Exam 26: Liability, Defenses, and Discharge

GR8 Products, Inc., warrants its goods to be free of defects. If Heck is?sues an instrument to obtain goods from GR8 that prove defective, Heck can avoid paying on the instrument

When the drawee of an unaccepted draft or check pays to a holder the amount due in full, all parties to the instrument are discharged.

The completion of an originally incomplete instrument in an unauthor?ized manner is a defense against payment on the instrument to an HDC.

An authorized agent may be personally liable on an instrument if the agent does not sign his or her own name.

City Bank issues to Dave a cashier's check. Evan steals the check, forges Dave's signature, adds his own signature, and cashes it at First County Bank, which obtains payment from City. Dave discovers the theft and ob?tains a replacement check from City, which sues First. The court will likely rule in favor of

In general, an agent must clearly indicate that he or she is signing on behalf of a clearly named principal to bind the principal.

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

An alteration of an instrument is material if it changes the terms between two parties in any way.

Signature liability extends to any person who signs a negotiable instrument.

The dishonor of an instrument relieves secondary parties of liability.

Accidental destruction of a negotiable instrument cancels it.

Vera gives Willy a $500 check as payment for a debt. Willy crudely raises the amount of the check to $5,000 and transfers it to Xtreem Sportz store for a new bike. Xtreem deposits the check in its Yankee Bank account. Vera is liable for the payment of $5,000 to

Opal asks Paolo, who does not understand English, to sign what Opal says is an application to open a bank account. In fact, the "application" is a note. If sued on the note by an HDC, Paolo's best defense would be

Dirk is the maker of a note, on which Erv is secondarily liable. Friendly Credit Company is the current holder of the note. Erv will be obli?gated to pay the note if

Puck signs a check "pay to the order of Quik Mart" drawn on Puck's account in Regional Bank. Puck shows the check to Silky, who agrees that the signature is Puck's and that Quik Mart is owed the amount that the check represents. Quik Mart signs the back of the check. Liability on this check 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. Nat properly pre?sents the note to Jake for pay?ment, but Jake dishonors it. With timely notice to the proper parties, Nat may collect payment on the note from

Transfer warranties attempt to impose liability on the wrongdoer or the party who dealt most immediately with the wrongdoer.

Every person who signs a negotiable instrument is liable for payment of that instrument when it comes due.

A signature may be handwritten.

A drawer is primarily liable on an instrument.