Anne borrows $2,000 from Jerry and gives him a promissory note for $2,000 at 10 percent annual interest payable in 100 days. Jerry indorses the note "Pay to the order of Ethan" and negotiates the note to Ethan. At the end of 100 days, Ethan takes the note to Anne. Under these circumstances, if Anne _____.
A) dishonors the note, Ethan can hold Jerry secondarily liable without giving him notice of the dishonor
B) dishonors the note, Ethan cannot sue Anne on the basis of her maker's obligation
C) dishonors the note, Ethan cannot hold Jerry secondarily liable on his indorsement
D) pays Ethan the $2,000 and accrued interest, she can have Ethan mark it "paid" and give it back to her

Question

Quizplus · Accepted Answer

Under the given circumstances, if Anne pays Ethan the $2,000 and accrued interest, she can have Ethan mark it "paid" and give it back to her. If Anne does not pay the note to Ethan when he presents it for payment, then she has dishonored the note. Ethan should give notice of the dishonor to Jerry and advise him that he intends to hold Jerry secondarily liable on his indorsement. Ethan also could sue Anne on the basis of her maker's obligation.

Anne Borrows $2,000 from Jerry and Gives Him a Promissory