Asked by Jaydan MacMaster on May 17, 2024
Verified
Which of the following is true regarding the liability of an accommodation party?
A) As a maker, an accommodation party has primary liability; but as an endorser, the party has secondary liability.
B) An accommodation party has primary liability both as a maker and as an endorser.
C) An accommodation party has secondary liability both as a maker and as an endorser.
D) An accommodation party has primary liability as either a maker or endorser only if all other parties to the instrument have filed bankruptcy.
E) An accommodation party has primary liability as a maker only if all other parties have filed bankruptcy, and secondary liability in any other case regardless of whether the accommodation party is the maker or endorser.
Primary Liability
The direct and immediate responsibility to fulfill an obligation or repay a debt, without necessarily having recourse against others for reimbursement.
Secondary Liability
Secondary Liability refers to the legal responsibility of a third-party for the actions of another, such as a parent company being liable for the actions of its subsidiary.
- Develop an understanding of the differing responsibilities and liabilities involved with negotiable instruments, such as the roles of maker, drawer, acceptor, and endorser.
- Identify the circumstances in which parties involved with a negotiable instrument, such as endorsers and accommodation parties, are released from their financial obligations.
Verified Answer
LC
Laura CranfordMay 20, 2024
Final Answer :
A
Explanation :
An accommodation party, when acting as a maker, is primarily liable to pay the instrument, similar to the original issuer. However, if the accommodation party is an endorser, their liability is secondary, meaning they are only liable if the primary party defaults and proper notice of dishonor is given.
Learning Objectives
- Develop an understanding of the differing responsibilities and liabilities involved with negotiable instruments, such as the roles of maker, drawer, acceptor, and endorser.
- Identify the circumstances in which parties involved with a negotiable instrument, such as endorsers and accommodation parties, are released from their financial obligations.
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