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44 Cards in this Set
- Front
- Back
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Fictitious Payees
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Where an employee furnishes an employer with a fictitious name for a payee on a check, intending that the named person have no interest on the intstrument, then the fraudulent employee's fordery is effective because article three deems that the drawer was in a better position than the bank to prevent such fraud, and the risk is placed on the drawer (employer and not the bank
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E.G. Fictitious Payees
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Pieper goes to the back office, addsa new name to the payroll, Jimmy Gardener, and picks the check up for this fake guy. ACan cash it, employer takes the loss because they're in a better position than the bank to prevent.
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Fictitious Payee PRoblem
B merchant intending to buy seller's rare coin collection signed a check payable to S, but did not write in any amount. When S and B met they could not agree on a price, and when they left, S slipped B's check into his briefcase, filled in the amount of 10,000 and negotiated to X (Bank), who took it in good faith and paid value for the check. When X put it into collection, it bounced becuase B had put a stop payment order. X sued B for 10,000$. RUling?Even though |
Even though S had no authority, as between X, a holder in due coure, or B, a person who negligently allowed the loss to happen, B would be estopped from asserting the defense of unauthorized completion of a negotiable instrument because B was in the best position to have prevented the loss (B should not have signed the check before it was completed.)
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Another example of fictitious payee
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Pieper signs a check to employee but does not write amount, employee loses it and thief finds it, Piper is liable.
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5.
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DO not confuse an authorized completion (aff. defense) with a forgery or a material alteration of the instrument, which is a real defense that can be asserted against an HDC.
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Altered Instruments
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The drawer or maker of a negotiable instrument unconditionally promises to pay, only that amount originally written on the instrument. If that amount is altered, then the original maker will not be liable for the increased amount unless he was negligent in allowing the alteration to occur.
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altered instruments example
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If I write a check for forty but dont write a line thorugh the rest of the amount space, then Im negligent and and liable for alteration
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holder in due course
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A holder in due course is one who receives a negotiable instrument for value in good faith and without notice the instrument is ODD.
If a necessary signature has been forged on that instrument, then there cannot be a HDC |
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Hoder in Due Course Elements: 1. Value
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1. Value - And HDC takes for value to the extent the agreed consideration has been performed (not future consideration) if she gives current or past consideration or she takes the negotiable instrument as a pledge to secure a loan.
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Altered Instruments
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The drawer or maker of a negotiable instrument unconditionally promises to pay, only that amount originally written on the instrument. If that amount is altered, then the original maker will not be liable for the increased amount unless he was negligent in allowing the alteration to occur.
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altered instruments example
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If I write a check for forty but dont write a line thorugh the rest of the amount space, then Im negligent and and liable for alteration
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holder in due course
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A holder in due course is one who receives a negotiable instrument for value in good faith and without notice the instrument is ODD.
If a necessary signature has been forged on that instrument, then there cannot be a HDC |
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Hoder in Due Course Elements: 1. Value
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1. Value - And HDC takes for value to the extent the agreed consideration has been performed (not future consideration) if she gives current or past consideration or she takes the negotiable instrument as a pledge to secure a loan.
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HDC Value Example
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Piper sells his Kennedy pen for 10,000, lies that the pen was Kennedy's. Piper takes the check, takes the check to an auction to buy a new autograph, gives the check to the auctioneer. B puts a stop on the check, autioneer sues )CLARIFY
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HDC Element 2. Good Faith
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Good Faith is subjective honesty in fact, and what the holder actually knew about the instrument. Mere suspicion is not enought o defaet
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HDC Element #3 - not ODD
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And HDC must take the NI without notice that the instrument is ODD.
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HDC Pnuemonic - ODD
THE O |
O - Overdue (A note due February 15th is overdue on the 16th) (IF you receive a check and see that it was due at an earlier date, not an HDC)
-A check is stale thirty days from the date is was issued, and no HDC can take the instrument after the thirtieth day. So you ca;t take the check that was written to the person giving it to you by a third person more than thirty days ago. |
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Shleter Doctrine excpetion to the O in ODD
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A golder who takes the check on a the thirty first day may nevertheless have the same rights as a holder in due course under the "shelter doctrine".
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HDC ODD
THE D |
Notice that the instrument has been
DISHONORED. You take a check from someone that is stamped (INsifuccificnet Funds, you are on notice |
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HDC The ODD
Second D |
Notice that there are any real or personal defenses on the instrument on the part of any person.
E.G. There is evidence of an alteration, or the holder knew (someone told you) at the time she took the instrument there was a defense to its payment. |
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Clarify HDC
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THe person to whoom the check is made payable is not the HDC. Its when you negotiate the check to a third person, negotiate it, they take the check free from the personal defenses of the drawer.defense of fraud or inducement.
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M.U.F. Failure of Consideration
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M- Mistk
U- Unconscionability I - Fraud in the inducement of the underlying transation F. Failure of a consition precedent or subsequent on the underlying transciton I - Fraud in the inducemtn N - Non-delivery |
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HDC Problem
D deliever a check pay to the order of M, signed D. M takes the check and plans to bring it to the bank, the next day she lost it or it was stolen. T, a thief, negotiated it to H, who paid T 1000$ and took the faith with no knowledge the check was ODD |
D prevails and must pay H 1000, because even though the check was not validly delivered, a check that contains a valid necessary signature (it was endorsed in blank) converts it from order paper to bearer paper, which can be validly negotiated by a thief to an HDC. The personal defense of non-delivery of a completed instrument does not prevail against an HDC
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HDC ODD
THE D |
Notice that the instrument has been
DISHONORED. You take a check from someone that is stamped (INsifuccificnet Funds, you are on notice |
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HDC The ODD
Second D |
Notice that there are any real or personal defenses on the instrument on the part of any person.
E.G. There is evidence of an alteration, or the holder knew (someone told you) at the time she took the instrument there was a defense to its payment. |
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Clarify HDC
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THe person to whoom the check is made payable is not the HDC. Its when you negotiate the check to a third person, negotiate it, they take the check free from the personal defenses of the drawer.defense of fraud or inducement.
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M.U.F. Failure of Consideration
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M- Mistake
U- Unconscionability F - Fraud in the inducement of the underlying transation F. Failure of a consition precedent or subsequent on the underlying transciton I - Fraud in the inducemtn N - Non-delivery |
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Real defenses that HDC is subject to.
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HDC takes subject ot the following REAL defenses: DAFFIDILS.
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DAFFIDILS
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D- Duress, which requires a threat of violence and not economic duress.
A- A material alteration F- A forgery, because with forgery there cannot even be an ordinary holder, and therefore no HDC because of the absence of a necessary signature. |
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FRE Forgery Rule
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(Under FRE, determining the validity of signatures on commercial paper are self authenticating to the extending provided by state law.
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FRE FORGERY RULE 2
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NY Law provided that all signatures on negotiable instruments are deemed genuine (no handwriting testimony is required) unless the signature is specifically denied in the defendant's answer. IF denied, then the holder of the instrument has the burden of proof to authenticate the signature is genuine.
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FRE FORGERY RULE 3
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FRE provides that sigs can be authenticated by 1. A handwriting expert, or 2. A non-expert witness provided the witnesses familiarity with the signature was not acquired for the purpose of litigation (of offering evidence at the trial)
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Real defenses that HDC is subject to.
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HDC takes subject ot the following REAL defenses: DAFFIDILS.
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DAFFIDILS
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D- Duress, which requires a threat of violence and not economic duress.
A- A material alteration F- A forgery, because with forgery there cannot even be an ordinary holder, and therefore no HDC because of the absence of a necessary signature. F- Fraud in the pactum which arises when a person signs a negotiable instrument believing she is signing something entirely different (whereas fruad in the inducment, a personal defense), involves fraudulently inducing a person to knowingly sign a negotiable instrument. (NYAA 263-264) I - Illegality (e.g. the note arouse from illegal gambling, or it involved usury) D- Discharge, in bankruptcy, of the maker or drawer (guy who wrote the check). -Infancy of the maker or drawer L- Lack of mental capacity S- Statute of Limitations Bars the Debt (Look at the underlying transaction) |
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FRE Forgery Rule
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(Under FRE, determining the validity of signatures on commercial paper are self authenticating to the extending provided by state law.
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FRE FORGERY RULE 2
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NY Law provided that all signatures on negotiable instruments are deemed genuine (no handwriting testimony is required) unless the signature is specifically denied in the defendant's answer. IF denied, then the holder of the instrument has the burden of proof to authenticate the signature is genuine.
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FRE FORGERY RULE 3
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FRE provides that sigs can be authenticated by 1. A handwriting expert, or 2. A non-expert witness provided the witnesses familiarity with the signature was not acquired for the purpose of litigation (of offering evidence at the trial)
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Shelter Doctrine
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Holder who takes a negotiable intrument from an HDC as a gift, or even if the holder had knowledge when she received that it was overdue, or that there were defenses to its payment, nevertheless has the same privileges and rights as a HDC under the shelter doctrine. (HDC didn;t have the knowledge of the ODD, uotherwise they wouldn;t be HDC)
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Shelter Doctrine Exception
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The shleter doctrine does not apply to a holder who 1- Earlier particpated in the activity giving riser to the alleged defense, or 2. Was a prior holder of the instrument, with notice that it was ODD, because he cannot enhance his position by retaking the instrument from a HDC
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In a commercial venture, A fraudtenly induced D to buy diamonds, but they were glass. D gave A a 50,000 negotiabale note, which A endorsed to B in blank (A just signed his name on the back of the note).
B endorsed it to C, and C endorsed if "it blank, who is an HDC" When D discovered the stones were sorthless, D notified A,B, C, and H that he would not pay the note. B, a close friend of H, obtained a release from H by having H cross out B's signature on the back of the note. As a father's day present, H gave the note to F, his father, and at that time F was aware of A's fraud. What are the rights and liabilities of the parties? |
Scratch says "pay a signed D,
three signtu H- as a HDC, H could have recovered against A,B, C, and D because A SURM fraudulent conduct (fraud in the inducement of the underlying transaction is nto a good defense against an HDC if it was asserted by D because it is a peronal defense that does nto prevail against an HDC. By crossing out B;s endorsement on the back of the check, H discharged B from liability. A holder can affect a discharge in any manner apparent on the face of the instrument or on an endorsement. Do not confuse a discharge with a fraudulent alteration of a NI. By H discharging B without C's consent, it discharged all subsequent endorser's who relied on B's signature, and whose right of recourse against B was impaired by the discharge. By B;s discharge, and therefore C's discharge, both parties were released from liability, and this was obvious from an inspection of the note, thus F, who took the note on fathers day, was bound by H;s discharge, and could not look to B or C to recover on the note. F is not a HDC, because F did not pay value (it was a gift), and also, F knew, when F took the check, that the instrument was ODD. Because F knwe of A's fraud when F acquired the instrument from H. However, F has the benefits of an HDC under the shelter doctrine. Thus F can recover 50,000 from D or A. However, if F had been a particpatant with A in the fraudulent scheme, or earlier had been an endorser on the instrument, then the shelter doctrine could nto be used to benefit F (at the time he endorsed it he woulkdn;t have been HDC, knew it was ODD) |
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DPP - D had just signed a 200 check, payable to the order of cash, when D received a telephone call from P demanding immediate payment of a 200$ business loan. D wrote a second checkl for "$300, payable to the order of P" And then mailed both checks to P. T, a thief, broke into P's locked mailbox and stole both checks. T then purchased a 500$ tv set from H by endorsing both checks "pay to the order of T, signed P". T paid H by endorsing both checks "pay to the order of H, signed T". H immediately went to Y, a wholesaler, and purchased $500 of appliances by paying Y with the two checks which H endorsed "without recourse". When Y deposited the two checks for collection, they were dishonored by D's bank. What are the rights and liablities of the parties?
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Of course, T is liable, but he usually will have disappeared.
The two rule, answer the question about each NU individually. 1. As to the 200$ check, it was bearer paper, and it could be validly negotiated without any necessary signature. Even a thief can negotiate bearer paper by mere delivery. H and Y, a sholders in due course, prevail over D, because it was D who allowed to $200 bearer paper to enter commerical chanels. D was in the best position to have prevented this loss simply by putting on the back a special endorsement (e.g. pay to the order of P, which would have converted that check into order paper, requiring the necessary signature of P). Since H and Y qualify as HDCs, D's defense that the 200$ was stolen and not forged is a personal defense that will not prevail against an HDC (non-delivery of a completed check) 300 check -A thief who forges order paper cannot pass title, even to a person who takes, in good faith, and without notice of the forgery, and pays value for the check. H would be liable to Y for three hundrerd dollars, because eevn though H cancelled his contractual liability by signing "without recourse", H breached his T SAID warranties. By his endorsement, H warranted to Y that he had good title, but he did not, and he warranted that all signatures were genuine, but they weren't. P can still look to D for th e500$ debt because by drawing a check, and even its delivery, it does not satisfy the underlying debt until the proceeds of the check are paid to the creditor. |
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Presentment
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is a required demand by a holder that a check be paid by a bank, or that the note be paid by the notes maker.
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what is the effect of a failure of presentment> E.G> was due June 1st but was not presented for payment until august 15th?
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The drawer of a check, or the maker of a note, is not affected by either a delay or failure of presentment. They suffer no loss by late presentment, thus they are not discharged from liability by late presentment. Within the SOL period, the holder simply demands payment.
Endorsers are secondarily liable, and timely presesntment for payment is a necessary condition for holding endorsers liable. If there is a delay in presentment without excuse, then all endorsers on an NI are discharged. Check must be presented within 7 days from the last endorsement, otherwise the holder of the check releases any prior endorsers from liability, but this doe snot release the original drawer who issued the check. |
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COndition RUle
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WHen an instrument is timely presented but is not honored, then notice of dishonor must be given to all endorsers in a reasonable manner, orally or in writng, and within a reasonable time, otherwise endorsers are discharged.
As a condition to holding an endorser liable, it must be established that notice of dishonor was timely given. |
