Negotiable Instruments 1 Part 1 Negotiable instruments are governed by both state and international law. Universally, the instruments are governed by the Universal Commercial Code (UCC) which defines negotiable instruments as unconditioned writing that promises payment of a fixed amount of money. Under the UCC checks are chiefly covered in article 3 and 4. The articles generally address check fraud litigation that emanate from check alterations, forging of the maker’s signature, payee’s check endorsement or either counterfeited checks created by dishonest third parties (Ames, 1972). In a bid to help protect and recover losses made by victims of fraud, the UCC by implication endorses a policy that the loss resulting from fraud is best placed on the party that is best placed to prevent the occasioning of the loss. This implicit policy gives light in Nicholson’s scenario that he has a chance of recovering his money back from either bank. In a real case scenario, a drawer’s check moves downstream from the drawer to the check’s payee. The check then moves from the payee to the drawee bank that in turn pays out the amount shown. The offender may at any time in the sequence enter the stream. In most case scenarios, since the offending party who commits the fraud often disappears into thin air without a trace, the claim involves the injured party against the drawee bank that processed unendorsed or forged check. The drawee bank is generally liable in cases of processed checks with forged drawer’s signature while the depository bank is liable for claims that involve the payee’s endorsement of the check (Ames, 1972). In Nicholson’s scenario, the depository bank is liable for processing a check that did not bear the payee’s endorsement. The bank depository bank had direct contact with Michael Kittinger who presented the fraudulent check. Thu,s the depository bank was in the best position to verify the check’s endorsement. The bank ought to have taken reasonable caution to establish that the check was not endorsed by the payee and was fraudulent thus making it liable in recovering Nicholson’s money. In cases of double forgery where the drawer’s signature and endorsement are forged or unauthorized, the drawee bank is generally liable as it is held responsible for verifying the drawer’s signature. Subsequently, Nicholson may recover his money by suing the depository bank for conversion. The law permits an instrument to be converted if other than negotiation, it is taken by transfer, from an entity that is not permitted to implement the instrument or a bank that makes payment to a person who is not at liberty to implement the instrument or obtain any payment. According to the law, in a conversion claim, the measure of damages is presumed to be instrument’s face value (Ames, 1972). To improve Nicholson’s chances of recovering his money back, the law ought to be revised in fraud litigation actions to give rise to a new cause of action for contributing to the recovery of the losses solely based on shared culpability. Most state laws permit a bank to only charge customer’s accounts for checks that are deemed to be ‘properly made.’ The provision in turn creates room for claims against banks that impose charges its customers for checks ‘not properly payable.’ The claim may constitute an action for a breach of contract claim against the bank by a customer for paying an item that is not ‘properly payable.’ However, the parties in the contract may decide by agreement the standards b which the bank’s responsibility maybe measured if the standards are not manifestly unreasonable (Ames, 1972). Additionally, to improve Nicholson’s chances of recovering his money courts ought to embrace the use of conversion in check fraud claims and that depository bank ought to be allowed to recover from upstream banks for errors that may result in shifting liability. Nicholson may also sue the bank for indemnification and negligence to recover his money back (Ames, 1972). Part 2 Under the auspices of the UCC Joey can indeed recover his money from the 24 Hour check cashing company. The drawee bank, in this case, the 24 Hour check cashing company that paid out money after the check was presented is generally liable for claims that involve drawer’s signature. The bank’s liability arises as the bank is liable for claims that involving the drawer’s signature. The bank is held responsible for verifying the signature and anything that may arouse suspicion on the drawer’s check (McKeehan, 2001). In Joey’s scenario, he was mugged by his assailant Stan leading to his bleeding on the check. Stan then took the check with blood stains on it and cashed it on the 24 Hour check cashing company where he withdraws all the money. The teller ignoring the blood stains on the check after verifying the check’s proper endorsement handed over the money to Stan. The availability of blood on the check ought to have raised reasonable suspicion about the check. The bank via its employee had a duty to verify the authenticity of the check which was glaringly brought into issue by the availability of blood stains on the check. However, the bank failed to act on its duty of exercising ordinary care and negligently issued the money to Stan even after presenting a check that was doused in blood. On a reasonable point of view, the issuance of the money was as a result of a negligent act that ought to have been prevented and led to the loss of Joey’s money. Because the negligent act was perpetrated by the bank’s employee, the doctrine of vicarious liability makes the bank liable for any wrongs done by its employees in the scope of their work. In recovering his money, Joey can bring a claim of negligence against the bank based on the bank’s negligent act (Whaley, 1974). Subsequently, Joey can also plead legal duress as his defense against the bank’s refusal to repay his money back. Scholars articulate that an individual can plead duress in a claim brought against a bank for recovery of money if the individual can prove that he or she was the subject of immense pressure caused by another person at the time of the deed’ execution. Joey signed the instrument under threat and subject to physical violence that was evidenced by his bleeding on the check presented to the 24 Hour check cashing company by Stan. If an entity is forced to sign an instrument without his or her will, the entity is not legally bound to honor the terms of the instrument. Joey, in this case, was not bound by the transaction as his endorsement was obtained under duress (Palmer, G. E. (2001). Under the auspices of the UCC which protects negotiable instruments, duress invalidates delivery. Delivery of the instrument as well as the transfer of ownership from one person to another is solely based on mutual consent and duress invalidates that consent, thus constituting an illegality. There must be an intention on the part of the holder, in this case Joey to relinquish ownership of his possession to Stan. However, this intention was absent in the instrument (Palmer, G. E. (2001). Stan’s endorsement of the check was forcefully sought which constituted an illegality. An illegality renders a contract void and thus the bank is under no duty to enforce an illegal contract and ought to refund Joey his money back (Palmer, G. E. (2001). References Ames, J. B. (1972). The Negotiable Instruments Law. Harvard Law Review, 241-257. McKeehan, C. L. (2001). Negotiable Instruments Law. Am. L. Reg., 50, 437. Palmer, G. E. (2001). Negotiable Instruments Under the Uniform Commercial Code. Michigan Law Review, 255-310. Whaley, D. J. (1974). Negligence & Negotiable Instruments. NCL Rev., 53, 1.
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