Deck 40: Liability of Parties

Question 1

No person is contractually liable on a negotiable instrument unless she or her authorized agent has signed it and the signature is binding on the represented person.

Answer 1

True

Question 2

Which of the following statements is true of the obligations of a maker?

A) The maker of a promissory note is secondarily liable for payment of it.
B) The maker of a promissory note makes a conditional promise to pay a fixed amount of money.
C) The obligation of the maker is to pay the negotiable instrument according to its terms at the time he issues it.
D) The obligation of the maker is owed to an indorser, a person entitled to enforce the instrument.

Answer 2

C
Explanation: The maker of a promissory note is primarily liable for payment of it. The maker promises unconditionally to pay a fixed amount of money and is responsible for making good on that promise. The obligation of the maker is to pay the negotiable instrument according to its terms at the time he issues it or, if it is not issued, then according to its terms at the time it first came into possession of a holder.

Question 3

If a person has been negligent in signing a negotiable instrument,she may use the lack of authorization as a reason for not paying a person who in good faith pays for it.

Answer 3

False

Question 4

If a drawee bank mistakenly paid a check over a stop-payment order,the bank cannot recover if it paid the check to a presenter who had taken the instrument in good faith and for value.

Question 5

An instrument is not converted when a person pays an instrument to a person not entitled to payment.

Question 6

The terms of the contract of the parties to a negotiable instrument must be set out in the text of the instrument.

Question 7

Warranties do not depend on presentment,dishonor,and notice but may be utilized before presentment has been made.

Question 8

A party to a negotiable instrument is primarily liable if he or she has agreed to pay the negotiable instrument.

Question 9

A signature that is not "authorized" when it is initially put on an instrument cannot be ratified later by the person represented.

Question 10

Notice of dishonor must be made only by written means.

Question 11

If someone signs a person's name to a negotiable instrument without that person's authorization,the signature binds the person whose name appears.

Question 12

A fraudulent alteration discharges any party whose obligation is affected by the alteration whether the party assents or not.

Question 13

A person who is secondarily liable is like a(n):

A) guarantor on a contract.
B) assignor to a contract.
C) assignee to a contract.
D) drawer of a negotiable instrument.

Question 14

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

A) It can arise even when a person has not signed the negotiable instrument.
B) It cannot arise when a person has authorized someone else to sign the negotiable instrument.
C) It can arise from negligence relating to the issuance.
D) It cannot arise from improper payment.

Question 15

A drawee has no liability on a check or other draft unless it certifies or accepts the check or draft.

Question 16

A holder may find it easier to prove her status as a holder in due course against a maker or drawer than to return the instrument to a transferor on the ground of breach of warranty.

Question 17

If a holder has indorsed a negotiable instrument restrictively indorsed,the person who pays must comply with the restrictive indorsement to be discharged.

Question 18

Liability on negotiable instruments flows from:

A) proper payment of the instruments.
B) signatures on the instruments.
C) nonpresentment of the instruments.
D) writing "without recourse" on the instruments.

Question 19

The terms of the contract of the parties to a negotiable instrument are set out in:

A) the text of the instrument.
B) Article 3 of the Uniform Commercial Code.
C) the cashier's check.
D) Article 5 of the Uniform Commercial Code.

Question 20

A person who transfers a negotiable instrument to someone else and for consideration makes five warranties to his immediate transferee.

Question 21

Peter draws a check on his account at Wright Bank payable to the order of Stella.Peter asks Wright Bank to certify the check and the bank certifies it.Stella presents the check to Wright Bank for payment.Which of the following statements is true of this case?

A) Wright Bank becomes primarily or absolutely liable on the check.
B) Peter is primarily liable on the check.
C) Wright Bank is secondarily liable on the check.
D) Wright Bank has no contractual liability on the check whatsoever.

Question 22

Which of the following statements is true of primary liability on a check when it is issued?

A) The payee is primarily liable on it.
B) The drawer is primarily liable on it.
C) The drawee bank is primarily liable on it.
D) No party is primarily liable on it.

Question 23

Anupama drew a check on her account at Mortimer Bank payable to the order of Prahlad.When Prahlad presented the check for payment,Mortimer Bank refused to honor the check.Under these circumstances,the bank _____.

A) may be liable to Anupama for wrongfully refusing payment if Anupama has sufficient funds in her checking account to cover it
B) may be liable to Prahlad for wrongfully refusing payment if Anupama has sufficient funds in her checking account to cover it
C) has breached its transferor's warranties
D) will be liable to both Prahlad and Anupama

Question 24

Anne borrows $2,000 from Jerry and gives him a promissory note for $2,000 at 10 percent annual interest payable in 100 days.Jerry indorses the note "Pay to the order of Ethan" and negotiates the note to Ethan.At the end of 100 days,Ethan takes the note to Anne.Under these circumstances,if Anne _____.

A) dishonors the note, Ethan can hold Jerry secondarily liable without giving him notice of the dishonor
B) dishonors the note, Ethan cannot sue Anne on the basis of her maker's obligation
C) dishonors the note, Ethan cannot hold Jerry secondarily liable on his indorsement
D) pays Ethan the $2,000 and accrued interest, she can have Ethan mark it "paid" and give it back to her

Question 25

A nonindorsing transferor makes:

A) all six transfer warranties only to the immediate transferor.
B) all five transfer warranties to all subsequent holders.
C) only four transfer warranties to the immediate transferor.
D) all five transfer warranties, with a change in the fourth warranty, to all subsequent holders.

Question 26

People who present drafts for warranties:

A) do not make a warranty that they have knowledge of the insolvency proceedings commenced regarding the drawer.
B) make a warranty that the instrument has not been altered.
C) make warranties that are similar to those transferors make.
D) make a warranty that they are aware of the unauthorized signature of the maker.

Question 27

Gabrielle borrows $1,000 from Frank to pay for school and gives Frank a note for that amount.Frank wants Gabrielle's father to sign as an accommodation party.Gabrielle's father signs below Gabrielle's signature on the fall of the note.Which of the following statements is true of this case?

A) Only Gabrielle has primary liability as a maker.
B) Only Gabrielle's father has primary liability as an accommodation maker.
C) Gabrielle and her father have the same contractual liability.
D) Gabrielle has primary liability, and her father has secondary liability.

Question 28

Which of the following parties is primarily liable on a certified check?

A) The payee who is a certified holder of the check
B) The drawer
C) The drawee bank that certifies the check
D) The cashier

Question 29

When an incomplete instrument is completed after it has left the drawer's hands,a holder in due course can:

A) enforce it as completed.
B) enforce only the intent of the drawer.
C) lose all rights to the instrument.
D) not enforce it as completed.

Question 30

The acceptor's obligation:

A) extends to a person entitled to enforce the draft.
B) does not extend to the drawer.
C) extends to an indorser who does not pay the instrument pursuant to the indorser's liability.
D) does not extend to the indorser who paid the instrument.

Question 31

Chang gives a promissory note to Rahim.Rahim indorses it and negotiates it to John,who indorses it and negotiates it to Andy.Which of the following statements is true of this scenario?

A) Even if John and Rahim do not pay the note, Chang cannot be held liable by Andy because Chang is the maker.
B) Rahim is primarily liable on the basis of his indorsement.
C) John has no liability to Rahim because John indorsed after Rahim indorsed the note.
D) John is primarily liable on the basis of his indorsement.

Question 32

Mack is Bertha's agent and is authorized to sign checks for her.Mack signs one of Bertha's checks with his own name only.Which of the following parties is liable on the check?

A) Bertha
B) Mack
C) Mack's bank
D) Bertha's bank

Question 33

Themba stole Umi's checkbook and wrote a check for $100 forging Umi's signature.Under these circumstances,_____.

A) Themba, but not Umi, is liable on the check
B) Umi, but not Themba, is liable on the check
C) both Themba and Umi are liable on the check
D) the bank will be liable on the check

Question 34

An indorser's liability is discharged if the check is not presented within _____ after the endorsement.

A) 15 days
B) 14 days
C) 30 days
D) 48 hours

Question 35

Which of the following is true of the obligations of an acceptor?

A) If the certification or acceptance does not state an amount, then the acceptor is free of all obligations.
B) If the certification of a check or other acceptance of a draft states the amount accepted, the obligation of the acceptor is the amount of the instrument at the time a holder in due course takes it.
C) If the certification of a check or other acceptance of a draft states the amount certified or accepted, the obligation of the acceptor is that amount.
D) If the certification or acceptance does not state an amount, or if the amount of the instrument is subsequently raised, then the obligation of the acceptor is the raised amount.

Question 36

Under Revised Article 3 of the Uniform Commercial Code rules for beneficiaries,in the event of a breach of transfer warranty,_____.

A) the damages recoverable will be less than the amount of the instrument
B) the damages recoverable may not be more than the amount of the instrument plus expenses and loss of interest incurred as a result of the breach
C) a beneficiary of the transfer warranties who took the instrument in good faith may not recover from the warrantor an amount equal to the loss suffered as a result of the breach
D) no damages may be recovered

Question 37

Which of the following statements is true of the obligation of the maker?

A) It is owed to a person who is not entitled to enforce the instrument.
B) It is given to a nonholder in possession of the instrument, who does not have the rights of a holder.
C) It is owed to any indorser who paid the instrument pursuant to her indorser's liability.
D) It is to pay the negotiable instrument even if it has not been signed by the maker.

Question 38

A person who transfers a negotiable instrument to someone else and for consideration makes a warranty that:

A) all signatures on the instrument are authentic.
B) some signatures on the instrument are authorized.
C) the beneficiary cannot recover any amount from the warrantor if the warranty has been breached.
D) the warrantor is aware of insolvency proceedings commenced with respect to the maker.

Question 39

Igor signed a note to Gogh Bank,and his friend Sergei also signed the note as an accommodation maker.If Igor defaults on the note when it is due,what are Sergei's rights and obligations?

A) Sergei has the right to recover his payment from the bank.
B) Sergei has the same contractual liability as Igor and must pay the bank.
C) Sergei cannot recover his money from Igor or the bank since he has primary liability.
D) Sergei has secondary liability.

Question 40

James draws a check on his account at Harper Bank payable to the order of Terry.James does not ask Harper Bank to accept or certify the check.If Harper Bank does not pay the check when Terry presents it for payment,then:

A) Harper Bank is liable to James because it was not asked to accept or certify the check.
B) James is liable to Terry on the basis of his drawer's obligation.
C) James transfers his duties as a drawer to the drawee bank, and the bank is liable.
D) Terry is liable to James because the bank does not pay the check when Terry presents it for payment.

Question 41

A holder in due course may discharge the liability of the parties to the instrument by:

A) publishing notice.
B) canceling it.
C) accidentally destroying it.
D) paying for it even if it is a stolen one.

Question 42

List the five transfer warranties made by a person who transfers his or her negotiable instrument to someone else and for consideration.

Question 43

Ivan is a representative of Sigma Inc.,Checks are drawn by "Sigma Inc.,Payroll Account (signed)
D. Ivan," but the checks are not paid. Who is liable on the instrument-the individual or the corporation?

Question 44

Conversion of an instrument:

A) is an authorized assumption and exercise of ownership over it.
B) may occur if a person pays an instrument on a forged indorsement.
C) differs from conversion of personal property with respect to the applicable laws.
D) occurs if it does not lack indorsement necessary for negotiation.

Question 45

Maya stole a check from Orhan payable to the order of Orhan.Maya forged Orhan's signature and presented the check for payment at Winston Bank,which honored the check.If Orhan sues Winston Bank for the amount of the check,under what theory,can Orhan recover the funds from the bank?

A) Conversion
B) Fraud
C) Unfair and deceptive practices
D) Fictitious payee rule

Question 46

Mention the parties who are entitled to enforce an instrument.

Question 47

"Responsibility" with respect to instruments means the authority to:

A) access instruments in incoming or outgoing mails.
B) process instruments for issue in the name of fictitious payees.
C) prepare or process instruments for issue in the name of the employer.
D) have access to instruments in storage.

Question 48

What are the most common ways an obligor on a negotiable instrument is discharged from his liability?

Question 49

The impostor rule regarding negotiable instruments:

A) is devised not to put the responsibility for determining the true identity of the payee on the drawee of a check.
B) makes the payee's signature valid even though it is a forgery.
C) does not force the maker to find the wrongdoer.
D) lays the responsibility of determining the identity of payee on later holders of an instrument.

Question 50

Define the situations that lead to the dishonoring of a note by the maker.