Deck 28: Liability of Parties

Question 1

Once a check is issued, the drawee bank becomes primarily liable.

Answer 1

False

Question 2

Failure to give notice of dishonor will discharge the drawer from having to pay on the instrument.

Answer 2

False

Question 3

A drawee bank is primarily liable after it accepts the check.

Answer 3

True

Question 4

Drawers of checks may disclaim contractual liability by using the words "without recourse."

Question 5

A drawee bank "accepts" a check by certification.

Question 6

A drawee bank's refusal to certify a check constitutes a dishonor of the instrument.

Question 7

Return for lack of proper indorsement constitutes a dishonor of the check.

Question 8

Presentment is a condition to the holder's right to recover from parties with primary liability.

Question 9

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

Question 10

Before an indorser can be held responsible for payment of a check, the check must be presented to the drawee bank for payment.

Question 11

Warranty liability may be imposed on both nonsigners and signers of an instrument.

Question 12

In the banking system, the time for dishonor of a check can vary greatly depending on the number of banks involved in the collection process.

Question 13

Delay in notice may be excused where the holder was too busy at work to send notices that day.

Question 14

The signature of the maker of a note may be typewritten or by means of a signature stamp so long as it represents an intention to authenticate the instrument.

Question 15

What warranties are given by presenters depend upon who is the payor or acceptor.

Question 16

Presentment for payment is excused if the person entitled to enforce the instrument cannot with reasonable diligence present the instrument.

Question 17

An accommodation party will always be secondarily liable on an instrument.

Question 18

Philip uses a signature stamp to sign his checks and carelessly leaves it accessible to third parties.Jeremy finds the stamp and uses it to write several checks without Philip's authorization.Renee, who takes a check for value and in good faith, will be subject to Philip's defense of unauthorized signature.

Question 19

A time draft presented for payment is due on the due date or presentment date, whichever is later.

Question 20

Notice of dishonor is waived if presentment has been waived.

Question 21

By paying the holder on an instrument, a party may be discharged from liability.

Question 22

Presentment is excused where the acceptor is undergoing bankruptcy.

Question 23

Dan signs a note "Dan Mason, Agent" without disclosing his principal's name.Dan is liable to a holder in due course without notice that Dan was not intended to be liable.

Question 24

An accommodation maker is not liable on a note since he only agreed to sign as a favor to the maker.

Question 25

Charles is the holder of a promissory note, the maker of which is Charles' niece, Margaret.As a birthday gift to Margaret, Charles marked "Canceled" across the face of the note.Margaret remains liable on the note because she did not give Charles anything of value for the cancellation.

Question 26

If a person entitled to enforce an instrument refuses a tender of payment, the refusal wholly discharges to the extent of the amount of tender every party who has a right of recourse against the party making tender.

Question 27

When a draft is accepted by a bank, prior and subsequent indorsers are discharged.

Question 28

Mary Lou takes her paycheck to Al's Place on Friday night and gives it to the bartender as payment for her running bar bill.If the company she works for goes bankrupt the following Monday, Mary Lou is liable for breach of warranty of no insolvency.

Question 29

Discharge of liability on an instrument is final; it cannot be revived.

Question 30

Who is primarily liable on a note?

A)The maker
B)The indorsers
C)The drawee bank
D)The holder

Question 31

Warranty liability applies to persons who:

A)transfer an instrument.
B)obtain payment of an instrument.
C)obtain acceptance of an instrument.
D)All of these.

Question 32

In all instances other than a drawee of an unaccepted draft or uncertified check, the only presentment warranty that is given is that the warrantor is a person entitled to enforce the instrument or is authorized to obtain payment on behalf of the person entitled to enforce.

Question 33

Robert's payroll check was made payable "to the order of Robert Lewis." Robert deposited, but never indorsed, the check in ABC bank.Robert has no warranty liability on the check because his signature is not on the instrument.

Question 34

Presenters' warranties are exactly the same as transferors' warranties.

Question 35

If a drawee bank pays an instrument containing a forged indorsement, the bank is liable for conversion.

Question 36

A party liable on an instrument who makes proper tender of full payment to a person entitled to enforce the instrument is discharged from liability for the face amount of the instrument and for any interest accrued even if the tender is refused.

Question 37

When a severe weather warning has been declared, a delay in notice is excused to the holder who was prevented from giving the notice until after the severe weather passed.

Question 38

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 $35,000 note to Ace and signed it "Anton Green, Agent." In this case:

A)the signature of the maker is incomplete.Neither Zoron nor Anton is liable on the note.
B)"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 is holder of the note and Zoron Company does not pay, the bank has no recourse against Anton.

Question 39

If an agent is authorized to execute an instrument on behalf of a principal and signs "Cornwall, principal, by Lyons, agent," only the principal is liable on the instrument.

Question 40

A bank must give notice of dishonor within one business day and a nonbank within three business days of the day on which it receives notice of dishonor.

Question 41

To certify a check, the bank must:

A)tell the one who presents it.
B)send a letter to the drawer.
C)write the acceptance on the check.
D)Any of these will be sufficient.

Question 42

William draws a check on City Bank payable to the order of Tara.Tara indorses it to Rebecca.Rebecca deposits it to her account in Town Bank.Town Bank properly presents it to City Bank, the drawee.City Bank dishonors it because William did not have enough funds on deposit to cover the check.In this case:

A)William is discharged from liability only if he fails to receive notice of dishonor.
B)City Bank has until midnight of the following day to notify Town Bank, Rebecca, or Tara of the dishonor.
C)if Town Bank received notice of dishonor on Monday, it would have until midnight on Wednesday to notify ^{Tara or Rebecca.}
D)Rebecca has until midnight of the following day after receipt of notice of dishonor to notify Tara.

Question 43

Sarah has a checking account at First Bank.Orrin steals one of her blank checks, writes a check for $250, and then forges Sarah's signature.He then presents the check to First Bank for payment.First Bank pays the forged instrument.Which of the following statements is correct?

A)First Bank will have to recredit the $250 to Sarah's account, but they can collect from Orrin if they can find him and he has the money.
B)First Bank will have to recredit the $250 to Sarah's account, but only if they can collect the $250 from Orrin..
C)Sarah is primarily liable on the check even if she did not sign it and was not negligent in allowing Orrin to take ^{the blank check.}
D)None of these.

Question 44

In which of the following situations has conversion NOT occurred?

A)When a drawee bank pays an instrument containing a forged indorsement
B)When a drawee to whom a draft is delivered for acceptance properly returns it upon request
C)When a bank pays an instrument containing only one of two required indorsements
D)When a thief transfers possession of an instrument to someone who knows of the theft

Question 45

Bob took a check written by Jack to Jack's bank to be certified.The bank stamped "Certified" on it and gave it back to Bob.What consequence?

A)Bob can only demand the money from Jack.
B)The bank is now primarily liable on the check.
C)The bank would have to pay if Jack doesn't.
D)Bob would have to pay if the bank doesn't.

Question 46

Brad wrote a check to Clara for $1,000 on his account at First Bank.He then took it to his bank for certification. The bank wrote "certified" on the face of the check.Brad then gave the check to Clara.When Clara took the check to First Bank, they refused to pay, claiming that there was not enough money in Brad's account to cover the check.Which of the following is correct?

A)First Bank is primarily liable on the check, because it has already accepted it.
B)Clara has no recourse under the circumstances.
C)Brad must pay Clara $1,000.
D)First Bank must reimburse Brad for the $1,000.

Question 47

All of the following except which one are warranted by the transferor of a negotiable instrument?

A)The instrument is not subject to a defense.
B)The transferor has no knowledge of a material alteration.
C)All signatures are authentic and authorized.
D)Transferor has no knowledge of insolvency proceedings instituted with respect to the maker or drawer.

Question 48

Which of the following is unconditionally liable on a draft or check as issued?

A)A drawer
B)A drawee
C)An indorser
D)No one

Question 49

Jan Arthur writes a $200 check to Bruce Nole who indorses it "Bruce Nole." Bruce gives the check to Anne Tate who indorses it "Without Recourse.Anne Tate." Anne sends the check to Joe Black, MD to pay her medical bill.If the bank refuses to honor the check, Black:

A)can only collect from Jan Arthur.
B)can only collect from Jan Arthur or Bruce Nole.
C)can collect from the drawer or any indorser whose name appears on the check.
D)has no recourse.

Question 50

Zelda signs a note for $500 to First Bank.If, at the request of both Zelda and the Bank, Ann also signs the note as an accommodation maker:

A)Zelda is primarily liable on the note; Ann has secondary liability on the note.
B)Ann is primarily liable on the note; Zelda has secondary liability on the note.
C)Ann has primary liability on the note; no one has secondary liability.
D)Zelda is primarily liable on the note; no one has secondary liability.

Question 51

An indorser is discharged if a check is not presented for payment or given to a depositary bank for collection within days of the indorsement.

A)ten
B)fourteen
C)thirty
D)ninety

Question 52

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

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

Question 53

A demand note is dishonored if the maker does not pay it:

A)on the day of presentment.
B)before midnight of the day following presentment.
C)within three days of presentment.
D)within ten days of presentment.

Question 54

Sarah has a checking account at First Bank.Orrin steals one of her blank checks, writes a check for $250 to himself, and then forges Sarah's signature.Orrin then indorses the instrument to Paul in payment of a debt.Paul, not realizing Orrin has forged Sarah's signature, presents the instrument to First Bank for payment.At First Bank's request, Paul indorses the instrument, and the bank then pays him $250.Which of the following is correct?

A)Paul has breached the warranties on presentment.
B)Orrin has breached the warranties on presentment.
C)Sarah has breached the warranties on presentment.
D)All of these are correct.

Question 55

Sarah has a checking account at First Bank.Orrin steals one of her blank checks, writes a check for $250 to himself, and then forges Sarah's signature.Orrin then indorses the instrument to Paul in payment of a debt.Paul presents the instrument to First Bank for payment.At First Bank's request, Paul indorses the instrument, and the bank then pays him $250.Which of the following is correct?

A)Paul has no contractual liability on the instrument.
B)Orrin has no contractual liability on the instrument.
C)Sarah has no contractual liability on the instrument.
D)All of these are correct.

Question 56

Wanda makes a note payable to Henry in return for Henry's car.Henry negotiates the note to his cousin, Sharon, who accidentally drops it on the floor where it is swept into the garbage.What effect?

A)The note is canceled.
B)The note is ineffective.
C)The obligation is discharged.
D)The obligation is not affected.

Question 57

Kelly wrote a check to Trish, which Trish immediately changed from $20 to $120.She negotiated the check to Carl for value, who in turn took it to Kelly's bank for certification.Kelly's bank checked his account and certified the check since there were sufficient funds to cover the check.Thereafter, Carl gave the check to Central Motors (CM) as part of the down payment for his car.CM presents the check to Kelly's bank for payment and they discover the alteration.What consequence?

A)Bank can sue CM for breach of presentment warranty of no alteration.
B)Bank can charge Carl's account for $120.
C)Bank can refuse to pay CM more than $20.
D)Bank must pay CM $120 and cannot sue them for breach of warranty.

Question 58

A check is dishonored if:

A)it is presented for payment directly to the payor/drawee bank for immediate payment, which is refused.
B)a payor bank makes timely return of the check.
C)the payor bank becomes accountable for the amount of the check but has not yet made payment.
D)All of these.

Question 59

If a holder presents a note for payment to the maker, which one of the following warranties is given?

A)All indorsements are genuine.
B)All signatures are genuine.
C)Holder has no knowledge that any indorsements are forged.
D)Holder is entitled to enforce the note or is authorized to obtain payment on behalf of the person entitled to enforce the note.

Question 60

Notice of dishonor of an instrument:

A)may be given orally.
B)must be given by returning the unpaid instrument with an attached stamp, ticket, or memorandum stating that the item was not paid.
C)must meet formal requirements to be effective.
D)All of these.

Question 61

Thomas is the treasurer of Padgett, Inc.He has authority to sign on behalf of the company.One day, he signs a note as follows: "Thomas Seggway, as treasurer." The company's name does not appear on the note.Is the company liable on the note? Is Thomas liable on the note? Explain.

Question 62

Discuss the effect of an unauthorized signature on an instrument.

Question 63

How can drawers and indorsers disclaim liability on an instrument? Does any different rule apply to drawers of checks?

Question 64

Which of the following is a warranty of the transferor?

A)Transferor has no knowledge of any insolvency proceedings.
B)Transferor warrants that all signatures are authentic and authorized.
C)Transferor warrants that he is entitled to enforce the instrument.
D)All of these are warranties of the transferor.