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Liability, Defenses, and Discharge

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by

Veronica Bichouti

on 22 January 2014

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Transcript of Liability, Defenses, and Discharge

Chapter 26: Liability, Defenses, and Discharge

Veronica Bichouti

Defenses and limitations
Two categories- Universal and personal defenses
Universal (real) defenses
Forgery
Fraud in Execution
Material Alteration
Discharge in bankruptcy
Minority, if the contract is voidable
illegality, mental incapacity, or duress
Warranties
These presentment warranties protect the person that the instrument is presented to.
They have the effect of shifting liability back to the party tat was in the position to protect the wrongdoing.
Transfer warranties
The transerfor is entitled to enforce the instrument
All signatures are authentic and authorized
The instrument has not been altered
The instrument is not subject to a defense or claim of any part that can be asserted against the transferor.
The transferor has no knowledge of any bankruptcy proceedings against the maker, the acceptor, or the drawer of the instrument.
Presentment Warranties
The person obtaining payment or acceptance is entitled to enforce the instrument or is authorized to obtain payment or aceptance on behalf of a person who is entitled to enforce the instrument.
The instrument has not been altered
The person obtaining payment or acceptance has no knowledge that the signature of the drawer of the instrument is unauthorized.
Warranty Liability
Warranty liability- arises when a transferor does not indorse (sign) the instrument.
Two Categories; Transfer and presentment
Unauthorized Signatures
Two situations; when a personforges another persons name , and when an agent who lacks the authority signs an instrument on behalf of a principal.
The general rule is that an unauthorized signature is wholly inoperative and will not bind the person whose name is signed or forged.
Exceptions
Authorized Agents' Signatures
Agent- person who agrees to represent or act for another, called the principal.
Liability of the principal
Liability of the agent
Exception: Checks signed by agents
Personal Defenses
Signature Liability
The key to liability on a negotiable instrument is a signature.
Two types: Primary Liability and Secondary Liability
Primary liability- Makers and Acceptors
Signature- name, word, mark, or symbol executed or adopted by a person with the present intention to authenticate a writing.
Made by a device or manually
Secondary liability- Drawers and Indorsers
Proper presentment
Timely presentment
Dishonor
proper notice
Accommodation parties-
Example: Car loan with a cosigner
One who signs an instrument for the purpose of lending his or her name as credit to another party on the instrument.
Breach of contract (including breach of contract warranties)
Lack or failure of consideration
Fraud in the inducement
illegality, mental, incapacity, or duress
Previous payment or cancellation of the instrument
Unauthorized completion of an incomplete instrument and nondelivery of the instrument.
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