Question 1

A holder of a check or draft who wants to get payment on it should first present the check or draft to the drawer.

Accepted Answer

A) True 
 B)False

Question 2

An indorser to a negotiable instrument is generally primarily liable.

Accepted Answer

A) True 
 B)False

Question 3

According to Revised Article 3 of the UCC,the risk of loss from fraudulent indorsements by employees:

Accepted Answer

A)  should fall on the holder in due course. 
B)  should fall on the employer. 
C)  should fall on the bank. 
D)  should fall on the employee. 
A)  should fall on the holder in due course. 
B)  should fall on the employer. 
C)  should fall on the bank. 
D)  should fall on the employee.

Question 4

Which of the following is true regarding a transferor's liability on a transfer warranty?

Accepted Answer

A)  The warranties apply only when the transfer was accompanied by the transferor's indorsement. 
B)  The transferor is liable only after presentment to the drawee or a primarily liable party,followed by that party's dishonor. 
C)  It applies even when there was no consideration for the transfer. 
D)  If the transfer was by indorsement,the warranty extends to all subsequent transferees,and not just the immediate transferee. 
A)  The warranties apply only when the transfer was accompanied by the transferor's indorsement. 
B)  The transferor is liable only after presentment to the drawee or a primarily liable party,followed by that party's dishonor. 
C)  It applies even when there was no consideration for the transfer. 
D)  If the transfer was by indorsement,the warranty extends to all subsequent transferees,and not just the immediate transferee.

Question 5

If the drawee bank mistakenly paid a check with a forged or unauthorized drawer's signature on it:

Accepted Answer

A)  the bank can recover the amount from the person whose name had been mentioned in the check albeit without authorization. 
B)  the bank can recover if it paid the check to a presenter who had taken the instrument in good faith and for value. 
C)  the bank cannot recover if it paid the check to a forger or unauthorized signer. 
D)  the bank cannot recover it if the presenter had taken the instrument in good faith and for value. 
A)  the bank can recover the amount from the person whose name had been mentioned in the check albeit without authorization. 
B)  the bank can recover if it paid the check to a presenter who had taken the instrument in good faith and for value. 
C)  the bank cannot recover if it paid the check to a forger or unauthorized signer. 
D)  the bank cannot recover it if the presenter had taken the instrument in good faith and for value.

Question 6

Joan carefully completes and signs a $1,000 note payable to Pete.Pete skillfully changes the amount of the note to $10,000,and negotiates it to Hilda for that amount.Hilda qualifies as a holder in due course.When Hilda presents the altered note to Joan for payment,Joan refuses to pay a penny more than $1,000.Which of the following is true?

Accepted Answer

A)  Joan is not liable to Hilda. 
B)  Joan is liable to Hilda for $1,000. 
C)  Joan is liable to Hilda for $10,000. 
D)  Joan's liability to Hilda will be determined by the relative negligence of Joan and Hilda. 
A)  Joan is not liable to Hilda. 
B)  Joan is liable to Hilda for $1,000. 
C)  Joan is liable to Hilda for $10,000. 
D)  Joan's liability to Hilda will be determined by the relative negligence of Joan and Hilda.

Question 7

Potter owes George $500.Potter writes a check payable to George for that amount.Later,George loses the check.Potter is now discharged from his liability on the check.

Accepted Answer

A) True 
 B)False

Question 8

The negotiable instruments of a corporation have to be signed by an agent of the corporation who is authorized to sign the instrument.

Accepted Answer

A) True 
 B)False

Question 9

In which of the following situations is the obligor not likely to be fully discharged from his or her liability on a negotiable instrument?

Accepted Answer

A)  Jerry wrote a check to Elaine.Elaine cashes the check later. 
B)  Edward lends Monica $1,000 toward her college expenses.She gives Edward a promissory note for $1,000,which Edward accidentally tears up. 
C)  On June 1,2002,Kim receives a draft from Kurt payable on July 1,2002.Kurt then pays her in cash and cancels the draft. 
D)  John fraudulently increases the amount due on the check from Bruce. 
A)  Jerry wrote a check to Elaine.Elaine cashes the check later. 
B)  Edward lends Monica $1,000 toward her college expenses.She gives Edward a promissory note for $1,000,which Edward accidentally tears up. 
C)  On June 1,2002,Kim receives a draft from Kurt payable on July 1,2002.Kurt then pays her in cash and cancels the draft. 
D)  John fraudulently increases the amount due on the check from Bruce.

Question 10

Susie Q.signs a promissory note with her typical signature,a X.Susie's mark will be sufficient to be considered a signature and establish liability in the instrument.

Accepted Answer

A) True 
 B)False

Question 11

A drawee has no liability on a draft unless it certifies or accepts the draft.

Accepted Answer

A) True 
 B)False

Question 12

XYZ Bank pays a check that contains a restrictive indorsement "for collection." This indicates that:

Accepted Answer

A)  the bank has paid the check illegally. 
B)  the bank has not acted in good faith. 
C)  the bank was negligent with the payment of the check. 
D)  the bank has converted the check. 
A)  the bank has paid the check illegally. 
B)  the bank has not acted in good faith. 
C)  the bank was negligent with the payment of the check. 
D)  the bank has converted the check.

Question 13

Mila owes Brad (whom she has not met)$4,000.James claiming to be Brad gets Mila to issue him a check of $4,000.James forges Brad's indorsement and transfers the check to Hall.Which of the following statements holds true for this situation?

Accepted Answer

A)  The responsibility for determining the true identity of the payee is on Hall. 
B)  James has the power to negotiate a check drawn payable to Brad. 
C)  Hall does not have good title to the check as Brad's signature is not valid. 
D)  The loss is shared by Mila and Hall,who is the holder of the forged instrument. 
A)  The responsibility for determining the true identity of the payee is on Hall. 
B)  James has the power to negotiate a check drawn payable to Brad. 
C)  Hall does not have good title to the check as Brad's signature is not valid. 
D)  The loss is shared by Mila and Hall,who is the holder of the forged instrument.

Question 14

Which of the following statements holds true for conversion?

Accepted Answer

A)  Conversion occurs if an instrument has the indorsement necessary for negotiation. 
B)  Conversion occurs if an instrument is purchased or paid by a drawee to a person entitled to payment. 
C)  An action for conversion may not be brought by the maker,drawer,or acceptor of the instrument. 
D)  An action for conversion may not be brought by a payee or an indorsee who received delivery of the instrument. 
A)  Conversion occurs if an instrument has the indorsement necessary for negotiation. 
B)  Conversion occurs if an instrument is purchased or paid by a drawee to a person entitled to payment. 
C)  An action for conversion may not be brought by the maker,drawer,or acceptor of the instrument. 
D)  An action for conversion may not be brought by a payee or an indorsee who received delivery of the instrument.

Question 15

Able carefully drew a check for $10 on her checking account at ABC bank,payable to the order of Baker.Baker altered the check to read $100,and then negotiated it to Cain.Cain presented the check for payment to ABC bank,which paid Cain $100.The bank then deducted $100 from Able's account.When Able saw her bank statement she demanded that ABC credit her account for the altered check.ABC credited Able's account and then sued Cain.Is Cain liable?

Accepted Answer

A)  Yes,because Cain violated a presentment warranty. 
B)  Yes,because Cain was a holder of the check. 
C)  No,Cain is not liable if Cain acted in good faith and was unaware of Baker's alteration. 
D)  No,because Cain is not holder in due course. 
A)  Yes,because Cain violated a presentment warranty. 
B)  Yes,because Cain was a holder of the check. 
C)  No,Cain is not liable if Cain acted in good faith and was unaware of Baker's alteration. 
D)  No,because Cain is not holder in due course.

Question 16

A representative is personally liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable if:

Accepted Answer

A)  the instrument identifies the represented person. 
B)  the form of the signature does not show unambiguously that the signature was made in a representative capacity. 
C)  the instrument categorically states that the representative would be liable even if the signature has been authorized. 
D)  it is proved that the original parties did not intend her to be liable on the instrument. 
A)  the instrument identifies the represented person. 
B)  the form of the signature does not show unambiguously that the signature was made in a representative capacity. 
C)  the instrument categorically states that the representative would be liable even if the signature has been authorized. 
D)  it is proved that the original parties did not intend her to be liable on the instrument.

Question 17

Susan Smith steals a valuable necklace from Pamela Jones.The necklace bears Jones's full name.Smith takes the necklace to a pawnshop,sells it to the shop,and gets a check for $10,000 in the name of Pamela Jones.Smith then indorses the check in Jones's name and transfers it to Harry Anderson.Which of the following is true about this situation?

Accepted Answer

A)  Harry cannot be a holder because the indorsement was forged. 
B)  Harry cannot be a holder because of the "imposter rule." 
C)  The check has been negotiated to Harry. 
D)  Susan Smith can keep the necklace since she is now the owner. 
A)  Harry cannot be a holder because the indorsement was forged. 
B)  Harry cannot be a holder because of the "imposter rule." 
C)  The check has been negotiated to Harry. 
D)  Susan Smith can keep the necklace since she is now the owner.

Question 18

Jason has knowledge of the fact that the check given to him bears Julie's forged signature.Despite the said fact,he presents the check to ABC Bank.ABC Bank pays Jason,under a mistaken belief that the signature on the check is authentic.Bank cannot recover that payment from Jason.

Accepted Answer

A) True 
 B)False

Question 19

Where the impostor has impersonated a person authorized to act for a payee:

Accepted Answer

A)  the responsibility for determining the true identity of the payee is on the bank. 
B)  the impostor has the power to negotiate a check drawn payable to the payee. 
C)  the later holder does not have good title to the check as the payee's signature is not valid. 
D)  the loss is shared by the maker and the bank that negotiated the forged instrument. 
A)  the responsibility for determining the true identity of the payee is on the bank. 
B)  the impostor has the power to negotiate a check drawn payable to the payee. 
C)  the later holder does not have good title to the check as the payee's signature is not valid. 
D)  the loss is shared by the maker and the bank that negotiated the forged instrument.

Question 20

Bob authorizes Steward to borrow money on his behalf.Steward signs his name on a note in his individual capacity i.e.without disclosing that the signature is on behalf of Bob.Then Steward becomes liable for the note.

Accepted Answer

A) True 
 B)False

Exam 33: Liability of Parties

A holder of a check or draft who wants to get payment on it should first present the check or draft to the drawer.

An indorser to a negotiable instrument is generally primarily liable.

According to Revised Article 3 of the UCC,the risk of loss from fraudulent indorsements by employees:

Which of the following is true regarding a transferor's liability on a transfer warranty?

If the drawee bank mistakenly paid a check with a forged or unauthorized drawer's signature on it:

Potter owes George $500.Potter writes a check payable to George for that amount.Later,George loses the check.Potter is now discharged from his liability on the check.

The negotiable instruments of a corporation have to be signed by an agent of the corporation who is authorized to sign the instrument.

In which of the following situations is the obligor not likely to be fully discharged from his or her liability on a negotiable instrument?

Susie Q.signs a promissory note with her typical signature,a X.Susie's mark will be sufficient to be considered a signature and establish liability in the instrument.

A drawee has no liability on a draft unless it certifies or accepts the draft.

XYZ Bank pays a check that contains a restrictive indorsement "for collection." This indicates that:

Mila owes Brad (whom she has not met)$4,000.James claiming to be Brad gets Mila to issue him a check of $4,000.James forges Brad's indorsement and transfers the check to Hall.Which of the following statements holds true for this situation?

Which of the following statements holds true for conversion?

A representative is personally liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable if:

Jason has knowledge of the fact that the check given to him bears Julie's forged signature.Despite the said fact,he presents the check to ABC Bank.ABC Bank pays Jason,under a mistaken belief that the signature on the check is authentic.Bank cannot recover that payment from Jason.

Where the impostor has impersonated a person authorized to act for a payee:

Bob authorizes Steward to borrow money on his behalf.Steward signs his name on a note in his individual capacity i.e.without disclosing that the signature is on behalf of Bob.Then Steward becomes liable for the note.

The Nature of Law

The Resolution of Private Disputes

Business and the Constitution

Business Ethics, Corporate Social Responsibility, Corporate Governance, and Critical Thinking

Criminal Law and Procedure

Intentional Torts

Negligence and Strict Liability

Intellectual Property and Unfair Competition

Introduction to Contracts

The Agreement: Offer

The Agreement: Acceptance

Consideration

Reality of Consent

Capacity to Contract

Illegality

Writing

Rights of Third Parties

Performance and Remedies

Formation and Terms of Sales Contracts

Product Liability

Performance of Sales Contracts

Remedies for Breach of Sales Contracts

Personal Property and Bailments

Real Property

Landlord and Tenant

Estates and Trusts

Insurance Law

Introduction to Credit and Secured Transactions

Security Interests in Personal Property

Bankruptcy

Negotiable Instruments

Negotiation and Holder in Due Course

Checks and Electronic Transfers

The Agency Relationship

Third-Party Relations of the Principal and the Agent

Introduction to Forms of Business and Formation of Partnerships

Operation of Partnerships and Related Forms

Partners Dissociation and Partnerships Dissolution and Winding up

Limited Liability Companies, Limited Partnerships, and Limited Liability Limited Partnerships

History and Nature of Corporations

Organization and Financial Structure of Corporations

Management of Corporations

Shareholders Rights and Liabilities

Securities Regulation

Legal and Professional Responsibilities of Auditors, Consultants, and Securities Professionals

Administrative Law

The Federal Trade Commission Act and Consumer Protection Laws

Antitrust: the Sherman Act

The Clayton Act, the Robinson-Patman Act, and Antitrust Exemptions and Immunities

Employment Law

Environmental Regulation

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