22/12/2014

CommercialPaperLiabilityOfPartiesPayment,Pay,Drawer,andDraweeJRankArticles

CommercialPaperLiabilityOfParties
payment

pay

drawer

drawee

Anindividualwhosignsaninstrumentiseitherprimarilyorsecondarilyliableforpayment.Primaryliabilityisextendedto
thepersonwhoisexpectedtopayfirst,andtheindividualwhoislegallyresponsibletopayuponthefailureofthefirstparty
todosoissecondarilyliable.
Themakerofapromissorynoteisprimarilyliable,sincethatpersonistheindividualwhohasoriginallypromisedtopay.He
orshemustmeetthisobligationwhenpaymentbecomesdueunlessheorshehasavaliddefenseorhasbeendischargedof
thedebt.
Thedrawerofacheckordraftissecondarilyliable,sincethatindividualdoesnotmakeanunconditionalpromisetopaythe
instrument.Heorsheexpectsthebanktopayandpromisestopaytheamountoftheinstrumentonlyuponnotificationof
dishonor,arefusalbythedraweetoacceptthepaperwhenproperlypresentedforpayment.Thismightoccur,forexample,if
thebankrefusestopayacheckduetoinsufficientfundsinthedrawer'scheckingaccountorbecauseheorshehasnotified
thedraweetostoppayment.
Thedraweeofadraftorcheckhasprimaryliabilitytotheholder,anindividualwhohaslawfullyacquiredpossessionandis
entitledtopayment,uponacceptanceoftheinstrumentbythedrawee.Adraftisacceptedforpaymentwhentheacceptanceis
indicatedbythedrawee
onthefaceofthedocument.Certificationofaninstrument,suchasacheck,isitsacceptancebyabankguaranteeingthat
paymentwillbeforthcoming.Adraweeisliabletothedrawerifthedraweerefusestopayadraftorcheckthatisproperly
drawnandpresentedbecausesuchactionconstitutesanoncomplianceofthedrawee'scontractualobligationtothedrawer.
Anypersonwhoplaceshisorherunqualifiedendorsementonacommercialpaperincurssecondaryliabilityforitspayment.
Suchliabilityoccurswhentheindividualwhohastheprimarydutytopaydefaultsonhisorherobligation.
Amakerordrawerisnotrelievedfrompaymentofaninstrumentendorsedwiththepayee'snamewhenanimpostermanages
tohaveapaperissuedtohimselforherselfbythemakerordrawerwhenanindividualsigningonthebehalfofthemakeror
drawerplansthatthepayeeshallhavenointerestinthepaper,forexample,thecaseofacheckbeingmadeouttoafictitious
payeeandwhentheagentoremployeeofthemakerordrawerdesignatesthenameofapayeewiththeintentthatthenamed
partywillactuallyhavenointerestintheinstrument.Inthelasttwoinstances,thefailureoftheemployertousereasonable
careinchoosingandsupervisingemployeesmakestheemployerpersonallyresponsibleforalllossesthatarisefromhisorher
NEGLIGENCE.Manyemployersguardagainstsuchrisksbytakingoutfidelityinsurancepoliciestocoverlossesthatmight

occurthroughemployeemisconduct.

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