R7 Com Paper 3 (F)

Question 0

Drawer Liability

Answer 0

The drawer of a draft or check enters into a contract, but the drawer’s contract is a contract of secondary liability

The drawer agrees to pay the draft according to its terms if the draft is presented to the drawee for payment, the drawee refuses to pay, and the holder informs the drawer of dishonor

Question 1

Maker Liability

Answer 1

When a maker signs a note, the maker enters into a contract to pay the note when due according to its terms when signed

Makers are primarily liable

Question 2

Drawee Liability

Answer 2

Not liable on instrument unless drawee signs

If drawee signs, liable as acceptor and discharges al prior parties

Question 3

Certification of a Check

Answer 3

Acceptance of a check by a drawee bank

Discharges al prior endorsers and, in most states, the drawer as well

Question 4

Liability Between Drawer and Drawee

Answer 4

The bank is contractualy obligated to honor the customer’s draft as drawn if there are sufficient funds on deposit to cover the draft

An oral stop payment order is binding for 14 days

A written stop payment order is binding for 6 months

Question 5

Liability of Endorser

Answer 5

Secondarily liable. The contract that forms from merely signing one’s name on the back of commercial paper is that the endorser wil pay a subsequent holder of the instrument, according to its terms if:

The holder presents the instrument to the maker or drawer for payment

The maker or drawer refuses to pay and the endorser is given proper notice

Question 6

Warranty Liability

Answer 6

Any endorser who transfers the instrument for consideration makes the warranty of

1. Good title
2. All signatures are genuine
3. Instrument has not been materialy altered
4. No defense of any party
5. No knowledge of any insolvency

Question 7

Effect of Agent Signing

Answer 7

A principal can be held liable on an instrument by the signature of an authorized agent, even though the principal’s signature does not appear

Question 8

Effect of Forgery

Answer 8

Forger is always liable Forgery of drawer’s name - drawee is liable upon acceptance Forgery of payee’s name - Does not usualy pass good title

Question 9

Impostor Rule

Answer 9

An impostor is someone who pretends to be someone else. If a maker or drawer issues an instrument to an impostor, any resulting forgery of the payee’s name wil be effective

Question 10

Fictitious Payee Rule

Answer 10

If a drawer or maker issues commercial paper to a payee whom he does not actualy intend on having any interest in the instrument, a resulting forgery of the payee’s name is to be effective to pass good title to later transferees

Question 11

Methods to Discharge Commercial Paper

Answer 11

Payment, satisfaction, or tender of payment to a holder

Holder intentionaly destroys instrument

Lining through their signatures

Delay in presentment or failure to give notice of dishonor

By acceptance or certification of a draft