Chapter 33 - Liability of parties. After reading the material in this chapter, you should be able to: Explain difference between primary and secondary liability, list five warranties made to transfer negotiable instruments and three warranties made when presenting these for payment or acceptance, discuss three exceptions to normal liability rules. | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 7 Negotiable Instruments Negotiation and Holder in Due Course Liability of Parties Checks and Electronic Transfers Commercial Paper P A R T Liability of Parties P A E T R H C 33 Always do right. This will gratify some people, and astonish the rest. Mark Twain, Speech to Young People’s Society (1901) Learning Objectives Explain difference between primary and secondary liability List five warranties made to transfer negotiable instruments and three warranties made when presenting these for payment or acceptance Discuss three exceptions to normal liability rules A person may be primarily liable if s/he agreed to pay the negotiable instrument. The maker of a promissory note is primarily liable for paying the debt A person who is secondarily liable is a contract guarantor and, under UCC Article 3, must pay the instrument only if the person who is primarily liable defaults on the obligation . | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 7 Negotiable Instruments Negotiation and Holder in Due Course Liability of Parties Checks and Electronic Transfers Commercial Paper P A R T Liability of Parties P A E T R H C 33 Always do right. This will gratify some people, and astonish the rest. Mark Twain, Speech to Young People’s Society (1901) Learning Objectives Explain difference between primary and secondary liability List five warranties made to transfer negotiable instruments and three warranties made when presenting these for payment or acceptance Discuss three exceptions to normal liability rules A person may be primarily liable if s/he agreed to pay the negotiable instrument. The maker of a promissory note is primarily liable for paying the debt A person who is secondarily liable is a contract guarantor and, under UCC Article 3, must pay the instrument only if the person who is primarily liable defaults on the obligation Primary vs. Secondary Liability To trigger the secondary liability, the instrument must be properly presented for payment or acceptance, the instrument must be dishonored, and notice of the dishonor must be given to the person secondarily liable. Revised Article 3 states that the drawer of a cashier’s check has the same obligation as the maker or issuer of a note . Thus, it treats the bank drawer of a draft drawn on a bank the same as a note for purposes of the issuer’s liability rather than treating the issuer as a drawer of a draft [3–412]. The acceptor of a draft must pay the draft according to the terms at the time of acceptance (drawee’s signed engagement to honor the draft as presented) A drawee has no liability on a check or draft unless it certifies or accepts it In Harrington v. MacNab, the drawee bank had no liability to a payee for a drawer’s insufficient funds Acceptor and Drawee Liability Hyperlink is to the opinion on the website. The principle that a drawee
