Contract Liability

Question 1

Basis of Liability

Answer 1

The primary basis of contract liability on an instrument is a person’s signature

Question 2

Signatures by Agents

Answer 2

Binding Principal- follow general law

Binding Agent- assume Agent’s name and P is bound

Question 3

When Is Agent NOT Personally Liable?

Answer 3

Agent escapes liability if:
P identified in instrument AND
Signature unambiguously shows it is made on behalf of principal

Question 4

Liability of Agent If Personally Liable

Answer 4

HDC- Agent liable unless prove the holder had notice of representative nature

Non- HDC- Agent liable unless can prove that the original parties did not intend the agent to be liable

Question 5

Special Rule for Checks- Agent

Answer 5

Not liable if P name on check

Question 6

If Agent is not authorized

Answer 6

Forgery; agent is bound but not P

Question 7

Maker of Note

Answer 7

Primary liable
Must pay note when due
Liable to holder or indorser who paid the instrument

Question 8

Drawer of Draft Liability

Answer 8

Drawer may not disclaim liability on check but can on other drafts
Secondary liability- only if
Presentment- presentment of checks to drawee within 30 days
Dishonor- drawee refuses to pay the instrument upon proper presentment

Question 9

Indorser of Note or Draft Liability

Answer 9

Liability disclaimer allowed
Order of liability in order of their signatures
Secondary liability"
1. presentment,
2. dishonor,
3. Notice of dishonor

Question 10

Drawee Liability

Answer 10

Drawee makes no negotiable instrument contract

Drawee may agree to pay by signing draft
Certification discharges the drawer and all prior indorsers

Question 11

Conversion Liability of Drawee pays on forged instrument

Answer 11

Liable to payee in conversion

Person suing in conversion must have received delivery of instrument

Question 12

Payment of Checks after Drawer’s Death

Answer 12

Drawee bank may continue to pay checks until it knows that the drawer has died and has a reasonable opportunity to act on that knowledge

Effect of notice of death- drawee bank may pay for no more than 10 days after death, but immediately stops if someone claiming an interest in account requests

Question 13

Accomodation Parties (Co-signers, Sureties , Guarantors)

Answer 13

Accomodated Parties- principal/debtor/obligor
Accommodation Party- surety/co-signer
Holder- Creditor/obligee