Exam 17: Liability, Defenses, and Discharge

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

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

A maker is primarily liable on an instrument.

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

Olivia is Physicians Clinic agent and is not authorized to sign checks or notes on its behalf. Despite the lack of authority, Olivia issues a note "payable to the order of Loan Company [signed] Physicians Clinic, by Olivia." Liability on this note extends to​

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

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​

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​

Fiona writes a check "pay to the order of Gerri" drawn on Fiona's account at Home State Bank. Gerri presents the check for payment to Home State, which accepts it. Primarily liable on the check is​

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​

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 signs an instrument without authorization can be held personally liable for payment by a holder in due course.