Test 1 (signature issues)

Question 1

What are the two types of signature liabilities? Classify them.

Answer 1

• Primary liability: if no defenses are operative then this liability is absolute and immediate when the instrument is due.
• Secondary liability: Only operative when primary party fails to pay, and must jump through hoops (SSL & TWL)

Question 2

Who signs with primary liability? Secondary liability?

Answer 2

• Primary: makers and accepting drawees

- Secondary: drawers and indorsers

Question 3

Regarding drawers and endorsers and SSL who can disclaim SSL on a check

Answer 3

An endorser can disclaim, but a drawer is still liable

Question 4

A forgery is generally not effective unless: (3)

Answer 4

1- the person ratifies the forgery (spouse)

2- statute of limitations runs

3- negligence that substantially contributes to the forgers success.

Question 5

Who can be a holder after a forged indorsement on order paper?

Answer 5

No one can be an holder, let alone an HDC

Question 6

Who bears the loss after a forgery on order paper?

Answer 6

The first party to take after the forgery usually bears the loss

Question 7

What are the exceptions to the general rule that a forgery on order paper does not have to be honored by drawers/ makers.

Answer 7

• Outgoing instruments: impostor and fictitious payee rules

- Incoming instruments: payable to the employer which are forged by an employee

Question 8

In regards to an agent acting on a principles behalf, how does the power to bind and the level of disclosure effect the liability of the principle?

Answer 8

• If there is no power to bind then there is no liability
• Disclosure:
• -Disclosed Primary: primary is liable
• -Partially Disclosed Primary: if original parties still involved then primary is liable, if not then primary is not
• -Undisclosed Primary: primary is liable

Question 9

How does an agent avoid personal liability when signing an instrument for its principle?

Answer 9

1- naming the principle (if a check, in most states then a pre-printed name on check covers this), and

2- indicating her agency status

ex. “Fred Lewis, by Brenda Jones, agent” or “XYZ Corp., by Francis Lloyd, president”

Question 10

For accommodation parties (those who sign instruments to lend their credit to other parties on the instrument) the type of liability (primary or secondary) depends on the type of signature. Explain:

Answer 10

• a co-maker of a note has primary liability

- a co-indorser only has secondary liability