Question 1

Which of the following occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means?

Accepted Answer

A)  Cancellation 
B)  Renunciation 
C)  Reacquisition 
D)  Recourse 
E)  Release 
A)  Cancellation 
B)  Renunciation 
C)  Reacquisition 
D)  Recourse 
E)  Release C

Question 2

Real defenses apply to ____, whereas personal defenses do not apply to ____.

Accepted Answer

A)  All parties; holders in due course. 
B)  Holders; holders in due course. 
C)  Holders; holders. 
D)  All parties; holders. 
E)  All parties; endorsers. 
A)  All parties; holders in due course. 
B)  Holders; holders in due course. 
C)  Holders; holders. 
D)  All parties; holders. 
E)  All parties; endorsers. A

Question 3

"Run Around." Millie issues a promissory note to Bob. Bob endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Henry. Henry presents the note to Millie for payment. When Henry presents the note to Millie, she asks him for reasonable identification. He did not have any identification with him and told her that she had no right to dishonor the instrument. Millie continued to insist, so finally, on the same day, Bob obtained clear identification and presented it to her. Nevertheless, even with proper identification, Millie refused to pay the note, claiming that she lacked the funds with which to do so. After properly providing notification of dishonor to both Anne and Bob, Henry requested that Anne pay the note, but she told him that he would have to get his money from Bob. Henry has been trying to call Bob for 35 days, but Bob did not return his telephone calls. Henry is exasperated; and within 40 days of when Millie refuses payment, he notifies Millie, Bob, and Anne that the promissory note has been dishonored by Millie and that he is asserting liability on the note against all of them. Millie calls him up and says that she never dishonored the note, she simply lacks the funds with which to immediately pay and thinks that he should seek recovery elsewhere.

-Which of the following is true regarding when, and if, the note was initially dishonored?

Accepted Answer

A)  The note has never been dishonored because Henry's right to receive payment on the note from someone is acknowledged. 
B)  Millie initially dishonored the instrument when she asked for proper identification. 
C)  Millie initially dishonored the instrument when she refused to pay it on the basis that she lacked funds with which to do so. 
D)  The note was not dishonored until Anne told Henry that he would have to seek recovery from Bob. 
E)  The note was considered initially dishonored 30 days after Henry started seeking Bob, but was unable to find him. 
A)  The note has never been dishonored because Henry's right to receive payment on the note from someone is acknowledged. 
B)  Millie initially dishonored the instrument when she asked for proper identification. 
C)  Millie initially dishonored the instrument when she refused to pay it on the basis that she lacked funds with which to do so. 
D)  The note was not dishonored until Anne told Henry that he would have to seek recovery from Bob. 
E)  The note was considered initially dishonored 30 days after Henry started seeking Bob, but was unable to find him. C

Question 4

After notice of dishonor is received, how long do parties other than a collecting bank have in order to give notice of dishonor to a secondarily liable party?

Accepted Answer

A)  It must be given before midnight of the next day. 
B)  It must be given within 48 hours. 
C)  It must be given within 7 days. 
D)  It must be given within 10 days. 
E)  It must be given within 30 days. 
A)  It must be given before midnight of the next day. 
B)  It must be given within 48 hours. 
C)  It must be given within 7 days. 
D)  It must be given within 10 days. 
E)  It must be given within 30 days.

Question 5

Discuss whether an authorized agent can be held personally liable on a note if the agent did not sign his or her own name. Further discuss the kind of personal liability an agent has who simply signs his or her name to an instrument.

Accepted Answer

The authorized agent cannot be liable if

Question 6

Which of the following is a type of liability arising on an instrument when the transfer of the instrument breaches a warranty associated with the instrument?

Accepted Answer

A)  Warranty liability 
B)  Payee liability 
C)  Signature liability 
D)  Primary liability 
E)  Secondary liability 
A)  Warranty liability 
B)  Payee liability 
C)  Signature liability 
D)  Primary liability 
E)  Secondary liability

Question 7

"Hot Dress." Doreen writes a check for a dress to Hot Dresses Inc., a small specialty shop whose shares are owned primarily by Betty. Betty decided to go on an extended European vacation and temporarily closed down the shop the day after Doreen wrote the check. When Betty returned, she had a number of other things to do and did not take Doreen's check and some other checks to the bank for three months. Betty was independently wealthy and only ran the shop as a hobby, so she had not been in need of funds. When Betty finally took Doreen's check to the bank, Betty requested that her bank, ABC Bank, deposit the check into her account. When ABC Bank, however, requested payment from Doreen's bank, XYZ Bank, the check was dishonored because of insufficient funds in Doreen's account. Although Betty did not particularly need the funds, she did not like to feel as if she had been cheated; therefore, she demanded that Doreen make the check good.
-Which of the following is the most likely result of Betty's request that Doreen pay the amount due on the check?

Accepted Answer

A)  It is likely that Doreen will have to pay the check as a secondarily liable party. 
B)  It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 60 days in order to hold a drawer secondarily liable. 
C)  It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 30 days in order to hold a drawer secondarily liable. 
D)  It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 20 days in order to hold a drawer secondarily liable. 
E)  It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 10 days in order to hold a drawer secondarily liable. 
A)  It is likely that Doreen will have to pay the check as a secondarily liable party. 
B)  It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 60 days in order to hold a drawer secondarily liable. 
C)  It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 30 days in order to hold a drawer secondarily liable. 
D)  It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 20 days in order to hold a drawer secondarily liable. 
E)  It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 10 days in order to hold a drawer secondarily liable.

Question 8

Under the UCC, how can proper presentment be made?

Accepted Answer

A)  By any commercially reasonable means. 
B)  Only through a clearinghouse procedure. 
C)  Only at a place designated in the instrument. 
D)  By any commercially reasonable means, through a clearinghouse procedure, or at a place designated in the instrument. 
E)  By any commercially reasonable means or at the place designated in the instrument, but not through a clearinghouse procedure. 
A)  By any commercially reasonable means. 
B)  Only through a clearinghouse procedure. 
C)  Only at a place designated in the instrument. 
D)  By any commercially reasonable means, through a clearinghouse procedure, or at a place designated in the instrument. 
E)  By any commercially reasonable means or at the place designated in the instrument, but not through a clearinghouse procedure.

Question 9

Which of the following is not a real defense to enforcement of a negotiable instrument?

Accepted Answer

A)  Infancy (being below the legal age of consent), to the extent that it makes a contract void 
B)  Discharge through insolvency proceedings (bankruptcy) 
C)  Forgery 
D)  Impairment of collateral 
E)  Fraud in the factum 
A)  Infancy (being below the legal age of consent), to the extent that it makes a contract void 
B)  Discharge through insolvency proceedings (bankruptcy) 
C)  Forgery 
D)  Impairment of collateral 
E)  Fraud in the factum

Question 10

Carl, without Eddie's knowledge, impersonates Eddie and thereby convinces Connie, who has never seen Eddie, to write a check to Eddie for upcoming yard work. Carl then forges Eddie's name and deposits the check into his, Carl's, account. Which of the following is true regarding whether Connie will be liable for the amount of the check?

Accepted Answer

A)  Under the forgery rule, Connie will be held liable. 
B)  Under the transferor rule, Connie will be held liable. 
C)  Under the payee rule, Connie will be held liable. 
D)  Under the imposter rule, Connie will be held liable. 
E)  Under the fictitious payee rule, Connie will not be held liable. 
A)  Under the forgery rule, Connie will be held liable. 
B)  Under the transferor rule, Connie will be held liable. 
C)  Under the payee rule, Connie will be held liable. 
D)  Under the imposter rule, Connie will be held liable. 
E)  Under the fictitious payee rule, Connie will not be held liable.

Question 11

What are the requirements for a holder to turn to secondarily liable parties?

Accepted Answer

The holder must:
(1) Present the note to

Question 12

To hold an endorser secondarily liable on a check, a holder must present a check within ______ days of the endorsement.

Accepted Answer

A)  120 
B)  90 
C)  60 
D)  50 
E)  30 
A)  120 
B)  90 
C)  60 
D)  50 
E)  30

Question 13

If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

Accepted Answer

A)  Before midnight of the next day 
B)  Within 48 hours 
C)  Within 7 days 
D)  Within 10 days 
E)  Within 30 days 
A)  Before midnight of the next day 
B)  Within 48 hours 
C)  Within 7 days 
D)  Within 10 days 
E)  Within 30 days

Question 14

Which of the following is true regarding types of warranty liability?

Accepted Answer

A)  There is only one type of warranty in regard to instruments, transfer. 
B)  There is only one type of warranty in regard to instruments, presentment. 
C)  There is only one type of warranty in regard to instruments, acknowledged. 
D)  There are three types of warranties in regard to instruments, transfer, presentment, and acknowledged. 
E)  There are two types of warranties in regard to instruments, transfer and presentment. 
A)  There is only one type of warranty in regard to instruments, transfer. 
B)  There is only one type of warranty in regard to instruments, presentment. 
C)  There is only one type of warranty in regard to instruments, acknowledged. 
D)  There are three types of warranties in regard to instruments, transfer, presentment, and acknowledged. 
E)  There are two types of warranties in regard to instruments, transfer and presentment.

Question 15

Which of the following is true regarding the liability of an accommodation party?

Accepted Answer

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. 
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.

Question 16

Which of the following person orders the drawee to pay?

Accepted Answer

A)  Maker 
B)  Acceptor 
C)  Drawer 
D)  Endorser 
E)  Promisor 
A)  Maker 
B)  Acceptor 
C)  Drawer 
D)  Endorser 
E)  Promisor

Question 17

Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

Accepted Answer

A)  Only one warranty applies, that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment. 
B)  Only one warranty applies, that the instrument has not been altered. 
C)  Only one warranty applies, that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized. 
D)  Two warranties are applicable: (1) that the instrument has not been altered, and (2) that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized. 
E)  Three warranties are applicable: (1) that the instrument has not been altered, (2) that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized, and (3) that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment. 
A)  Only one warranty applies, that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment. 
B)  Only one warranty applies, that the instrument has not been altered. 
C)  Only one warranty applies, that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized. 
D)  Two warranties are applicable: (1) that the instrument has not been altered, and (2) that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized. 
E)  Three warranties are applicable: (1) that the instrument has not been altered, (2) that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized, and (3) that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment.

Question 18

If Alice makes a proper tender of the full payment of $1,000 due on Richard's note on the note's due date, but Richard improperly refuses to accept the money, any endorsers are discharged from liability.

Accepted Answer

A) True 
 B)False

Question 19

"Hot Dress." Doreen writes a check for a dress to Hot Dresses Inc., a small specialty shop whose shares are owned primarily by Betty. Betty decided to go on an extended European vacation and temporarily closed down the shop the day after Doreen wrote the check. When Betty returned, she had a number of other things to do and did not take Doreen's check and some other checks to the bank for three months. Betty was independently wealthy and only ran the shop as a hobby, so she had not been in need of funds. When Betty finally took Doreen's check to the bank, Betty requested that her bank, ABC Bank, deposit the check into her account. When ABC Bank, however, requested payment from Doreen's bank, XYZ Bank, the check was dishonored because of insufficient funds in Doreen's account. Although Betty did not particularly need the funds, she did not like to feel as if she had been cheated; therefore, she demanded that Doreen make the check good.
-Who is the drawer of the check Doreen presented to Betty at Hot Dresses Inc.,?

Accepted Answer

A)  Doreen. 
B)  Hot Dresses Inc. 
C)  Betty, as primary owner of Hot Dresses Inc. 
D)  Doreen's bank. 
E)  Betty's bank. 
A)  Doreen. 
B)  Hot Dresses Inc. 
C)  Betty, as primary owner of Hot Dresses Inc. 
D)  Doreen's bank. 
E)  Betty's bank.

Question 20

When a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused, the instrument has been ____.

Accepted Answer

A)  Destroyed 
B)  Dishonored 
C)  Converted 
D)  Rejected 
E)  Refused 
A)  Destroyed 
B)  Dishonored 
C)  Converted 
D)  Rejected 
E)  Refused

Exam 28: Liability, Defenses, and Discharge

Which of the following occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means?

Real defenses apply to ____, whereas personal defenses do not apply to ____.

After notice of dishonor is received, how long do parties other than a collecting bank have in order to give notice of dishonor to a secondarily liable party?

Discuss whether an authorized agent can be held personally liable on a note if the agent did not sign his or her own name. Further discuss the kind of personal liability an agent has who simply signs his or her name to an instrument.

Which of the following is a type of liability arising on an instrument when the transfer of the instrument breaches a warranty associated with the instrument?

Under the UCC, how can proper presentment be made?

Which of the following is not a real defense to enforcement of a negotiable instrument?

What are the requirements for a holder to turn to secondarily liable parties?

To hold an endorser secondarily liable on a check, a holder must present a check within ______ days of the endorsement.

If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

Which of the following is true regarding types of warranty liability?

Which of the following is true regarding the liability of an accommodation party?

Which of the following person orders the drawee to pay?

Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

If Alice makes a proper tender of the full payment of $1,000 due on Richard's note on the note's due date, but Richard improperly refuses to accept the money, any endorsers are discharged from liability.

When a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused, the instrument has been ____.

An Introduction to Dynamic Business Law

Business Ethics

The US Legal System

Alternative Dispute Resolution

Constitutional Principles

International and Comparative Law

Crime and the Business Community

Tort Law

Negligence and Strict Liability

Product Liability

Liability of Accountants and Other Professionals

Intellectual Property

Introduction to Contracts

Agreement

Consideration

Capacity and Legality

Legal Assent

Contracts in Writing

Third-Party Rights to Contracts

Discharge and Remedies

Introduction to Sales and Lease Contracts

Title, Risk of Loss, and Insurable Interest

Performance and Obligations Under Sales and Leases

Remedies for Breach of Sales and Lease Contracts

Warranties

Negotiable Instruments: Negotiability and Transferability

Negotiation, Holder in Due Course, and Defenses

Checks and Electronic Fund Transfers

Secured Transactions

Other Creditors Remedies and Suretyship

Bankruptcy and Reorganization

Agency Formation and Duties

Liability to Third Parties and Termination

Forms of Business Organization

Partnerships: Nature, Formation, and Operation

Partnerships: Termination and Limited Partnerships

Corporations: Formation and Financing

Corporations: Directors, Officers, and Shareholders

Corporations: Mergers, Consolidations, Terminations

Corporations: Securities and Investor Protection

Employment and Labor Law

Employment Discrimination

Administrative Law

Consumer Law

Environmental Law

Antitrust Law

The Nature of Property, Personal Property, and Bailments

Real Property

Landlord-Tenant Law

Insurance Law

Wills and Trusts

Filters

Real defenses apply to , whereas personal defenses do not apply to .