Question 1

When a severe weather warning has been declared, a delay in notice of dishonor is excused to the reasonably diligent holder who was prevented from posting the notice.

Accepted Answer

A) True 
 B)False  True

Question 2

An accommodation party is a direct beneficiary of the value received from lending her credit on an instrument.

Accepted Answer

A) True 
 B)False  True

Question 3

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

Accepted Answer

a. If a person is primarily liable on a negotiable instrument then that person is absolutely required to pay the instrument, subject to certain real defenses. The maker is primarily liable on a note. A drawee who promises to pay by certifying a check, or accepting it as presented (thus becoming an acceptor), is 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. A 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. Contractual liability is imposed on those who sign or have an agent sign an instrument, unless they disclam liability. Warranty liability is not subject to the conditions of proper presentment, dishonor, and notice of dishonor. It arises upon transfer or presentment. Warranty liability is not based on signature, but may be imposed on signers and nonsigners.

Question 4

Zoron Company purchased a truck from Ace Motors. The sales personnel at Ace know that Anton Green is an executive at Zoron. To pay for the truck, Anton delivered a $26,000 note to Ace and signed it "Anton Green, Agent." In this case:

Accepted Answer

A)  the signature of the maker is incomplete. Neither Zoron nor Anton is liable on the note. 
B)  since "Zoron Company" does not appear on the note, only Anton is liable to Ace for payment of the note. 
C)  as long as Ace Motors remains holder of the note, Zoron Company is liable for payment. 
D)  if ABC bank becomes a holder in due course of the note and Zoron Company does not pay, the bank has no recourse against Anton. 
A)  the signature of the maker is incomplete. Neither Zoron nor Anton is liable on the note. 
B)  since "Zoron Company" does not appear on the note, only Anton is liable to Ace for payment of the note. 
C)  as long as Ace Motors remains holder of the note, Zoron Company is liable for payment. 
D)  if ABC bank becomes a holder in due course of the note and Zoron Company does not pay, the bank has no recourse against Anton.

Question 5

Mark gives a bearer note for $50 to Joe in exchange for an excellent dinner at Joe's restaurant. Joe delivers the note to Sue for $50 and Sue takes it to Mark to be paid. If Mark says the note was originally written for only $5, what can Sue do?

Accepted Answer

A)  Hold Joe liable for breach of warranty. 
B)  Get $50 from Mark. 
C)  Hold Joe liable for breach of contract. 
D)  Any of these. 
A)  Hold Joe liable for breach of warranty. 
B)  Get $50 from Mark. 
C)  Hold Joe liable for breach of contract. 
D)  Any of these.

Question 6

In Cohen v. Disner the court found that Disner was not liable on the check because he had no enforceable obligation to pay, the check was drawn by him in a representative capacity, and the holder had notice that Disner's signature was in the capacity of an agent.

Accepted Answer

A) True 
 B)False

Question 7

Warranties on presentment are the same regardless of who is the payor or acceptor.

Accepted Answer

A) True 
 B)False

Question 8

Parties that are usually secondarily liable for an instrument are:

Accepted Answer

A)  indorsers and drawers. 
B)  makers and indorsers. 
C)  makers and acceptors. 
D)  acceptors and drawers. 
A)  indorsers and drawers. 
B)  makers and indorsers. 
C)  makers and acceptors. 
D)  acceptors and drawers.

Question 9

Indorsers of all instruments incur primary liability on the instrument.

Accepted Answer

A) True 
 B)False

Question 10

Conversion of an instrument will occur if:

Accepted Answer

A)  a bank cashes a check with a forged indorsement. 
B)  a bank refuses to return a canceled check. 
C)  a bank takes a check from another bank. 
D)  an indorser gives a check to the bank. 
A)  a bank cashes a check with a forged indorsement. 
B)  a bank refuses to return a canceled check. 
C)  a bank takes a check from another bank. 
D)  an indorser gives a check to the bank.

Question 11

An obligation to pay a negotiable instrument subject to conditions precedent is known as:

Accepted Answer

A)  primary liability. 
B)  secondary liability. 
C)  acceptance. 
D)  dishonor. 
A)  primary liability. 
B)  secondary liability. 
C)  acceptance. 
D)  dishonor.

Question 12

First Bank returns a check because it lacks a necessary indorsement. This action constitutes a dishonor of the check.

Accepted Answer

A) True 
 B)False

Question 13

Parties with secondary liability unconditionally promise to pay the instrument.

Accepted Answer

A) True 
 B)False

Question 14

An unauthorized signature may bind a principal who allowed the signature to be made through his own negligence.

Accepted Answer

A) True 
 B)False

Question 15

An acceptor should always indicate on the instrument the amount accepted.

Accepted Answer

A) True 
 B)False

Question 16

An unauthorized signature cannot be ratified by the person whose name appears on the instrument.

Accepted Answer

A) True 
 B)False

Question 17

Presentment for payment is one step necessary to charge an indorser with the obligation to pay.

Accepted Answer

A) True 
 B)False

Question 18

The maker is the primary party on every note.

Accepted Answer

A) True 
 B)False

Question 19

Arthur is the payee of a negotiable promissory note on which Brian is the maker. Arthur indorses the note in blank and delivers it to Clark, who then transfers it to David without indorsement. David presents it to Brian for payment when it becomes due, but Brian claims he signed the note based upon fraud in the inducement and refuses to pay. 
a. Who is primarily liable on the instrument? Who is secondarily liable on the instrument? 
b. Who has warranty liability? Why? Explain. 
c. From whom can David try to collect now that Brian refuses to pay?

Accepted Answer

a. Brian is primarily liable. Arthur is

Question 20

Franz signs a $1,000 note payable to ABC Bank. To help Franz get the loan approved, Amy also signs the note as an accommodation maker. Amy:

Accepted Answer

A)  has the same liability as that of an accommodation indorser on a check. 
B)  has $500 of liability to the bank and Franz has $500 of liability. 
C)  has secondary liability on the note. 
D)  and Franz both have primary liability on the note. 
A)  has the same liability as that of an accommodation indorser on a check. 
B)  has $500 of liability to the bank and Franz has $500 of liability. 
C)  has secondary liability on the note. 
D)  and Franz both have primary liability on the note.

Exam 26: Liability of Parties

When a severe weather warning has been declared, a delay in notice of dishonor is excused to the reasonably diligent holder who was prevented from posting the notice.

An accommodation party is a direct beneficiary of the value received from lending her credit on an instrument.

Zoron Company purchased a truck from Ace Motors. The sales personnel at Ace know that Anton Green is an executive at Zoron. To pay for the truck, Anton delivered a $26,000 note to Ace and signed it "Anton Green, Agent." In this case:

Mark gives a bearer note for $50 to Joe in exchange for an excellent dinner at Joe's restaurant. Joe delivers the note to Sue for $50 and Sue takes it to Mark to be paid. If Mark says the note was originally written for only $5, what can Sue do?

In Cohen v. Disner the court found that Disner was not liable on the check because he had no enforceable obligation to pay, the check was drawn by him in a representative capacity, and the holder had notice that Disner's signature was in the capacity of an agent.

Warranties on presentment are the same regardless of who is the payor or acceptor.

Parties that are usually secondarily liable for an instrument are:

Indorsers of all instruments incur primary liability on the instrument.

Conversion of an instrument will occur if:

An obligation to pay a negotiable instrument subject to conditions precedent is known as:

First Bank returns a check because it lacks a necessary indorsement. This action constitutes a dishonor of the check.

Parties with secondary liability unconditionally promise to pay the instrument.

An unauthorized signature may bind a principal who allowed the signature to be made through his own negligence.

An acceptor should always indicate on the instrument the amount accepted.

An unauthorized signature cannot be ratified by the person whose name appears on the instrument.

Presentment for payment is one step necessary to charge an indorser with the obligation to pay.

The maker is the primary party on every note.

Franz signs a $1,000 note payable to ABC Bank. To help Franz get the loan approved, Amy also signs the note as an accommodation maker. Amy:

Introduction to Law

Business Ethics

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance, Breach, and Discharge

Contract Remedies

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Product Liability: Warranties and Strict Liability

Sales Remedies

Form and Content

Transfer and Holder in Due Course

Bank Deposits, Collections, and Funds Transfers

Relationship of Principal and Agent

Relationship With Third Parties

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature and Formation of Corporations

Financial Structure of Corporations

Management Structure of Corporations

Fundamental Changes of Corporations

Secured Transactions and Suretyship

Bankruptcy

Securities Regulation

Intellectual Property

Employment Law

Antitrust

Accountants Legal Liability

Consumer Protection

Environmental Law

International Business Law

Introduction to Property, Property Insurance, Bailments, and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Wills

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