Commercial Paper-Forgery and Alteration
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Forged Maker's Signature
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1. Alleged maker not liable 2. Forger is liable
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Forged Drawer's Signature
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1. Alleged drawer has no liability 2. Drawee bank must recredit alleged drawer's account as check was no properly payable unless drawee bank has defense 3. Bank can't pass loss unless breach of presentment warranty
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Bank's Defenses to Recrediting Drawer Forgery
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1. Drawer Negligence 2. Bank Statement Rule
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Drawer Negligence
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if drawer's negligence substantially contributes to the gorgery of the drawer's names, the drawer may no raise the forgery
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Bank Statement Rule
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1. Customer has duty to inspect statement 2. Must be reported within 1 year
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Repeat Offender Rule
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If the same person is forging a series of checks, the drawer must report the forgeries within 30 days of when the sattement was availible
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Effect of Forgery of Payee's Name on Bearer Paper
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no effect, you don't need to endorse
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Effect of Forgery of Payee's Name on Order PAper
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forgery breaks the chain of title and check is not proeprly payable
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2 Situations where PArty Is Precluded from Asserting Forgery of Payee's NAme
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1. Imposter Rule 2. Fraudulent Indorsements by Employees
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Imposter Rule
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issuer, maker, or drawer will be estopped from denying the validity of a froged indorsment 2. Generally if one of these parties acted carelessly basically determine the true identity of the parties, don't be dumb
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Fraudulent Indorsement
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if agent makes fraudulen indorsement, the indorsement is effected
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Liability of Drawee
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1. Conversion Liability 2. Not properly payable to drawer
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Bank's Defenses
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1. Imposter Rule 2. Fraudulent Endorsement 3. Drawer's Negligence 4. Failure to Timely Sue
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What does drawee bank do?
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the drawee bank can then sue the presenter and those prior to the presenter for breaching the presentment warranty
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What does Transferor do when sued by bank on presentment warranty
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sue everyone up the chain for the transfer warranties
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2 Types of Alteration
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1. Change in Obligation 2. Unauthorized Completion
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Change in Obligation
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any change that modifies the obligation of a party such as the amount, date, names of payees, or interest
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Unauthorized Completion
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Instrument is completed in a n authorized manner which effects the party's obligation
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Effect of Change in Obligation as to HDC
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can only enforce original amount
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Effect of Unauthorized COmpletion as to HDC
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HDC may enforce as completed
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Fraudulently Made By Holder
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total discharge of obligor
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Not Fraudulently Made
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Oblgior Liable under original terms
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Not Properly Payable
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an altered check is not properly payable
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Bank's Defenses to "Not Properly Payable"
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1. Negligence 2. Bank Statement Rule
