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Drawer v. Drawee
Contractual Relationship
19
Law
Graduate
12/18/2013

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Term
Relationship between drawer and drawee
Definition
Contractual relationship

Drawer gives money to drawee (who acts as agent for collection) and drawee pays out according to drawer's orders.
Term
Drawee can pay out things that are _____________.
Definition
properly payable
Term
Rights and duties of drawee if drawer overdrafts.
Definition
Drawee has RIGHT to pay (and collect overdraft charges)
Drawee does not have DUTY to pay.
Term
Rights and duties of drawee in post-dated or stale checks.
Definition
Drawee has RIGHT to pay on post-dated checks before the date arises and stale checks.
Drawee does not have DUTY to pay on the date specified (if post-dated) or stale checks.
Term
When a drawer orders the drawee to not pay a check.
Definition
Stop payment order
Term
Drawee's Rights and Duties in Stop Payment Order
Definition
Drawee has DUTY to follow the stop payment order

Exceptions:
1. shelter doctrine (for HDC)
2. subrogation (third party takes over right to claim/legal remedy)
Term
When a drawee DOES NOT pay when it should have, drawee is liable to drawer for ____________.
Definition
Wrongful dishonor (breach of contract)
Term
When a drawee pays when it SHOULD NOT HAVE, drawee is liable to drawer for __________.
Definition
Breach of contract
Term
Rights and duties of drawee if drawer is dead and drawee knows it.
Definition
Drawee has RIGHT to pay
Drawee does NOT have DUTY to pay
Term
Instances where a drawee SHOULD NOT have paid, but did pay, and drawer CAN SUE for breach of contract.
Definition
1. Forgery
2. Forged Indorsement

Because bank has customer's signature.
Term
Instances where a drawee SHOULD NOT have paid, but did pay, and drawer CANNOT SUE for breach of contract.
Definition
Drawer negligence in:
1. Fictitious indorsements
2. Drafting
3. Notifying the drawee
Term
Examples of drawer negligence in notes to fictitious indorsers that will prohibit him from recovering for breach of contract (even if drawee paid, but it should not have):
Definition
1. Imposter (drawer writes check to fictitious payee)
2. When comptroller (accountant) indorses and steals
3. Payroll padding
Term
Examples of Drafter Negligence in Drafting:
Definition
1. Leaves amount line blank or a lot of space
2. Trusts someone else to put in the right amount
Term
Using pencil and leaving blank checks at the top of a table at a restaurant ________ examples of drawer negligence.
Definition
ARE NOT
Term
If drawer learns of fraud or forgery, must notify bank in _________ manner.
Definition
timely
Term
A drawer who negligently fails to notify the drawee of a forgery in a timely manner can shift ________ back to drawee if can prove that drawee was _____________.
Definition
liability
MORE negligent
Term
Limits on the amount of time a drawer has to notify drawee of forgery:

Forged Drawer: _______
Forged Indorsement: ________
Multiple forgeries by SAME person: ________
Definition
Drawer = 1 year
Indorsement = 3 years
Multiple Forgeries by Same Person = 30 days
Term
If bank pays on forged drawer's signature = ______________

If bank pays on forged indorsement = __________________
Definition
Drawer's Signature: Payment is FINAL; bank CANNOT recover

Indorsement: Payment is NOT final; bank CAN recover from the party that it paid
Term
Why can bank recover on forged indorsement and not forged drawer's signature?
Definition
Because of presentment warranties.

Holder who presents forged indorsement is breaching warranty of title (forged indorser breaks warranty of title).

Holder does not warrant that the signature is the drawer's.
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