Test 1 (secondary signature liability)

Question 1

What is being said if a party signs an instrument in an unqualified manner?

Answer 1

That they will pay if the primary party fails to.

Question 2

There are two hoops that someone must jump through before being able to recover under the secondary signature liability. What are they?

Answer 2

1- Timely presentment

2- Timely notice of dishonor

Question 3

When has “dishonor happened” for a demand instrument? For a time instrument?

Answer 3

Demand- midnight of the day of presentment

Time- midnight of the due date

Question 4

For the hoop of “timely presentment” when should the draft be presented for acceptance? For payment?

Answer 4

Acceptance- on or before the due date

Payment- due date

Question 5

For the hoop of “timely presentment” when should a demand instrument that is not a check be presented for acceptance? For Payment? What about for a check?

Answer 5

Non-Check: Both within reasonable time period after the issue date.

Check:

• Indorser liability: waived if more than 30 days after indorsed.
• Drawer: secondary liability unless makes claim for tardiness of presentment (beyond 30 days) and the drawer also does not have access to his personal funds. Bank is not liable unless they accept the check.

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Question 6

What is the difference between primary signature liability and HDC requirements when considering time held on a check?

Answer 6

SSL- must present within 30 days to get this

HDC- To qualify must get within 90 days of issue

Question 7

A payee must be timely if the “notice of dishonor” in order to claim secondary signature liability on someone. What is timely for giving notice to a bank? To a non-bank?

Answer 7

Banks- by midnight of the next banking day after the banking day it received the instrument

Non-banks: within 30 calendar days following the day on which this party experienced or received notice of dishonor.

Question 8

For the actual presentments and notices of dishonor, how must these be communicated, and are they required to be received or dispatched to meet the timeliness requirement?

Answer 8

They can be communicated orally, in writing, or electronically.

• Presentments of the instrument must be received by the required date
• Notices of dishonor are effective once dispatched to meet the timeliness requirement

Question 9

What are the five ways that someone can avoid meeting the SSL hoop of “timely presentment”?

Answer 9

1- Waiver (“presentment waived”) (only one that also works for not giving timely notice of dishonor)

2- Presentment cannot be made despite due diligence

3- Primary party (maker or acceptor) has died, repudiated the obligation to pay, or is in insolvency proceedings

4- that party against whom secondary liability is being sought has no reason to believe, and/or right to expect, the instrument will be paid or accepted.

5- The drawer ordered the drawee not to pay or accept the draft

Question 10

What are the three ways that someone can avoid meeting the SSL hoop of “notice of dishonor”? When do waivers apply? Who to?

Answer 10

1-Waiver (“presentment waived”)

2- Instrument says its not necessary in some way

3- The delay in giving notice of dishonor was beyond the persons control

Waivers apply to all who hold if it is on the front of the instrument. If it is a new indorsement, then it is everyone after the indorsement is made

Question 11

Does HDC status have effect on SSL?

Answer 11

no

Question 12

Is SSL or transfer warranty liability more extensive?

Answer 12

SSL

Question 13

What is the four step progressive analysis used to see if there is transfer warranty liability?

Answer 13

1- If non-check did the indorser say “without warranties”. if so there is no TWL

2- Did the defendant make any transfer warranties? (receive value for the transfer) if no then no TWL

3- Did transfer warranties flow to this plaintiff? (did defendant directly transfer to palintiff, or indorse it in any fashion besides without warranties). If no then no TWL

4- Were any transfer warranties breached? If no then no TWL. If yes then there is TWL

Question 14

What are the five transfer warranties?

Answer 14

1- Transferor is entitled to enforce the instrument

2- All signatures are authentic and authorized

3 - The instrument has not been altered

4- The instrument is not subject to any defense or adverse claim that can be successfully asserted against the transferor

5- The transferor has no knowledge of any insolvency proceedings against the maker of the note, or the drawer or acceptor of the draft

Question 15

At what point is transfer warranty breach determined?

Answer 15

At transfer, not afterwards. However, they don’t have to be aware of the problem at the time of transfer.