Commercial Paper

Article 3 of the Uniform Commercial Code.

If an instrument is negotiable and it is transferred by negotiation to a person who takes the instrument for value, in good faith, and without notice of any defenses to or claims on the instrument, the HDC will be able to force someone to pay on the instrument, unless the person from whom payment is sought has available onf ot he few so-called real defenses provided by Article 3.

The note (e.g., a promissory note) and the draft (e.g., a check).

No.

A promise to pay.

The person promising to pay (the "maker") and th person to whom apyment is promised (the "payee" or "bearer").

An instrument made by a bank expressing a deposit of funds in a form that makes the funds repayable to one who holds the instrument.

Not until a demand for payment has been made upon it.

An order to pay.

One person (the "drawer") orders another party (the "drawee," often a bank) to pay money to a third person (the "payee" or "bearer").

A check is a special kind of draft; it is drawn on a bank and payable on demand.

There are only two parties on a note (a maker promises to pay a payee) and there are three parties on a draft (a drawer orders a drawee to pay a payee).

• "Time" instrument--day after maturity.
• "Demand" instrument--date of instrument, or, if no date, date of issue.
• Secondary parties--time of demand on the secondary party following dishonor.
• Certificate of deposit--upon demand that the instrument be paid.

• Be in writing;
• Be signed by the maker or drawer;
• Contain an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation, or power given by the maker or drawer except as authorized by Article 3;
• By payable on demand or at a definite time; and
• Be payable to order or bearer.

Any "intentional reduction to tangible form."

Anything intended to be a signature is acceptable. It need not be at the bottom of the instrument and may be in the body. The maker or drawer is bound even if he signs with an assumed or trade name. A person whose name is signed without authority is not liable on the instrument unless he ratifies the signature or is precluded from denying it; the unauthorized signer is personally liable.

• No Terms in Separate Instrument;
• No Express Conditions; and
• Full Credit of Maker or Drawer Necessary

No.

No.

No.

No.

An affirmative undertaking to pay, such as "I promise to pay."

A direction or instruction (not merely an authorization or request) to a reasonably identifiable person that he pay.

The amount of the instrument and any rate of interest must be stated on its face and must be for a specifically ascertainable sum.

Yes, so long as the referenced rate is readily ascertainable.

Yes.

• With stated interest or by stated installments;
• With different rates of interest applicable at different times;
• With stated discounts or additions;
• In a foreign currency, with exchange rates added or subtracted; or
• With costs of collection or attorneys' fees added upon default.

Currency, current funds, or foreign money.

NOTE: A promise to pay in specific property, even in the alternative (e.g., $300 or an ounce of gold"), is not a promise to pay money.

• An authorization to sell collateral upon default;
• A promise to maintain or protect collateral;
• A promise to put up additional collateral;
• A promise to furnish financial information;
• A term authorizing confession of judgment if the instrument is not paid when due;
• A term that waives the benefit of laws intended for the benefit of the obligor; and
• A term in a draft providing that indorsing or cashing the instrument amounts to an acknowledgment of full satisfaction of the underlying obligation.

The instrument must be one that (i) specifically states that it is payable "on demand," "at sight," or "on presentation"; or (ii) says nothing about the time of payment.

The instrument must be payable (i) on or before a stated date; or (ii) at a fixed period after a stated date.

No.

Yes.

Yes, if they can be exercised only at the option of a holder. A consent to an extension in the instrument is binding on secondary parties.

"Order," "assigns," or "exchange" (e.g., "Pay to the order of Becky"; "Pay Becky or her assigns").

NOTE: If in all other respects, except for the presence of these words, an instrument is negotiable. Article 3 provisions will apply, except that there can be no HDC.

• Maker or drawer;
• A trust, estate, partnership, etc.; or
• Several payees, either jointly or severally.

A bearer instrument is payable to anyone who has it.

"To bearer" or to any other designation that does not purport to be a specific payee (e.g., "Pay to the order of cash" or "Pay to the order of Mickey Mouse").

It is deemed to be an order instrument, unless the bearer words are handwritten or typewritten.

No.

The holder may treat it as either.

• Handwriting controls type and print;
• Type controls print; and
• Unambiguous words control figures.

Yes, subject to the parol evidence rule.

Yes.

The basic presumption is one against negotiability.

Through a transfer that qualifies as a negotiation.

Bearer instructions are negotiated by delivery of the instrument to the transferee.

Delivery of the instrument to the payee named on the instrument. However, any ufrther negotiation requires that hte payee indorse and deliver the instrument to the transferee.

If the payee's endorsement is not authorized and valid. Forging the payee's name breaks the chain of title, and no subsequent possessors of the instrument can qualify as holders.

NOTE: A genuine signature otained fraudulently and indorsements by infants or others with a legal incapacity are effective to negotiate the instrument.

Yes, either jointly (e.g., "Pay to the order of Becky and Cindy"), in which case each must indorse, or severally (e.g., "Pay to the order of Becky or Cindy"), in which case any one many indorse.

On either the instrument or an allonge firmly affixed to the instrument.

Possession is transferred, but title is not transferred.

Unless and until she obtains the indorsement, the transferee does not have the status of a holder.

A depository bank that takes an unindorsed check for collection can supply its customary's indorsement, or note that the check has been credited to the depositor's account, and thus be a "holder."

Title is vested in the transferee, who now becomes a holder--having both title and possession.

Special or blank, qualified or unqualified, and restrictive or unrestrictive.

A special indorsement names a particular person as indorsee, e.g., "Pay John Smith [signed] Peter Payee." The indorsee (i.e., John Smith) must sign in order for the instrument to be further negtiated. Words of negotiation (i.e., "to the order of," "assigns," "exchange") are not required in indorsements.

A blank indorsement is a signature that is not accompanied by the naming of a specific indorsee (e.g., the indorser merely signs his own name, probably the way most people indorse their paychecks). Blank indorsements create bearer paper, which may then by negotiated by delivery alone.

It will not keep takers from becoming holders.

It will not break the chain of title, and, thus subsequent transferees may qualify as holders. This is because the forgery operates as the genuine signature of the forger.

The last indorsement controls what is necessary for further negotiation.

An indorsement with the words "without recourse" is a qualified indorsement and limits the contract liability imposed on indorsers.

A "restrictive" indorsement (conditional, purporting to prohibit further negotiation; e.g., a check indorsed "for collected" or in "trust for another") does not stop further negotiation. The only effect of the restrictive indorsement is that the first transferee after the restriction must apply the value received consistently with the indorsement or he is not a holder in due course.

If a negotiable instrument is negotiated to a holder in due course, the HDC takes free of most defenses.

An HDC is a holder who takes the instrument for value and in good faith and without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.

Due course requires the holder to take for value, in good faith, and without notice.

• Performance of the agreed consideration;
• Acquisition by the holder of a lien or a security interest in the instrument;
• Taking the instrument as payment of or security for an antecedent debt; or
• Trading a negotiable instrument for another instrument or otherwise making an irrevocable commitment to a third person.

NOTE: An executory promise is not "value."

No. An instrument purchased at a discount is sold for full value so long as the full price agreed upon has been given.

One becomes a partial HDC to the extent of the value paid.

At the time of negotiation or the time of payment, whichever is later.

The bank become sa holder for "value" to the extent that it permits withdrawls of the amount credited to the depositor's account--using the "first-money-in, first-money out" rule to determine whether the particular item credited has been reached.

Honesty in fact. This test is subjective, not a "reasonable person" analysis.

No knoweldge or reason to know that it is overdue or has been dishonored, or of any defense against or claim to it on the part of any person. This test is an objective (reasonable person) standard, but the standard is applied based on the facts subjectively known by the holder.

The instrument is irregular (incomplete, evidence of forgery or alteration); or the purchaser knows the obligation of any party is voidable or that all parties have been discharged; or the purchaser knows that a fiduciary has negotiated the instrument in payment for his own debt.

• A purchaser does not have notice merely because:
• The instrument is antedated or postdated;
• She knows that the instrument was issued in return for an executory promnise;
• She knows that any party signed for accomodation;
• She knows that an incomplete instrument has been completed, unless she ahs notice of any improper completion;
• She knows that any person negotiating hte instrument was a fiduciary;
• She knows that there has been a default in payment of interest;
• She knows that there is a public filing or recording of a document (e.g., security agreement) concerning the instrument; or
• She knows that the instrument was sold at a discount.

Notice must be received in such time and in such a manner as to provide a reasonable opportunity to act upon it.

Yes, if she satisfies all the requirements of an HDC.

• If she has reason to know any part of principal is overdue;
• Aceeleration of the instrument has been made; or
• She is taking a demand instrument after demand has been made or more than a reasonable time after its issue (a check is presumed stale after 30 days).

• Purchase at a judicial sale;
• Acquire in taking over an estate; or
• Purchase as a part of a bulk transaction not in the regular course of business of the transferor.

At the moment the instrument is negotiated to the holder or when she gives value, whichever occurs later. Thus, if the transferee acquires notice or a claim or defense prior to negotiation or to the giving of value, she will not qualify as an HDC.

Yes, a transferee acquires all the rights her transferor had and thus is said to take "shelter" in the status of her transferor.

PURPOSE: To protect the free negotiability of commercial paper.

• Prior Holder with Notice; or
• Party to Fraud or Illegality

No.

BUT if she was a prior holder without notice who only learned of a problem with the instrument in the interimn, she can obtain HDC rights upon reacquiring hte instrument.

No.

Any.

An HDC takes the instrument free of personal defenses and claims and is subject only to real defenses.

An affirmative right to a negotiable instrument because of superior ownership.

• Infancy;
• Incapacity to Contract;
• Illegality;
• Duress;
• Fraud in the Factum (Real Fraud);
• Discharge in Insolvency Proceedings;
• Discharges Known to HDC;
• Suretyship; or
• Material Alteration of Instrument; or
• Forgery

Infacy is a real defense if it is a defense in a simple contract action other state law. Otherwise, it is only a personal defense.

If, under state law, the party lacks capacity to contract (e.g., persons declared incompetent by judicial proceedings) and the contract is thus rendered void, such incapacity will constitute a real defense. If the obligations of the incompetent are merely voidable at the option of the incompetent, such incompetency is a personal defense and cannot be raised against an HDC.

If illegality in the underlying transaction renders the obligation void, it is a real defense. If the contract is merely voidable, the defense is personal.

It is a real defense if one party acts involuntarily in a contract istuation under extreme duress; i.e., a gun pointed at one's head.

Misrepresentation that induces a party to sign an instrument without knowledge or reasonable opportunity to obtain knowledge of its character or essential terms is a real defense. Other fraud (most types) is only a personal defense.

Discharge of debt in any proceeding intended to liquidate or rehabilitate a person's estate is a real defense.

Any other discharge of which the HDC has notice when he takes the instrument constitutes a real defense. Examples include (i) cancellation of the liability; and (ii) agreement not to sue. Discharge usually is a personal defense--for example, payment by a party discharges that party, but unless the payment was apparent on the instrument, a later HDC could compel payment again.

If an HDC knows prior to his acquiring a negotiable instrument that some of the parties were sureties ("accomodation parties"), the HDC takes subject to the right of these parties to rais their suretyship defense.

In certain circumstances, an HDC may be able to collect only the original amount (i.e., not the altered amount), so that the material alteration is a partial "real" defense. In other situations, the HDC may be able to collect on the instrument as altered.

Alteration is changing the terms that the maker or drawer inserted in the instrument. Unauthorized completion is filling in blanks left by the maker or drawer. Generally, the maker will not be liable for the altered amount but will be liable for the full amount of the unauthorized completion.

If the signature of the payee or any special indorsee is forged, generally no subsequent taker can be an HDC because no one can obtain the good title necessary to qualify as a "holder." However, if the person whose name was forged ratifies the unauthorized signature or is estopped from denying it, subsequent takers can qualify as HDCs.

The forgery of any name other htan the payee or special indorsee (e.g., maker, drawer, acceptor, or indorsers on a bearer instrument) does not affect title; and subsequent takers may qualify as HDCs if they meet the usual tests.

Even so, a party whose name was either forged or placed on the instrument by a nonagent has a real defense of unauthorized signature unless he has ratified the signature or is estopped from denying it.

Yes. But an HDC is free from defenses of a party with whom the holder has not dealt.

Any transferee without HDC rights.

• Lack of consideration;
• Failure of consideration;
• Theft;
• Breach of warranty or breach of contract;
• Failure of a condition precedent;
• And other defenses available in a simple contract action (such as mistake, unconscionability, duress, impossibility of performance and waiver).

That the contract out of which the commercial paper arose was not properly or fully performed. This defense cannot be used against an HDC, but can be used against a non-HDC.

No, one must rely on his own defenses.

EXCEPTION: Theft or violation of restrictive indorsement.

Theft or violation of restrictive indorsement.

Yes.

EXCEPTIONS: Theft or violation of restrictive indorsement.

Yes, unless the defendant establishes a defense. It is not necessary to prove due course status unless a defense is raised.

The validity of a signature must be specifically denied or it is admitted. The presumption of a signature's validity places the burden of going forward on the challenging party.

An owner of a lost instrument may maintain an action on the instrument by proving her ownership and the terms and reasons for nonproduction of the instrument.

A defendant must establish a defense good against a holder (personal defenses).

The holder must show that she or a prior transferor was an HDC. She thereby cuts off the defendant's personal defense.

Yes. If a defendant to a suit on an instrument has a right of recourse against someone else if he is required to pay, then he must give that third person written notice of the litigation. If, after receiving notice, the third person fails to appear and defend, he will be bound by any determination of fact common to a suit against him by the party giving the notice.

No one is liable on an instrument unless his signature appears on it or unless his signature is placed thereon by an au thorized agent.

The principal is liable if the agent had the authority. If the agent was not authorized, only the agent is personally liable under the instrument.

The agent will be liable whether or not authorized. But a) the principal may also be liable if his name is on the instrument, and it can be proved that it was meant to be his "signature" placed there by the authorized agent; and (b) the agent can escape liability if he disclosed the missing factor (agency or name of principal) in some other way.

In cases of ratification; or estoppel, where, by his negligence, the principal contributed to the making of the unauthroized signature or forgery. The estoppel works in favor of an otherwsie HDC or one who in good faith pays the instrument in accordance with reasonable commercial standards.

A demand for payment must be made on the bank before it can be sued. (However, failure to demand does not discharge liability.)

The holder, in order to avoid the possibility of discharging the maker from liability, must (i) make presentation at the bank on the due date or within a reasonable time if it is a demand instrument; and (ii) give notice of dishonor if the instrument is not paid on presentment.

(Failure to follow these steps discharges the maker from liability if the bank becomes insolvent and thereby deprives the maker of the funds covering the instrument.)

No. But it is effective as completed if completed according to authority given. An instrument is not enforceable beyond the agent's actual authority unless an HDC holds it.

The party asserting the unauthorized completion. Such a party, if his negligence substantially contributed to the completion, will be estopped from asserting the unauthorized completion against a party who pays the instrument in good faith and in accordance with reasonable commercial standards.

• To transfer the instrument to another person;
• To make herself secondarily liable; or
• To limit the interest of the transferee.

All rights that the transferor had.

A restrictive indorsement limits the rights of the transferee. It does not restrict negotiation or further transfer and has no effect on a payor or an intermediary bank. However, a depository bank owes a duty to apply proceeds consistently with the indorsement. Similarly, a conditional instrument requires the transferee to pay or apply any value given by him for the indorsement consistently with the indorsement. If a party is required to comply with a restrictive indorsement, failure to do so subjects that party to liability on conversion.

No.

He becomes seconarily liable; i.e., he is promising that if the maker (or drawee) does not pay, he will pay as long as the maker is asked to pay (i.e., "presentment") at the proper time, refuses to pay (i.e., "dishonor"), and the indorsor is promptly told about it (i.e., notice of dishonor).

If there is failure to take steps of presentment and notice of dishonor in the proper manner.

BUT failure to take the steps is irrelevant to any warranty liability that may exist.

At any time the instrument is due, or at any time the holder has the option of rendering it due.

• Presentment for payment must be made for a time instrument, on the date on which it is payable;
• If an instrument is automatically accelerated by an event, within a reasonable time after hte occurence of the event;
• In any other case (typically a demand instrument), within a reasonable time after the party sought to be charged signs the instrument.

• By mail;
• In person; or
• Through a clearinghouse.

There are presumptions of reasonable time in the case of a check: (i) 30 days in order to preserve the liability of the drawer; (ii) 7 days in order to preserve the liability of the indorser.

By the close of that business day.

A dishonor has occured and the holder should give notice of the dishonor or risk losing the liability of prior parties.

No, and the failure of the drawee to accept is not a dishonor.

Until the end of the business day.

The holder may in good faith give him one more business day to pay or accept. If the drawee does not act within that time, then the instrument is dishonored, and the holder must give a notice of dishonor.

A bank must give notice before the expiration of the midnight deadline (i.e., midnight of the next banking day after the instrument is presented for payment).

For other parties, notice must be given before midnight of the third business day after dishonor.

• The party who must act is without notice of the facts that make one of the steps due; or
• The delay is caused by circumstances beyond his control and the party exercises reasonable diligence after the cause of the delay ceases to operate.

• There is an express or implied waiver either before or after the step is due;
• The party for whose benefit the step is required has no reason to expect that the instrument will be paid or accepted; or
• The steps cannot with reasonable diligence be taken.

Any one of them.

Yes.

No.

Yes, if he places words to that effect on the instrument.

Yes.

• The transfer warrants that he has good title or is authorized to act for one who does;
• All signatures are genuine or authorized;
• The instrument has not been materially altered;
• No defense of any party is good against him; and
• He has no knwoeldge of any insolvency proceedings that have been instituted against the maker, acceptor, or drawer of an unaccepted instrument.

Only his good faith and authority, if he discloses that he is acting only as a selling agent or broker.

Yes. A transferor who gratuitiously transfers the instrument warrants nothing, although this does not shield her from the contract liability of an indorsor if she endorses (i.e., the obligation to pay the instrument according to its terms when the indorsor signed if there is presentment, dishonor, and notice of dishonor).

A person who signs an instrument to put his credit "on the line." He is essentially a surety.

Yes, if he pays the instrument, irrespective of their formal positions on the instrument.

Yes.

As against an HDC, this rule applies even where the taker is aware of the accommodation.

"Payment guaranteed" means that the other signer contracts to pay the instrument if it is not paid when due without resort to any other party. Neither presentment nor notice of dishonor is required.

"Collection guaranteed" means the signer cannot be held liable unless the holder reduces his claim to a judgment against the debtor that is unsatisfied upon execution, or unless the maker or acceptor has become insolvent or it otherwise appears that it is useless to proceed against him.

When it is dishonored and he is given proper notice of dishonor.

"Without recourse."

Only if, due to the drawee's insolvency, he is deprived of funds in the hands of the drawee that would have covered the draft.

When he signs it. When he does, he becomes an acceptor.

The bank may well be liable to its customer for failure to accept the check. The bank is obligated to honor its customer's check if there are sufficient funds on deposit to cover the check. A bank may choose to honor a check even if the customer has insufficient funds, in which case the customer is liable to the bank for the overdraft.

Yes, for whatever harm is proximately caused by a wrongful dishonor.

• If there is no order by the depositor (i.e., forged signature of drawer);
• For more money than the original order (i.e., alteration of amount by third party);
• If the bank pays the wrong person (i.e., forger of payee or indorsee's signature);
• If the item is postdated (the bank cannot pay it before the stated date); or
• If the drawer's order is conditional (the bank should not pay the item unless the condition has been satisfied).

Yes. The customer may answer such proof by showing that the bank was negligent in paying the item. Such proof by the customer will prevent the bank from charging his account no matter how negligent the customer was in examining his statements.

Not until the bank (i) knows of the death and (ii) has a reasonable time to act on such knowledge.

Yes. A bank that pays a check is subrogated to the rights of the person it pays against the customer.

For 14 days unless renewed in writing within that period.

For six months, renewable every six months in writing.

The customer bears the burden of proving that a loss has occured, and the amount of the loss.

NOTE: If there is an HDC in the chain of transferees of the item, the customer cannot recover--even if payment had been stopped, the customer would have had to pay the HDC.

Generally, no. The rule is that payment is final against an HDC unless the presenting party has breached the warranties of presentment. Recognze, however, that the holder could not have initially forced the bank to pay. If the drawee paid out on a forged indorsement, he could recover back from the innocent purchaser whom he paid.

An acceptor is a drawee of a draft who signs it and thereby enters into a contract identical to that of a maker of a note.

Acceptance of a check by a bank.

When the certification is procured by the holder.

No, absent some special agreement with the customer.

The bank puts its own credit on the line. It therefore charges its customer's account immediately upon certification rather than waiting for the item to be paid.

If he determines that the party seeking payment is a holder, even though he knows that a third party has a claim to the instrument.

He will still have to pay the true holder when he comes along.

He can offer to indemnify the maker or acceptor in an amount deemed sufficient by the maker or acceptor while the other two parties fight it out; or seek an injunction in an action in which the maker or acceptor, the holder, and himself are parties.

Where (i) he knows that the holder acquired the instrument by theft or that he holds through one who acquired it by theft; or (ii) payment of the instrument would be inconsistent with the terms of a restrictive indorsement.

If the person who receives payment is neither an HDC or one who in good faith changes his position in reliance on the payment or acceptance, an action to rescind the payment or acceptance can be maintained.

• Good title;
• No knowledge that signature is unauthorized; and
• Instrument not materially altered

The actor has good title or is authorized to act on behalf of one who has good title.

NOTE: A forgery of the drawer's name does not destroy good title; the presenter has good title to the forger's instrument.

NOTE: The forged signature of a necessary indorsor does destroy good title.

No.

Yes.

The actor has no knowledge that the signature of the maker or drawer is unauthorized. However, this warranty is not made to: (i) the maker as to his own signature; (ii) the drawer as to his own signature; or (iii) an acceptor if the HDC acquired the instrument after acceptance, or if he obtained the acceptance without knowledge that the drawer's signature was unauthorized.

The instrument has not been mnaterially altered. However, this warranty is not made by an HDC to: (i) the maker of a note; (ii) the drawer of a draft (even though he may also be the drawee); (iii) the acceptor of a draft if the alteration occured prior to the acceptance and the HDC took the instrument after acceptance; or (iv) the acceptor of a draft with regard to an alteration made after the acceptance.

Rationale: These parties are in a better position than the HDC to know the truth.

Any person who obtains payment or acceptance; and any prior transferor.

NOTE: These warranties on presentment are similar but not identical to the transfer warranties made by an indorsor. The warranties are made to any person who in good faith pays or accepts.

An unauthorized signature will not be deemed to be that of the person whose name is signed unless he is estopped from denying it.

• Fictitious payee;
• Negligence rule;
• Bank Statement Rule; or
• Estoppel by Certification

(i) If an imposter induces a maker or drawee to make out an instrument to a named payee. (The imposter rule does not apply where the person to whom the instrument is issued misrepresents that he is an agent of the payee named on the instrument.); or (ii) If a maker, drawer, or someone signing for him intends the payee to have no interest in the instrument (e.g., where Employee draws Employer's checks payable to nonexistent persons and cashes them for his own benefit); or where an agent or employee supplies the maker or drawer with a payee's name, intending the payee to have no interest in the instrument (e.g., where Employee tells Employer that Employee owes Supplier money, when in fact no money is owed, Employer draws a check payable to Supplier, and Employee steals the check and cashes it).

Yes.

The negligence of any person that substantially contributes to an unauthorized signature on or material alteration of a negotiable instrument estopels that person from raising such issues against later parties who transfer or pay the instrument in good faith and in accordance with reasonable commercial standards.

Negligent actions include: (i) leaving blanks or spaces on the instrument, (ii) mailing an instrument to a party having the same name as the payee; (iii) failing to follow internal procedures designed to avoid forgeries.

No. Later parties must not be negligent, i.e., they must observe reasonable commercial standards an act in good faith.

Yes.

The customer is responsible for examining his signature and the amount of each check. If the customer fails to report a forgery or alteration within a reasonable time, he is estopped from demanding recredit from the bank. Moreover, if the statement has been available for a reasonable time (not more than 14 days) and the customer fails to notify the bank of a forgery or alteration, the customer is estopped from demanding recredit for other items forged or altered by the same wrongdoer.

The bank must recredit the customer's account even if the customer reports the problem months after the statement is returned.

One year for complaints about alterations on the face or back of an instrument or for unauthorized customer signatures, and three years for a complaint that an indorsement is unauthorized.

Since a bank has the opportunity to check identification if it certifies a check, it is estopped from stating that the named payee was not the original payee as against subsequent parties.

When it changes the instrument's contract in any way.

An alteration by someone who is not a party to, or a transferee of, the instrument. This alteration has no effect. The instrument--once reconstructed--may be enforced according to its original terms.

An alteration made by a holder. It is both fraudulent and material, all prior parties are completely discharged from liability on the instrument and on the underlying obligation as well. However, if the alteration was caused by the negligence of a party, that party is not discharged--and is liable on the instrument as it now reads, at least when sued by later good faith parties.

Yes, according to the original terms of the instrument. (Discharge is a personal defense).

A drawee or payor bank may charge an altered instrument against the drawer's account accoding to its original terms.

Yes, but an HDC and a drawee/payor bank may nevertheless enforce the instrument according to the terms when completed.

Its true owner (the payee or his transferee) may still sue upon it, but must first prove ownership and explain the reasons for not producing the instrument.

Yes, which an HDC can cut off. Therefore an instrument never dies by discharge of parties before maturity. No discharge of any party is effective against a subsequent HDC, unless the HDC has notice of the discharge when he takes the instrument.

Yes, as long as he does not have notice that all parties have been discharged.

Yes, even if made with knowledge of a claim of another person to the instrument, unless the claimant indemnifies the payor or enjoins the payment. On a holder's request, payment may be made prior to maturity, and need not be made in good faith and wihtout notice that the title of the holder is defective.

All subsequent liability for interest and attorneys' fees. It also discharges anyone who has a right of recourse against the party making tender. Tender before due date that is rejected has no effect on liability.

Yes.

Yes. But this discharge is ineffetive against a subsequent HDC without notice.

• By release of the creditor of the principal debtor;
• Surrender of security by the creditor; or
• Binding agreement by the creditor and principal debtor to extend the time of payment.

Yes. Here the surety remains bound but has a right of reimbursement against the debtor.

A party to an instrument is discharged.

Where an instrument is returned to or reacquired by a prior party, that party may cancel any nonnecessary indorsement and reissue or further negotiate the instrument, but any intervening party is discharged as against the reacquiring party and subsequent holders, and as against subsequent holders in due course, if his indorsement has been canceled.

A party is discharged from his liability to another party on an instrument by any act of the other party that would discharge a simple contract for the payment of money.

Where without excuse any necessary presentment or notice of dishonor is delayed beyond the time it is due, any indorser is discharged. A drawer who has funds in the hands of his drawee is not automatically discharged by a holder's failure ot make due presentment or to give due notice of dishonor. If it is found that during the delay in presenting the draft for payment or in giving notice of dishonor, the drawer becomes insolvent, the drawer has suffered as the result of the delay. The drawer may either pay off the holder and enforce his rights against the insolvent drawee or he may discharge his obligation by merely assigning in writing to the holder, who was at fault in the first place, the right to proceed against the insolvent drawee.

As against any person other than an HDC, an alteration of an instrument will result in a discharge of any person whose contract is thereby changed, if (i) the alteration is by the holder; (ii) the alteration is fraudulent; and (iii) the alteration is material. However, if the party asserting discharge has, throguh his negligence, contributed to the alteration, there is no discharge, and any HDC or other good faith payor can enforce the instrument as altered.

Unless clearly to the contrary, a bank is an agent for collection, and the risk of loss is on the depositor.

It has a security interest in instruments and is an HDC to that extent.