Issues

1. Issues • Is the instrument negotiable? • Is the transferee a holder? • Is the transferee a holder in due course? • What are the rights and liabilities of the parties to the instrument?

2. How to get the money . . . • Presentor has HDC rights and maker or drawer has a personal defense to payment • Warranties of transfer • Secondary(contractual)liability

3. Does the money have to be returned? • Warranties of presentment • Anyone who presents and OBTAINS payment warrants to the person who pays, that the presentor has • good title • no material alterations • no knowledge of a forged signature of the maker or drawer.

4. Is the instrument negotiable? • A writing • signed by its maker or drawer • containing an unconditional promise or order to pay • a fixed amount in money • payable upon demand or on a definite date and • made payable to the order or bearer.

5. Is the transferee a holder? • OR has the instrument been properly negotiated • Negotiation of an • order instrument vs. • bearer instrument

6. Form of the indorsement • Indorsed by the holder or someone authorized by the holder • Indorsed on the instrument • Indorsement may be conditional • Indorsement does not require words of negotiability

7. Types of indorsements • Special or • Blank • Restrictive or • Non-restrictive • Qualified or • Unqualified

8. Is the transferee a holder in due course? • A holder • of a negotiable instrument • who pays value • in good faith • without notice of a claim or defense effective against the enforcement of the instrument.

9. When does a HDC have better rights than an assignee? • Personal defenses • breach of contract or warranty • fraud in the inducement • discharge by cancellation or payment • minority (voidable) • incompetence (voidable) • illegality (voidable) • duress (voidable) • material alteration (original tenor)

10. When does a HDC have the same rights as an assignee? • Real defenses • Forgery of maker’s or drawer’s signature • fraud in the execution • discharge in bankruptcy • minority (void) • incompetence (void) • illegality (void) • duress (void) • material alteration (extent of the alteration)

11. Warranties of transfer • A transferor for VALUE, with or without an indorsement, warrants that he/she has • good title, • all signatures are genuine and authorized • that no material alterations exist, • that no defenses to the enforcement of the instrument exist, and • no knowledge of a bankruptcy proceeding against the maker, drawer, or drawee.

12. Warranties of presentment • Any person who presents and instrument and obtains payment warrants that he/she • has good title • no material alterations exist, and • has no knowledge that the drawer’s signature is unauthorized.

13. Secondary liability (unqualified indorsement) • Presentment for payment to the primary party • Time instrument • Demand instrument (note vs. check) • Dishonor by the primary party • Notice of dishonor is given to the secondary party

14. Does the money have to be returned? • Warranty of presentment • Any one who presents and OBTAINS payment warrants: • Good title • No material alterations • No knowledge of a forged signature of the maker or drawer.

15. Banking • Payor vs depositary bank • Insufficient funds check (overdrafts) • Stale checks • Stop payment orders • Customer’s duty to examine bank statements • Incompetence or death of customer