Exam 27: Liability, Defenses, and Discharge

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

Frieda is an administrative assistant with Global Dispatch & Shipping Corporation, but has no authority to sign Global Dispatch checks. Frieda orders merchandise from Home & Office Furnishings Company delivered to her home and pays with a Global Dispatch check, signing "Global Dispatch & Shipping Corp. by Frieda, admin. assist." Home & Office does not know that Frieda has no authority to sign the check. Who is liable on the check, and why?

Equity Credit Company has in its possession an instrument dated May 1, 2014. The instrument is payable to the order of First Choice Moving & Storage Company "on June 1, 2015," for $5,000. In the upper left corner is an address for Greater Metro Development Corporation-10 Corporate Park Avenue, Chicago, Illinois-and in the lower right corner is the signature of "Hilltop Investments, Inc., By Ida, President." In the lower left corner is stamped "ACCEPTED: Greater Metro Development Corporation by John, President, May 5, 2014." On the back is the signature of "First Choice Moving & Storage Company by Kathleen, President." Who, if anyone, is primarily liable on this instrument on May 1? On May 5? Who, if anyone, is secondarily liable on this instrument?

Jackson pays Phil in good faith for a promissory note. Phil warrants that the draft has not been altered. This is

Home Entertainment, Inc., warrants its goods to be free of defects. Ira is?sues a note to obtain goods from Home Entertainment that proves defective. If Home Entertainment presents the note for payment

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

On drafts and checks, a drawer's secondary liability does not arise until the drawer fails to pay or to accept the instrument.

When there is a breach of an underlying contract for which an instrument was issued, the drawer of a check can order his or her bank to stop payment on the check.

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

Primary liability on a negotiable instrument is conditional.

Employment 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

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

Qiana gives Rick a $50 check as payment for a debt. Rick crudely raises the amount of the check to $500 and transfers it to SmartPhones & Minutes Store for a new phone. SmartPhones & Minutes deposits the check in its Trade Market Bank account. Qiana is liable for the payment of $500 to

The general law of agency does not apply to negotiable instruments.

A delay in payment or a refusal to pay an instrument will dishonor the instrument in all circumstances.

Under the fictitious payee rule, the payee's indorsement is not treated as a forgery, and an innocent holder can hold the maker or drawer liable on the instrument.

Danton, a mentally impaired person, is asked by Elmer to sign a piece of pa?per that he says is an autograph book. In fact, the document is a note. If later sued on the note by an HDC

Presentment war?ranties cannot be disclaimed with respect to checks.

Celine issues a note "payable to the order of Celine," forges Dash's signature as the maker, and indorses the note "pay to Erica." Celine sells the note to Erica, who negotiates it by indorsement and delivery to Forest. Forest can extend liability to

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