Bài giảng Business Law - Chapter 33: Liability of Parties

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 PaperPARTLiability of PartiesPAETRHC33Always do right. This will gratify some people, and astonish the rest.Mark Twain, Speech to Young People’s Society (1901)Learning ObjectivesExplain difference between primary and secondary liabilityList five warranties made to transfer negotiable instruments and three warranties made when presenting these for payment or acceptance Discuss three exceptions to normal liability rulesA person may be primarily liable if s/he agreed to pay the negotiable instrument. The maker of a promissory note is primarily liable for paying the debtA person who is secondarily liable is a contract guarantor and, under UCC Article 3, must pay the instrument only if the person who is primarily liable defaults on the obligationPrimary vs. Secondary LiabilityThe acceptor of a draft must pay the draft according to the terms at the time of acceptance (drawee’s signed engagement to honor the draft as presented)A drawee has no liability on a check or draft unless it certifies or accepts itIn Harrington v. MacNab, the drawee bank had no liability to a payee for a drawer’s insufficient fundsAcceptor and Drawee LiabilityA person who indorses a negotiable instrument usually is secondarily liableIndorsers are liable to each other in chronological order, from the last indorser back to the firstTo trigger secondary liability, the instrument must be properly presented for payment or acceptance, the instrument must be dishonored, and notice of the dishonor must be given to the person secondarily liableIndorser LiabilityAn indorser is discharged from liability if: A bank accepts a draft after indorsement [3–415(d)]Notice of dishonor is required and proper notice is not given to the indorser [3–415(c)]No one presents a check or gives it to a depositary bank for collection within 30 days after the date of an indorsement [3–415(e)]Discharge of Indorser LiabilitySince the maker of a note is primarily liable to pay it when due, dishonor occurs if the maker does not pay amount due when: it is presented in the case of (a) a demand note or (b) a note payable at or through a bank on a definite date and presented on or after that date, or if it is not paid on the date payable in the case of a note payable on a definite date (but not payable at or through a bank) [3–502]Presentment of a NoteTo obtain payment or acceptance on a draft or check, holder must present it to drawee by any commercially reasonable meansWritten, oral, or electronic [3–501]Drawee obligated when it accepts (certifies)Presentment of a Draft or CheckPerson who transfers negotiable instrument or presents it for payment may have liability for implied warranties of presentment or transferBank One, N.A. v. Streeter: Person who deposited checks to his account on which the payee’s name had been altered breached transfer warranties and was not entitled to enforce the instruments Warranty LiabilityRevised 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 acceptanceBank bears burden of mistakeMistake in Payment or Acceptance Imposter rule: If impostor convinces drawer to make check payable to the impersonated person or organization s/he “represents,” UCC makes any indorsement substantially similar to that of named payee effectiveFictitious payee rule: If check written to fictitious payee, UCC allows any indorsement in name of fictitious payee to be effective as payee’s indorsement in favor of any person that pays in good faith or takes for value or collectionOther Liability RulesFraudulent indorsements by employees: Risk of loss for indorsements by employees given responsibilities for instruments (e.g., checks) falls on employer rather than bank that takes check or pays it Conversion: Law applicable to conversion of personal property applies to instrumentsOther Liability RulesAn obligor is discharged from liability by:Payment of the instrumentCancellation of the instrumentAlteration of the instrumentModification of principal’s obligation causing a loss to a surety or impairing collateralUnexcused delay in presentment or notice of dishonor with respect to a check Acceptance of a draft by a bank (e.g., if a check is certified by a bank)Discharge of Negotiable InstrumentsThought QuestionsWhat steps would you take to make sure that fictitious payees and fraudulent indorsement did not occur in your business?