Exam 27: Liability, Defenses, and Discharge

An unauthorized signature binds the person whose name is signed.

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​

Rubin writes a check drawn on his account at Clearwater Bank and payable to the order of Gwyn. The bank does not pay the check. Rubin is​

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

An indorser is secondarily liable on an instrument.

Under the fictitious payee rule, an innocent holder can hold the maker or drawer liable on the instrument.​

Notice of dishonor can be given in any reasonable manner.

Warranty liability arises only from a transferor's signature.

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

Presentment warranties can be disclaimed only with respect to checks.

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​

Hilltop Bank is an HDC of a note for $1,000 on which there is the forged signature of "Rob." If sued on the note by Hilltop, Rob's best defense would be​

Fact Pattern 27-1 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. -Refer to Fact Pattern 27-1. 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​

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​

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​

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​

Fact Pattern 27-1 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. -Refer to Fact Pattern 27-1. Global Bank properly presents the note to Chuck for payment, but he dishonors it. With timely notice to the proper parties, Global Bank may collect payment on the note from​

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

A refusal to pay an instrument constitutes dishonor under any circumstances.

Failure to present an instrument on time is improper presentment.