Business Law Chapter 26

Front 1

Signature Liability

Back 1

The liability of someone who signs an instrument

Front 2

Warranty liability

Back 2

The liability of someone who receives payment on an instrument.

Front 3

Presentment

Back 3

A holder of an instrument demands payment from someone who is obligated to pay it.

Front 4

Dishonor

Back 4

An obligor refuses to pay an instrument that is due.

Front 5

Drawee

Back 5

The bank on which a check is drawn.

Front 6

Certified Check

Back 6

A check that the issuer's bank has signed, indicating its acceptance of the check.

Front 7

Cashier's check

Back 7

A check drawn on the bank itself. It is a promise that the bank will pay out of its own funds.

Front 8

Accommodation Party

Back 8

Someone other than an issurer, acceptor, or indorser, who adds her signature to an instrument for the purpose of being liable on it.

Front 9

Accommodated party

Back 9

Someone who receives a benefit from an accommodation party.

Front 10

Conversion

Back 10

Someone has stolen an instrument or
A bank has paid a check that has a forged indorsement.

Front 11

Check kiting

Back 11

Moving funds between bank accounts to take advantage of the float.

Front 12

Utter

Back 12

To pass on an instrument that one knows to be forged.

Front 13

Discharge

Back 13

Liability on an instrument terminates.

Front 14

Primary v. secondary liability

Back 14

Someone who is primarily liable on a negotiable instrument must pay unless he has a valid defense. Those with secondary liability only pay if the person with primary liability does not.

Front 15

Payment process: The payment process for a negotiable instrument comprises as many as three steps:

Back 15

Presentment. the holder makes a demand for payment to the issuer.
Dishonor. The instrument is due, but the issuer does not pay.
Notice of Dishonor. The holder of the instrument notifies those who are secondarily liable that the instrument has been dishonored.

Front 16

Primary signature liability

Back 16

The maker of a note is primary liable.

Front 17

Secondary signature liability

Back 17

a. The drawer of a check has secondary liability: He is not liable until he has recieved notice that the bank has dishonored the check.
B. Indorsers are secondarily liable; they must pay if the issuer does not. But an indorser is only liable to those who come after him in the chain of ownership, not to those who held the instrument before he did.

Front 18

Signature liability for an accommodation party:

Back 18

The accommodation party signs an instrument to benefit the accommodated party. By signing the instrument, an accommodation party agrees to be liable on it, wether or not she directly benefits from it.

Front 19

Signature liability of an agent

Back 19

To avoid personal liability when signing an instrument, an agent must indicate that he is signing as an agent and must give the name of the principal.

Front 20

Warranty liability:The basic rules of warranty liability are as follows:

Back 20

The wrongdoer is always liable
The drawee bank is responsible if it pays a check on which the drawer's name is forged
In any other case of wrongdoing, a person who initially acquires an instrument from a wrongdower is ultimately liable to anyone else who pays value for it.

Front 21

Transfer Warranties: When someone transfers an instrument, she warrants that:

Back 21

She is a holder of the instrument
All signatures are authentic and authorized
The instrument has not been altered
No defense can be asserted against her, and
As far as she knows, the issuer is solvent

Front 22

Presentment warranties for a check:Anyone who presents a check for payment warrants that:

Back 22

She is a holder
The check has not been altered, and
She has no reason to believe the drawer's signature is forged

Front 23

Imposter rule

Back 23

If someone issues an instrument to an impostor, then any indorsemnt in the name of the payee is valid as long as the person who pays the instrument is ignorant of the fraud.

Front 24

Fictitious payee rule

Back 24

If someone issues an instrument to a person who does not exist, then any indorsement in the name of the payee is valid as long as the person who pays the instrument does not know of the fraud.

Front 25

Employee indorsement rule

Back 25

If an employee with responsibility for issuing instruments forges a check or other instrument, then any indorsement in the name of the payee is valid as long as the person who pays the instrument is ignorant of the fraud.

Front 26

Liability for negligence

Back 26

Anyone who behaves negligently in creating or paying an unathorized instrument is liable to an innocent third party

Front 27

Discharge

Back 27

Discharge means that liability on an instrument terminates. An instrument may be discharged by payment, agreement, cancellation, certification, or alteration.