable to pay instrument upon dishonor according to terms at time of issuance, or as completed if an incomplete instrument

Question 14

rev art. 3 does not require

Answer 14

notice of dishonor to drawer of unaccepted draft to affix secondary liability

Question 15

if draft is accepted and the acceptor is not a bank

Answer 15

drawers liability is contingent on both dishonor and receipt of notice of dishonor

Question 16

endorsers are secondarily liable

Answer 16

upon dishonor and receipt of notice of dishonor

if a draft is accepted (certified) by a bank, the drawer and all endorsers are discharged from liability on the instrument

Question 17

drawers and endorsers may disclaim their normal secondary liability

Answer 17

by endorsing “without recourse”

drawers of checks may not disclaim liability by indorsing without recourse

Question 18

conditions precedent to liability

Answer 18

1. no conditions precedent for parties who are primarily liable
2. are to parties secondarily liable, the following:
   a. presentment for payment and/or acceptance where required
   b. dishonor
   c. notice of dishonor

Question 19

dishonor

Answer 19

i.e. failure to accept draft when presented for acceptance or failure to pay a draft when presented for payment

return for lack of necessary endorsements, or refusal to pay because of improper presentment is not a dishonor

Question 20

demand not is dishonored

Answer 20

is not paid on day of presentment

if note is payable at a definite time and terms of note require presentment or note is payable at or through a bank, note is dishonored if it is not paid on the date it is presented, or the due date, whichever is later

all other time notes need not be presented, and are dishonored if not paid on due date

Question 21

an unaccepted demand draft (other than a check)

Answer 21

is dishonored if not paid on the date presented

Question 22

a time draft presented for acceptance

Answer 22

prior to its due date is dishonored if not accepted on the date presented

Question 23

if time draft calls for payment at a certain time after acceptance or sight

Answer 23

a refusal to accept on the day presented is a dishonor

Question 24

refusal to accept a demand draft

Answer 24

is not a dishonor, but acceptance may be requested

Question 25

an accepted demand draft is dishonored

Answer 25

if not paid when presented for payment

Question 26

an accepted time draft is dishonored

Answer 26

if it is not paid on the due date or presentment date, whichever is later

Question 27

except where draft is certified by a bank

Answer 27

drawers are not discharged by a delay in presentment

Question 28

delay in presentment discharges an indorser

Answer 28

only if the instrument is a check and is not presented for payment or given to a depository bank for collection within 30 days after the day the endorsement was made (the drawer in such case would only be discharged if the delay deprives the drawer of funds because of the failure of the bank i.e. its insolvency)

Question 29

notice of dishonor

Answer 29

obligations of an endorser (and a drawer of a draft accepted by a nonbank) is unenforceable unless such indoors or drawer is given notice of dishonor.

Question 30

notice of dishonor is given by

Answer 30

a holder or or a previous indoors who has herself received notice of dishonor

Question 31

any necessary notice of dishonor by a bank

Answer 31

must be given before midnight on the next banking day following the banking day on which it receives the notice of dishonor.

Question 32

any nonbank must give notice of dishonor

Answer 32

within 30 days following the day on which they received the notice

Question 33

in all situations, notice of dishonor

Answer 33

must by within 30 days following the day on which dishonor occurred any notice which informs the party to be held secondarily liable for the dishonor, is sufficient, including oral notice, provided it reasonably identifies the instrument that is the subject of the dishonor oral notice, because of difficulty of proof, is inadvisable

Question 34

warranty liability

Answer 34

imposed on those who transfer instruments and those who obtain payment or acceptance of an instrument warranty applies whether transfer is by assignment or negotiation, but only applies if the transfer receives consideration for the transfer consideration here means consideration that would be sufficient to support a simple contract under contract law

Question 35

if transfer is by indorsement

Answer 35

whether qualified or unqualified, warranties run to immediate party, and all subsequent parties who give consideration

Question 36

if transfer is by delivery alone

Answer 36

transfer runs only to immediate party who gives consideration

Question 37

warranties may be disclaimed

Answer 37

by agreement between the immediate parties such as by disclaiming without warranty the disclaimer must appear in the indorsement itself and is effective, except with respect to checks

Question 38

using without recourse

Answer 38

will not disclaim warranties

Question 39

entitlement to enforce

Answer 39

warranty provides that there are no unauthorized or missing indorsements which would prevent the transferor from making the transferee a person entitled to enforce the instrument

Question 40

authentic and authorized signatures

Answer 40

warranty provides that all signatures are authentic and unauthorized

Question 41

no alteration

Answer 41

warranty is that there has been no alteration of the instrument

Question 42

no defenses

Answer 42

warranty is that the instrument is not subject to any defense or claim in recoupment (i.e. a counterclaim that arose from the transaction that gave rise to the instrument)

Question 43

no knowledge of insolvency

Answer 43

warranty is that the transferor has no knowledge of any insolvency proceeding instituted with respect to the maker, acceptor, or drawer of an unaccepted instrument insolvency includes bankruptcy and any assignment for the benefit of creditors or other proceeding intended to liquidate or rehabilitate the estate of such maker, acceptor, or drawer of the unaccepted instrument the warranty is that the transferor has no knowledge of such proceedings not that there are no proceedings instituted

Question 44

termination of liability

Answer 44

payment tender of payment cancellation and renunciation

Question 45

payment

Answer 45

generally discharges liability person making payment should take possession of instrument or have instrument marked "paid or canceled" possession is preferable

Question 46

tender of payment

Answer 46

stops accrual of interest from date of proper tender of payment, but does not discharge liability for face value or accrual of interest prior to date of proper tender of payment

Question 47

cancellation and renunciation

Answer 47

eg canceling an indorsement or indorsements on the instrument or renouncing rights against a person on the instrument by a separate writing keep in mind that the discharge will only be effective against an HDC if the HDC takes the instrument with knowledge of the discharge

Question 48

warranties

Answer 48

``` entitlement to enforce authentic and authorized signatures no alteration no defenses no knowledge of insolvency ```