Question 1

Fact Pattern 27-1
Chuck is the maker of a $200,000 promissory note payable to Investors Corporation. Investors indorses the note to Equity Lenders, which in turn indorses it to Select Holdings LLC, which then indorses it to Global Bank, the present holder.
-Refer to Fact Pattern 27-1. Global Bank properly presents the note to Chuck for payment, but he dishonors it. With timely notice to the proper parties, Global Bank may collect payment on the note from​

Accepted Answer

As per the chain of indorsements, any of the previous parties who have indorsed the note can be held liable for payment by the present holder, Global Bank. Therefore, Global Bank may collect payment from Investors, Equity Lenders, or Select Holdings with timely notice to the proper parties.

Question 2

Resource Industries Inc.'s agent Polly is authorized to draw checks on the company's account in Sterling Bank. The checks are preprinted with the company name. Polly writes a check "pay to the order of Don [signed] Polly." Don presents the check for payment. If the bank dishonors it, liability extends to​

Accepted Answer

Resource Industries Inc. is liable because Polly, as an authorized agent, wrote the check on behalf of the company.

Question 3

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within​

Accepted Answer

Under the Uniform Commercial Code (UCC), a check must be presented for payment within 30 days to hold the drawer liable if the bank dishonors it.

Question 4

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation​

Accepted Answer

Dulcey is assuming legal responsibility for the payment of the note, making her a maker.

Question 5

Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is​

Accepted Answer

When Len signs a note “payable to the order of Account Collection Agency,” he is creating a negotiable instrument, which means that if the instrument is properly negotiated (i.e., transferred to a third party) and Len does not have a valid defense against payment, his liability on the note is immediate. This means that Len is immediately responsible for paying the amount indicated on the note to the Account Collection Agency or any subsequent holder of the note who properly negotiates it.

Question 6

Darby writes a check to Education Loan Management, Inc., that is drawn on Darby's account at Federal Bank. If the bank does not accept the check, liability for its amount is on​

Accepted Answer

Darby is responsible for making sure there are sufficient funds in their bank account to cover the amount of the check. If the bank does not accept the check due to insufficient funds, the liability falls on Darby as the writer of the check.

Question 7

Fran signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Holly, who sells it to Iona. Liability associated with the transfer of the note from Holly to Iona is​

Accepted Answer

The liability associated with the transfer of the note from Holly to Iona is warranty liability. When a negotiable instrument is transferred, the transferor provides certain warranties to the transferee, such as the warranty that the instrument has not been altered and that the transferor has good title to it.

Question 8

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​

Accepted Answer

Cici is liable since it is her account the check is drawn on, and Doug is liable as the payee who endorsed the check. Frieda has no liability since she only verified the signature and the payee, but did not endorse or receive any benefit from the check. East Bank may be liable if they do not properly process the check, but their liability is not directly related to the actions of the individuals involved.

Question 9

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​

Accepted Answer

Celine, who forged Dash's signature, is liable for the note as the forger. Forest, as a holder in due course, cannot hold Dash liable because his signature was forged.

Question 10

Elena, an employee of Builders, Inc., forges the signature of Carly, Builders's president, on a company check and cashes it at Delta Bank. Carly would ratify Elena's actions by​

Accepted Answer

Ratification occurs when a person approves or affirms an unauthorized act that was performed on their behalf. In this situation, if Carly chose to enter into a repayment agreement with Elena, she would be ratifying Elena's unauthorized act. This would make the act binding on Builders, Inc. and Carly would essentially be acknowledging that she approves of the act. The other options do not constitute ratification. A) Asking Delta Bank to prosecute Elena would not ratify the act. B) Discharging Elena from Builders's employment would not ratify the act. D) Filing criminal charges against Elena herself would not ratify the act.

Question 11

Fact Pattern 27-2
Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
-Refer to Fact Pattern 27-2. Niklas is​

Accepted Answer

Niklas is secondarily liable as the indorser of the check. He may be held liable only if the drawer (Lisa) and the primary party (Metro Bank) do not pay the check.

Question 12

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

Accepted Answer

According to the Uniform Commercial Code, if a check lacks a proper endorsement, the bank may delay payment until the proper endorsement is obtained. Therefore, the best choice is D, until the proper endorsement is obtained.

Question 13

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor​

Accepted Answer

According to the scenario, Gulf Bank can postpone payment without dishonor until the following business day since the check was received after the established "cutoff" hour. This is a common practice in the banking industry, known as the "banker's day rule," where transactions received after the cutoff hour are processed on the following business day.

Question 14

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​

Accepted Answer

Olivia, as an agent of Physicians Clinic, does not have the authority to sign checks or notes on behalf of the company. Therefore, Olivia is personally liable for the note she issued. Neither Physicians Clinic nor Loan Company would be liable for this unauthorized act.

Question 15

Fact Pattern 27-1
Chuck is the maker of a $200,000 promissory note payable to Investors Corporation. Investors indorses the note to Equity Lenders, which in turn indorses it to Select Holdings LLC, which then indorses it to Global Bank, the present holder.
-Refer to Fact Pattern 27-1. Suppose that Select Holdings pays Global Bank on the note. With timely notice to the proper parties, Select Holdings may then collect payment on the note from​

Accepted Answer

Select Holdings, as the immediate previous indorser, can still enforce the note against any prior indorsers, including Chuck, Investors, or Equity Lenders, if it gives timely notice of dishonor to those parties.

Question 16

Fact Pattern 27-2
Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
-Refer to Fact Pattern 27-2. If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas​

Accepted Answer

Under the Uniform Commercial Code, if a check is dishonored, the holder (O'Leary) must notify the previous indorser (Niklas) of the dishonor in order to preserve any rights against that indorser. Therefore, if O'Leary timely notifies Niklas of the dishonor, Niklas remains liable for payment to O'Leary.

Question 17

Jen is the maker of a note, on which Bart is secondarily liable. Credit Instruments Company (CIC) is the current holder of the note. Bart will be obligated to pay the note if​

Accepted Answer

Bart's liability is secondary, which means that he is only obligated to pay if the primary obligor (Jen) defaults on the note.

Question 18

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​

Accepted Answer

Mining Corporation is ultimately responsible for the actions of their authorized agent, Logan, and must make good on any checks written on their account by Logan. Oceanside Resort may have a claim against Mining Corporation for the amount of the dishonored check. Logan may also face disciplinary action or legal consequences for misuse of his authority as an agent.

Question 19

To borrow the money to buy a car, Megan signs a note "payable to the order of Purchase Financing." Olaf cosigns the note to guarantee the repayment of the loan. Olaf's liability on this note is​

Accepted Answer

The answer of To borrow the money to buy a...

Question 20

Hilltop Bank is an HDC of a note for $1,000 on which there is the forged signature of "Rob." If sued on the note by Hilltop, Rob's best defense would be​

Accepted Answer

Rob's best defense would be forgery since the signature on the note is not his own and is a fraudulent act committed by someone else.

Quiz 27: Liability, Defenses, and Discharge

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within​

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation​

Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is​

Darby writes a check to Education Loan Management, Inc., that is drawn on Darby's account at Federal Bank. If the bank does not accept the check, liability for its amount is on​

Fran signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Holly, who sells it to Iona. Liability associated with the transfer of the note from Holly to Iona 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​

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​

Elena, an employee of Builders, Inc., forges the signature of Carly, Builders's president, on a company check and cashes it at Delta Bank. Carly would ratify Elena's actions by​

Fact Pattern 27-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 27-2. Niklas is​

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

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor​

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​

Fact Pattern 27-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 27-2. If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas​

Jen is the maker of a note, on which Bart is secondarily liable. Credit Instruments Company (CIC) is the current holder of the note. Bart will be obligated to pay the note if​

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​

To borrow the money to buy a car, Megan signs a note "payable to the order of Purchase Financing." Olaf cosigns the note to guarantee the repayment of the loan. Olaf's liability on this note is​

Hilltop Bank is an HDC of a note for $1,000 on which there is the forged signature of "Rob." If sued on the note by Hilltop, Rob's best defense would be​

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation

Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is

Darby writes a check to Education Loan Management, Inc., that is drawn on Darby's account at Federal Bank. If the bank does not accept the check, liability for its amount is on

Fran signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Holly, who sells it to Iona. Liability associated with the transfer of the note from Holly to Iona 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

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

Elena, an employee of Builders, Inc., forges the signature of Carly, Builders's president, on a company check and cashes it at Delta Bank. Carly would ratify Elena's actions by

Fact Pattern 27-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 27-2. Niklas is

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

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor

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

Fact Pattern 27-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 27-2. If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas

Jen is the maker of a note, on which Bart is secondarily liable. Credit Instruments Company (CIC) is the current holder of the note. Bart will be obligated to pay the note if

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

To borrow the money to buy a car, Megan signs a note "payable to the order of Purchase Financing." Olaf cosigns the note to guarantee the repayment of the loan. Olaf's liability on this note is

Hilltop Bank is an HDC of a note for $1,000 on which there is the forged signature of "Rob." If sued on the note by Hilltop, Rob's best defense would be