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.

 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 $

 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

 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

 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 numberAccount numberCheck numberAmount

 Holder may discharge the obligation Return to Maker or Drawer Cancel Destroy

 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.

 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:

 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:

 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?

  Facebook  Gerry W. Beyer [personal]  Global Business Law LLM at La Trobe [group]  Twitter – Gerry_Beyer  , extension 302