Business Law Today Study Set 1
Quiz 20 :
Rights and Liabilities of Parties
Following are the requirements that must be fulfilled in order to attain status of holder: • A transferee must be a negotiable instrument's holder. • It must be a subject to defensive or valid claim by any party. • It must contain an altered or unauthorized signature. • There should be no authenticity question on account of obvious evidence of irregularity, forgery or alteration.
Promissory note is also called as written document that made to pay the debt. Promissory note is a signed document containing a promise to pay specified sum to a specific person or a bearer of such person on a specified date. Signature liability means that those who sign are possibly liable for stated amount's payment. It is considered as primary that needs signature on negotiable instrument as well as secondary which is done by endorsers and drawers. Hence, it is considered as a contractual liability especially when if person has not signed then he or she not held contractually liable. As per this case concern, Mr. H can take action against SV. As SV is liable who has transferred the note to Mr. H. Hence, in such cases the transferee can take damages from his direct transfer. He does not need to trace back to the initial defaulter. Therefore, SV is transferring he is fully responsible for it.
UCC 3-404b applies in this case. This provision is applicable: 1. when employee has the authority to issue the instrument 2. that employee cheats the organisation by signing an instrument payable to a party on which he has no right to receive the payment Here in this case Mrs NM is receiving the payment on behalf of the employees (employees those who have endorsed first are not aware of it) and has the authority of signing the checks up to $100 This rule is known as Fictitious Payee Rule. A fictitious payee is the person who has no interest in the instrument like here in this case Employees who has endorsed first does not have any interest and even not aware of are called fictitious payee. Here forgery is not applicable on fictitious payee or own holder. But UCC 3-404b provision applies on drawer or maker. Company GY is responsible for losses. Employee's endorsement is of no interest so there is no forgery. Check has been deposited in Star Bank. Star Bank will be known as collecting bank and collecting banks are protected in paying on the check. Transfer and Presentment warranties have been violated. She has forged the employees. She has taken unauthorised signatures on the instrument and has presented the cheque in bank which is a violation of presentment warranties. So her bank has enforced the security on her behalf. Transfer warranties: It is considered that all the instruments are taken in good faith by transferees and holders. Then Transferor is enforced for the payment when signatures are authorised and authenticated. She is authorised signatory and authentic signatory also. So transferor is entitled to enforce the instrument. But she has taken instrument not in good faith which is violation of Transfer warranties. Bank has considered that all instruments are made in good faith which is not true in this case which is violation of Transfer Warranties.
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