Fact Pattern 27-2
Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
-Refer to Fact Pattern 27-2. If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas
A) if O'Leary timely notifies Niklas.
B) only if Lisa refuses to pay the check.
C) only to the extent that Lisa overpaid her debt to Niklas.
D) under no circumstances.

Question

Fact Pattern 27-2
Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
-Refer to Fact Pattern 27-2. If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas​
A) ​if O'Leary timely notifies Niklas.
B) ​only if Lisa refuses to pay the check.
C) ​only to the extent that Lisa overpaid her debt to Niklas.
D) ​under no circumstances.

Quizplus · Accepted Answer

Under the Uniform Commercial Code, if a check is dishonored, the holder (O'Leary) must notify the previous indorser (Niklas) of the dishonor in order to preserve any rights against that indorser. Therefore, if O'Leary timely notifies Niklas of the dishonor, Niklas remains liable for payment to O'Leary.

Fact Pattern 27-2 Lisa Writes a Check on Her Account at Metro Bank