Parties are secondarily liable on a negotiable instrument only if
a. the instrument is properly and timely presented, the instrument is dishonored, and timely notice of dishonor is given to the secondarily liable party.
b. the instrument is properly and timely presented and the instrument is dishonored.
c. the instrument is properly and timely presented and timely notice of dishonor is given to the secondarily liable party.
d. the instrument is dishonored and timely notice of dishonor is given to the secondarily liable party.
The correct answer and explanation is:
The correct answer is a. the instrument is properly and timely presented, the instrument is dishonored, and timely notice of dishonor is given to the secondarily liable party.
Explanation:
In the context of negotiable instruments, secondarily liable parties are typically those who have guaranteed payment or performance of the instrument, such as endorsers or guarantors. The primary party is usually the maker or drawer of the instrument. A secondarily liable party can be called to pay the instrument if the primary party fails to do so.
For secondarily liable parties to be held responsible, certain steps must be followed. These steps ensure that the secondarily liable party has been given a fair chance to meet their obligations and be informed of any defaults.
- Proper and timely presentation: The instrument must be presented to the primary party (the maker or drawer) in a timely manner. This presentation is crucial because if the instrument is not presented within a reasonable period, the secondarily liable party can be absolved from responsibility.
- Dishonor of the instrument: After the instrument is presented, the primary party must dishonor it, meaning they refuse to pay or fulfill their obligation. If the primary party does not honor the instrument, the secondarily liable party may become responsible for the payment.
- Timely notice of dishonor: After dishonor, the holder of the instrument must give timely notice of the dishonor to the secondarily liable party (e.g., the endorser or guarantor). This notice informs the secondarily liable party that the primary party has failed to meet their obligations, and they now may be called upon to pay the amount due.
These steps are designed to protect all parties involved and ensure that the secondarily liable party is informed before being held accountable. If any of these steps are missed, the secondarily liable party may not be held responsible for the payment of the instrument.