Deck 27: Liability of Parties

Question 1

Checks, when accepted, are said to be certified.

Answer 1

True

Question 2

Misty wrote a check to Acme for $220.She is discharged from liability on the check if Acme does not present the check for payment within 30 days after the date the check was signed.

Answer 2

False

Question 3

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.

Answer 3

False

Question 4

In order for a notice of dishonor to be effective, a protest must be made through a notary public or U.S.consul.

Question 5

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

Question 6

Indorsers of all instruments incur primary liability on the instrument.

Question 7

Authorized agents cannot execute negotiable instruments on behalf of their principals.

Question 8

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

Question 9

Warranty liability is based on signature; thus, it may not be imposed on nonsigners.

Question 10

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

Question 11

The condition precedent to the liability of the drawer of an unaccepted draft is notice of dishonor.

Question 12

Failure to give notice of dishonor will discharge the drawer of a draft accepted by a nonbank from having to pay on the instrument unless notice is excused.

Question 13

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

Question 14

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

Question 15

The law imposes contractual liability on those who sign, or have a representative agent sign, a negotiable instrument.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

Under Revised Article 3, the drawer's liability is contingent upon dishonor and notice of dishonor.

Question 22

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

Question 23

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

Question 24

An unauthorized signature cannot be ratified by the person whose name appears on the instrument.

Question 25

Any person who, by his own negligence, substantially contributes to the making of an unauthorized signature may not assert the lack of authority as a defense against a holder in due course.

Question 26

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 the above.
E)None of the above.

Question 27

A waiver of presentment will waive the requirement of notice of dishonor as well.

Question 28

Presentment is excused where the acceptor is undergoing bankruptcy.

Question 29

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

Question 30

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

Question 31

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

Question 32

An acceptance must be written on the draft.

Question 33

First Bank returns a check because it lacks a necessary indorsement.The check has been dishonored.

Question 34

The maker is the primary party on every note.

Question 35

In Davis v.Watson Brothers Plumbing, Inc., the court found that Davis was not a "holder" of the check.

Question 36

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

Question 37

The liability of the maker of a demand note is affected by failure of proper presentment.

Question 38

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

Question 39

In Cohen v.Disner the court found that Disner was not liable on the check because he had no enforceable obligation to pay, the check was drawn by him in a representative capacity, and the holder had notice that Disner's signature was in the capacity of an agent.

Question 40

Parties with secondary liability unconditionally promise to pay the instrument.

Question 41

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 42

Zelda signs a promissory note for $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)Two of the above, (a) and (b), are correct.
E)Two of the above, (a) and (c), are correct.

Question 43

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)All of the above.
E)Both (a) and (b) are correct.

Question 44

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 $25,000 note to Ace.If he signed it "Anton Green, Agent":

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 is holder of the note and Zoron Company does not pay, the bank has no recourse against Anton.

Question 45

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 is secondarily liable on the check, because he is the drawer.
D)Two of the above, (a) and (c), are correct.

Question 46

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 47

Who is primarily liable on a note?

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

Question 48

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 the above will be sufficient.

Question 49

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, who does not know of the forgery, 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 the above are correct.
E)Two of the above, (a) and (b), are correct.

Question 50

Kelly wrote a check to Trish, which Trish immediately changed from $20 to $120.She negotiated the check to Cam 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, Cam gave the check to Ford as part of the down payment for his car.Ford presents the check to Kelly's bank for payment and they discover the alteration.What consequence?

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

Question 51

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 52

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 53

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 54

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 55

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

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

Question 56

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 if she so requests.
B)First Bank can collect the $250 from Orrin if they can find him and he has the money.
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)Two of the above, (a) and (b), are correct.

Question 57

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)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.
E)All of the above.

Question 58

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)Any of the above.

Question 59

Dishonor of an instrument involves which of the following?

A)A demand note is dishonored if the maker does not pay it on the day of presentment.
B)An accepted demand draft is dishonored if the drawer does not pay it on the day of presentment.
C)If a check is presented for payment directly to the payor/drawee bank for immediate payment, a refusal to pay the check within seven business days of presentment constitutes dishonor.
D)All of the above.

Question 60

Presentment is a demand made by or on behalf of a person entitled to enforce the instrument for:

A)payment by the drawee or other party obligated to pay the instrument.
B)acceptance by the drawee of a draft.
C)Both (a) and (b) are correct.
D)None of the above.

Question 61

Discuss the effect of an unauthorized signature on an instrument.

Question 62

Discuss the reasons (explained in the "Business Law in Action" feature in the textbook) most banks instruct their tellers to obtain indorsements on all checks, including those made payable to "Cash."

Question 63

The UCC excuses presentment for payment or acceptance if:

A)the person who is entitled to enforce the instrument cannot, with reasonable diligence, present the instrument.
B)the maker or acceptor of the instrument has repudiated the obligation to pay, is dead, or is in insolvency proceedings.
C)the drawer or indorser has waived the rights of presentment.
D)the drawee was not obligated to the drawer to pay the draft.
E)All of the above.

Question 64

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 drawee to whom a draft is delivered for payment refuses to return it on demand.

Question 65

List and generally explain the warranties on presentment.

Question 66

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 67

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 the above.

Question 68

Which of the following is primarily liable for a note?

A)The maker.
B)An indorser.
C)The drawer.
D)The payee.

Question 69

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 70

Thomas is the treasurer of Oklaw, Inc.He has authority to sign on behalf of the company.One day, he signs a note as follows: "Thomas, 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 71

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 72

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 the above are warranties of the transferor.

Question 73

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.