Download Negotiable Instruments: Signature and Warranty Liability and more Quizzes Business and Labour Law in PDF only on Docsity!
signature liability; warranty liability
Liability on a negotiable instrument can arise either from a _____, which is a person's signature on the instrument or from a _____, which is from the warranties that are implied when the person presents the instrument for negotiation. TERM 2
either primarily or secondarily liable for
payment of that instrument when it comes
due.
DEFINITION 2 The general rule is that every party, except a qualified indorser, who signs a negotiable instrument is TERM 3
primarily liable; signed or issued
DEFINITION 3 A person who is ____ on a negotiable instrument is absolutely required to pay the instrument, unless of course he has a valid defense to the payment. Liability is immediate when the instrument is ____. TERM 4
the note according to its terms; either its
stated terms or terms that were agreed on
and later filled in to complete the instrument.
DEFINITION 4 The maker of a promissory note unconditionally promises to pay ___. If the instrument was incomplete when the maker signed it, the maker is obligated to pay it according to ____. TERM 5
acceptor; an acceptor; primary signature
liability for the drawee-acceptor.
DEFINITION 5 A ___ is a drawee who promises to pay an instrument when it is presented later for payment. Once a drawee accepts a draft, the drawee becomes ___ and is obligated to pay the draft when it is presented for payment. Failure to pay an accepted draft when presented leads to ____.
Drawers and
Indorsers
are secondarily liable TERM 7
the party that is primarily responsible for
paying the instrument refuses to do so
(dishonors the note).
DEFINITION 7 A drawer or an indorser will be liable only if TERM 8
the drawee fails to pay or to accept the
instrument
DEFINITION 8 On drafts and checks, a drawer's secondary liability does not arise until _____, whichever is required. TERM 9
The instrument is properly and timely
presented, is dishonored, and timely notice of
dishonor is given to the secondrily liable party
DEFINITION 9 Parties are secondarily liable on a negotiable instrument only if TERM 10
a timely fashion and give reasonable
identification if requested.
DEFINITION 10 The UCC requires that a holder present the instrument to the appropriate party, in
proper notice; before its midnight of the next
banking day after receipt; withing thirty days
Once an instrument has been dishonored, ___ must be given to the secondary parties for them to be held liable. If the party giving notice is a bank, it must give any necessary notice before ____. Notice by any party other than a bank must be given ____ following the day of dishonor or the day on which the person who is secondarily liable received notice of dishonor. TERM 17
accommodation party
DEFINITION 17 party who signs an instrument for the purpose of lending his or her name as credit to another party on the instrument. TERM 18
accommodation maker; accommodation
indorser
DEFINITION 18 If the accommodation party signs on behalf of the maker, he or she is an ____ and is primarily liable on the instrument. If the accommodation party signs on behalf of a payee or other holder, usually to make the instrument more marketable, he or she is an _____ and is secondarily liable. TERM 19
Agents
DEFINITION 19 can sign negotiable instruments, just as they can sign contracts, and thereby bind their principals. TERM 20
the agent clearly names the principal in the
signature.
DEFINITION 20 Generally, an authorized agent binds a principal on an instrument if
held personally liable.
In situations where the agent signed the agent's own name on the instrument with no indication that he or she was signing as an agent, the agent signed in both the agent's name and the principal's name but nothing on the instrument indicated the agency relationship, and when the agent indicates agency status in signing a negotiable instrument but fails to name the principal , an authorized agent is TERM 22
the identity of the principal; the agent is
signing in a representative capacity
DEFINITION 22 To protect against potential liability, an authorized agent should disclose on the instrument _____ and also indicate that _____. TERM 23
unauthorized signature
DEFINITION 23 The general rule is that an _____ is wholly inoperative and will not bind the person whose name is signed or forged. TERM 24
the principal; unauthorized
signer
DEFINITION 24 If an agent lacks the authority to sign the principal's name or has exceeded the authority given by the principal, the signature does not bind _____ but will bind the _____. TERM 25
ratifies (affirms) the
signature
DEFINITION 25 When the person whose name is signed ____, he or she will be bound.
fictitious payee
When a person causes an instrument to be issued to a payee who will have no interest in the instrument, the payee is referred to as a TERM 32
a person or firm that does not truly exist or it
may be an identifiable party
DEFINITION 32 A fictitious payee can be _____ that will not acquire any interest in the instrument. TERM 33
fictitious payee rule
DEFINITION 33 Under the UCC's ______, the payee's indorsement is not treated as a forgery and an innocent holder can hold the maker or drawer liable on the instrument. TERM 34
those that arise from the transfer of a
negotiable instrument and those that arise on
presentment
DEFINITION 34 Warranties fall into two categories TERM 35
all subsequent transferees and holders who
take the instrument in good faith.
DEFINITION 35 One who transfers an instrument for consideration makes the following five transfer warranties to ________.1. the transferor is entitled to enforce the instrument2. All signatures are authentic and authorized3. The instrument has not been altered4. The instrument is not subject to a defense or claim of any party that can be asserted against the transferor5. The transferor has no knowledge of any bankruptcy proceedings against the maker, the acceptor, or the drawer of the instrument
transferred for
consideration
For transfer warranties to arise, an instrument must be TERM 37
any subsequent holder who takes the
instrument in good faith; only the immediate
transferee
DEFINITION 37 Transfer of an order instrument by indorsement and delivery extends warranty liability to ____. The warranties of a person who, for consideration, transfers without indorsement (by delivering of a bearer instrument), will extend to ______. TERM 38
has reason to know of the breach; the
warrantor; a check
DEFINITION 38 A transferee or holder who takes an instrument in good faith can sue on the basis of breach of a warranty as soon as he or she ___. Notice of a claim for breach of warranty must be given to ____ within thirty days after the transferee or holder has reason to know of the breach and the identity of the warrantor, or the warrantor is not liable for any loss caused by a delay. These warranties can be disclaimed with respect to any instrument except ___. TERM 39
Presentment warranties
DEFINITION 39 Any person who presents an instrument for payment or acceptance makes the following ____ to any other person who in good faith pays or accepts the instrument:1. The person obtaining payment or acceptance is entitled to enforce the instrument or is authorized to obtain payment or acceptance on behalf of a person who is entitled to enforce the instrument.2. The instrument has not been altered3. The person obtaining payment or acceptance has no knowledge that the signature of the drawer of the instrument is unauthorized. TERM 40
Presentment warranties
DEFINITION 40 protect the person to whom the instrument is presented; often have the effect of shifting liability back to the party that was in the best position to prevent the wrongdoing; cannot be disclaimed with respect to checks, and a claim for breach must be given to the warrantor withing thirty days after the claimant knows or has reason to know of the breach and the identity of the warrantor, or the warrantor is not liable for any loss caused by a delay.
complete defense; partial
defense
Material alteration is a _____ against an ordinary holder but only a ____ against a holder in due course. TERM 47
ordinary holder
DEFINITION 47 An ____ can recover nothing on an instrument that has been materially altered. TERM 48
the original terms but not for the altered
amount
DEFINITION 48 When the holder is a HDC and an original term, such as the monetary amount payable, has been altered, the holder in due course can enforce the instrument against the maker or drawer according to TERM 49
Discharge in bankruptcy
DEFINITION 49 is an absolute defense on any instrument regardless of the status of the holder. TERM 50
Minority
DEFINITION 50 is a universal defense.
universal.
If a statue provides that an illegal transaction is void, then the defense is TERM 52
void.
DEFINITION 52 If a court has declared a person to be mentally incompetent, then any instrument issued by that person is TERM 53
void and unenforceable by any holder or HDC.
DEFINITION 53 When a person signs and issues a negotiable instrument under such extreme duress as an immediate threat of force of violence, the instrument is ___. TERM 54
Personal defenses
DEFINITION 54 used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or a holder through an HDC. aka limited defense TERM 55
Personal defenses
DEFINITION 55
- Breach of contract2. Lack of failure of consideration3. Fraud in the inducement4. Illegality, mental capacity, or duress, if the contract is voidable5. Previous payment or cancellation of the instrument6. Unauthorized completion of an incomplete instrument and nondelivery of the instrument
Intentional cancellation of an instrument
discharges the liability of all parties. TERM 62
writing "paid" across the face of the
instrument and tearing up an instrument
DEFINITION 62 Intentionally ____ cancels it. TERM 63
surrendering the note to the person to be
discharged
DEFINITION 63 A note's holder may also discharge the obligation by _____, provided that the holder intended to eliminate the obligation.
