Law of Bills and Notes Class 14
⸻
📘 SYNOPSIS: Bills and Notes Class 14
Focus: Presentment, Dishonor, and Discharge of Liability (Sections 230–240+)
Class 14 explores the enforcement rules for negotiable instruments when they are presented, dishonored, or ignored—particularly: • The consequences of failing to properly present or give notice • The discharge of obligations for endorsers and drawers • The distinctions between checks, drafts, and bills of exchange
The lecture builds on previous lessons on endorsement and liability, connecting them to procedural elements that affect whether an obligation is enforceable or extinguished.
⸻
Presentment and Notice of Dishonor
The instructor explains that under UCC Article 3, certain conditions must be met to maintain an endorser’s or drawer’s liability: • A negotiable instrument must be: 1. Presented for payment 2. Dishonored if not paid 3. Accompanied by a notice of dishonor to secondary parties (e.g., endorsers)
If notice of dishonor is not given, the endorser is discharged from liability—even if the instrument was dishonored.
This applies particularly to checks, which must be presented for payment or deposited within 30 days of endorsement. Failure to do so results in automatic discharge of the endorser.
⸻
Drafts vs. Checks: Legal Equivalence and Differences
The class emphasizes that checks are legally considered drafts, specifically bills of exchange drawn on banks. A bill of exchange, by contrast, can be drawn on any party (not just a bank).
Legal argument: • Under the 14th Amendment, corporations (e.g., banks) are considered persons, so a check is a bill of exchange drawn on a person. • This opens up potential equal protection arguments in legal pleadings.
However, the instructor notes that such an argument is better used in courtrooms, not in commercial negotiations with payees or financial institutions.
⸻
Timing Rules and Discharge
Several key procedural rules are discussed: • An endorser is discharged if: • The instrument is not presented within 30 days • Notice of dishonor is not given • A drawer is discharged if: • Presentation is untimely • The drawee suspends payments and the drawer is deprived of covering funds
In essence, liability can shift or disappear depending on whether proper notice and timing requirements are followed.
This protects parties who might otherwise be held liable without having the opportunity to act on the dishonor (e.g., by suing a previous endorser or the drawee).
⸻
Legal Concepts Clarified
The lecture distinguishes key parties: • Endorser: A person who signs a negotiable instrument (e.g., a check) other than the maker, drawer, or acceptor, often to transfer it. • Endorsee: The person to whom the instrument is endorsed. • Drawee: The party expected to pay (e.g., a bank) • Drawer: The person who writes the check or draft
⸻
🧾 OUTLINE: Bills and Notes Class 14
I. Administrative Review • Starting Section: 237 • Primary topics: Presentment, dishonor, enforcement, and payment/discharge rules
⸻
II. Presentment and Dishonor (UCC §§ 230–236)
A. Presentment Requirement • Must be timely (typically within 30 days of endorsement) • Includes presentation to a depository bank or for cash payment
B. Dishonor • Occurs when instrument is not paid upon presentment • Must be followed by notice of dishonor to retain liability of endorsers
⸻
III. Discharge of Liability
A. Endorser • Discharged if: • Instrument not presented within required timeframe • No notice of dishonor given (even if instrument was dishonored)
B. Drawer • Discharged if: • Drawee suspends payment after late presentation • Drawer is deprived of funds • May assign rights against drawee if funds lost
⸻
IV. Checks vs. Drafts and Bills of Exchange • All checks are drafts, but not all drafts are checks • A check = bill of exchange drawn on a bank • Argument: all are drawn on a “person” under corporate personhood
⸻
V. Other Enforcement Doctrines
A. Demand Notes • Actionable upon delivery • No express demand needed • Filing a lawsuit is sufficient demand
B. Presentment Not Always Required • Not needed to charge makers or certified checks • But required for certain acceptors and drawer liability
C. Legal Summary • Presentment → Dishonor → Notice = Enforceable claim • Skipping any step = discharge for endorsers or secondary parties
⸻