Part 7- Credit, Chapter 33: Liability of Parties, Doc 6

Analysis of Liability Questions in Negotiable Instruments Cases 1. Obligation of Goss and Arrazza to Credit Union: o Answer: Goss and Arrazza, as indorsers, are secondarily liable on the check. When the check was dishonored for insufficient funds, they became obligated to make it good, as secondary liability activates once the primary obligor fails to pay. 2. Mills’ Personal Liability on the Note: o Answer: Mills likely holds personal liability for the note, as he did not clearly indicate he was signing solely in a representative capacity. Under the UCC, a signature without an explicit indication of agency role typically binds the signer personally. 3. Haynes’s Signature as “Unauthorized”: o Answer: Given Haynes’s authorized check-signing role, his signature likely is not considered “unauthorized” under the UCC, despite misuse. The UCC generally protects third parties acting in good faith when an agent with signature authority misuses that authority. 4. Money Stop’s Right to Recover from AFT Trucking: o Answer: AFT Trucking is not liable for Fehl’s actions, as she lacked authority to sign checks, making the signatures unauthorized. Money Stop’s recourse lies against Fehl directly, as her forgery does not obligate AFT Trucking to honor the checks. 5. Merchant’s Recovery from First National Bank for Altered Check: o Answer: The merchant cannot recover the altered $2,900 from First National Bank. Since the bank certified the check for $29, it is liable only for that amount. The alteration discharges the bank’s liability beyond the original certification. 6. Liability for Carson’s Forgery: o Answer: First National Bank bears the loss from Carson’s forgery, as it paid out based on a forged indorsement. Under the UCC, the drawee bank is liable for honoring a forged indorsement unless it can recover from a collecting bank or other intermediary. 7. Neely’s Negligence in Bradshaw’s Fraud: o Answer: Neely’s negligence in leaving large gaps on checks likely contributed to the fraud. Courts may hold Neely partially or fully responsible for losses due to Bradshaw’s actions, under the UCC’s comparative negligence rules, precluding Neely from demanding a full recredit. 8. Chemical Bank’s Responsibility to the Board of Education: o Answer: Chemical Bank is likely liable to recredit the Board’s account. As the drawee bank, Chemical Bank bears responsibility for honoring checks with forged indorsements, particularly when fraud by an employee is involved, unless the employer’s negligence contributed to the loss. 9. Stockton’s Claim Against Gristedes Supermarket for Conversion: Answer: Gristedes may be liable for conversion, as it accepted and presented forged checks. Since Stockton did not authorize the checks, he retains ownership, and the UCC holds converters liable when they cash or deposit checks they are not entitled to enforce. 10.Discharge of Peterson’s Original Note: o  Answer: Marking the original note “canceled” and issuing a new note indicates discharge of the original debt under the UCC. Peterson’s obligation now exists solely under the terms of the new note, as the cancellation effectively extinguished the initial note’s liability. The FTC’s Holder in Due Course Rule The FTC's Holder in Due Course (HDC) Rule protects consumers by limiting the rights of creditors to enforce a consumer’s debt if the debt originated from fraudulent or defective transactions. Creditors acquiring consumer credit contracts must be cautious, as they may not claim HDC protection against consumer claims and defenses related to the transaction’s fairness. This rule means that a creditor cannot ignore a consumer's valid defenses (such as claims of product defects or service nonperformance) if those defenses would have been effective against the original seller.