Exam 26: Liability, Defenses, and Discharge

Quincy signs a check payable to Regal Investors, Inc., and gives it to Regal, leaving the amount blank but authorizing Regal to fill in the check for $1,000. Regal fills in $1,500 and negotiates the check to State Bank, to whom Regal owes $1,500. State Bank, an HDC, can enforce the check for

A lack or failure of consideration is no defense to payment of a negotiable instrument to any holder.

Grady signs a note "payable to the order of Home Mortgage Service," and Home Mortgage takes possession of the note. The focus of any liability associated with this note is on

Kris is an administrative assistant with Little Financial Corporation, but has no authority to sign Little Financial checks. Kris orders merchandise from My-T-Fine Retail Company delivered to her home and pays with an Little Financial check, signing "Little Financial Corp. by Kris, admin. assist." My-T-Fine does not know that Kris has no authority to sign the check. Who is liable on the check, and why?

Universal defenses defeat the claims of HDCs.

A maker is secondarily liable on an instrument.

Dan applies to borrow $1,000 at 6 percent interest from Eagle Loan Company and signs a note for the amount. Without Dan's authorization, Eagle changes the rate on the note to 9 percent and attaches a copy of his application to the note. Material alteration of the note occurred

A person whose name is forged on an instrument is liable to pay only a holder in due course the value of the forged instrument.

Toby signs a note "payable to the order of United Credit Union." Unless Toby has a valid defense against payment, Toby's liability on this note is

Don writes a check to Eve drawn on Don's account at First Bank. Eve presents the check for payment to First Bank, which ac?cepts it. The bank is

Dale issues a check for $4,000, dated June 1, to Evelyn. The check is drawn on First Federal Bank. Evelyn indorses the check and transfers it to Gene. What will trigger the liability of Dale and Evelyn on the check?

A signature may be typed.

Laptop Assembly Company gives a $3,000 promissory note to My-T-Fast Delivery Service to de?liver a load of computer chips to Laptop's plant. The chips are contami?nated during transit, and are useless to Laptop on delivery. Laptop's best defense to payment on the note is

Presentment war?ranties protect the person who presents an instrument for payment.

Pete, a Quality Company employee, is authorized to use Quality checks to buy supplies. Pete alters one of the checks to increase its $700 amount by $100, and exchanges it at Retail Office Supply for $700 worth of sup?plies and $100 cash. He keeps the cash. On the check, Retail-an HDC-may obtain pay?ment for

To borrow the money to buy a car, Klaus signs a note "payable to the order of Lake City Auto Financing." Minnie cosigns the note to guarantee the repayment of the loan. Minnie's liability on this note is

Commercial Credit Company has in its possession an instrument dated May 1, 2009. The instrument is payable to the order of Alpha Company "on June 1, 2009," for $5,000. In the upper left corner is an address for Beta Corporation-10 Corporate Park Avenue, Chicago, Illinois-and in the lower right corner is the signature of "Delta, Inc., By Eve, President." In the lower left corner is stamped "ACCEPTED: Beta Corporation by Frank, President, May 5, 2009." On the back is the signature of "Alpha Company by Gail, 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?

Dewey is Ezra's agent and is not authorized to sign checks or notes on Ezra's behalf. Despite the lack of authority, Dewey issues a note "payable to the order of Fab Finance Company [signed] Dewey." Liability on this note extends to

Call, an employee of Delite Dairy Company, forges the signa?ture of Elin, Delite's president, on a Delite check and cashes it at First Federal Bank. Elin would ratify Call's actions by

Dandy Furniture Store borrows $100,000 at 6 percent interest from Easy Loan Company and signs a promissory note for that amount. Easy changes the amount of the note to $120,000 and increases the rate to 8 per?cent. Easy materially altered the note when it changed