Exam 27: Liability Defenses and Dischapterarge

Warranty liability does not arise when a party delivers a bearer instrument because a holder cannot hold the party liable on his or her signature on the instrument.

To protect consumers who buy defective products, the Federal Trade Commission adopted FTC Rule 433 to effectively bolster the HDC doctrine in consumer transactions.

Layla executes a preprinted promissory note to Metro Financial without filling in the due date. Metro completes the form with a due date that Layla authorized. The note is

A third party who buys a note arising from a consumer credit transaction that lacks the notice required by FTC Rule 433 is still subject to the buyer's defenses against the seller because of the otherwise harsh effect of the HDC doctrine.

Qita has the authority to issue checks on behalf of Retail Center. Qita creates a dozen unauthorized checks that she deposits in her account at State Bank. The payee line on each check is blank. In a suit between Retail Center and State Bank over the loss, the party or parties most likely to be held liable is

The destruction or mutilation of an instrument is considered cancellation, and thus discharges the liability of all parties, only if it is done with the intention of eliminating obligation on the instrument.

Family Farm signs and delivers a check payable to Gold Digger PC, leaving the amount blank but authorizing the payee to fill in the check for $10,000. Gold fills in $15,000 and gives the check to Hill Bank as payment on Gold's debt to the bank of that amount. As an HDC, the bank can enforce the check for

Property Company borrows $100,000 at 5 percent interest from Quick Loans LLC and signs a note for the amount. Without Property's authorization, the lender changes the amount of the note to $120,000 and increases the rate to 6 percent. This alteration is a defense to payment on the note against

To obtain a loan, Nero signs a note payable to Opie. Opie indorses the note and sells it to Payday Capital, which in turn indorses the note and negotiates it to Quality Investments. Nero tenders a partial payment on the note, which Quality refuses. Discharged to the extent of the tender is

A drawee places himself or herself into almost the same position as the maker of a note or the drawer of a draft when the drawee accepts the instrument.

Klaus forges Lot's name as the maker of a note "payable to Klaus." Klaus indorses the note in blank, sells it to Mort, and disappears. Without indorsement, Mort sells the note to Nora, who, also without indorsement, sells the note to Obie. On discovery of the forgery, most likely liable to Obie is

Ruiz writes a check drawn on his account at Security Bank and payable to the order of Twyla. The bank does not pay the check. Ruiz is

Vita gives Walt a $500 check as payment for a debt. Walt crudely increases the amount of the check to $5,000 and deposits the check in his bank account. Vita is liable for the payment of $5,000 to

A person who is primarily liable on a negotiable instrument is absolutely required to pay the instrument regardless of whether he or she has an otherwise valid defense to payment.

Baer writes a check for $500 "payable to Cary" drawn on Baer's account at Debit Bank. Cary indorses and sells the check to Esau, who deposits the check in his account at Fidelity Bank. Fidelity dishonors the check. Baer or Cary may be liable for payment of the check if

Colin signs a note "payable to the order of Debit Bank." The bank indorses the note in blank and negotiates it to Equity Funds, which sells it to Financial Investments. The transfer of the note from Equity to Financial gives rise to

A delay in payment or a refusal to pay an instrument when it is returned because it lacks a proper indorsement is a dishonor of the instrument.

On a note that forms part of a consumer's contract to buy goods for personal use, the notice in the contract required by FTC Rule 433 places an HDC of the note in the position of a contract assignee.

Noah signs Ola's name to a check without Ola's authorization. Noah can be held personally liable for payment on the check by

Kira forges Lew's name as the drawer of a stolen check, drawn on Metro Bank, and makes the item payable to Kira. Lew is liable to pay the amount to