Exam 26: Liability of Parties

If a holder presents a note for payment to the maker, which of the following warranties is/are given?

Discharge applies to the individual, not to the instrument, and a person's liability may be discharged with regard to one party but not to another.

Zelda signs a promissory note for $2,500 to First Bank. At the request of both Zelda and the bank, Ann also signs the note as an accommodation maker. In this situation:

Arthur is the payee of a negotiable promissory note on which Brian is the maker. Arthur indorses the note in blank and delivers it to Clark, who then transfers it to David without indorsement. David presents it to Brian for payment when it becomes due, but Brian claims he signed the note based upon fraud in the inducement and refuses to pay. a. Who is primarily liable on the instrument? Who is secondarily liable on the instrument? b. Who has warranty liability? Why? Explain. c. From whom can David try to collect now that Brian refuses to pay?

Kelly wrote a check to Trish, which Trish immediately changed from $20 to $120. She negotiated the check to Carl for value, who in turn took it to Kelly's bank for certification. Kelly's bank checked her account and certified the check since there were sufficient funds to cover the check. Thereafter, Carl gave the check to General Motors as part of the down payment for his car. G.M. presents the check to Kelly's bank for payment and they discover the alteration. The bank:

An accommodation maker is not liable on a note since he only agreed to sign as a favor to the maker.

a.What warranties are given by an indorser? b. What warranties are given by a transferor by delivery without indorsement? c. If a person has no contractual liability on the instrument, does that mean he has no liability as a result of the transaction involved? Explain.

A drawee bank's refusal to certify a check constitutes dishonor of the instrument.

Molly makes a note payable to the order of Patrick; Patrick indorses it to Amy; Amy indorses it to Blake; and Blake indorses it to Homer. Homer presents the note to Molly within a reasonable time, but she refuses to pay. If Homer notifies only Patrick of the dishonor, Amy and Blake are discharged from liability.

An obligation to pay a negotiable instrument subject to conditions precedent is known as:

Primary liability does not apply to issuers of cashier's checks.

Martha wrote a check to Jump, Inc. for $350. She is discharged from liability on the check if Jump does not present the check for payment within 30 days after the date the check was signed.

Iris has a checking account at Marconi Bank. Orrin steals one of her blank checks, writes a check for $350, and then forges Iris' signature. He then presents the check to Marconi Bank for payment. Marconi Bank pays the forged instrument. Which of the following statements is NOT true?

Bob took a check written by Jack to Jack's bank to be certified. The bank stamped "Certified" on it and gave it back to Bob. What consequence?

Morgan is the maker of a promissory note payable to Freeman on June 29. If Freeman fails to make proper presentment of the note to Morgan on June 29, Morgan's liability on the note is not affected.

Elder, an authorized agent for Mullins, signs a negotiable instrument, "Mullins, principal, by Elder, agent." Mullins has primary liability and Elder has secondary liability on the instrument.

An acceptance must be written on the draft.

An unauthorized signature may bind a principal who allowed the signature to be made through his own negligence.

Jan Arthur writes a $200 check to Bruce Nole who indorses it "Bruce Nole." Bruce gives the check to Anne Tate who indorses it "Without Recourse. Anne Tate." Anne sends the check to Joe Black, MD to pay her medical bill. If the bank refuses to honor the check, Black:

A(n) ___________ signs an instrument to lend his credit to an instrument, and his liability is determined by the capacity in which he signs.