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Definitions
Commercial Paper
Negotiability
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1. An undertaking or power to give, maintain, or protect collateral to
secure payment
2. Authorization or power to confess judgment or realize on or dispose
of collateral
3. Waiver of the benefit of any law intended for advantage or
protection of the obligor
4. Can also promise to pay costs of collection and attorneys fees
a. (Note: key is all make the paper more valuable, easier to
transfer).
h. 8) Payable on Demand or at a Definite Time
i. Holder must be able to tell from instrument when the note comes due,
or is non-negotiable.
ii. Undated instrument, specifying no time for payment treated as instrument
payable on demand by the holder.
1. Ex. Post-dated check is negotiable; treated as payable on demand.
iii. Acceleration clause. Notes containing acceleration clauses are negotiable.
iv. Ex. Payable upon dissolution. Not negotiable.
i. 9) Made Payable to Order or bearer
i. Negotiable instrument must contain magic words-either order language or
bearer language.
ii. Ex. I promise to pay to the order of Paul, I promise to pay bearer, to Paul
or bearer pay to order of cash (bearer paper) OK.
iii. Ex. I promise to pay Paul This is not to the order of Paul or to the bearer.
NOT negotiable.
iv. IMPORTANT Exception: Checks do not need to contain magic words of
negotiability.
1. Can write anything on the line and it still gets payable to the bearer.
III. Negotiability (or Not) by Declaration
a. Writing cannot be made negotiable instrument by agreement, declaration, K or
conduct of parties.
b. Avoiding negotiability. Parties can avoid negotiability by writing Not negotiable
on the instrument
i. Exception. Checks.
IV. Negotiation.
a. Term describing transfer of negotiable instrument in way that creates holder
status in transferee.
b. Assignment distinguished from negotiation
i. Assignment. Party who has been issued negotiable instrument (or other
valuable item or K) can assign to 3rd party, who is now assignee and has no
greater rights than assignor on instrument.
1. Any defenses that could be raised against payee can also be raised
against the assignee.
ii. Negotiation. If payee negotiates a negotiable instrument to a 3 rd party, 3rd
party is not merely an assignee, but a holder of the instrument.
1. If holder gives value, in good faith, with no notice of any claims or
defense against the instrument, then hold is holder in due course
and free of most defenses that could have been raised against the
original payee.
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c. How does one negotiate an instrument? [Turns on whether order paper or
bearer paper].
i. ORDER PAPER negotiated by:
1. 1) transfer of possession, plus
a. May be voluntary or involuntary (even theft)
2. 2) endorsement
a. Two types:
i. Special Endorsement. Specifies person to whom
instrument is payable.
a) (Note could be endorse Pay to John Does, (signed)
Paul Payee. Endorsement need not be Pay to the
order of John Doe to be effective endorsed.
Language only needs to be there initially).
ii. Blank Endorsement. Does not specify to whom
instrument is payable; usually just a mere signature. (At
that point is bearer paper).
ii. BEARER PAPER may be negotiated by:
1. 1) transfer of possession alone
a. May be voluntary or involuntary (even theft)
iii. HypoBottomLine: If parties are endorsing look at all endorsements to see if
instrument properly negotiated, but examine last endorsement to determine
if now order paper or bearer paper.
1. Ex. Don Drawer issues check (order paper) to order of Paul Payee.
Payee wants to negotiate check to Home Depot. Payee must deliver
check to HD, but first endorse it. Assume signs Pay to Home Depot,
Paul Payee on back of check.
a. This is a special endorsement.
b. After this endorsement the check is order paper.
2. Ex2. If HP wishes to further negotiate check to Ace Lumber, what must
it do?
a. B/c it is order paper, must 1. Transfer possession and 2. Endorse.
3. Ex3. Assume HP just signs Home Depot beneath previous
endorsement.
a. This is a black endorsement.
b. After this endorsement the check is bearer paper.
4. Ex4. If Ace Lumber wishes to further negotiate check to GE, what must
Ace Lumber do?
a. Only transfer possession.
5. Ex5. Assume Ace signes check Pay to GE, Ace Lumber.
a. Legal effect is for it to become order paper.
d. Order Paper or Bearer PaperSo What?
i. Bearer paper, recall, can be negotiated by transfer of possession alone,
voluntarily or not.
1. Ex. Thief steals paycheck that had been issued by Paul Payee by his
employer. Paul had endorsed check by simply signing Paul Payee on
back before stolen.
a. This was bearer paper when stolen.
b. Thief is a holder because technically was negotiated through
transfer alone.
c. Thief CAN negotiate this check (even though
converting/conversion) through transfer alone if goes to HDC.
ii. Order paper, recall, negotiated only by transfer of possession plus
endorsement of the holder.
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1. To be a holder of order paper, must be issued to him or properly
endorsed to him.
2. Ex. Thief steals paycheck that had been issued to Paul Payee by his
employer. The check had not been endorsed when it was stolen.
a. This is still order paper when stolen.
b. Thief is NOT holder b/c needed transfer and endorsement.
c. Thief CANNOT negotiate this check b/c not a holder.
3. *Ex. Assume thief forges Payees name and delivers check to Home
Depot. Has the check been negotiated to Home Depot so as to make
HD a holder and possible HDC?
a. No, HD could not be holder much less HDC, will not be able to
collect on.
iii. BOTTOMLINE When order paper contains forged endorsement, none of
parties after forgers are holders none have good title and none entitled to
the money.
1. They have all converted the instrument.
2. The drawee on a draft (check) cannot properly pay any oe of them.
Drawee can only pay a holdersomeone with good title to the
draft.
3. Note: endorsing instrument without recourse irrelevant to
negotiability, but may negate K liability (see infra).
iv. Exception for checks and banks. Ordinarily, order paper must be
transferred and endorsed in order to make transferee a holder. But a
depository bank (bank which the check is first deposited) that takes an
unendorsed instrument becomes holder of the instrument if the customer
was a holder at the time of delivery.
1. Ex. Payee receives check from Drawer, and deposits in his checking
account at Bank, forgetting to endorse, but bank takes any way. Even
without endorsement, Bank is holder of the check and can collect on
it.
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ii. Ex.2. But if H pays payee 9K now promises to pay 9K
later, HDC only for of the note (10K). Defenses good
for other half.
iii. Ex.3. H pays 9K now, learns of defense, pays other 9K.
HDC for only .
iv. Ex4. What if H pays 9K cash, and gives Payee note for 9K?
Law would consider full value; not considered executor
promise.
c. Holder gives value when takes it in payment of or security
for antecedent claim, or when he makes an irrevocable
commitment to third party.
i. Ex. Jan. 1 M borrowed 1K from L, orally promising to pay
back by June 1. Unable to, on June 1 endorses promissory
note over to L that is payable to M. Deemed to have given
value, given in past sufficient.
2. Special rule for bank deposits
a. Bank does not become holder for value merely by giving
provisional credit to bank account, because can take back credit
from account if check is dishonored. BUT if customer allowed to
draw against a deposited item (then have given value), bank
becomes a holder for value immediately to extent of withdrawal.
i. When ban credits a depositor w/ series of deposits and
permits number of withdrawals over period of time, may
be difficult to determin whether depositor has been
permitted to withdraw funds credited on the baiss of a
particular item b/f bank learns of claim or defense on that
item. In tracing the deposits to w/drawals, the FIFO- first
in first out rule applies.
b. Ex. Payee receives 1K check from Drawer and deposits check
into checking his checking account at Bank, already with 500 in
it. Next day, Payee withdraws 500 from account. Bank is not an
HDC. Payee presumed to have w/drawn her own money. If
instead withdrew 750. Bank is HDC as to 250.
iii. 3) in good faith at time take instrument
1. Two part test:
a. 1) honesty in fact, and
i. Subjective- pure heart, empty head test. No ulterior,
dishonest motive.
b. 2) Observance of Reasonable Commercial Standards
i. Objective- whether conduct conforms to ordinary business
practices.
iv. 4) without notice of claims or defenses (which includes actual
knowledge or reason to know)
1. HDC must take instrument w/out notice that:
a. Instrument is so irregular or incomplete as to call into
question its authenticity
b. Instrument is overdue or has been dishonored
c. Instrument contains an unauthorized signature or has been
materially altered
d. There is a claim by someone else to the instrument
e. Any party has a claim in recoupment (that reduces the
amount payable).
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2. Ex. Check w/ 2011 crossed out , wrote 2012. Question is whether is
material alteration or so irregular as to call into question authenticity.
Probably doesnt prevent HDC.
3. Ex. Parties agreed to change value on note, crossed out and wrote
different. Payee discounted note to bank. Subsequently Maker found
out payee had fraudulently induced him. Can bank be holder in due
course? Probably not, Maker can probably assert defense against bank.
4. Ex. On note was written Missed paying first installment. Missing
interest payments under code does not make overdue and prevent
HDC. Principle would.
5. Ex. Discounted 3K note for 100. Large discounts would probably put
one on notice according to most courts.
6. Ex. Close-Connection Doctrine. If so closely connected, notice may
be imputed.
7. Ex. If holder has knowledge that a fiduciary has negotiated the
instrument in payment of or as secutirty for fiduciarys own debt or any
transaction for fiduciarys own benefit or has otherwise breached his
duty, holder has notice of a claim.
a. If party to initial transaction cannot be an HDC, deemed
to have notice, b/c doctrine meant to protect the transferee.
b. Special Transactions precluding HDC Status
i. Holder does not become HDC of instrument taken by:
1. Legal process or by purchase in an execution, bankruptcy,
creditor sale, or similar trans.
2. Purchase as part of a bulk transaction not in the ordinary course of
business
3. The successor in interest to an estate or other organization (stand in
their shoes.
c. Shelter Rule. VERY important.
i. Rule. Allows someone who is not a HDC to claim the rights of HDC
(elevate his status) if there was an earlier HDC in the chain of title to the
instrument.
ii. Ex. Maker fraudulently induced to issue note to Payee. P negotiates note to H,
an HDC. H then endorses note and vies to son C as graduation present. C
demands payment from M, but M raises fraud as defense. HDC takes free of
defense of inducement. Is C an HDC though? YES, not an HDC b/c got as a
gift, but can use Hs rights.
d. FTC Rule.
II. Real Defenses
a. A HDC takes free of personal defenses and claims, but takes subject to real
defenses:
i. Infancy
ii. Incapacity, duress, or illegality of the transaction
iii. Fraud in Factum: Misrepresentation that induced party to sign the
instrument without knowledge nor reasonable opportunity to obtain
knowledge of its character or essential terms.
1. Basically did not know what was signing and had no opportunity to
sign.
2. Courts are suspicious of this defense however. If had reasonable
opportunity to read (or even have someone read for you) court may
not entertain the defense.
iv. Discharge in insolvency proceedings
1. Run risk when purchase note that maker of note will go bankrupt.
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v. Any other discharge of which the holder has notice when he takes the
instrument
1. One of signature on back was crossed out for example.
b. Note ex: Defense that already paid in full is not a real def., it is a personal defense
(burn the mortgage).
I. Nature of Liability
a. Relationship between liability on the instrument and liability on the underlying
obligation.
i. Liability on the underlying obligation
1. Once an instrument is offered and accepted in satisfaction of
underlying obligation, the underlying obligation is suspended.
2. Payment of the instrument then discharges both instrument and
underlying obligation.
3. If the instrument is not paid when due, party issuing the
instrument is liable on either the instrument and on the underlying
obligation.
a. *Ex. This idea was tested. When note was invalidated (void
check), underlying obligation revived.
4. BUT Special rule for bank checks: underlying obligation is
immediately discharged if the instrument is a cashiers check
(same bank is both drawer and drawee), tellers check (bank is
drawer and different back drawee), certified check (a check
accepted by bank on which it was drawn; typically would freeze your
funds, guarantee going to pay).
ii. Liability on the instrument
1. Makers contract liability. Obligated pay holder according to terms
at time issued.
a. If multiple makers, joint and several liability with a right of
contribution. Unless side agreement, law assumes equal
proportion.
2. Endorsers contract liability. Secondary liability. Endorsers
obligated to pay according to terms of instrument at the time of
endorsement if not paid by maker or drawee.
a. Signature Order is Critical. Those signing at later time can
get complete reimbursement from those signing prior in
time.
i. Ex. Drawer issued 900 check to A, who endorsed to B,
who endorsed to C, who then endorsed it to check cashing
store. Store presented to Drawee Bank, which dishonored
it. Store gave appropriate notice of dishonor to all parties
to the instrument (see presentment and notice of
dishonor section). S demands payment from C alone. S
can skip over C and sue for full amount from either A or B.
C could then recover full 900 from B or from A. Essentially
each guaranteed payment if endorsed.
ii. Note: A NOT recover from B tho b/c not relying on Bs
endorsement.
BUT note: Have to prove were earlier endorsers, can be
problem with Parol Evidence.
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b. Exception for sureties, guarantors, accommodation
parties. If endorsers have anomalous endorsements (made
by non holder such as surety, guarantor, accommodation
parties), the endorsers are jointly and severally liable with right
of contribution (like makers liability). Signature order is not
relevant.
i. Ex. Corp. wishes to borrow 20K from Bank. Bank requires
A, B, and C (officers) signe note too to accommodate.
ii. Note: Same exception for joint payees who
endorse. When instruement made payable to joint
payees (H and W, e.g.) and both endorse, jointly and
severally liable. Signature order not relevant.
c. Note that endorser is only secondarily liable. Endorser
only liable instrument (1) presented to maker (note) or drawee
(if a check), (2) that party dishonored instrument, and (3)
notice of the dishonor has been given to the endorser.
i. Presentment.
1. RE liability of endorser, must be made w/ a
reasonable amount of time, which is determined
by the nature of the instrument.
2. If check, endorser is discharged unless the check
is presented for payment within 30 days after the
endorsement was made.
ii. Notice of Dishonor.
1. When check dishonored, notice must be sent to
endorsers by bank bf midnight next banking day
after learned of dishonor.
2. For any other instrument, notice must be given
within 30 days following the day which the
dishonor occurs.
iii. If presentment and notice either not made or
delayed, endorser is excused from liability on the
instrument.
iv. But limits.
1. Waivers. Most promissory notes contain a clause
providing that all parties to the instrument waive
presentment and notice of dishonor. These are
permissible.
2. Can be excused under certain circumstances-
death of maker, maker cannot be found with
reasonable diligence, delay caused by
circumstances beyond control, etc.
3. Qualified Endorsement (Without Recourse)
Avoids Liability.
a. Ex. Paul Payee, without recourse. Pretty
much need these words. If they are willing to
accept, will not be liable as endorser.
3. Drawers Contract Liability. Drawer obligated pay draft according
terms when signed.
a. Like endorser, secondary liable after presentment and
dishonor or the drawee.
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b. Presentment. Drawer is excused from liability on instrument
due to delay in presentment ONLY in unlikely event that drawee
bank become insolvent.
c. Notice of dishonor. Drawer generally not entitled to. Drawer
should know of the dishonor because of his relationship with the
drawee.
4. Drawees contract liability. No liability on the instrument unless
drawee signs it.
a. Ex. Drawer issues check to Payee. When Payee presents check
to Drawee Bank, wrongfully dishonored bc compute issue.
Drawer gone. P cannot recover from Drawee Bank EVEN
THOUGH screwed up! Different if certified check.
I. Accommodation Parties. One who signs instrument in any capacity for purpose of
lending his name to another party to it. (Sureties, Guarantors).
a. Payment Guarantee. Ex. S needs equipmemnt, but bad credit. Friend N signs
promissory not to held S out. Both sign as makers. Payable in 60 installments. S
also required put up owned stock as collateral.
i. After 15 installment, cannot pay. Co. can recover from N.
ii. Different rules than general rule for co-makers.
1. If S does not pay and N pays, N is entitled to full reimbursement.
(not 50% b/c here accommodation).
2. Also different, if Co. sues S, S cannot sue N for contribution.
iii. If Co. grants S 6 month extension without Ns knowledge, N may have surety
defense.
1. If caused any harm, such as S had money then but does not now.
2. If Co. allowed S to sell off some collateral without Ns knowledge, N
discharged to the extent that selling off would have caused harm.
iv. N has same defenses as S.
b. Collection guaranteed or equivalent language is weaker type of guarantee.
i. Means signer will only be liable on instrument only if:
1. Execution of judgment against the other party has been returned
unsatisfied
2. Other party is insolvent or in insolvency proceedings
3. Other party cannot be served with process, or
4. Otherwise apparent payment cannot be obtained from the other party
c. Most guarantees are payment guarantees, and not secondary liabilityallows
creditor to choose who to go after. Stronger form of guarantee.
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b. Payee might ask Drawer for another check. Drawer will
demand Drawee Bank recredit b/c not properly payable (forged
endorsement). OR
c. Payee might sue Drawee Banke or anyone taking after forgery
in conversion.
d. Either way Drawee out 200. Bank recovers via breach of
presentment war.
iii. Presentment Warranties
1. Who. Person presenting instrument for payment and all prior
transferors makes presentment warranties.
2. To whom. Presentment warranties are made only to party who
pays instrument on its presentment. (Usually drawee bank (for
drafts, checks) or maker (for notes)
a. Note: This person gets this benefit, but DOES NOT get transfer
warranties.
3. For unaccepted drafts (typically check being presented to drawee
bank for payment):
a. There are Four presentment warranties:
i. 1) presenter is entitled to enforce the instrument
1. i.e. presenter has good title, no necessary
endorsements forged
ii. 2) no alterations
iii. 3) presenter has no knowledge that drawers
signature is unauthorized
iv. [4) for remotely created consumer items(telechecks
created in purchase over phone) the consumer actually
authorized creation.]
b. Only made to the party who pays the instrument upon its
presentment
c. For promissory notes, the only warranty is good title to the
instrument because maker should know if it was altered
4. For other types of instruments, notes only presentment warrant is
that presenter had good title to instrument. (Note: this is because
maker of note should know if altered).
a. Ex. Above, Drawer recovers 200 from Drawee Bank. Drawee B
can then recover 200 from Depository Bank or Browns b/c
breached its presentment warranty.
i. Person presenting for payment to Drawee and each earlier
transferors warrants to Drawee they are person entitle to
enforce the draft.
ii. Since the forgery, none of them had good title, none
entitled to enforce the check, none were holders.
iii. Drawee could recover from any of them.
iv. Transfer Warranties.
1. Each party that transfers an instrument and receives consideration
warrants:
a. 1) the transferor is a person entitled to enforce the
instrument
b. 2) all signatures on the instrument are authentic and
genuine
c. 3) instrument has not been altered
d. 4) no defense of any party is good against transferor
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e. 5) transferor has no knowledge of insolvency proceedings
against maker, acceptor or drawer
f. [6) for remotely created consumer items(telechecks created
in purchase over phone) the consumer actually authorized
creation.]
g. Ex. Above, Drawee Bank recovers 200 from Depository Bank for
breach of presentment warranty. Depository Bank can then
recover from Brown and or Thief b/c each breached transfer
warranties. B/c of forged signature, they were not entitled to
enforce this instrument, and one signature was not authentic.
2. Note again: Drawee Bank does not receive transfer warranties b/c
instrument is presented to it, not transferred.
3. Loss can usually be traced back to the earliest solvent person after the
forger. Could sue thief for breach of transfer warranty or CL fraud but
even if can find, likely insolvent.
4. If Drawee bank dishonored, then presenting bank could recover via
transfer warranties.
b. Restrictive Endorsement and Conversion
i. Restrictive endorsement effective to negotiate a check, but later
holders who violate terms of endorsement liable for conversion
1. Ex. Payee received weekly paycheck 200 from Drawer, made following
endorsement: For Deposit Only /s/ Paul Payee. Thief stole, swrote
name below payee and cashed at Browns. Brown endorsed and
deposited at DP, which endorsed, presented to Drawee.
a. Properly payable by Drawee? YES, a restrictive endorsement
still an endorsement allowing thief to be holder! (bearer paper).
b. BUT payee can still sue any of them for conversion!
c. Forged Drawers Signature (As opposed to payee or an endorser).
i. Law reaches different result
ii. Check still not properly payable by the drawee bank, BUT if the bank does
honor the check, it probably have to recredit the account and take the loss.
iii. Presentment clause is not breached bye parties who had no knowledge
of the forgery.
1. EX. Thieft steals Drawers checks, makes payable to him and forges
signature. Then endorses and takes to Depository Bank who pays,
stamps its endorsement and presents check to Drawee, which pays.
a. Drawee must recredit drawers account b/c not properly
payable.
b. Drawee unlikely to recover from anyone. Unlike situation
wher forged endorsement, Dep. Bank has good title (though
good title to check with Thief as Drawer; is negotiable
instrument but his draft). Drawee bank takes risk that drawers
signature is unauthorized unless prior party had
knowledge(see present warranty). Unlikely any one did but
forger and forger likely gone.
c. If Drawee had dishonored (b/c forged or b/c stop payment
order) Dep. Bank stuck but could try to recover from Thief for
breach of transfer warranties or endorsement K.
V. Validation of the Forgery
a. Ratification.
i. Occurs when a party, with full knowledge of forgery (or alteration) accepts
benefits thereof or actively assents to wrongful activity
b. Imposter Rule (Payee who fraudulently solicits checks).
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i. Validates forged endorsement of the payees name where maker or drawer
has been duped by an imposter to issue the instrument.
1. Ex. Drawer writes check to Fake Name. Fake Name then endorses
fake name and signs own name below. Drawer loses against Drawee
b/c was properly payable under Imposter rule, despite fogery of
payees name.
2. Ex2. Same result if created fake Corporation and forged.
c. Fictitious Payee Rule (Drawer/maker who fraudulently writes checks).
i. If drawee, maker, or other person whose intent determines to whom an
instrument is payable does not intend (at the time instrument is issued) for
the person indentified to have any interest in the instrument, or if the person
identified in the instrument is fictitious, then endorsement in the name of
the payee is effective.
1. Note: if machine, relevant intent is person supplying name.
2. Ex. Treasurer of D corp., authorized to write checks writes one to C
corp. who they do business with, then to Z Corp, a made up
corporation. Endorses so looks like Corp. signed them, cashes. These
endorsements are legitimized. Made negotiable. Rationale: police
your employees.
d. Entrustment Rule (employees who fraudulently obtain employers checks and
endorse them)
i. If the employer entrusts the employee (including independent contractor)
with responsibility with respect to an instrument and the employee makes
a fraudulent endorsement on the instrument, endorsement is effective.
ii. Two scenarios :
1. Endorsements made in name of employer on instruments made
payable to employer.
a. Ex. Bo works in billing department. Takes firm check, forges
endorsement and transfers to X. Endorsement IS effective b/c
trusted employee position.
b. Cf. janitor theft.
2. Endorsements in name of payees of instruments issued by employer.
a. Ex. Treasurer draws Corp. check to pay supplier. Subsequently
decides to stael check. Forges endorsement of supplier and
transfers. Endorsement effective.
b. Note: fictitious payee rule N/A b/c T intended supplier be paid
when first drew.
c. Ex. Secretary informed Contractor needed to pay Roofer 2K. He
wrote check, S forged Rs name and pocketed proceeds. Likely is
properly payable b/c S appears to be entrusted employee.
d. Note: fictitious payee rule N/A b/c C intended Roofer be paid
when drew check.
e. >Negligence Rule (General Applicability).
i. If person by his negligence contributes to material alteration or making
of unauthorized signature, he is precluded from asserting the alteration or
lack of authority against someone who pays in good faith and in
accordance with reasonable commercial standards.
ii. Not any negligence effects preclusion, but negligence that contributed to
unauthorized signature.
1. Ex. signing blank checks, failure to look after ones signature stamp.
iii. Note: Any person, in any context. The previous rules sort of per se rules of
this general rule.
f. >Comparative Negligence (General Applicability).
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i. If drawee bank or other person paying instrument or taking it for value or
collection fails to exercise ordinary care, loss is allocated between the
negligent parties to the extent each party contributes to the loss
(Comparative allocation).
g. >Customers Duty to Examine Bank Statements
i. Customer must exercise reasonable promptness in examining their bank
statement to ensure there were no unauthorized payments.
ii. Prompt notice should then be given to the bank if anything is wrong.
iii. If customer fails to do this, and bank can show it suffered a loss by
reason of this failure, bank need not recredit its customers account.
iv. However if the bank did not exercise ordinary care in paying a check, loss
allocated between the bank and the customer to the extent each
contributed to the loss. (idea runs throughout code) .
v. Absolute bar however2. Irrespective of negligence, customer precluded
from asserting unauthorized drawers signature or any alteration on
face of instrument if he does not notify the bank within 1 year after the
statement or items are made available to customer. Customer has 3 years to
report any unauthorized endorsement or alteration on back of instrument.
VI. Material Alteration
a. Generally only liable on instrument for terms that existed when you issued it.
b. Altered note
i. Alteration by the payee of a note discharges the maker vis a vis the
forger, but the maker must still pay the HDC according to the original
terms of the note.
ii. Ex. Maker borrows money from Co., signs 2K note payable in 6 months. After
Co. changes to 20K really well so no one would be on notice. Negotiated to
HDC. Maker liable only to extent of original term. HDC could go after Co. for
breach of transfer warranty and CL fraud.
c. Altered check
i. Properly payable for its original amount.
ii. Ex. S takes personal check from B for 100 for goods. S changes to 1000 and
casehs at own Local Bank. Local Bnk presents to Drawee Bank, paying 1000.
Drawee Bank must recredit Bs account. (Drawee Bank Could pursue Local
Bank for breach of presentment warranty then).
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