Rona issues a check for $4,000, dated May 1, to Stavros. The check is drawn on United Bank. Stavros indorses the check and transfers it to Tony. Stavros will be liable on the check if
A) United Bank dishonors the check.
B) Tony loses the check.
C) Rona stops payment on the check.
D) all of the choices.

Question

Rona issues a check for $4,000, dated May 1, to Stavros. The check is drawn on United Bank. Stavros indorses the check and transfers it to Tony. Stavros will be liable on the check if​
A) ​United Bank dishonors the check.
B) ​Tony loses the check.
C) ​Rona stops payment on the check.
D) ​all of the choices.

Quizplus · Accepted Answer

Stavros will be liable on the check if United Bank dishonors the check because as the previous holder of the check, he has a warranty of transfer that the instrument is genuine and that he has no knowledge of any fact that would impair the validity of the instrument. Therefore, if the bank dishonors the check for any reason, Stavros will be responsible for reimbursing Tony for the value of the check. However, Stavros will not be liable if Tony loses the check or if Rona stops payment on the check, as these events occur after Stavros has already transferred the check to Tony.

Rona Issues a Check for $4,000, Dated May 1, to Stavros