Exam 27: Liability, Defenses, and Discharge

Elena, an employee of Builders, Inc., forges the signature of Carly, Builders's president, on a company check and cashes it at Delta Bank. Carly would ratify Elena's actions by​

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

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​

Fact Pattern 27-2 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. -Refer to Fact Pattern 27-2. Niklas is​

Transfer of an order instrument by indorsement and delivery extends warranty liability to any subsequent holder who takes the instrument in good faith.

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

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

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

The dishonor of an instrument relieves secondary parties of liability.

Harley signs a check payable to Pro Accountants, P.C., and gives it to Pro, leaving the amount blank but authorizing the firm to fill in the check for $10,000. Pro fills in $15,000 and negotiates the check to Valley Bank, to whom Pro owes $15,000. Valley Bank, an HDC, can enforce the check for​

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​

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