Transcript PowerPoint - Professor Beyer

July 14, 2010

Determine whose name was forged (maker,
drawer, or indorser).

Different rules apply to each situation.

Alleged maker not liable.

Forger is liable.

1. Drawer was negligent.

2. Drawer not inspect bank statement.

2. Drawer not inspect bank statement.
 Duty to inspect statement and checks in a
timely manner and report forgeries to bank.

2. Drawer not inspect bank statement.
 If not report within one year, bank does not
have to recredit account even if bank negligent.

2. Drawer not inspect bank statement.
 “Repeat offender rule” – If the same person is
forging a series of checks, the drawer must
report the forgeries within 30 days.
 If drawer does not report, bank does not have
to recredit for subsequent forgeries by the same
person.

1. Recredit drawer’s account as check was
not properly payable.

2. Determine if any presentment
warranties breached.
 Normally, none will be breached.
 Note that the presenting party had the right to
enforce the forger’s obligation and thus was a
holder.

1. Bearer Paper
 Forgery on bearer paper is irrelevant because
indorsement is not needed to negotiate.

2. Impostor Rule
 Issuer (maker or drawer) is estopped to deny
validity of a forged indorsement if the issuer
acted carelessly:
▪ Not check ID of payee.
▪ Not supervise employees (agents) who sign for the
issuer.

3. Fraudulent Indorsement by Employee
Entrusted with Check
 Payee cannot assert a forgery made by a
payee’s employee entrusted with the check.

4. Failure to sue within three years

Conversion liability to the payee,
or

Not properly payable liability to the drawer
[see next slide for diagram]

Bank will sue presenter and prior
transferors for breach of presentment
warranty of entitled to enforce (presenters
and prior transferors were not holders of
the check).
[see diagram on next slide]

Presenting bank will sue transferors for
breach of transfer warranties:
 1. Entitled to enforce (holder status)
 2. All signatures authentic or authorized
 3. No good defenses
[see diagram on next slide]

Obligor (maker or drawer) does not want to
pay because the instrument shows a
different obligation than to which the
obligor originally agreed.

1. Change in obligation
 Amount changed – for example, $10.00 to
$10,000

1. Change in obligation
 Date due changed – for example, August 1, 2011
to August 1, 2010.

1. Change in obligation
 Name of payee changed – for example, “I.N.G.”
to “I.N. Garrison.”

1. Change in obligation
 Interest rate changed – for example, 5% to 15%.

2. Unauthorized completion
 Amount of check is left blank.
 Drawer tells payee, “fill in $50.00.”
 Payee says “OK.”
 Payee later fills in for $700.00.

1. Change in obligation = HDC can enforce
for original amount.

1. Change in obligation = HDC can enforce
for original amount.
 Maker wrote promissory note for $100.
 Evil payee changed to $1,000.
 Evil payee transfers note to HDC.
 HDC can enforce for $100; Maker has defense
for $900

2. Unauthorized completion – HDC can
enforce as completed

2. Unauthorized completion – HDC can
enforce as completed
 Drawer signs check and says to Friend, “You can
buy yourself a present with the check but no
more than $100.”
 Friend buys present from Payee (e.g., a store)
costing $500 and writes check for $500.
 Payee transfers check to HDC (Payee’s bank).
 HDC can enforce for $500.

1. Fraudulently made by holder = Total
discharge of obligor

1. Fraudulently made by holder = Total
discharge of obligor
 Maker signs promissory note payable for $100
to Payee.
 Payee changes amount to $1,000.
 Payee (not a HDC) presents to Maker.
 Maker is discharged (does not even owe the
original $100).

2. Not fraudulently made by holder = no
effect on obligation
 On January 2, 2011, Drawer signs check for $100
payable to Payee and writes the date as
“January 2, 2010.”
 Payee changes the date to “January 1, 2011.”
 Payee may still enforce for $100.

If bank pays an altered check from your
account, bank must return the money to
your account as the check was not properly
payable ----

Unless bank has a defense.

1. Drawer was negligent.
 Wrote in pencil.
 Left blank spaces.

2. Drawer waited more than 1 year to
report the alteration (drawer has duty to
inspect bank statement)

1. Drawee bank sues presenter (or prior
transferors) for breach of presentment
warranty of no alteration.

2. Presenter sues prior transferors for
breach of transfer warranty of no
alteration.
Routing number
Account number
Check number
Amount

Holder may discharge the obligation
Cancel
Destroy
Return to Maker or Drawer

Instrument discharges underlying
obligation if it is:
 1. Certified check
 2. Cashier’s check
 3. Teller’s check

Instrument suspends underlying obligation
if it is:
 1. Promissory note
 2. Normal (uncertified) check

Instrument suspends underlying obligation
if it is:
 1. Promissory note
 2. Normal (uncertified) check

If note or check dishonored, holder may sue
on either instrument or underlying
obligation.

A person who wants payment may not
have possession:
 Lost the original.
 Original destroyed.
 Original stolen.

To enforce the instrument, this person
must prove:
 1. Was holder when loss occurred.

To enforce the instrument, this person
must prove:
 1. Was holder when loss occurred.
 2. Did not voluntary transfer the instrument.

To enforce the instrument, this person
must prove:
 1. Was holder when loss occurred.
 2. Did not voluntary transfer the instrument.
 3. Instrument not lawful seized.

To enforce the instrument, this person
must prove:
 1. Was holder when loss occurred.
 2. Did not voluntary transfer the instrument.
 3. Instrument not lawful seized.
 4. Why unable to produce the original.

To enforce the instrument, this person
must prove:
 1. Was holder when loss occurred.
 2. Did not voluntary transfer the instrument.
 3. Instrument not lawful seized.
 4. Why unable to produce the original.
 5. Posted a security or bond to protect payor
from double payment.

1. Bank may dishonor (bounce) the check.

1. Bank may dishonor (bounce) the check.

2. Bank may pay the check and seek
recovery of the money from the drawer.

Technically, no such thing as checks are payable
on demand.

Bank may pay early unless ---

The customer (drawer) gives bank a notice of the
postdating which describes the check with
reasonable certainty.

Drawer can tell drawee not to pay check.

Requirements of a stop payment order:

Requirements of a stop payment order:
 1. In writing , but can be oral in many states but
only for 14 days.

Requirements of a stop payment order:
 1. In writing , but can be oral in many states but
only for 14 days.
 2. Describe the check with reasonable
certainty:
▪ Account number
▪ Check number
▪ Amount

Requirements of a stop payment order:
 1. In writing , but can be oral in many states but
only for 14 days.
 2. Describe the check with reasonable
certainty.
 3. Valid for 6 months unless renewed.

Bank’s defense for paying check even if
valid stop payment order = no loss because
drawer would have to pay HDC anyway.

Bank liable to customer for damages if
dishonors a properly payable check unless
check is more than 6 months old (a “stale”
check).

Bank not liable to payee for damages if
dishonors a properly payable check as bank
did not sign the check.

Check which states that it is in full payment
of an obligation that is:
 1. Subject to a bona fide dispute, or
 2. Unliquidated (exact amount owed not yet
determined).

If payee cashes the check, the check
operates as an “accord and satisfaction” of
the debt unless:

If payee cashes the check, the check
operates as an “accord and satisfaction” of
the debt unless:
 1. Payee returns the money within 90 days, or

If payee cashes the check, the check
operates as an “accord and satisfaction” of
the debt unless:
 1. Payee returns the money within 90 days, or
 2. Payee is an organization and notified drawer
of a particular person or address where
payment in full checks are to be sent.

Exam will be posted later today.

Exam due on August 11, 2010 at 4 p.m.

Exam is take home and open book.

But, you cannot talk with anyone else
about the exam.

All questions are essay.

There are 7 questions.

Total of 200 points:
 100 Secured Transactions
 100 Commercial Paper

Expected length = 2,500 to 5,000 words.

Maximum length = 7,500 words.

Answers should include citation to the
correct section of the U.C.C. that supports
your answer.

You can get partial credit if you cite the
correct section even if your answer is
incorrect.

Examination Advice:
 1. Read questions carefully.

Examination Advice:
 2. Pay attention to exactly what the question
asks.

Examination Advice:
 3. Organize your answers.

Examination Advice:
 4. Spot issues – most important

Examination Advice:
 5. Provide correct statement of relevant law.

Examination Advice:
 6. Analyze – give reasons – explain why.

Any questions?

[email protected]

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
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
+1-806-742-3990, extension 302