Bài giảng Business Law - Chapter 32: Negotiation and Holder in Due Course

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin7Negotiable InstrumentsNegotiation and Holder in Due CourseLiability of PartiesChecks and Electronic TransfersCommercial PaperPARTNegotiation and Holder in Due CoursePAETRHC32Behind 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 ObjectivesExplain the process of transferring negotiable instruments from one person to anotherDistinguish order paper from bearer paper, and blank, special, restrictive, and qualified indorsementsIdentify and explain requirements for becoming a holder in due courseUnder 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]Order paper: instrument is payable to the order of a specific payeeBearer paper: instrument is payable “to bearer” or “to cash” OverviewIndorsement is a signature that, alone or with other words, is made on an instrument for a specific purposeSignature may not be that of the maker, drawer, or acceptorIndorsement is required for negotiation except in the case of depositary banksIndorsementIndorsement makes a person indorsing the item liable for payment if person primarily liable (e.g., maker of a note) does not pay The form or lack of indorsement may affect future attempts to negotiate the instrumentEffects of IndorsementA special indorsement is the indorser’s signature plus words indicating to whom, or to whose order, the instrument is payableAn instrument is indorsed in blank if the indorser signs without specifying to whom the item is payableKinds of IndorsementA restrictive indorsement specifies purpose of the indorsement or how the instrument must be usedA holder in due course takes a negotiable instrument free of all personal defenses, claims to the instrument, and claims in recoupment of the obligor or a third partyA holder in due course does not take free of the real defenses regarding validity of the instrument or claims that develop after s/he becomes a holderHolder in Due CoursePerson must be a holder of a negotiable instrument, and take it (1) for value, (2) in good faith, (3) without notice of defects or evidence of apparent forgery or alteration that raises a question of authenticitySee Golden Years Nursing Home, Inc. v. GabbardRequirements for “Holder in Due Course” StatusIf a negotiable instrument is payable on demand, it becomes overdue: (1) day after demand for payment made; (2) 90 days after its date if a check; and (3) if other than a check, if outstanding for an unreasonable time for the instrument and trade practice [3–304(a)]A negotiable instrument has been dishonored when holder has presented it for payment (or acceptance) & payment (or acceptance) has been refusedOverdue & Dishonored Instruments If a person taking a negotiable instrument would be on notice of adverse claim, alteration, forged signature, or irregularity, person is not a holder in due courseCannot negotiate instrumentBut see New Randolph Halstead Currency Exchange, Inc. v. Regent Title Insurance Agency, LLCPotential defenses: fraud, duress, infancy, failure of considerationNotice of Claims Real defenses attack instrument’s validity and may be used as reasons against payment of negotiable instrument to any holderPersonal defenses are legal reasons for avoiding or reducing a person’s liability for payment and arise out of the transaction that issued the negotiable instrument Holder in Due Course Claims & DefensesClaims to an instrument concern property or possessory rights in an instrument or its proceedsClaims in recoupment arise out of the transaction that gave rise to the instrument and offset, rather than prevent, liabilityHolder in Due Course Claims & DefensesHolder in due course rules may harm consumers, thus some states and the Federal Trade Commission limited the holder in due course rule as it affects consumersFTC requires sellers who extend credit by note to include the following statementNOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF THE GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER.Consumer Protection IssuesCommercial Paper ChartThought 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?