The contractual liability of the assignor is limited. It only applies to those who sign and only if certain additional conditions are met and, as we have seen, can even be rejected. As a result, a holder who has not been paid often has to resort to legal action based on one of the five guarantees. These warranties are implied by law; UCC, section 3-416, describes it as follows: TransferDelivery of an instrument by a person other than its issuer to give the acquirer the rights to enforce the instrument. means the physical delivery of any instrument – negotiable or non-negotiable – to transmit the security. Article 3-203 (a) of the Unified Commercial Code (UCC) provides that “an act is transferred when it is provided by a person other than its issuer in order to give the person receiving the delivery the right to have the act performed”. The breach of any of these guarantees must be proved in court if there is no general contractual liability. A negotiable instrument payable to the person in possession can be easily traded by handing it over to the purchaser (see Figure 23.1 “Trading bearer paper”; recall that “Lorna Love” is the owner of a tennis club presented in Chapter 22 “Type and Form of Commercial Paper”): Bearer paper runs to the person who owns it, even a thief. Despite this simple rule, the buyer of the instrument can in any case request confirmation on a bearer paper. You may have noticed that sometimes you are asked to check your own cheque when you arrive at cash. Indeed, the indorsement increases the responsibility of the Indorser if the owner is not able to collect.
Chung vs. The New York Racing Association (Section 23.4 “Business”) addresses the issues in the accompanying document. A person may become the owner of a device if the instrument is issued to that person, or the status of a holder may result from an event that occurs after its issuance. “Negotiation” means the term used in section 3 to describe that post-issuance event. Normally, trading takes place as a result of a voluntary transfer of ownership of an instrument by one holder to another person, who becomes the holder through the transfer. Trading always requires a change of ownership of the instrument, as no one can be an owner without owning the instrument, either directly or through an agent. But in some cases, the transfer of ownership is involuntary and in some cases, the person transferring the property is not the owner. Subparagraph (a) provides that negotiations may be conducted through an involuntary transfer of ownership. For example, if an instrument is payable to the holder and is stolen by the thief or found through the intermediary, the thief or intermediary becomes the owner of the instrument when ownership is obtained. In this case, there is an involuntary transfer of ownership, which leads to negotiations with Thief or Finder. Uniform Commercial Code, Articles 3-201, Official Commentary.
(A) A person who transfers an act for consideration guarantees to the purchaser and, if the transfer is made by refusal, to any subsequent purchaser: We deal with liability in Chapter 25 “Liability and Reparation”. However, a brief introduction to liability will help to understand the types of sleepover discussed in this chapter. There are two types of liability that affect assignors: contractual liability and warranty liability. Article 3-201(a) of the UCC defines negotiationsThe transfer of commercial paper to a subsequent holder. as a “voluntary or involuntary transfer of possession of an act to a person who becomes the holder of the document when possession is obtained by a person other than the issuer of the document”. HolderPerson in possession of an instrument drawn, delivered or infiltrated into him or his command or aircraft carrier or into a space. is defined in subsection 1-201(2) as “a person in possession of an instrument that has been dragged, issued or endorsed at his or her command or to the carrier or in spaces” (“blank” means that no rejection is required for negotiations). The initial issuance or manufacture of an instrument is not trading, although a holder may be either the beneficiary of a transfer or a trading. The official comment on 3-201(a) is useful: a transfer is the physical delivery of an instrument with the intention of handing over securities – the right to apply it. A simple purchaser puts himself in the place of the assignor and submits the deed to all claims and objections against the payment that encumbered it when the assignor has delivered it. Negotiations are a special type of transfer – voluntary or involuntary – to a holder.
A holder is a person who has drawn, issued or addressed an instrument to himself or to his command or to the bearer or in space. If the instrument is a serial, trading is effected by mistake and handed over to the next holder; If it is transport paper or white paper, delivery alone leads to negotiations. Assignors assume two types of liability: those who sign the deed are contractually liable; Those who sign or those who do not sign are liable to the buyer in the warranty. The assignee takes by assignment; As an assignee, the new owner of the deed has only the rights of the assignor. Claims that may be brought by third parties against the assignee may be invoked against the assignee. A negotiable instrument may be transferred to that effect without being negotiated. For example, a beneficiary cannot meet all the requirements of the negotiation; In this case, the instrument could not be transferred (assigned). If all the conditions for trading and trading are met, the buyer is a holder and can (if a holder in due time – see Chapter 24 “Timely Owner and Defense”) collect on the instrument without having to prove anything more. But if the instrument has not been properly traded, the buyer is at most a buyer and cannot recover if objections are available, even if the paper itself is negotiable.
The people who sign the instrument – i.e. manufacturers, acceptors, draftsmen, indorsers – have signed a contract and are subject to contractual liability. Drafts (checks) and notes are, after all, contracts. Manufacturers and acceptors are the main parties and are unconditionally required to pay for the instrument. Drawers and Indorser are secondary parties and are conditionally liable. The conditions that give rise to liability – i.e. presentation, dishonour and notification – are dealt with in Chapter 25 “Liability and Discharge”. In other words, to qualify as a holder, a person must own a device intended for him.` An instrument “goes” to a person if (1) it has been issued to him or (2) it has been transferred to him by negotiation (trading is the “event after issuance” quoted in the commentary). From a commercial point of view, the status of the immediate person to whom the instrument was issued (the beneficiary) is not very interesting; It is interesting to see if the instrument is transmitted by the beneficiary after possession, through negotiation.
Yes, the beneficiary of an instrument is a holder and may be a timely holder, but the core of negotiable instruments is to take an instrument free of defences that could be claimed by anyone against payment of the instrument; The beneficiary would generally be familiar with the defences, so – as stated in the commentary – “the use of the doctrine of the holder of an instrument by the beneficiary is not the normal situation. Thereafter, the holder is, in good time, an immediate or distant assignee of the beneficiary. » Uniform Commercial Code, Articles 3-302, Commentary 4. . .
