Commercial Paper – Dan

When an unaccepted check is presented to the payee bank for PAYMENT (not a mere transfer), the person presenting the check for payment and all earlier transferors of the check warrant that: (1) they have no ACTUAL knowledge that the DRAWER'S signature is forged. (2) they are entitled to enforce it (i.e. I am a holder); and (3) it was not altered. *presentment warranties are made to anyone who in GOOD FAITH pays or accepts (no PM if you're aware of the fraud). -none of the parties from the forger onward can be holders, bc all breach the second presentment warranty. Drawee bank can recover from everyone back up the line to the thief (including grocery store and depositary bank). Loss will pass to earliest solvent person after the forger (unless forger can be found)

No, no one is liable on an instrument unless it contains her signature of that of her authorized agent. *Signature by authorized agent is just as effective as if signed by the principal. *Signature by unauthorized agent binds the AGENT *exceptions for entrusted employees.

When a person TRANSFERS an instrument FOR CONSIDERATION, she warrants that: (1) no defenses or claims are good against her; and (2) she is ENTITLED to enforce it (i.e. the holder); (3) it was NOT altered; (4) she has no knowledge of any INSOLVENCY proceedings. (5) all SIGNATURES are authentic AND authorized; -if instrument was stolen, it was not transferred for consideration, and these warranties don't apply (victim can't be sued for breach) -a person who gratuitously transfers an instrument warrants nothing -transferor need NOT have indorsed to still incur transfer warranty (but only runs to immediate transferee)

If BY indorsement, warranties run to ALL SUBSEQUENT TRANSFEREES. If NOT by indorsement, then warranties only run to IMMEDIATE transferee.

The transfer of a instrument in a way that makes the transferee a "holder." Person holding may be able to claim "holder in due course" Only a holder of a note can negotiate it. Negotiate order paper by indorsing AND transferring possession Negotiate bearer paper by transfer of possession alone.

(1) Writing (can't be oral) (2) Signed by maker (if note) or drawer (if check) (3) promise to pay (if note) or Order to pay (if check) (4) Unconditional promise to pay (mere reference to K is OK) (5) Fixed amount of MONEY (principal only, n/a to interest; can't prom 2 lbs. flour) (6) No other undertaking (not deliver a TV) (7) Payable on demand or at definite time (can tell when it comes due) (8) Payable To Order or To Bearer (+ check exception) Signed, Writing, Unconditional, Promise to pay or order to pay, Fixed amount of money, On demand or at definite time (payable), No unauthorized undertaking, Order paper or bearer paper language (checks exception) -if fails: contract remedies for an assignee -An IOU or acknowledgement of the debt is not promise to pay. "I wish you would pay" is not negotiable. -An undated instrument is OK b/c just treated as a demand instrument (e.g. undated check). -An instrument saying how rights concerning collateral, acceleration, or prepayment are stated in another writing doesn't destroy negotiability.

a check where drawer and drawee are the same bank. -what I got when I sold my car

drawer is a bank and a different bank is the drawee.

check drawn by the drawee bank's customer and "accepted" by the drawee bank (typically by stamping or signing it as "certified").

General principles of contract law apply. You can assign the instrument to a third party. Third party is then an assignee and has no greater rights than the assigning party.

(2 elements) A promissory note or check made payable to: (1) "to the order of" (2) an identified person Promissory note order paper: "I PROMISE to pay to the order of Paul Payee" Check order paper: "Pay to the order of Paul Payee" *EXCEPTION: a CHECK need not contain "to the order of." "Pay Paul Payee" is fully negotiable.

A promissory note or check made payable to the BEARER of the instrument. Promissory note bearer paper: "I PROMISE to pay bearer; to the order of bearer; to CASH; to the order of CASH. Check bearer paper: "Pay to the order of cash; to the order of bearer"

(1) A person in possession of bearer paper; or (2) A person in possession of order paper that has been: (a) properly issued; OR (b) properly indorsed to her. -person in possession of instrument with the right to enforce it. *A person CANNOT become a holder if any necessary indorsement was forged. *BUT, recall die-hard rule: a thief may be the holder of BEARER PAPER (can be negotiated by possession alone).

An indorsement is a signature on an instrument for purpose of negotiating it and/or making the indorse liable under indorse liability. -Special indorsement: indorsement which also names a particular person as indorsee (to whom the instrument is next payable) (NOTE: "pay to the order of" is not required on an indorsement). -Blank indorsement: just signed; no indorsee named. How I cash my bank checks. -Anomalous indorsement: indorsement by a person who is NOT the holder. Such indorsements are NOT EFFECTIVE for negotiation.

(A) Order paper indorsed in blank = bearer paper (B) Bearer paper specially indorsed = order paper *A holder can convert a blank indorsement into a special one by naming an indorsee above the blank indorsement.

The bank where the check is first deposited for collection)

An owner of a lost or stolen check may recover in conversion if the check is taken or paid over an unauthorized indorsement. Property claim (real defenses win over it) *owner of check can recover only if she had possession (through agent is fine) *A DRAWER of a check CANNOT sue in conversion Who liable? Owner of the check may recover from the drawee bank, or the depositary bank, or anyone else that didn't act in good faith.

(1) A holder (in possession for bearer; or issued or indorsed if order paper) (2) who gives executed value for the instrument (3) in good faith (4) without notice of certain things -instrument so irregular as to question authenticity -instrument overdue or has been dishonored (principal amount, n/a to interest) -instrument has unauth signature or been altered (properly completed is ok) -there's a claim to the instrument (e.g Pam's property claim) -any party has a defense or a claim in recoupment (notice of failure of consideration, notice of breach of warranty, notice of breach of fiduciary duty) -effect: strips party of personal defenses and only susceptible to REAL defenses. If you fail any of the above, you're a mere holder and susceptible to personal defenses. -Value must be EXECUTED consideration (performed) (old debts or less than face value will suffice). -Partial HDC's (only part of the promised consideration has been executed) (HDC for half and mere holder for other half) -good faith = honesty in fact (subjective) + observance of reasonable commercial standards (objective standard) -Notice includes REASON TO KNOW to know and actual knowledge.

An instrument's transferee acquires whatever rights her transferor had. This doesn't necessarily make you a HDC, but you have the same abilities as someone who was (strip defenses) *look for this in the context of gifts (no consideration). *BUT, no shelter where transferor is the original payee to the underlying transaction which gave rise to the instrument.

(1) infancy (a minor who signs) (2) incapacity, duress (must be extreme or else personal defense), illegality of the transaction (must be very bad) (3) fraud in the factum (execution) (didn't know they were executing a negotiable instrument) (4) statute of limitations (check 3 years; note 6) (5) any discharge the holder knows of when he takes the instrument (e.g. the check says "paid by Norma" on it). -fraud in INDUCEMENT is a PERSONAL defense (duped into buying gold statue) (check put in stack of other checks to be signed)

The payor bank may pay out the customer's money ONLY IF it follows the customer's orders exactly. If not, it must re-credit the account. NOT PROPERLY PAYABLE: -forged drawer's signature (the forgery operates as only the signature of the forger) -forged or missing indorsement -joint and severally payable instruments: if joint, need all payees to sign; if severally (payable to order of Dan or Chris, just need one to sign) -altered check: customer only liable for original amount. -payment over valid stop payment order: must give notice to bank when they have time to act and describe check (check #, dollar amt, acct #) (oral 14 days; writing 6 months) also HDC exception (burden on customer to prove loss have to prove a loss- if you would've had to pay then bank wins). *Subject to exceptions!!

Bank under no obligation to a customer to pay a check that is more than 6 MONTHS old, but it may charge the account thereafter in GOOD FAITH.

Warranties are made ONLY to the immediate transferee.

No. Only the holder can negotiate it.

Joint and several. Holder can sue B for the entire amount.

Only after (1) presentment; and (2) dishonor (nonpayment) by the drawee bank -drawer not entitled to notice of dishonor. Drawer is only liable to: -a holder; or -an indorser whose already paid the check on their indorser liability

Indorser's liability is owed to: (1) person entitled to enforce the instrument (holder); and (2) to anyone down the line whose had to pay the instrument due to their indorser liability.

(1) Presentment (formal demand for payment); (2) dishonored (not paid by next day midnight); and (3) timely notice of dishonor. -if not all 3, then indorser is discharged of liability *Dishonor: for a note or check, must give notice of dishonor within 30 days from when you received notice of dishonor (BUT, for a CHECK, depositary bank must give notice by next day midnight deadline). *Presentment: for a CHECK, indorser is discharged if check not presented for payment or given to depositary bank within 30 DAYS after day indorsement was made.

Not obligated to pay the check unless the drawee bank has "accepted" it. -when bank signs the check, that is acceptance.

indorsing a check "Peter Payee, without recourse" and then negotiating to Harry. -Peter is NOT liable as in indorser (it negates his liability).

If you check is dishonored, you are liable BOTH (1) on the instrument; and (2) for the underlying medical obligation -only one recovery though.

Any person entitled to enforce the instrument may discharge any party by a voluntary affirmative act such as giving the instrument to the party to be discharged, writing void, paid, or discharged on it, or striking out the signature of the party to be discharged. -no consideration needed.

A person entitled to enforce may discharge any party by signed writing agreeing not to sue or otherwise renouncing rights against the party.

A check becomes overdue 90 DAYS after its date. If someone negotiates a check to you that's over 90 days old, you can only be a holder (not a HDC).

Can get actual damages (arrest, prosecution) and consequential damages if provable.

(1) ratification (company with full knowledge of the forgery or lack of authorization accepts the benefits) (2) Impostor rule: validates forged indorsement of payee's name when maker/drawer duped by impostor to issue the instrument. Favors person who pays the instrument in good faith. (3) Fictitious payee rules (4) Fraudulent Indorsement by employee Entrusted with Responsibility (4) Negligence rule *COMPARATIVE negligence rule- if drawee bank or other person paying on the instrument fails to exercise ordinary care, person bearing loss may recover to the extent that the failure to exercise contributed to the loss.

(1) victim Suzie duped by impostor (Dave Duper) into issuing the instrument to Howard Hill; and (2) impostor forges "Howard Hill" signature and then signed his own name and deposited it (3) bank paid in good faith = check is validated and properly payable and bank doesn't have to recredit victim's account. Victim is stupid for writing a check to someone she doesn't know.

When MAKER of note or DRAWER of check does not intend, at the TIME the instrument was issued, for the person identified in the instrument to have any interest in it, then an unauthorized indorsement in the payee's name is effective against anyone who pays in GOOD FAITH. Bank need not re-credit the account. E.g. Acme's treasurer wants to embezzle money from his company. He draws a $15,000 check payable to Supplier, then indorses by forging Supplier's signature and deposits to his own account. E.g. same effect if the embezzler writes the check out to a fictitious person ("Peter Martin"). The fictitious Peter Martin indorsement is effective.

If employer entrusts employee (including independent contractor) with responsibility for INSTRUMENTS (i.e. not janitor), then a fraudulent indorsement is effective for: (1) indorsements on instruments made payable to the employer; (e.g. swiping an incoming check receivable to your company) or (2) indorsements in name of payees of instruments issued by the employer (e.g. issuing a legit check to a vendor for services and then deciding to swipe it)

if a person's negligence SUBSTANTIALLY contributes to a material alteration or to the making of an unauthorized signature, he's precluded from asserting the alteration or lack of authorization against the person who pays in good faith. E.g. drawer signs blank corporate checks and leaves them on his desk. Any slovenly business practice.

where bank makes statements available to customers, they must use reasonable care and promptness to determine whether a *signature* was unauthorized or whether there was an *alteration* to a check. -NOT applicable to forged indorsements! -customer liable for same wrongdoer forging second and third..etc. checks unless the customer gives the bank notice within reasonable period (most 30 days) of the statement being made available to customer.