Ch. 26: Liability of Parties

Question 1

Contractual liability

Answer 1

Obligation on a negotiable instrument based upon signing the instrument.

Question 2

Warranty liability

Answer 2

Applies to persons who transfer an instrument or receive payment for or acceptance of it.

Question 3

Primary liability

Answer 3

Absolute obligation to pay a negotiable instrument.

Question 4

Secondary liability

Answer 4

Obligation to pay a negotiable instrument is subject to conditions precedent.

Question 5

Accommodation party

Answer 5

Signs and instruments to lend her credit to the instruments; her liabilities determined by the capacity in which she signs.

Question 6

Signature

Answer 6

May be made by the individual herself or by her authorized agent.

Question 7

Authorized signatures

Answer 7

An agent who execute a negotiable instrument on behalf of his principal is not liable if the instrument is executed properly and as authorized.

Question 8

Unauthorized signatures

Answer 8

Include forgeries and signatures made by an agent without proper power; are generally not binding on the person whose name appears on the instrument but are binding on the on authorized signer.

Question 9

Acceptance

Answer 9

A drawee’s signed commitment to honir the instrument.

Question 10

Maker

Answer 10

Person who guarantees that he will pay the note according to its original terms.

Question 11

Acceptor

Answer 11

A drawee has no liability on the instrument until she excepts it; she then becomes primarily liable.

Question 12

Certification

Answer 12

Acceptance of a check by the bank.

Question 13

Indorsers and drawers

Answer 13

If the instrument is not paid by a primary party and if the conditions precedent to the liability of secondary parties are satisfied, endorsers and drawers are secondarily (conditionally) liable unless they have validly disclaimed their liability or have a valid defense to the instrument.

Question 14

Effect of acceptance

Answer 14

When a draft is excepted by a bank, the drawer and all prior endorsers are discharged from contractual liability.

Question 15

Disclaimer by secondary parties

Answer 15

A drawer (except of a check) or endorser may does claim liability by a qualified drawing or endorsing (“without recourse“).

Question 16

Dishonor

Answer 16

Generally involves the refusal to pay an instrument when it is presented.

Question 17

Presentment

Answer 17

Demand for payment or acceptance of an instrument.

Question 18

Liability for conversion

Answer 18

Conversion occurs (1) when an instrument is paid on a forged endorsement, (2) when a drawee refuses to return a draft that was presented for acceptance, or (3) when any person refuses to return an instrument after he dishonor said.

Question 19

Discharge

Answer 19

Potential liability of parties to the instrument is terminated.

Question 20

Transferor’s warranties

Answer 20

Any person who transfers an instrument and receives consideration makes certain transferor’s warranties.

Question 21

Entitled to enforce

Answer 21

If the transfer is by delivery, the warranties run only to the immediate transferee; if the transfer is by endorsement, the warranties run to any subsequent holder who takes the instrument in good faith.

Question 22

Warranties on presentment

Answer 22

All people who obtain payment or acceptance of an instrument as well as all prior transferors give the presenter’s warranties.

Question 23

Entitled to enforce

Answer 23

The presenter’s warranties run to any person who in good faith pays or accepts an instrument.