2.  1. Identify the type of paper.  Promissory note (including CDs)  Draft (including checks and remote-created items)

3.  2. Identify the parties, for example: ▪ Maker ▪ Drawer ▪ Payee ▪ Drawee ▪ Indorser ▪ Holder ▪ Accommodation Party ▪ Depositary Bank ▪ Payor Bank

4.  3. Is instrument negotiable (form): ▪ In writing ▪ Signed by maker or drawer ▪ Unconditional promise or order to pay ▪ Fixed amount ▪ Of money ▪ No other undertaking or instruction ▪ Payable on demand or at a definite time ▪ Words of negotiability (order or bearer language)

5.  4. Was instrument properly negotiated (transferred to a holder):  Bearer paper = possession  Order paper = possession plus necessary indorsements ▪ Blank (creates bearer paper) ▪ Special (names new owner) ▪ Restrictive (e.g., for deposit only)

6.  5. Does holder qualify as HDC?  Negotiable instrument  Holder status  Authenticity not apparently questioned  Holder gave value for the instrument  Holder took instrument in good faith  Holder was without notice ▪ E.g., overdue, dishonored, unauthorized signature, alteration, claim, defense, claim in recoupment

7.  5. HDC issues  Shelter Rule – taker from HDC may receive HDC rights  Subject to real defenses ▪ Infancy ▪ Duress voiding obligation ▪ Lack of legal capacity making obligation void ▪ Illegality making obligation void ▪ Fraud in the execution [continued]

8.  5. HDC issues [continued]  Subject to real defenses [continued] ▪ Bankruptcy discharge ▪ Omission of required consumer protection language ▪ Statute of limitations ▪ Payment by obligor without notice to former holder ▪ Alteration ▪ Unauthorized signatures and forgeries [continued]

9.  5. HDC issues [continued]  Takes free of personal defenses  Takes free of all claims  Burden of proof on HDC  HDC status sometimes denied by statute

10.  6. Liability of Parties – General Approach  Who wants the money (plaintiff)?  Who does not want to pay (defendant)?  What are plaintiff’s legal theories of recovery?  What defenses may the defendant raise?  If the defendant is a loser, may liability be passed on to another party?

11.  7. Contract liability  Underlying obligation  Maker’s contract  Indorser’s contract  Accommodation parties  Drawer’s contract  Drawee’s contract (acceptance and certification)  Signature by agents [continued]

12.  7. Contract liability [continued]  Checking Account ▪ Properly payable ▪ Wrongful dishonor ▪ Customer’s death or incompetence ▪ Setoff ▪ Stop payment orders ▪ Final payment ▪ Charge back

13.  8. Warranty Liability  Transfer warranties ▪ Entitled to enforce (holder status) ▪ Signatures authentic and authorized ▪ No alteration ▪ No defense good against transferor (perfect plaintiff) ▪ No knowledge of insolvency proceeding against maker, drawer, or acceptor ▪ If remotely created item, the person identified as the drawer authorized the item

14.  8. Warranty Liability [continued]  Presentment warranties (checks) ▪ Entitled to enforce ▪ No alteration ▪ No knowledge of unauthorized drawer’s signature ▪ If remotely-created item, the person identified as the drawer authorized the item.  Presentment warranty (notes) ▪ Entitled to enforce

15.  9. Conversion Liability  Wrongful dominion  Drawee bank paying on forged indorsement

16.  10. Forgery  Maker’s signature  Drawer’s signature  Indorsement  Forgery validation ▪ Ratification ▪ No loss ▪ Impostor Rule (estops issuer) ▪ Fraudulent indorsement by payee’s employee (estops payee) ▪ Negligence ▪ Bank statement rule

17.  11. Alteration  Types  Effect on HDC  Effect on non-HDC  Defenses ▪ Negligence ▪ Bank statement rule

18.  12. Other issues  Discharge by h0lder  Failure to produce original instrument  Overdrafts  Postdated “checks”  Payment in full checks

20. MadonnaPrince MakerPayee Disco Negotiable? HDC? presentment dishonor 1.Negotiable? 2.HDC? 3.D v. P on underlying obligation 4.D v. M on maker’s contract 5.D v. P on indorser’s contract 6.D v. P on transfer warranties

21. BobAl MakerPayee Cal Tom $500 note defective watch blank indorsement lost note $350

22. TaylorXYZ DrawerPayee First Bank LNB Drawee Check 1 -- $2,500 for furniture Check 2 -- $1,500 for refrigerator Cashed checks Closed account SPO Provides indorsement presentment Dishonored for NSF

23. Della Stella Fred [alleged drawer] [drawer & forger] [fictitious payee] CNB Corner Grocery Drawee State Bank [depositary bank] theft issuance presentment final payment NPP

24.  Effect of death of drawer/depositor