Contractual Liability
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Liability on the Instrument
no person has contractual liability on an instrument unless her signature appears on
it
Signature
a signature may be made by the individual herself or by her authorized agent
Authorized Signature
an agent who executes a negotiable instrument on behalf of his principal is not liable if the instrument is executed properly and as authorized
Unauthorized Signature
include forgeries and signatures made by an agent without proper power; are generally not binding on the person whose name appears on the instrument but are binding on the
unauthorized signer
Liability of Primary Parties
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Primary Liability
absolute obligation to pay a negotiable instrument
Makers
the maker guarantees that he will pay the note according to its original terms
Acceptors
a drawee has no liability on the instrument until she accepts it; the drawee then becomes primarily liable
-Acceptance
-Certification
Acceptance
a drawee's signed engagement to honor the instrumen
Certification
acceptance of a check by a bank
Liability of Secondary Parties
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Secondary (Conditional) Liability
obligation to pay a negotiable instrument that is subject to conditions precedent
Indorsers and Drawers
if the instrument is not paid by a primary party and if the conditions precedent to the liability of secondary parties are satisfied, indorsers and drawers are secondarily (conditionally) liable unless they have disclaimed their liability or have a valid
Effect of Acceptance
when a draft is accepted by a bank, the drawer and all prior indorsers are discharged from contractual liability
Disclaimer by Secondary Parties
a drawer (except of a check) or indorser may disclaim liability by a qualified drawing or indorsing ("without recourse")
Conditions Precedent to Liability
-Drawer
-Indorser
Drawer
liability is generally contingent only upon dishonor and does not require notice
Indorser
liability is contingent upon dishonor and notice of dishono
Liability of Conversion
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Tort Liability
conversion occurs (1) when a drawee refuses to return a draft that was presented for acceptance,
(2) when any person refuses to return an instrument after he dishonors it, or (3) when an instrument is paid on a
forged indorsement
TERMINATION OF LIABILITY
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Effect of Discharge
potential liability of parties to the instrument is terminated
Discharge
Performance
Tender of Payment for interest, cost, and attorneys' fees
Cancellation
Renunciation
Warranties On Transfer
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Parties
Warrantor
Beneficiary
Warrantor
any person who transfers an instrument and receives consideration makes certain transferor's
warranties
Beneficiary
if the transfer is by delivery, the warranties run only to the immediate transferee; if the transfer is by indorsement, the warranties run to any subsequent holder who takes the instrument in good faith
Warranties
� Entitled to Enforce
� All Signatures Are Authentic and Authorized
� No Alteration
� No Defenses
� No Knowledge of Insolvency
WARRANTIES ON PRESENTMENT
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Parties
Warrantors
Beneficiary
Warrantors
all people who obtain payment or acceptance of an instrument as well as all prior transferors give the presenter's warranties
Beneficiary
the presenter's warranties run to any person who in good faith pays or accepts an instrument
Warranties
� Entitled to Enforce
� No Alteration
� Genuineness of Drawer's Signature