However, there are other ways a person can become liable on a negotiable instrument. Moreover, some of the usual liability rules are modified when a party is negligent in issuing or paying a negotiable instrument—or otherwise contributes to a potential loss.
The issues that will be discussed in this chapter include:- Suppose you indorse a check that is payable to your order and "cash" it at a check-cashing service. What liability have you assumed by indorsing and transferring the check?
- Suppose you make out a check in such a way that someone is able to raise (change) the amount of the check from $1 to $1,000 and then obtain payment of the check from the drawee bank. Will your bank be entitled to charge your account for $1,000 or can you limit the charge to $1, the original amount of the check?
- Suppose one of your employees who has responsibility for writing checks makes some of them payable to people you normally do business with and then keeps the checks, indorses the checks in the name of the named payee, and obtains payment of the checks for her own purposes. Are you entitled to have your account recredited for the amount of the checks on the grounds they were paid over a forged indorsement?
- Whether, in some circumstances, it is ethical to use a qualified indorsement to avoid the contractual liability of an indorser.