Business Law Chapter 26

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Ethel signs a note \”payable to the order of Fidelity Bank.\” Fidelity indorses the note in blank and negotiates it to Ghani, who sells it to Huck. Liability associated with the transfer of the note from Ghani to Huck is
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warranty.
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Puck signs a check \”pay to the order of Quik Mart\” drawn on Puck’s account in Regional Bank. Puck shows the check to Silky, who agrees that the signature is Puck’s and that Quik Mart is owed the amount that the check represents. Quik Mart signs the back of the check. Liability on this check extends to
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Puck AND Quik Mart ONLY.
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Toby signs a note \”payable to the order of United Credit Union.\” Unless Toby has a valid defense against payment, Toby’s liability on this note is
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immediate.
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Derby Stables writes a check to Extendo Credit, Inc., that is drawn on Derby’s account at Farm & Ranch Bank. If the bank does not accept the check, liability for its amount is on
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Derby.
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Nero signs a check \”pay to the order of Olive\” drawn on Nero’s account in Peachtree Bank. Olive signs the back of the check. Secondary liability on this check extends to
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Nero AND Olive ONLY.
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Dirk is the maker of a note, on which Erv is secondarily liable. Friendly Credit Company is the current holder of the note. Erv will be obligated to pay the note if
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Dirk defaults on the note.
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Fact Pattern 26-1A. Seymour writes a check on his account at Platinum Bank to Teri to pay a debt. Teri negotiates the check by indorsement to Rosanna, who presents it for payment to Onyx Bank. Teri is
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SECONDARILY liable.
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Fact Pattern 26-1A. Seymour writes a check on his account at Platinum Bank to Teri to pay a debt. Teri negotiates the check by indorsement to Rosanna, who presents it for payment to Onyx Bank. If Onyx Bank dishonors the check, Rosanna can obtain payment from Teri
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if Rosanna timely notifies Teri.
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To borrow the money to buy a car, Klaus signs a note \”payable to the order of Lake City Auto Financing.\” Minnie cosigns the note to guarantee the repayment of the loan. Minnie’s liability on this note is
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primary.
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Audio Science Company’s agent Bailey is authorized to draw checks on Audio Science’s account in Citizen Bank. The checks are preprinted with the company name. Bailey writes a check \”pay to the order of Darlene [signed] Bailey.\” Darlene presents the check for payment. If Citizen Bank dishonors it, liability extends to
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Audio Science ONLY.
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Celia, an employee of Delite Dairy Company, forges the signature of Elin, Delite’s president, on a Delite check and cashes it at First Federal Bank. Elin would ratify Celia’s actions
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entering into a repayment agreement with Celia.
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Birdie, an accountant for Country Custom Furniture, Inc., issues company checks payable to nonexistent persons drawn on Country’s account at Debit Bank. Birdie indorses the checks and deposits them in her account. Country discovers the theft and demands that Debit recredit its account. Debit’s best defense is that
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Country was in a better position than Debit to prevent the theft.
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Rodeo Ranch’s agent Slim is authorized to write checks on Rodeo Ranch’s account in Town Bank. Upper Range Corporation is a Rodeo Ranch supplier. Slim writes a check on Rodeo Ranch’s account \”pay to the order of Upper Range [signed] Slim,\” indorses it in Upper Range’s name, and deposits it in his own account in Verity Bank. If Verity Bank collects payment, the ultimate party most likely to suffer the loss is
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Rodeo Ranch.
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Cash National Bank is an HDC of a note for $1,000 on which there is the forged signature of \”Dudley.\” If sued on the note by Cash
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Dudley’s best defense would be FORGERY.
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Opalina asks Paolo, who does not understand English, to sign what Opalina says is an application to open a bank account. In fact, the \”application\” is a note. If sued on the note by an HDC
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Paolo’s best defense would be FRAUD in the EXECUTION.
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Chris convinces Dion, who does not understand English, to sign a $1,000 note that Dion believes is an application for a credit card. Chris negotiates the note to EZ Finance Company. Dion
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can avoid payment on the note EVEN if EZ is an HDC.
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Dandy Lyin’ Furniture Store borrows $100,000 at 6 percent interest from Easy Loan Company and signs a promissory note for that amount. Easy changes the amount of the note to $120,000 and increases the rate to 8 percent. Easy materially altered the note when it changed
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the amount AND the interest rate.
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Quincy signs a check payable to Richland Investors, Inc., and gives it to Richland, leaving the amount blank but authorizing Richland to fill in the check for $1,000. Richland fills in $1,500 and negotiates the check to Silverado Bank, to whom Richland owes $1,500. Silverado Bank, an HDC, can enforce the check for
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$1,500.
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Laptop Assembly Company gives a $3,000 promissory note to My-T-Fast Delivery Service to deliver a load of computer chips to Laptop’s plant. The chips are contami¬nated during transit, and are useless to Laptop on delivery. If My-T-Fast presents the note for payment
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Laptop’s best defense would be BREACH OF WARRANTY.
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Bing signs a note payable to the order of Cameron. Cameron indorses the note and gives it to Daphne as payment for a debt. Daphne presents it to Bing, who pays it. Bing’s payment discharges
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all of the parties.
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Biff signs a note \”payable to the order of County Credit Union.\” Unless Biff has a valid defense against payment, Biff’s liability on this note is
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primary.
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Eula signs a check \”pay to the order of Eula\” and presents to First National Bank for payment. The types of liability associated with this check are
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signature and warranty.
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Superior Company draws a check payable to Ted. Uri makes a note payable to Vital Finance Corporation. Primarily liable parties include
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Uri ONLY.
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Blayne writes a check \”pay to the order of Cherry\” drawn on Blayne’s account at Dixie Bank. Cherry presents the check for payment to Dixie Bank, which accepts it. The bank is
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PRIMARILY liable for payment.
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Fact Pattern 26-1B. Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lyron who, in turn, indorses it to Mona, who then indorses it to Neville, the present holder. Neville properly presents the note to Jake for payment, but Jake dishonors it. With timely notice to the proper parties, Neville may collect payment on the note from
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Kim, Lyron, or Mona.
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Fact Pattern 26-1B. Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lyron who, in turn, indorses it to Mona, who then indorses it to Neville, the present holder. Suppose that Mona pays Neville on the note. With timely notice to the proper parties, Mona may collect payment on the note from
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Jake, Kim, or Lyron.
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Rex signs a check \”pay to the order of Sophie\” drawn on Rex’s account in Town Bank. To impose liability on Rex if Town Bank dishonors the check, Sophie should present it for payment within
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thirty days.
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Pacific Bank receives a check drawn by Qiana. The check is received after the established \”cutoff\” hour. Payment can be postponed without dishonor
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until the close of the next business day.
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On January 1, Kane issues a note payable to Lorena on May 1. On April 29, Kane dies. In this situation, the note is
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dishonored.
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Sara agrees to cosign a promissory note for Tom to buy a sport utility vehicle. The note is payable to Uno Bank. Sara is an accommodation
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maker.
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Kip is Lulu’s agent and is authorized to write checks on Lulu’s account in Metro Bank. Kip writes a check \”pay to the order of Nemo.\” Kip signs the check \”Lulu, by Kip, agent.\” If Metro Bank dishonors the check, liability extends to
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Lulu ONLY.
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Dewey is Ezra’s agent and is not authorized to sign checks or notes on Ezra’s behalf. Despite the lack of authority, Dewey issues a note \”payable to the order of Fab Finance Company [signed] Ezra, by Dewey.\” Liability on this note extends to
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Dewey ONLY.
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Bob writes a check on his account at County Bank to Darby, a famous singer. The person claiming to be Darby is an imposter, however, named Etta. Etta indorses the check to Felipe, for whom County Bank cashes it. Ultimately, the loss will most likely fall on
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Bob.
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Cole issues a note \”payable to the order of Cole,\” forges Dylan’s signature as the maker, and indorses the note \”pay to Eton.\” Cole sells the note to Eton, who negotiates it by indorsement and delivery to Franz. Franz negotiates the note to Gert. On this note, Gert can extend liability to
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only Cole, Eton, or Franz.
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Burt, a mentally impaired person, is asked by Carl to sign a piece of paper that Carl says is an autograph book. In fact, the document is a note. If later sued on the note by an HDC
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Burt’s best defense would be FRAUD in the EXECUTION.
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Vera gives Willy a $500 check as payment for a debt. Willy crudely raises the amount of the check to $5,000 and transfers it to Xtreem Sportz store for a new bike. Xtreem deposits the check in its Yankee Bank account. Vera is liable for the payment of $5,000 to
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no one.
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Pete, a Quality Company employee, is authorized to use Quality checks to buy supplies. Pete alters one of the checks to increase its $700 amount by $100, and exchanges it at Retail Office Supply for $700 worth of supplies and $100 cash. He keeps the cash. On the check, Retail—an HDC—may obtain pay¬ment for
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$700.
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Delores’s Restaurante borrows $100,000 at 6 percent interest from El Credito y Dinero Company and signs a promissory note for that amount. El Credito changes the amount of the note to $120,000 and increases the rate to 8 percent. Delores’s best defense against payment on the note is
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material alteration.
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GR8 Products, Inc., warrants its goods to be free of defects. Heck issues a note to obtain goods from GR8 that prove defective. If GR8 presents the note for payment
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Heck’s best defense would be BREACH OF WARRANTY.
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Molly signs a promissory note payable to Nano Credit Corporation while mentally incompetent but before a court judges her to be mentally incompetent. The note is
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voidable.

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