owUCC Outline
3 Types of Payment
Cash
Negotiable Instrument
Note 3-104 – 2 party paper
i. 3-103(a)(7) Maker who draws note up – promises to pay the payee; 3-412 – liability of maker
ii. 3-110(a) Payee who gets the money
Draft 3-104 – 3 party paper – check – draft drawn on a bank
i. Drawer who made the draft – 3-103(a)(5); 3-414 – liable if dishonor – check bounces or payment stops
ii. Payee gets the money
iii. 3-103(a)(4) Drawee – bank – person ordered to make payment; 3-408, 3-409 – liability signature
Electronic Payments of all kinds
How to address the problem:
1. How do you sell the instrument?
Note
Check
Would you buy a 6K note from someone?
i. What is the interest rate over time? (present value)
ii. When is it payable – how long before it is due?
iii. What is the risk associated with the note?
Concepts of liability
Identify the parties – drawee, drawer, maker, payee, indorser
Identify the code that defines liability
Identify defenses 3-305/HIDC 3-302 – not subject to most defenses, subject to the “real defenses” free from “personal defenses
3-401 – Liability of parties
· not liable unless signed (as maker, drawer or indorser)
o Indorser – can be liable because they sign it
§ 3-415 – liability upon dishonor
§ 3-503 – notice of dishonor
Drawee – not liable on unaccepted draft
3-408– not liable until drawee accepts
3-409 – acceptance of draft, certified check – liable if he signs it
e a check payable to pay Jane Doe is fully negotiable.
LIABILITY THEORIES
3-412 – Maker –
3-414 – Drawer – liable if dishonor
3-415 – Indorser – liable upon dishonor and 3-503 notice
3-408 – Bank/Drawee – liable if accept
DEFENSES
Fraudulently induced
Failure of consideration
If subject to defenses of makers/drawers/indorsers upstream there is NO payment
If free from defenses there IS payment (3-302 & 3-305)
Real Defenses 3-305(a)(1) holder in due course is subject to real defenses:
Infancy
Duress
Illegality of the transaction
Fraud induced by obligor to sign with neither knowledge or opportunity to learn of its terms
Discharge of the obligor in insolvency proceedings
Personal defenses 3-305(a)2) holder in due course not subject to personal defenses:
Fraud
Breach of Contract
