Deck 21: Liability, Defenses, and Discharge

Question 1

Mary's mom, Judy, is presented with a check that is signed by Mary. The party presenting the check demands that Judy pay the amount on the check because Judy is Mary's mom. Article 3 of the UCC indicates that Judy would have to pay the amount of the check.

Answer 1

False

Question 2

The UCC allows a signature to be any mark affixed to the instrument with the intention to authenticate a writing.

Answer 2

True

Question 3

Secondary liability arises only when the primary party fails to pay on the negotiable instrument.

Answer 3

True

Question 4

An instrument can be presented within any time period and in any manner to be eligible for payment.

Question 5

Kevin is the representative of Markus, the principal and therefore, whatever negotiable instruments that Kevin signs will be binding on Markus.

Question 6

Peter forged Andrew's signature on a check and cashed it draining Andrew's entire bank account. Peter skips town and cannot be located and therefore, the drawee bank will be liable for the forged check.

Question 7

A person presenting a check asserts by law that he is the legitimate owner of the check, that the check has not been altered in any way and the presenter has no reason to believe that the drawee's signature is forged.

Question 8

Even though Randal was 16 years old when he signed the check, the court will determine it is a valid instrument because it follows common law rules of contracts.

Question 9

An instrument can be discharged by a material and fraudulent alteration of the instrument.

Question 10

No discharge of any party operates against a subsequent holder in due course unless he has notice when she takes the instrument.

Question 11

Brooke receives a check from Travis which he did not sign. Will Brooke be able to cash it as is?

A) Yes as long as she offers identification of herself.
B) Yes as long as she has physical custody of the check.
C) No because the check must have a signature of Travis.
D) No unless the check payor is "cash."

Question 12

Larry, the owner of Shoe Industries, employs 100 people. Recently, he broke his hand and therefore, when payday came, he felt he was not able to sign all of the checks and asked his employee, Daryl, to sign the checks. Will these instruments be enforceable?

A) Yes as long as Daryl is also employed by Larry.
B) No as only Larry has the authority to sign the checks.
C) No because Larry must have physical possession of the checks.
D) Yes as Daryl is an agent to Larry.

Question 13

Monica Stewart attempts to write out a check at the local store for the purchase of goods. However, at the time she attempts to sign the check, her children run off and she is only able to sign an "M" but no other letters of her name. Will the store be able to cash the check with only the "M" on it?

A) No as a signature must include her last name.
B) Yes a signature can be any symbol with the intent to sign it.
C) No because the UCC requires that a signature must be a true representation of the endorser's handwriting.
D) Yes because the UCC only the first letter of an endorser's signature must be readable.

Question 14

At some point in his career, the musician, Prince, only referred to himself as a symbol and signed all of his checks in that manner rather than his legal name, Prince Rogers Nelson. If he signed a check with the symbol, rather than his legal name, would that check have been enforceable?

A) Yes as a signature can be any symbol with an intention by the maker to authenticate the instrument.
B) Yes as long as industry standards recognized his symbol.
C) No as one can only sign an instrument with their legal name.
D) No as an instrument must have some sort of name as a signature.

Question 15

Liability for the amount of the instrument as soon as it is issued and required to be paid as soon as the instrument is presented for payment is

A) Majority liability
B) Sole liability
C) Primary liability
D) Signatory liability

Question 16

The __________ is the one who signs the check, with the proper authority to sign it and thus becomes liable to when it becomes due.

A) Payor
B) Signatory
C) Drafter
D) Maker

Question 17

August signed a check for $100.00 payable to Whitney on July 1. Whitney forgot to cash the check until July 20. In between that time, August monitored his checking account daily and saw that his balance remained consistently at $120.00. On July 18th, seeing no change in his account, he wrote another check to Elise for $110.00 and she immediately cashed the check. On July 20th, when Whitney attempted to cash August's check for $100.00, the bank would not cash it due to insufficient funds. Which statement below is correct?

A) Since Elise received her check after Whitney did, she would owe that money to Whitney.
B) August remains liable to pay Whitney the amount of the check upon demand.
C) Elise waited too long and therefore, her right to enforce the terms of the negotiable instrument were extinguished.
D) August is liable only to Whitney but not Elise since when he wrote the check to Elise, he did not actually have the money.

Question 18

The person who accepts the negotiable instrument and agrees to be primarily responsible for its payment is

A) Drawee
B) Maker
C) Endorser
D) Agent

Question 19

In the case, Affiliated Health Group v. Healthcare Services Corp., the court ruled

A) The insurer was still responsible for the amount of the negotiable instrument because the bank never actually accepted the instruments.
B) The insurer was still responsible for the amount of the negotiable instrument as the transaction was tainted by fraud.
C) The insurer was no longer responsible for the amount of the negotiable instrument because the bank accepted the instrument.
D) The insurer would still be liable for payment as any other result would offend notions of good faith and fair dealing.

Question 20

__________ liability is conditional and arises only if the primarily liable party fails to pay on the negotiable instrument.

A) Agent
B) Subsequent
C) Springing
D) Secondary

Question 21

Becca pays Shelby for babysitting with a check. When Shelby takes the check to the bank to cash it, that process is called

A) Endorsement
B) Reinforcement
C) Presentment
D) Collection

Question 22

Renaldo wrote a check from his bank, Sun Bank, made payable to Maddie who had an account with Rain Bank. To which bank must Maddie present the check to be paid?

A) Sun Bank
B) Rain Bank
C) Neither bank
D) Both banks

Question 23

On May 14th, Connor wrote a check to Nick. Nick promptly put the check in his wallet and forgot about it until April of the next year. He attempted to cash the check. According to the UCC, what would be the outcome of Nick's attempt to cash the check

A) The check would be honored.
B) The check would not be honored.
C) The check would be honored if the amount of it is under $100.00.
D) It would be up to Connor if he wanted to honor the check.

Question 24

Which of the following is not a valid reason for a drawee bank to dishonor a check presented to it?

A) The holder cannot provide valid identification.
B) The drawee bank reasonably believes that the instrument is fraudulent.
C) The drawer lacks sufficient funds to cover the negotiable instrument.
D) The holder does not have an account with the drawee bank.

Question 25

Lola presents a check, dated June 7th, to Xander Bank at 4:00 pm on Thursday, June 15th. According to Article 3 of the UCC what will be the date of presentment?

A) June 7^th
B) June 8^th
C) June 16^th
D) June 15^th

Question 26

In the case Messing v. Bank of America, the court ruled

A) That a thumbprint is a form of a signature and requiring it is a reasonable form of identification.
B) A thumbprint is not a reasonable identification for purposes of Article 3.
C) That the only form of identification that is reasonable is proper federal or state issued identification.
D) That a signature is a reasonable form of identification.

Question 27

Another word for principal is

A) Representative
B) Agent
C) Represented person
D) Beneficiary

Question 28

Another word for representative is

A) Principal
B) Agent
C) Representative person
D) Beneficiary

Question 29

Alfred owned Sparkle Industries and was extremely busy running the business. To lessen his burden, he hired Mary as his accountant and gave her authority to sign on his behalf all checks related to the operation of the business. One afternoon Mary signed a Sparkle Industries check to pay for a 10 day cruise on the Nile River for her. Alfred found out and was furious. Which statement below is correct?

A) Since Alfred allowed Mary to sign checks it was solely his responsibility to ensure that she was abiding by his wishes.
B) Alfred will be responsible for all checks signed by Mary as she is his agent.
C) Since Mary signed a check for her personal benefit which was clearly outside the authority Alfred delegated to her, her signature is invalid.
D) Alfred will face criminal prosecution for negligently delegating authority.

Question 30

Betty is the treasurer for a not-for-profit organization and as such is the person authorized to sign all checks for the organization. Betty would be called

A) The principal
B) The represented person
C) The fiduciary
D) The agent

Question 31

Warranty liability is

A) The guarantee that the drawee has sufficient funds to cover the negotiable instrument.
B) The legal liability of someone who receives payment on an instrument.
C) The equitable liability of someone who receives payment on the instrument.
D) The guarantee that the negotiable instrument is free from fraud.

Question 32

Marvin received a check written out to him for $100.00 from Ed Moore. He stealthily changed the amount to $1000.00 and cashed it a Legacy Bank. Which statement below is correct?

A) Marvin will be liable for the $1000.00.
B) Ed Moore will be liable for the $1000.00.
C) Legacy Bank will be liable for the $1000.00 exclusively.
D) Legacy Bank will just write it off as a cost of doing business.

Question 33

Marvin forges Ed Moore's signature on a check for $500.00 and cashed it at Legacy Bank. Marvin then skips town never to be found again. Which statement below is correct?

A) Only Marvin is liable for the value of the forged instrument.
B) Only Ed Moore is liable for the value of the forged instrument.
C) Legacy Bank will be liable for the value of the forged instrument.
D) No one will be liable once the check is cashed.

Question 34

Ellen stops by a garage sale and falls in love with a painting but does not have any cash on her. Ellen only has a check written out to her by Rob. Unknown to Ellen, Rob's signature was forged on the check. In good faith, Ellen endorses the check and gives it to the person at the garage sale in exchange for the painting. When the person who had the garage sale attempts to cash the check, the bank refused to cash it, stating that it is a forged check. In the above situation who would be liable for the value of the check?

A) Rob only.
B) Ellen only.
C) Rob or Ellen.
D) No one.

Question 35

A guarantee made by operation of law when someone transfers an instrument for consideration is called a

A) Fitness warranty
B) Express warranty
C) Negotiable warranty
D) Transfer warranty

Question 36

All of the following are implied transfer warranties except

A) The bank certifies it.
B) The transferor is the legitimate owner of the instrument.
C) All signatures on the instrument are authentic and authorized.
D) No defense or claim can be asserted against the holder of the instrument.

Question 37

Mike takes a check to Sunshine Bank to cash it. In doing so by operation of law he is making certain guarantees that are called

A) Fiduciary warranties
B) Presentment warranties
C) Transfer warranties
D) Express warranties

Question 38

By operation of law, anyone who presents a check for payment makes all of the following implied presentment warranties except

A) The presenter is the legitimate owner of the check.
B) The check has not been wrongfully altered in any way.
C) The check was originally tendered with consideration.
D) The presenter has no reason to believe that the drawer's signature is forged.

Question 39

Sadie steals a check from Kevin's checkbook, fills it out for $250.00 and forge's Kevin's signature. Sadie then goes to the bank to cash it, which the bank does. Seeing the amount deducted from his account Kevin confronts his bank. What options exist?

A) None. Once the bank paid the amount of the instrument, the payer has no right to a refund.
B) The bank has the right to refuse reimbursement of the amount to Kevin if it paid in good faith.
C) Only criminal actions are possible against Sadie.
D) The payer has a legal right to a refund.

Question 40

In the case National Metropolitan Bank v. United States, the U.S Supreme Court determined

A) Presenting a check with a known forged payee signature gave the government a right to recover from the bank when the payment is made.
B) The government did not have a legal right to recover since the final payment had been made.
C) The government had a right to recover from Foley, but not the bank as it operated in good faith.
D) Since the government breached its implied warranty when it issued the checks and therefore could not recover.

Question 41

In anticipation of going off to college, 17 year old Emily opened a checking account at a bank and deposited all of her high school graduation money she received as gifts. She then wrote a check to her friend Tracy. Tracy went to cash the check but found that Emily had contacted the bank to tell them that she did not want the bank to honor the check. What, most likely, would be the outcome of the issue?

A) The bank will be required to pay Tracy the amount of the check because Emily did indeed sign the check.
B) The bank will not honor the check because Emily is a minor.
C) The bank will be required to honor the check because Tracy operated in good faith.
D) The bank will not honor the check because a maker has a right to change her mind about honoring a check until the check is actually honored by the bank.

Question 42

All of the following are defenses against a holder by the maker except,

A) The signature on the instrument is forged.
B) The amount on the instrument is altered after the maker signed it.
C) The maker has a change of heart about issuing the instrument.
D) The maker signed the instrument under duress.

Question 43

When a negotiable instrument expires is called

A) Termination
B) Expiration
C) Sublimation
D) Discharge

Question 44

All of the following are examples of when an instrument is discharged except

A) Alex, the holder, cashes a check at the bank.
B) Nicole, the holder, changes the amount of the check made out to her by adding an extra 0.
C) Shirley, the holder, loses the check.
D) Reid, the holder, writes "VOID" on the front of the check.

Question 45

Donna writes a check payable to Tara in the amount of $2000.00 to pay for her car that she saw for sale on the internet. When Donna sees the car firsthand that Tara is selling she is upset and tells Tara she will only pay her $1000.00. Tara, realizing that her car is pretty much a piece of junk, accepts the check for $1000.00 that Donna altered and cashes it. Shortly thereafter, Tara's friend who proclaims to know everything about the law by what she has read on the internet tells Tara that Donna still owes her an additional $1000.00 as that was the original agreement. Tara contacts Donna demanding the additional $1000.00. What will be the outcome of this issue?

A) Donna owes Tara the additional $1000.00.
B) Since Tara agreed to the varying terms, Donna is discharged from any additional obligation.
C) Donna is not discharged from the additional obligation if the courts determine that the original agreed amount represented the fair market value of the car.
D) Tara must agree in writing to the varying terms before discharge occurs.

Question 46

Explain the defenses that always apply against a holder of a negotiable instrument and give an example of each.

Question 47

In a moment of weakness, realizing the Invisible Amusements just opened several new rides and knowing that she did not personally have the money to purchase the tickets for admittance into the park, Erin steals a check from her good friend John. Erin fills out the check payable to Invisible Amusements and forges John's signature, to cover the cost of two tickets. Erin rationalizes that if she buys two tickets and offers to take John with her, it won't be so bad. Erin's plan works and she and John spend the day at Invisible Amusements waiting in long lines for the newest rides. At this point John has no idea what Erin has done to purchase the tickets. However, a few days after their visit to the park, John notices the missing check and the deduction of the amount payable to Invisible Amusements and he confronts Erin. Erin tells John that since he used the tickets too, she did not owe him the money for his ticket. And then she skips town, in order to not have to see John ever again and to fulfill her lifelong dream of working at Invisible Amusements, even if it means living a life of poverty. What are John's options regarding this scenario?

Question 48

When does a person have a right to demand payment on a negotiable instrument, such as a check?

Question 49

When may a bank dishonor a check?

Question 50

Explain and give examples of four ways a negotiable instrument is discharged.