Bài giảng Business Law (13th edition) - Chapter 32: Negotiation & Holder in Due Course

Commercial PaperNegotiable InstrumentsNegotiation & Holder in Due CourseLiability of PartiesChecks and Electronic Transfers7McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.Negotiation & Holder in Due CoursePAETRHC32“Behind all its global responsibilities and impersonal style banking is still a ‘people business’it may be the most personal business of all for it always depends on the original concept of credit, meaning trust.”Anthony Sampson, The Moneylenders: Bankers in a Dangerous World (1981)Learning ObjectivesNegotiationIndorsementsHolder in Due Course & Rights32 - *Under UCC Revised Article 3, negotiation is the transfer of voluntary or involuntary possession of a negotiable instrument by a person (other than issuer) to another person who becomes its holder [3–201]Instrument may be:Order paper: “to order of named payee”Bearer paper: “to bearer” or “to cash”Overview32 - *Indorsement: Signature, alone or with words, made on an instrument for a specific purposeMay not be that of maker, drawer, acceptorIndorsement required for negotiation except in the case of depositary banksForm of indorsement may affect attempts to negotiate the instrument furtherIndorsement may be subject to rescission due to, e.g., lack of capacity, fraud, illegalityIndorsement32 - *A special indorsement is indorser’s signature and words to whom instrument is payableInstrument indorsed in blank if indorser signs without specifying to whom it’s payableRestrictive indorsement states purpose of the indorsement or how instrument to be usedKinds of Indorsement32 - *Holder in due course: person holds negotiable instrument, taken for value, in good faith, without notice of defects or evidence of apparent forgery or alteration that raise questions about authenticityTakes negotiable instrument free of personal defenses, claims to instrument, and claims in recoupment of obligor or of a third party32 - *Holder in Due CourseOverdue, dishonored, or has uncured defaultContains unauthorized signature or alterationHas a property or possessory interest claim Has any defense against it or claim in recoupment to itNegotiable Instrument Defects32 - *Article 3 shelter rule: instrument transferee obtains all rights transferor had, including right to enforce instrument and any right as holder in due course [3–203(b)]Revised Article 3 establishes four categories of claims and defenses:Real defenses attack instrument’s validity and may be used as reasons against payment of a negotiable instrument to any holderHolder in Due Course Rights & Limitations32 - *Revised Article 3 categories (continued):Personal defenses: legal reasons to avoid or reduce person’s liability for payment of negotiable instrument due to the transactionClaims to an instrument concern property or possessory rights in instrument or proceedsClaims in recoupment arise from transaction that created the instrument and offset, rather than prevent, liability32 - *Holder in Due Course Rights & Limitations32 - *Commercial Paper ChartHolder in due course rules may harm consumers, thus some states and the Federal Trade Commission limit holder in due course rule as it affects consumersFTC requires sellers who extend credit by note to include a statement warning of limited holder in due course rights32 - *Consumer Protection IssuesTest Your KnowledgeTrue=A, False = BOrder paper is a negotiable instrument payable to the order of cash.Indorsement is a signature that is made on an instrument for a specific purposeIf Jamil writes a check to Mary, Jamil may indorse the back himself to negotiate it.A check is rendered non-negotiable if it is indorsed on the back, “For Deposit to Account #5000005 at First State Bank.”32 - *Test Your KnowledgeTrue=A, False = BIndorsement is required for negotiation except in the case of depositary banks. The shelter rule states that a transferee of a negotiable instrument obtains all rights that the transferor had.Megan writes Tisha a check dated 1/2/2007. Next day, Tisha indorses the check to Bryan’s Grocery. Bryan’s presented the check for payment to Bank on 7/1/2007. Bank must honor the negotiable instrument.32 - *Test Your KnowledgeMultiple ChoiceDan (16 years old) signed an installment note with Dude’s for a surfboard. Dude’s sold the note at a discount to Factors Co. The board broke after 1 month and Dan stopped paying. Factors Co. is: (a) a holder in due course, but Dan is a minor and may assert his status to void the contract(b) not a holder in due course & has no rights (c) is a holder in due course and Dan must pay on the note or breach the contract 32 - *Test Your KnowledgeMultiple ChoiceRequirements for holder in due course status include: (a) take a negotiable instrument for value(b) take the instrument in good faith(c) take without notice of defects or claims against the instrument(d) all of the above(e) all of the above plus be in the business of taking negotiable instruments32 - *Thought QuestionsWhat do you think of the FTC rule limiting the rights of a holder in due course in consumer transactions? Do you think the FTC rule achieves the underlying policy to protect consumers?32 - *