A. Discuss primary liability on a note; on a check

Question

b. What is secondary liability? What must be done before a person with secondary liability can be sued? Who has secondary liability on a note? Who has secondary liability on a check?
c. How does contractual liability on the instrument differ from warranty liability?

Answer 1

a. If a person is primarily liable on a negotiable instrument then that person is legally obligated to pay without the holder's having to resort first to another party. Only makers are primarily liable on a note. No one is unconditionally liable on a draft or check as issued. A drawee who promises to pay by certifying the check, or accepting it as presented (thus becoming an acceptor), becomes primarily liable on a check.
b. Secondary liability is contingent liability. It does not arise unless the primarily liable party has defaulted on an instrument. The drawer is liable if the drawee dishonors the instrument. Indorsers are liable subject to the conditions of dishonor and notice of dishonor. An indorser has secondary liability on a note. The drawer and unqualified indorsers have secondary liability on a check.
c. Warranty liability is not subject to the conditions of proper presentment, dishonor, and notice of dishonor. Contractual liability is imposed on those who sign the instrument, but warranty liability is imposed on both signers and nonsigners.