Deck 28: Liability, Defenses, and Discharge

Question 1

________ liability results when a person signs a negotiable instrument.

A) Warranty
B) Payee
C) Signature
D) Primary
E) Endorsee

Answer 1

C

Question 2

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

Answer 2

True

Question 3

If Teren sends Clem a letter, telling Clem he will not sue to enforce a promissory note, Clem's liability under the note has been discharged.

Answer 3

True

Question 4

If an accommodation party pays a note for an accommodated party, the accommodation party has a right of action against the accommodated party to recover the money paid.

Question 5

The only acceptable method of ratification is for the principal to explicitly approve the signature of the unauthorized agent.

Question 6

A party who is primarily liable for an instrument must pay without resorting to any other party.

Question 7

According to the UCC, a party's signature can be any name or word, but cannot be a mark or symbol to authenticate a writing.

Question 8

Which of the following was the result on appeal in Laborer's Pension Fund v. A & C Envtl., Inc., the case in the text in which the defending employer claimed that an agreement entered into regarding payment of union dues wrongfully required payment for all defendant's employees when it should have required payment of dues for only a few employees who were working out- of-town within the area of the union involved?

A) That the defending employer had to pay no dues at all because a representative of the plaintiff wrongfully misrepresented the contents of the written document.
B) That the defending employer had to pay only the dues of the employees who were working out-of-town within the area of the union involved because a representative of the plaintiff wrongfully misrepresented the contents of the written document.
C) That although a representative of the plaintiff misinformed the defending employer of the contents of the written document, the defendant's representative had sufficient opportunity to read the document; and the defending employer was therefore liable for dues of all its employees.
D) That the defending employer was liable for all the dues regardless of whether a representative of the plaintiff misinformed the defending employer of the contents of the written document and regardless of whether the defendant's representative had an opportunity to read it.
E) That while the defending employer would be liable for all dues under common law, because of applicable federal labor law, the defending employer was liable for dues only for employees working out-of-town within the area of the union involved.

Question 9

An agent's signature can create liability for a principal as long as the agent is authorized to sign a negotiable instrument on behalf of the principal.

Question 10

An instrument must be explicitly dishonored; a refusal to pay does not necessarily mean that the instrument has been dishonored.

Question 11

If a transfer is through endorsement, transfer warranties apply to any future holders; however, if the transfer does not occur through endorsement, the warranties apply only to the transferee.

Question 12

A secondarily liable party becomes liable even if a primarily liable party does not dishonor the instrument.

Question 13

When the transfer of an instrument breaches a ________ associated with the instrument, warranty liability results.

A) clause
B) warranty
C) time limit
D) primary liability
E) secondary liability

Question 14

The principal's name must be shown on the instrument in order for the principal to be held liable when an agent signs a note on behalf of the principal.

Question 15

Liam wrote a check drawn on his account at ABC Bank for $500 made out to Lara Smith for payment for yard work. Liam put the check properly addressed to Lara in the U.S. mail. Through unknown means, a thief obtained the check. The thief altered the name of the payee to Tara Smith, and through expertly forged documents opened an account at XYZ Bank and obtained the funds from Liam's check along with a number of other stolen checks. When the check was then presented to ABC Bank for payment, ABC Bank charged Liam's account in the amount of $500. A few days later, Lara asked Liam for her money; and, after investigating, he became aware of the situation. Assuming the court follows the reasoning of the case in the text, Halliburton Energy Services, Inc., v. Fleet National Bank, which of the following is true regarding whether Liam is entitled to a return of his funds?

A) As a matter of law, the presenting bank is charged with notice of forgeries; therefore, XYZ must take the loss, and Liam is entitled to a return of his funds.
B) Lara, the payee, bore a risk of loss and, although Liam is not entitled to return of the funds, his debt to Lara is discharged.
C) Liam is entitled to a return of only ½ of the funds because in such cases, the collecting bank, XYZ Bank, and the drawer, Liam, must share the loss.
D) Liam is entitled to a return of the funds only if he can establish that he notified ABC Bank of the problem within 30 days of receiving the bank statement showing the alteration.
E) Liam is entitled to a refund if he can establish that XYZ Bank failed to exercise ordinary care in taking the instrument.

Question 16

The most common reason that improper presentment occurs is the failure to present an instrument on time.

Question 17

If an accommodated party pays a note when it is due, the accommodated party can force any accommodation party to contribute based upon the number of accommodation parties that exist.

Question 18

A party who signs a negotiable instrument without knowing that it is, in fact, a negotiable instrument, can claim negligence as a defense.

Question 19

Which of the following was the result on appeal in Heartland State Bank v. American Bank & Trust, the case in the text involving whether the defending payor bank timely sent notice of dishonor of a check when it sent notice before midnight on April 11 for a check received on April 10?

A) That the defending bank had no right to return the check because the check had already gone through the Federal Reserve System.
B) That the defending bank had no right to return the check because by accepting the check, it became accountable for it.
C) That the bank had no right to return the check because the check was written by one of its customers.
D) That the defending bank had until midnight on April 10 to return the check and that it, therefore, did not act in a timely manner.
E) That the defending bank had until midnight on April 11 to return the check and that it, therefore, acted in a timely manner in doing so.

Question 20

A bank is primarily liable for the amount of a check when it accepts the check.

Question 21

When it is not possible to determine the status of the party, the general rule is that the party is considered the ________.

A) maker
B) acceptor
C) drawer
D) endorser
E) endorsee

Question 22

A(n) ________ promises to pay a set sum to the holder of a promissory note or certificate of deposit.

A) maker
B) acceptor
C) drawer
D) endorser
E) endorsee

Question 23

Which of the following is true in the event an instrument contains more than one endorsement?

A) Each endorser is liable for the full amount to the subsequent endorser or to the holder.
B) Only the last endorser is liable to the holder and no prior endorsers are liable to a subsequent endorser.
C) Each endorser is liable for the full amount to the subsequent endorser, but only the last endorser is liable to any holder.
D) The last endorser is liable to the holder, whereas subsequent endorsers are not liable to the holder, but are responsible for reimbursing the last endorser in proportion to the number of endorsers that exist.
E) Each endorser is liable to the holder in proportion to the number of endorsers that exist.

Question 24

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

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 25

A(n) ________ is a party who has authority to act on behalf of and bind another party.

A) agent
B) principal
C) warrantor
D) transferor
E) endorsee

Question 26

What is the name of the party that accepts and signs a draft to agree to pay the draft when it is presented?

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

Question 27

Which of the following is true regarding liability on negotiable instruments?

A) Issuers and acceptors are primarily liable for a negotiable instrument, while drawers and endorsers are secondarily liable.
B) Drawers and endorsers are primarily liable, while issuers and acceptors are secondarily liable.
C) Issuers and drawers are primarily liable, while acceptors and endorsers are secondarily liable.
D) Acceptors and endorsers are primarily liable, while issuers and drawers are secondarily liable.
E) Drawers are primarily liable, while issuers, acceptors, and endorsers are secondarily liable.

Question 28

Under the UCC, how can proper presentment be made?

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 29

Which of the following must occur for a drawer to become liable on a check?

A) The only requirement is that the holder of the instrument present the instrument to the drawer in a proper and timely fashion.
B) The only requirement is that the holder of the instrument present the instrument to the drawee in a proper and timely fashion.
C) The two requirements are that (1) the holder of the instrument present the instrument to the drawer in a proper and timely fashion and (2) the holder establish that the check was wrongfully dishonored.
D) The three requirements are that (1) the holder of the instrument present the instrument to the drawee in a proper and timely fashion, (2) the instrument be dishonored, and (3) notice of the dishonor be given to the drawer.
E) The four requirements are that (1) the holder of the instrument present the instrument to the drawee in a proper and timely fashion, (2) the instrument be dishonored, (3) notice of the dishonor be given to the drawer, and (4) proof provided by the holder that the check was wrongfully dishonored.

Question 30

Which of the following is true regarding how an accommodation party may sign an instrument?

A) An accommodation party may sign an instrument only as a maker.
B) An accommodation party may sign an instrument only as a maker or a drawer.
C) An accommodation party may sign an instrument only as a maker or acceptor.
D) An accommodation party may sign an instrument only as an endorser or acceptor.
E) An accommodation party may sign an instrument as a maker, drawer, acceptor, or endorser.

Question 31

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?

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 32

What is the name of the party that signs an instrument to restrict payment of it, negotiate it, or incur liability?

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

Question 33

The term ________ occurs when a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused.

A) destroyed
B) dishonored
C) converted
D) rejected
E) refused

Question 34

Which of the following is true regarding what is considered a commercially reasonable manner by which notice of dishonor may be given to a secondarily liable party?

A) The only commercially reasonable manner for notice of dishonor recognized by the UCC is certified mail.
B) The UCC recognizes two manners of delivery for notice of dishonor that are considered commercially reasonable: written and electronic.
C) The only commercially reasonable manner recognized by the UCC for notice of dishonor is written mail.
D) Due to advances in technology, the only commercially reasonable manner recognized by the UCC for notice of dishonor is electronic communication.
E) The UCC recognizes that oral, written, and electronic communications are all commercially reasonable ways in which to provide notice of dishonor.

Question 35

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?

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

Question 36

A holder must present a check within ________ days of the endorsement to hold an endorser secondarily liable on a check.

A) 30
B) 60
C) 90
D) 120
E) 180

Question 37

A ________ is a person who signs as a party ordering payment.

A) maker
B) acceptor
C) drawer
D) endorser
E) promisor

Question 38

A party who is/has ________ for an instrument must pay the amount on the instrument if the primarily liable party defaults?

A) transfer liability
B) primarily liable
C) maker liability
D) recognized liable
E) secondarily liable

Question 39

A(n) ________ party is a party who signs an instrument to provide credit for another party that has also signed the instrument.

A) actuary
B) accommodation
C) agent
D) principle
E) endorsee

Question 40

When a party signs a(n) ________, the party may be a drawer, maker, endorser, or acceptor

A) contract
B) non-negotiable instrument
C) negotiable instrument
D) endorsing document
E) application

Question 41

As defined in the UCC, under which of the following circumstances would presentment have occurred?

A) When Chloe presented the check to The Furniture Shop
B) When Rabia took the check to ABC Bank.
C) When ABC Bank requested payment from XYZ Bank.
D) When XYZ Bank notified Rabia that it would not pay based upon insufficient funds.
E) When Rabia requested that Chloe make the check good.

Question 42

Which of the following is the most likely result of Rabia's request that Chloe pay the amount due on the check?

A) It is likely that Chloe will have to pay the check as a secondarily liable party.
B) It is unlikely that Chloe 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 Chloe 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 Chloe 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 Chloe 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 43

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

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 44

Who is the drawee of the check Chloe presented to The Furniture Shop?

A) Chloe
B) The Furniture Shop
C) Rabia, as primary owner of The Furniture Shop
D) Chloe's bank
E) Rabia's bank

Question 45

There are two types of relevant warranties in regards to instruments: ________ and ________

A) acknowledgment and transfer.
B) presentment and transfer.
C) transfer and presentment.
D) acknowledged and presentment.
E) limited and general.

Question 46

Alfred works for and has authority to act on behalf of and bind Joel in contracts, who is his employer. Alfred would be considered ________

A) an agent
B) a principal
C) an endorser
D) a proprietary
E) an authorizer

Question 47

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

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

Question 48

When, if ever, will a party's negligence block a party from escaping liability for an unauthorized signature?

A) Any type of negligence will result in a party being liable for an unauthorized signature.
B) The issue of negligence will not as a matter of law block a party from escaping liability for an unauthorized signature.
C) A party who is negligent may not escape liability for an unauthorized signature if the party whose signature was forged behaved so negligently as to substantially contribute to the making of the forgery.
D) A party's negligence will make the party liable for an unauthorized signature only if the negligence amounts to a finding of recklessness.
E) A party's negligence will make the party liable for an unauthorized signature only if the negligence rises to the level of gross negligence.

Question 49

Which of the following is false regarding the means by which an instrument may be cancelled by a person entitled to enforce it?

A) Consideration is necessary before a cancellation, a form of contractual agreement, is effective.
B) A party may cancel an instrument by simply writing "paid" on the instrument.
C) A party may cancel an instrument by intentionally destroying the instrument.
D) A party may cancel an instrument by intentionally mutilating the instrument.
E) A party may cancel an instrument by giving the instrument to the obliged party.

Question 50

Which of the following is the most likely result if an agent admits to the principal that a check for the principal was forged by the agent and placed into the agent's bank account, but the principal does nothing until two months later after the agent leaves town with the funds?

A) Because the checks were forged, the principal can receive reimbursement of the funds from any maker involved or any bank that cashed the checks.
B) The principal can receive reimbursement from makers of the checks only.
C) The principal can receive reimbursement from any bank that cashed the checks only.
D) It is likely that it will be determined that the principal ratified the signatures and that the principal cannot recover from either makers or banks that cashed the checks.
E) The principal can recover from either the makers or any banks who cashed the checks only if it can be shown that the agent cannot be located for criminal prosecution.

Question 51

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

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 52

________ apply to all parties, whereas ________ defenses do not apply to holders in due course.

A) Personal defenses, real
B) Real defenses; personal
C) Holder's rights; real
D) Personal rights; personal defenses
E) Personal defenses; holder's rights

Question 53

Who among the following was the holder of the check?

A) Chloe
B) The Furniture Shop
C) Chloe's bank
D) Rabia's bank
E) There is no holder in this instance

Question 54

A defense that is available to a party who is tricked into signing a negotiable instrument without having a chance to determine that it is, in fact, a negotiable instrument is known as ________.

A) negligence
B) recklessness
C) malice
D) strict liability
E) fraud in the factum

Question 55

Which of the following was the result on appeal in the Case Opener in which the plaintiff optometrist sued the defending bank for cashing over 500 checks that his receptionist fraudulently embezzled through forging his signature?

A) Because both the plaintiff and the bank were found negligent, the plaintiff was denied recovery.
B) Because only the bank was found negligent, the plaintiff was denied recovery.
C) Because both the plaintiff and the bank were found negligent, the plaintiff recovered only 50% of his losses.
D) Because only the bank was found negligent, the plaintiff was entitled to recover the value of the checks.
E) Based on public policy, the plaintiff was denied recovery although no negligence was found on the part of either party.

Question 56

Which of the following results in liability for the principal because the principal approved of an unauthorized agent's signature?

A) Ratification
B) Authorization
C) Acknowledgement
D) Pre-approval
E) Post-approval

Question 57

Zachary, who has been authorized to write a check from a company account to pay employees, draws bonus checks from the company account for five fictitious employees, endorses the checks in their names, and deposits those into his own bank account. Which of the following is true regarding whether the company will be required to take the loss on the checks?

A) Under the fictitious payee rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
B) Under the imposter rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
C) Under the transferor rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
D) Under the employee-liability rule, in addition to its rights in regard to Zachary, the company will be able to recover from any bank that cashed the checks.
E) Under the banking liability act, in addition to its rights in regard to Zachary, the company will be able to recover from any bank that cashed the checks.

Question 58

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

A) Chloe
B) The Furniture Shop
C) Rabia, as primary owner of The Furniture Shop
D) Chloe's bank.
E) Rabia's bank.

Question 59

When a party's liability for a negotiable instrument is ________, this party's liability has been discharged.

A) terminated
B) released
C) discharged
D) abrogated
E) delivered

Question 60

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

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

Question 61

[Roommate Troubles] Dexter, Bernard, and Garren were roommates who do not get along and decide to go their separate ways when their lease expires on May 31. Dexter owes Bernard $500 and signs a promissory note that he will pay Bernard $500 by July 1. Bernard, who owes Garren money, endorses the back of the note and writes "Pay to the order of Garren" on the back and gives the note to Garren. On July 2, Garren tells Dexter that Bernard signed the promissory note to him, so Dexter should just pay Garren the $500. Dexter refuses to pay Garren anything. Garren then tells Bernard that Dexter dishonored the note and sues Bernard for the value of the note.
If Garren properly presents the note to Dexter and Dexter simply writes "dishonor" on the note, is there a proper notice of dishonor?

A) No, because the notice does not identify the instrument in question.
B) No, unless Garren specifically states that he is dishonoring the note.
C) No, because Garren did not sign his name.
D) No, because simply writing "dishonor" is insufficient to constitute notice.
E) Yes, because if the word "dishonor" on the instrument is sufficient to constitute notice.

Question 62

If Charla was not authorized to sign the note on behalf of Prida, but Prida subsequently accepted the cut diamonds to sell in her store, which of the following terms best describes the situation?

A) Ratification
B) Accommodation
C) Presentment
D) Dishonor
E) Renunciation

Question 63

[Run Around] Hema issues a promissory note to Rahul. Rahul endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Floyd. Floyd presents the note to Hema for payment. When Floyd presents the note to Hema, 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. Hema continued to insist, so finally, on the same day, Rahul obtained clear identification and presented it to her. Nevertheless, even with proper identification, Hema 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 Rahul, Floyd requested that Anne pay the note, but she told him that he would have to get his money from Rahul. Floyd has been trying to call Rahul for 35 days, but Rahul did not return his telephone calls. Floyd is exasperated; and within 40 days of when Hema refuses payment, he notifies Hema, Rahul, and Anne that the promissory note has been dishonored by Hema and that he is asserting liability on the note against all of them. Hema 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?

A) The note has never been dishonored because Floyd's right to receive payment on the note from someone is acknowledged.
B) Hema initially dishonored the instrument when she asked for proper identification.
C) Hema 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 Floyd that he would have to seek recovery from Rahul.
E) The note was considered initially dishonored 30 days after Floyd started seeking Rahul, but was unable to find him.

Question 64

[Roommate Troubles] Dexter, Bernard, and Garren were roommates who do not get along and decide to go their separate ways when their lease expires on May 31. Dexter owes Bernard $500 and signs a promissory note that he will pay Bernard $500 by July 1. Bernard, who owes Garren money, endorses the back of the note and writes "Pay to the order of Garren" on the back and gives the note to Garren. On July 2, Garren tells Dexter that Bernard signed the promissory note to him, so Dexter should just pay Garren the $500. Dexter refuses to pay Garren anything. Garren then tells Bernard that Dexter dishonored the note and sues Bernard for the value of the note.
Did Dexter dishonor the promissory note?

A) Yes.
B) No, although Garren met the requirements for presentment and Dexter refused to pay, he did not explicitly dishonor the note.
C) No, Garren only told Dexter about the promissory note and never exhibited the promissory note to Dexter, therefore there was no presentment and Dexter did not dishonor the note.
D) No, Garren did not present the note in a timely manner, therefore Dexter did not dishonor the note.
E) No, Garren was not a proper party, therefore Dexter did not dishonor the note.

Question 65

[Roommate Troubles] Dexter, Bernard, and Garren were roommates who do not get along and decide to go their separate ways when their lease expires on May 31. Dexter owes Bernard $500 and signs a promissory note that he will pay Bernard $500 by July 1. Bernard, who owes Garren money, endorses the back of the note and writes "Pay to the order of Garren" on the back and gives the note to Garren. On July 2, Garren tells Dexter that Bernard signed the promissory note to him, so Dexter should just pay Garren the $500. Dexter refuses to pay Garren anything. Garren then tells Bernard that Dexter dishonored the note and sues Bernard for the value of the note.
Who is primarily liable on the promissory note and who is secondarily liable?

A) Both Dexter and Bernard are primarily liable on the note.
B) Dexter is primarily liable and Garren is secondarily liable.
C) Bernard is primarily liable and Garren is secondarily liable.
D) Dexter is primarily liable and Bernard is secondarily liable.
E) Bernard is primarily liable and Dexter is secondarily liable.

Question 66

[Diamond Debacle] Prida owns Prida's Jewelry Store. Charla is Prida's top diamond purchasing agent and usually signs promissory notes on Prida's behalf. Unbeknownst to Prida, Charla is considering opening her own diamond business. While at a convention in New York, Charla signs a promissory note with Jirah's Diamonds for the cost of several newly cut stones. Although Prida's Jewelry Store's name does not appear on the note, Jirah is aware that Charla works for Prida's. Charla decides not to quit her job at Prida's and Jirah presents Prida's with the note and demands payment.
Can Charla be held personally liable for the note?

A) Yes, agents are personally liable when they sign their own name and omit the name of the principal.
B) Yes, Charla may be personally liable because Jirah is a holder in due course and was not aware Charla signed on behalf of Prida's.
C) No, Jirah is not a holder in due course and Charla will not be held liable if she can show that it was not Prida's intent to hold Charla personally liable.
D) No, agents can never be personally liable even if the principal's name does not appear on the note.
E) No because Jirah was a holder in due course.

Question 67

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.
Which of the following is true regarding electronic signatures?

A) Electronic signatures are not widely accepted because of the likelihood of fraud.
B) Many banking companies have policies that deem the merchant responsible for the charge if the buyer's payment is fraudulent.
C) Many banking companies have policies that deem the buyer responsible for fraudulent charges.
D) Banking companies are prohibited from having policies that deem the merchant responsible for a buyer's fraudulent charges.
E) There are few risks for companies who conduct business through an online banking system.

Question 68

Under what circumstances might Charla be held personally liable for the note?

A) If Jirah is a holder in due course.
B) If Jirah is a holder in due course and unaware that Charla signed on behalf of Prida's.
C) If Jirah is unaware that Charla signed on behalf of Prida's.
D) If Charla failed to disclose that she was an agent of Prida's.
E) If Jirah is not a holder in due course and unaware that Charla signed on behalf of Prida's.

Question 69

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.
Assuming that Rohan admits the modification but it is not considered fraudulent, which of the following is true regarding Taylor's liability on the note?

A) Because of the alteration, Taylor is not liable for any amounts under the promissory note.
B) Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan; but in the event the note is negotiated to another holder, Taylor is liable for $3,500.
C) Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan; but in the event the note is negotiated to a holder in due course, Taylor is liable for $3,500.
D) Unless Taylor has a written document from Rohan to the effect that the agreement was for $3,000 only, Taylor and Rohan will be legally required to split the remainder with Taylor being held responsible for $3,250.
E) Taylor is liable for $3,000 regardless of whether or not Rohan has negotiated the note to another party.

Question 70

Under this country's laws, banks and not individuals are considered endorsers.

A) China
B) Japan
C) Canada
D) Mexico
E) Australia

Question 71

[Run Around] Hema issues a promissory note to Rahul. Rahul endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Floyd. Floyd presents the note to Hema for payment. When Floyd presents the note to Hema, 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. Hema continued to insist, so finally, on the same day, Rahul obtained clear identification and presented it to her. Nevertheless, even with proper identification, Hema 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 Rahul, Floyd requested that Anne pay the note, but she told him that he would have to get his money from Rahul. Floyd has been trying to call Rahul for 35 days, but Rahul did not return his telephone calls. Floyd is exasperated; and within 40 days of when Hema refuses payment, he notifies Hema, Rahul, and Anne that the promissory note has been dishonored by Hema and that he is asserting liability on the note against all of them. Hema 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 the likely result if Floyd sues Anne, Rahul, and Hema?

A) The judge is likely to rule that Floyd can recover from Anne, Rahul, or Hema; but in the event Anne pays Floyd, she can recover from Rahul or Hema; and in the event that Rahul pays Floyd, he can recover from Hema.
B) The judge is likely to rule that Floyd's only option of recovery is against Hema.
C) The judge is likely to rule that Floyd's only option of recovery is against Anne because she provided the note to him, but that Anne can recover from either Rahul or Hema and that if Rahul pays Anne, he can recover from Hema.
D) The judge is likely to rule that Floyd can recover against Rahul and that Rahul may recover against Hema, but Floyd cannot recover directly from Anne because she is too far removed from the maker.
E) The judge is likely to rule that Floyd's only option for recovery is against Rahul who may then recover against Hema.

Question 72

The UCC states that a check must be presented within ________ days of its date to hold the drawer secondarily liable.

A) 7
B) 10
C) 21
D) 30
E) 60

Question 73

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.
Which of the following is true regarding Zoe's liability to Rohan?

A) Because of the fraudulent alteration, Zoe is not liable to Rohan for any amounts under the promissory note.
B) Zoe's obligation will be enforced only to the amount of $4,000 if payment is to be made to Rohan; but if the note has been negotiated to another holder, Zoe is liable for $4,500.
C) Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan; but in the event the note is negotiated to a holder in due course, Taylor is liable for $3,500.
D) Unless Zoe has a written document from Rohan to the effect that the agreement was for $4,000 only, Zoe and Rohan will be legally required to split the remainder with Zoe being held responsible for $4,250.
E) Zoe is liable for $4,000 regardless of whether or not Rohan has negotiated the note to another party.

Question 74

[Run Around] Hema issues a promissory note to Rahul. Rahul endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Floyd. Floyd presents the note to Hema for payment. When Floyd presents the note to Hema, 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. Hema continued to insist, so finally, on the same day, Rahul obtained clear identification and presented it to her. Nevertheless, even with proper identification, Hema 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 Rahul, Floyd requested that Anne pay the note, but she told him that he would have to get his money from Rahul. Floyd has been trying to call Rahul for 35 days, but Rahul did not return his telephone calls. Floyd is exasperated; and within 40 days of when Hema refuses payment, he notifies Hema, Rahul, and Anne that the promissory note has been dishonored by Hema and that he is asserting liability on the note against all of them. Hema 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 Floyd's entitlement to payment from Hema?

A) Floyd is only entitled to payment from Hema because Anne dishonored the payment.
B) Floyd is not entitled to payment from Hema unless Rahul, in addition to Anne, dishonors the instrument.
C) Floyd is never entitled payment from Hema because he must seek recovery only from Anne.
D) Floyd is entitled to recover on the note from Hema.
E) Floyd is entitled to recover on the note from Hema only if both Anne and Rahul have filed bankruptcy or are otherwise proven insolvent.

Question 75

[Run Around] Hema issues a promissory note to Rahul. Rahul endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Floyd. Floyd presents the note to Hema for payment. When Floyd presents the note to Hema, 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. Hema continued to insist, so finally, on the same day, Rahul obtained clear identification and presented it to her. Nevertheless, even with proper identification, Hema 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 Rahul, Floyd requested that Anne pay the note, but she told him that he would have to get his money from Rahul. Floyd has been trying to call Rahul for 35 days, but Rahul did not return his telephone calls. Floyd is exasperated; and within 40 days of when Hema refuses payment, he notifies Hema, Rahul, and Anne that the promissory note has been dishonored by Hema and that he is asserting liability on the note against all of them. Hema 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 Anne's statement to Floyd that he must seek recovery from Rahul?

A) Anne is correct.
B) Anne is correct only if Rahul is able to pay and has not filed bankruptcy.
C) Anne is correct in stating that Floyd should seek recovery from Rahul only if Hema has filed bankruptcy because, otherwise, Floyd should be pursuing litigation against Hema.
D) Anne is correct unless the note is for over $10,000, in which case Floyd can seek recovery from her without resorting to recovery from Rahul or Hema.
E) Anne is incorrect. Floyd may seek recovery from her without first seeking recovery from Rahul.

Question 76

[Roommate Troubles] Dexter, Bernard, and Garren were roommates who do not get along and decide to go their separate ways when their lease expires on May 31. Dexter owes Bernard $500 and signs a promissory note that he will pay Bernard $500 by July 1. Bernard, who owes Garren money, endorses the back of the note and writes "Pay to the order of Garren" on the back and gives the note to Garren. On July 2, Garren tells Dexter that Bernard signed the promissory note to him, so Dexter should just pay Garren the $500. Dexter refuses to pay Garren anything. Garren then tells Bernard that Dexter dishonored the note and sues Bernard for the value of the note.
Assuming there is proper presentment and notice of dishonor, can Bernard be held liable on the promissory note?

A) Yes, and he can sue Dexter who is primarily liable for the note.
B) Yes, but he has no recourse against Dexter.
C) No, only Dexter can be held liable.
D) No, because he is not primarily liable.
E) Garren has no recourse since he is not a holder in due course.

Question 77

The bank that issues a cashier's check is ________ for the amount of the check as soon as the cashier's check is created.

A) primarily liable
B) secondarily liable
C) partially liable
D) not liable
E) endorsee liable

Question 78

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.
Which of the following is the most likely result if Rohan refuses payment on the promissory note that was endorsed to Miguel claiming that he never signed it?

A) He will be liable because an official banking document was involved.
B) He will not be liable because a party is never liable on a negotiable instrument when it is signed without knowledge that it is, in fact, a negotiable instrument.
C) He will be liable unless he can establish that Miguel was not a holder in due course.
D) He can claim fraud in the factum, and whether he is liable or not will depend upon whether a court determines that he should have known what he was signing.
E) He can claim fraud in the inducement, and he will not be liable regardless of whether or not he knew what he was signing.

Question 79

[Diamond Debacle] Prida owns Prida's Jewelry Store. Charla is Prida's top diamond purchasing agent and usually signs promissory notes on Prida's behalf. Unbeknownst to Prida, Charla is considering opening her own diamond business. While at a convention in New York, Charla signs a promissory note with Jirah's Diamonds for the cost of several newly cut stones. Although Prida's Jewelry Store's name does not appear on the note, Jirah is aware that Charla works for Prida's. Charla decides not to quit her job at Prida's and Jirah presents Prida's with the note and demands payment.
Can Prida's Jewelry be held liable for the note?

A) No, because Prida's name must appear on the note in order to be held liable.
B) No, because Charla intended to quit her job at Prida's.
C) No, because Charla did not write "as an agent of Prida's" on the note.
D) Yes, because Jirah knew that Charla worked for Prida's.
E) Yes, if Charla signed the note truly on behalf of Prida's, then Prida's can be held liable even if not identified on the note.

Question 80

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.
Which of the following statements is true regarding detecting fraudulent payment in online transaction systems?

A) Businesses have no options to prevent fraud.
B) Insurance that covers fraudulent payments in online transaction systems is not available.
C) Online business cannot require more extensive authentication procedures when a customer makes a payment.
D) There are no options for online businesses to properly authenticate the customer making a payment.
E) Businesses have several options for ensuring their online transaction system can detect fraudulent payment.