Exam 26: Liability, Defenses, and Discharge

Molly signs a promissory note payable to National Credit Corporation while mentally incompetent but before a court judges her to be mentally incompetent. The note is

Sara agrees to cosign a promissory note for Tom to buy a sport utility ve?hi?cle. The note is payable to Unity Bank. Sara is an accommodation

Transfer warranties attempt to impose liability on the party who dealt most closely to the last party to take an instrument.

Eula signs a check "pay to the order of Eula" and presents to First National Bank for payment. The types of liability associated with this check are

If an instrument is incomplete when the maker signs it, the maker's ob?ligation is to pay it to an HDC according to the incomplete terms.

Dina, an accountant for Eagle, Inc., issues company checks payable to nonexistent persons drawn on Eagle's ac?count at First State Bank. Dina indorses the checks and deposits them in her account. Eagle discovers the theft and demands that First recredit its account. First's best defense is that

The defense of illegality is always a personal defense.

Nero signs a check "pay to the order of Olive" drawn on Nero's account in Plum Bank. Olive signs the back of the check. Secondary liability on this check extends to

Presentment war?ranties protect the person to whom an instrument is presented for payment.

Chris convinces Dion, who does not understand English, to sign a $1,000 note that Dion believes is an application for a credit card. Chris negotiates the note to EZ Finance Company. Dion

A drawer is not liable on a check made out to an imposter.

Bob writes a check on his account at County Bank to Dona, a fa?mous singer. The person claiming to be Dona is an imposter, however, named Edy. Edy indorses the check to Frank, for whom County Bank cashes it. Ultimately, the loss will most likely fall on

An acceptor is secondarily liable to all subsequent holders of an instrument.

Dishonor occurs when proper presentment of an instrument is excused and its payment is refused.

A breach of a contract for which an instrument was issued will defeat the claim of an ordinary holder for payment on the instrument.

An unauthorized signature never binds the person whose name is forged.

Rodeo Ranch's agent Slim is authorized to draw checks on Rodeo Ranch's account in Town Bank. Upper Range Corporation is a Rodeo Ranch supplier. Slim writes a check "pay to the order of Upper Range [signed] Slim," indorses the check in Upper Range's name, and deposits it in his account in Verity Bank. If Verity Bank collects payment, the ultimate party most likely to suffer the loss is

Super Company's agent Tyra is authorized to draw checks on Super's account in Unity Bank. The checks are preprinted with Super's name. Tyra writes a check "pay to the order of Vern [signed] Tyra." Vern negotiates the check to Weber, who does not know about the agency relationship. If Weber presents the check for payment and Unity Bank dishonors it, liability extends to

Fact Pattern 26-1B Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lou who, in turn, indorses it to Mona, who then in?dorses it to Nat, the present holder. -Refer to Fact Pattern 26-1B. Suppose that Mona pays Nat on the note. With timely notice to the proper parties, Mona may collect payment on the note from

Presentment war?ranties can be disclaimed with respect to checks.