Bài giảng Business Law (13th edition) - Chapter 33: Liability of Parties

Learning Objectives The Basics of Contractual Liability Contractual Liability in Operation Warranty Liability Other Liability Rules Discharge of Negotiable Instruments

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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.Liability of PartiesPAETRHC33“Always do right. This will gratify some people, and astonish the rest.”Mark Twain, speech to Young People’s Society (1901)Learning ObjectivesThe Basics of Contractual LiabilityContractual Liability in OperationWarranty LiabilityOther Liability RulesDischarge of Negotiable Instruments33 - *When a person signs a negotiable instrument as maker, drawer, or indorser, the person is contractually liable to pay the instrument Liability also arises from:(1) improper transfer or presentment of an instrument; (2) negligence in instrument issuance, alteration, or indorsement; (3) improper payment; or (4) conversion Overview33 - *The maker or drawer of a promissory note is primarily liable for paying the debtUCC Article 3 requires a person who is secondarily liable to pay the instrument only if the person primarily liable defaultsAn indorser usually is secondarily liableA drawee has no liability on a check or draft unless it certifies or accepts itDetails of Liability33 - *Holder of a note may present it to maker on or after the date payableDishonor: maker fails to pay amount dueSince maker is primarily liable, holder of the note may demand payment from person with secondary liabilityTo obtain payment or acceptance on a draft or check, holder must present it to drawee by any commercially reasonable meansPresentment33 - *Person who transfers negotiable instrument or presents it for payment may bear liability from implied warranties:Presentment warranties: Warrantor/transferor is entitled to enforce draft or authorized to obtain payment, draft has not been altered, warrantor has no knowledge of an unauthorized signatureTransfer warranties: Transferor gives warranties to immediate transferee related to authenticity and enforceability of instrumentWarranty Liability33 - *Mistake: Revised Article 3 follows general rule that payment or acceptance is final in favor of a holder in due course or payee who changes position in reliance on payment or acceptance; bank bears burden of mistake Conversion: Revised Article 3 provides that the law applicable to conversion of personal property applies to instrumentsOther Liability Rules33 - *Negligence: Person who writes a negotiable instrument to invite alteration may not use alteration or lack of authorization as reason for not paying an innocent holder [3–406]Imposter rule: If an impostor convinces the drawer to make a check payable to imposter, any indorsement “substantially similar” to that of named payee is effective [3–404(a)]Other Liability Rules33 - *Fictitious payee rule: Any indorsement in the name of a fictitious payee is effective as payee’s indorsement [3–404(b), (c)]Protects person that pays instrument in good faith or takes it for value or collectionFraudulent indorsements by employees: Risk of loss for fraud by employees entrusted with negotiable instruments falls on employer rather than bank that pays check [3–405]Other Liability Rules33 - *Discharge from liability occurs by payment, cancellation, or alteration of the instrument; modification of principal’s obligation that causes loss to surety or impairs collateral; unexcused delay in presentment or notice of dishonor of a check; or acceptance of draft by a bankDischarge of Obligor33 - *Test Your KnowledgeTrue=A, False = BWhen a person signs a negotiable instrument as maker, the person becomes contractually liable on the instrument.The maker of a promissory note is secondarily liable for paying the debt.A drawee has liability on a check or draft the moment it is presented for acceptance.33 - *Test Your KnowledgeTrue=A, False = BAn indorser is not discharged from liability until the instrument is presented for payment or acceptance.A person who transfers a negotiable instrument or presents it for payment may incur liability from implied warranties.A person who indorses a negotiable instrument usually is secondarily liable.33 - *Test Your KnowledgeMultiple ChoiceNorbert worked in payroll for Will Co. and signed payroll checks. Norbert wrote a check to Bradley Pitte, a fictitious employee, took it to the bank with fake I.D., indorsed the back with “Pitte’s” signature, and was paid in cash.(a) The bank is liable for wrongful acceptance(b) The bank is not liable under the common law of conversion (c) The bank is not liable under UCC liability rules33 - *Test Your KnowledgeMultiple ChoiceWhich of the following is not a transferee warranty? (a) Warrantor is entitled to enforce the instrument(b) The drawer has sufficient funds to pay the instrument(c) The instrument has not been altered(d) All signatures are authentic or authorized33 - *Thought QuestionsWhat steps would you take to make sure that the UCC rules concerning fictitious employees and fraudulent indorsement did not occur in your business? 33 - *
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