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Rights and Liabilities of Parties to Negotiable Instruments


Matthew Bender Editorial Staff

Chapter Summary


This chapter of Commercial Law and Practice Guide (Matthew Bender) describes and analyzes the rights and liabilities of the parties to a negotiable instrument.

The chapter discusses two-party instruments, such as a promissory note, by which a maker promises to pay the amount of the note to the order of the payee. It also examines three-party instruments, such as a draft, through which a drawer orders the drawee to pay the amount of the draft to the order of the payee. Further, it analyzes the two bases of indorser liability, namely, contractual liability under Section 3-415, and warranty liability.

The chapter addresses the issue of an unnamed principal's liability. Next, it examines agent liability and covers presentment, which refers to when a person who is entitled to enforce an instrument makes a demand to pay the instrument or to accept a draft. Then, the chapter discusses dishonor, which occurs when, following presentment, acceptance, or payment is either refused or cannot be obtained within the prescribed time. Further, it explains the relevance of a notice of dishonor, which is a prerequisite to holding certain drawers and indorsers liable.

In addition, the chapter discusses the discharge of liability on an instrument, the primary basis for which is payment or other satisfaction of the instrument. The chapter also explains the effect of taking an instrument on an underlying obligation, which is to suspend the obligation until the instrument is due or, if it is a demand instrument, until it is presented. The chapter concludes with a discussion of the rules governing the rights and liabilities of accommodation parties. It covers proof issues related to accommodation status, examines the traditional and recent treatment of sureties under the law, and analyzes the suretyship defenses that Article 3 recognizes.

Commercial Law and Practice Guide (Matthew Bender) provides article-by-article analysis of the Uniform Commercial Code, as well as strategies for applying the Code in specific transactions. It contains a unique combination of in-depth substantive analysis and practical guidance for handling commercial transactions, including sales transactions, leasing transactions, negotiable instrument transactions, letters of credit, and secured transactions.


UCC,Uniform Commercial Code,rights,liabilities,negotiable instruments,promissory note,note,draft,two-party,three-party,indorser,warranty,liability,undisclosed,principal,agents,presentment,dishonor,notice,discharge,accommodation party,surety,defense,Article 3,suretyship


For coverage of negotiability rules under both the old and new versions of Article 3, see Chapter 13.

For discussion of negotiation and holders in due course, see Chapter 15.

For treatment of the allocation of loss for forgery and alteration, see Chapter 16.


For exhaustive coverage of the law of checks and negotiable instruments, including signature requirements, transfer and negotiation, holders in due course, liabilities and defenses, overdrafts, Regulation CC, and U.C.C. Articles 3 and 4, see Checks, Drafts and Notes (Matthew Bender).

For in-depth analysis of U.C.C. Articles 3, 4, and 4A and the case law interpreting these articles, along with coverage of the Federal Electronic Fund Transfer Act and the Expedited Funds Availability Act, see Negotiable Instruments under the Uniform Commercial Code (Matthew Bender).

For comprehensive analysis on the regulation, organization, operation, examination, and liquidation of commercial banks, including coverage of the FDIC and the Federal Reserve System; branching and mergers; checks, drafts, and notes; and the bank collection process, see Banking Law (Matthew Bender).
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