Deck 26: Liability of Parties

Question 1

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

Answer 1

True

Question 2

Transferor's warranties and presenter's warranties are implied warranties imposed only on those who sign an instrument.

Answer 2

False

Question 3

Martha wrote a check to Jump, Inc. for $350. She is discharged from liability on the check if Jump does not present the check for payment within 30 days after the date the check was signed.

Answer 3

False

Question 4

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

Question 5

Parties with secondary liability unconditionally promise to pay the instrument.

Question 6

Under Revised Article 3 of the UCC, failure to give notice of dishonor will discharge the drawer from having to pay on the instrument.

Question 7

A signature may be made by an individual herself or by an authorized agent.

Question 8

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

Question 9

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

Question 10

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

Question 11

The maker is the primary party on every note.

Question 12

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

Question 13

An unauthorized signature may be ratified by the person whose name appears on the instrument.

Question 14

The signature of the maker of a note may not be typewritten or signed by means of a signature stamp, as only a handwritten signature is adequate to authenticate the instrument.

Question 15

National Trust Bank returns a check because it does not have a necessary indorsement. This constitutes a dishonor of the check.

Question 16

Any kind of notice of dishonor that informs the recipient of potential liability is sufficient.

Question 17

Elder, an authorized agent for Mullins, signs a negotiable instrument, "Mullins, principal, by Elder, agent." Mullins has primary liability and Elder has secondary liability on the instrument.

Question 18

"Presentment" is necessary within 10 days of the date of issuance of a check.

Question 19

Discharge applies to the individual, not to the instrument, and a person's liability may be discharged with regard to one party but not to another.

Question 20

The drawer is obligated to pay the draft only if the drawee fails to pay the instrument.

Question 21

All people who obtain payment or acceptance of an instrument as well as all prior transferors give the presenter's warranties.

Question 22

A waiver of presentment will not waive the requirement of notice of dishonor.

Question 23

Checks, when presented, are automatically certified.

Question 24

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

Question 25

Molly makes a note payable to the order of Patrick; Patrick indorses it to Amy; Amy indorses it to Blake; and Blake indorses it to Homer. Homer presents the note to Molly within a reasonable time, but she refuses to pay. If Homer notifies only Patrick of the dishonor, Amy and Blake are discharged from liability.

Question 26

Warranties of a person obtaining payment or acceptance of an unaccepted draft include:

A) the warrantor is a person entitled to enforce the draft.
B) the warrantor has no knowledge that the drawer's signature is unauthorized.
C) the draft has not been altered.
D) All of these are correct.

Question 27

Morgan is the maker of a promissory note payable to Freeman on June 29. If Freeman fails to make proper presentment of the note to Morgan on June 29, Morgan's liability on the note is not affected.

Question 28

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

Question 29

Primary liability does not apply to issuers of cashier's checks.

Question 30

An accommodation party's liability is determined by the capacity in which he signs.

Question 31

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

Question 32

By indorsing a check, "Without recourse," Pat effectively disclaims both contractual and warranty liability.

Question 33

The time for dishonor of a check can vary greatly depending on the number of banks involved in the collection process.

Question 34

Presentment is excused where the acceptor is undergoing bankruptcy.

Question 35

Indorsers of all instruments incur primary liability on the instrument.

Question 36

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

Question 37

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

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

Question 38

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

Question 39

Unauthorized signatures include both forgeries and signatures made by an agent without authority.

Question 40

An acceptance must be written on the draft.

Question 41

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

A) Hold Joe liable for breach of warranty.
B) Get $50 from Mark.
C) Hold Joe liable for breach of contract.
D) Only get $5 from Mark.

Question 42

Iris has a checking account at Marconi Bank. Orrin steals one of her blank checks, writes a check for $350, and then forges Iris' signature. He then presents the check to Marconi Bank for payment. Marconi Bank pays the forged instrument. Which of the following statements is NOT true?

A) Marconi Bank will have to recredit the $350 to Iris' account upon her request, if Iris was not found to be negligent.
B) Orrin is responsible to Marconi Bank for the $350.
C) Marconi Bank must recredit the $350 to Iris' account only if she has issued a stop payment order within 10 days.
D) Iris is primarily liable if she was negligent in allowing Orrin to take the blank check .

Question 43

On the due date, Merrel makes proper tender of full payment of a note to Russell, who is entitled to payment. If Russell refuses payment, Merrel is discharged from liability for:

A) the face amount of the note.
B) any interest accrued until the time of tender.
C) interest after the due date.
D) all repercussions from this transaction.

Question 44

The use of the qualifying word(s) __________ is/are understood to place purchasers on notice that they may not rely on the credit of the person using this language.

A) "Accepted"
B) "Certified"
C) "Without recourse"
D) "Insufficient funds"

Question 45

A(n) ___________ signs an instrument to lend his credit to an instrument, and his liability is determined by the capacity in which he signs.

A) indorser
B) accommodation party
C) authorized agent
D) maker

Question 46

Warranty liability applies to persons who:

A) transfer an instrument.
B) obtain payment or acceptance of an instrument.
C) have signed the instrument, but not on those who have not signed.
D) Both  transfer an instrument  and  obtain payment or acceptance of an instrument  are correct.

Question 47

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) Bob can only demand the money from the bank.
C) The bank would have to pay if Jack doesn't.
D) Bob would have to pay if the bank doesn't.

Question 48

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

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

Question 49

David wrote a check to Sage for $3,000 on his account at Greater Good Bank. He then took it to his bank for certification. The bank wrote "certified" on the face of the check. David then gave the check to Sage . When Sage took the check to Greater Good  Bank, they refused to pay, claiming that there was not enough money in David's account to cover the check. Which of the following is correct?

A) Greater Good  Bank is primarily liable on the check, because it has already accepted it.
B) Sage has no recourse under these circumstances.
C) David is secondarily liable on the check, because he is the drawer.
D) Greater Good  Bank must pay the check, but they may charge David a fee to do so.

Question 50

Zelda signs a promissory note for $2,500 to First Bank. At the request of both Zelda and the bank, Ann also signs the note as an accommodation maker. In this situation:

A) Zelda is primarily liable on the note.
B) Ann is primarily liable on the note.
C) Ann has secondary liability on the note
D) Zelda and Ann are both primarily liable on the note.

Question 51

Conversion of an instrument will occur if:

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

Question 52

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 her account and certified the check since there were sufficient funds to cover the check. Thereafter, Carl gave the check to General Motors as part of the down payment for his car. G.M. presents the check to Kelly's bank for payment and they discover the alteration. The bank:

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

Question 53

Who is primarily liable on a note?

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

Question 54

Which of the following is a warranty of the transferor?

A) Transferor has no knowledge of any insolvency proceedings with respect to the maker, acceptor, or drawer of an unaccepted instrument.
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.

Question 55

Notice of dishonor of an instrument must be given:

A) by a bank before midnight of the third banking day following the banking day on which it receives notice of dishonor.
B) by a bank before midnight on the next banking day following the banking day on which it receives notice of dishonor.
C) by a nonbank, with respect to an instrument taken for collection, within three business days following the day on which it received notice.
D) in all situations within seven calendar days following the day on which dishonor occurred.

Question 56

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

Question 57

Which of the following is true of warranty liability as it affects negotiable instruments?

A) Warranty liability applies to any persons who transfer an instrument and receive consideration.
B) A drawee of an unaccepted draft who pays in good faith receives a presentment warranty from the person obtaining payment and from all prior transferors of the draft.
C) A drawee who accepts an instrument in good faith receives a presentment warranty from the person obtaining acceptance that the draft has not been altered.
D) All of these statement are true of warranty liability.

Question 58

In which of the following situations has conversion NOT occurred?

A) When an instrument is paid on a forged indorsement.
B) When a drawee to whom a draft is delivered for acceptance properly returns it upon request.
C) When any person to whom an instrument is delivered for payment refuses on demand to pay or to return it.
D) When a bank pays an instrument containing only one of two required indorsements.

Question 59

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

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

Question 60

Sara has a checking account at Charter Bank. Ethan steals one of her blank checks, writes a check for $250 to himself, and then forges Sara's signature. Ethan then indorses the instrument to Paul in payment of a debt. Paul, who does not know of the forgery, presents the instrument to Charter Bank for payment. At Charter 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) Ethan has breached the warranties on presentment.
C) Sara has breached the warranties on presentment.
D) Both Paul and Ethan have breached the warranties on presentment .

Question 61

a.What warranties are given by an indorser?
b. What warranties are given by a transferor by delivery without indorsement?
c. If a person has no contractual liability on the instrument, does that mean he has no liability as a result of the transaction involved? Explain.

Question 62

Discuss the effect of an unauthorized signature on an instrument.

Question 63

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

Question 64

List and generally explain the warranties on presentment.

Question 65

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

Question 66

a. Discuss primary liability on a note; on a check.
b. What is secondary liability? What must be done before a person with secondary liability can be sued? Who has secondary liability on a note? Who has secondary liability on a check?
c. How does contractual liability on the instrument differ from warranty liability?

Question 67

Parties that are usually secondarily liable for an instrument are:

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

Question 68

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

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

Question 69

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 70

What is the difference between the liability of a qualified indorser and an unqualified indorser? Does the fact that a person has given a qualified indorsement mean that the person has no liability? Explain.

Question 71

JimBob, a guest in Jimbo's house, opens Jimbo's desk and writes a check to himself on Jimbo's checking account, forging Jimbo's signature. He indorses the check " JimBob Saunders" and presents it to Jimbo's bank for payment. If the bank pays, can it collect from Jimbo's account?

A) Yes, because JimBob is the real payee.
B) Yes, because Jimbo's name is on the check.
C) No, because bank should have known the signature is forged.
D) No, because Jimbo  did not know of the check.