Chapter 17 - Liability, Defenses, and Discharge

Curt writes a check on his account at North Bank to Mandy, a famous singer. The person claiming to be Mandy is an imposter, however, named Debra. Debra indorses the check to Portions, a casino, for which North Bank cashes it. Ultimately, the loss will most likely fall on

Curt

A maker is secondarily liable on an instrument

FALSE

Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder.

FALSE

If a promissory note is incomplete at the time a maker signs it, the maker is not obligated to pay

FALSE

Primary liability on a negotiable instrument is conditional.

FALSE

Jen is the maker of a note, on which Bart is secondarily liable. Credit Instruments Company (CIC) is the current holder of the note. Bart will be obligated to pay the note if

Jen defaults on the note.

Lewis makes a note payable to MaxiFinance Corporation. MaxiFinance indorses the back of the note and negotiates it to Hedge Investments Inc. Primarily liable on the note is

MaxiFinance

Celine issues a note "payable to the order of Celine," forges Dash's signature as the maker, and indorses the note "pay to Erica." Celine sells the note to Erica, who negotiates it by indorsement and delivery to Forest. Forest can extend liability to

Celine

Chuck is the maker of a $200,000 promissory note payable to Investors Corporation. Investors indorses the note to Equity Lenders, which in turn indorses it to Select Holdings LLC, which then indorses it to Global Bank, the present holder. Suppose that Select Holdings pays Global Bank on the note. With timely notice to the proper parties, Select Holdings may then collect payment on the note from...

Chuck, Investors, or Equity Lenders.

Cici signs a check "pay to the order of Doug" drawn on Cici's account in East Bank. Cici shows the check to Frieda, who agrees that the signature is Cici's and that Doug is owed the amount the check represents. Doug signs the back of the check. Liability on this check extends to

Cici and Doug only

Darby writes a check to Education Loan Management, Inc., that is drawn on Darby's account at Federal Bank. If the bank does not accept the check, liability for its amount is on

Darby

Dental Clinic agent Emma is authorized to write checks on the clinic's account in Finance Bank. Pharma Corporation is a clinic supplier. Emma writes a check on the clinic's account "pay to the order of Pharma [signed] Emma," indorses it in Pharma's name, and deposits it in her own account at Third Bank. If the bank collects payment, the ultimate party most likely to suffer the loss is

Dental Clinic

A person whose name is forged on an instrument normally has no liability to pay any holder the value of the instrument.

FALSE

An unauthorized signature binds the person whose name is signed

FALSE

The general law of agency does not apply to negotiable instruments

FALSE

Fiona writes a check "pay to the order of Gerri" drawn on Fiona's account at Home State Bank. Gerri presents the check for payment to Home State, which accepts it. Primarily liable on the check is

Home State Bank

Logan is Mining Corporation's agent and is authorized to write checks on Mining's account in Northwest Bank. Logan writes a check "pay to the order of Oceanside Resort." Logan signs the check "Mining Corporation, by Logan, agent." Northwest Bank dishonors the check. Liability extends to

Mining Corporation.

Nan, an accountant for Outdoor Outfitters, Inc., issues company checks payable to nonexistent persons drawn on Outdoor's account at Peerless Bank. Nan indorses the checks and deposits them in her account. Outdoor discovers the theft and demands that Peerless recredit its account. Peerless's best defense is that

Outdoor was in a better position than Peerless to prevent the theft

Realty Acquisitions borrows $1,000,000 at 4 percent interest from Shady Credit Lenders and signs a promissory note for that amount. Without the borrower's authorization, Shady changes the amount of the note to $1,200,000 and increases the rate to 8 percent. Shady materially altered the note when

Shady changed the amount and the interest rate

A maker is primarily liable on an instrument

TRUE

A person who transfers an instrument for consideration makes transfer warranties to all subsequent transferees who take the instrument in good faith.

TRUE

All parties to a negotiable instrument will be discharged when the party primarily liable on it pays to a holder the full amount due.

TRUE

An imposter's indorsement on an instrument can be effective as if the real payee had signed.

TRUE

An indorser is secondarily liable on an instrument

TRUE

An ordinary holder can recover nothing on an instrument that has been materially altered.

TRUE

Failure to present an instrument on time is improper presentment.

TRUE

If delivery of goods becomes impossible, a party who has issued a draft or note on the contract has a defense for not paying it

TRUE

Presentment warranties protect the person to whom an instrument is presented for payment.

TRUE

The completion of an originally incomplete instrument in an unauthorized manner is not a defense against payment on the instrument to an HDC

TRUE

The key to liability on a negotiable instrument is a signature.

TRUE

Under the fictitious payee rule, the payee's indorsement is not treated as a forgery

TRUE

W hen an instrument has a forged indorsement, the loss usually falls on the first party to take the instrument.

TRUE

Home Products, Inc., warrants its goods to be free of defects. Ian issues an instrument to obtain a thermos from Home Products that leaks. With respect to payment on the instrument, Ian

has a personal defense against it

Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is

immediate

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation

maker

Personnel Company draws a check payable to Felix. Felix indorses the back and negotiates the check to Guaranty Bank. Primarily liable on the check is

none of the choices

Duke signs a note "payable to the order of Equity Bank." Unless Duke has a valid defense against payment, his liability on this note is

primary

To borrow the money to buy a car, Megan signs a note "payable to the order of Purchase Financing." Olaf cosigns the note to guarantee the repayment of the loan. Olaf's liability on this note is

primary

Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. Niklas is a . . .

secondarily liable

Owen is a holder of a note obtained from Purchase Money, Inc. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to

the same defenses.

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor

until the following business day.

Community Bank receives a check drawn by Dennis. The check lacks a proper indorsement. Payment can be postponed without dishonor

until the proper indorsement is obtained

Rona issues a check for $4,000, dated May 1, to Stavros. The check is drawn on United Bank. Stavros indorses the check and transfers it to Tony. Stavros will be liable on the check if

​United Bank dishonors the check

Isabel transfers a note, for consideration, to Juliet by blank indorsement and delivery. Juliet transfers the note to Kip, who takes it in good faith. In this situation, Isabel warrants to Kip that

​he is entitled to enforce the note

Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas if

​if O'Leary timely notifies Niklas.