Banking and Liability

1. Liability, defenses, and discharge

Several ethical issues reside in the law of negotiable instruments.  For example, fraud in the inducement is treated as a personal defense and fraud in the inception is treated as a real defense.  Or, the definition of “value” for purposes of a holder-in-due-course being different from the definition of “consideration”, with an unfulfilled promise qualifying as consideration but not considered as “value given” under Article 3. What is the purpose and effect of eliminating the holder-in-due-course provisions for consumer credit transactions (FTC rule)?  Will doing so raise the cost of borrowing for these consumers?

2. Banking

For this DT, let’s look at some issues in banking.  The law generally places the risk of forgery on the payor bank, yet places the risk of unauthorized completion of the drawer.  Is this fair?  What factors would justify a difference in the liability of the bank or a difference in the liability of the drawer?  Banks have rigid and short deadlines to decide whether or not to pay items.  The midnight deadline may force a bank into making payment decisions before it has adequate information.  Is this fair?