Deck 40: Liability of Parties

Question 1

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

Answer 1

True

Question 2

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

A)guarantor on a contract.
B)assignor.
C)assignee.
D)drawer.

Answer 2

A
Explanation: A person who is primarily liable has agreed to pay the negotiable instrument.A person who is secondarily liable is like a guarantor on a contract; Article 3 requires a secondary party to pay the negotiable instrument only if a person who is primarily liable defaults on that obligation.

Question 3

Liability on negotiable instruments flows from:

A)proper payment of the instrument.
B)signatures on the instruments.
C)non-presentment of an instrument.
D)writing "without recourse" on the instrument.

Answer 3

B
Explanation: Liability on negotiable instruments flows from signatures on the instruments as well as actions taken concerning them.It can arise from the fact that a person has signed a negotiable instrument or has authorized someone else to sign it.The liability depends on the capacity in which the person signs the instrument.

Question 4

A bank that cashes a check with a forged indorsement on it cannot be liable for conversion.

Question 5

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

Question 6

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

A)in the text of the instrument.
B)in Article 3 of the UCC.
C)in the U.S.Constitution.
D)in Article 5 of the UCC.

Question 7

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.

Question 8

Notice of dishonor must be made only by written means.

Question 9

A nonindorsing transferor makes all five transfer warranties to his/her immediate transferee.

Question 10

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 11

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

Question 12

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

Question 13

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

Question 14

The obligation of the maker is owed:

A)to a person entitled to enforce the instrument.
B)only to holders of the instrument.
C)even to indorsers who have not paid the instrument pursuant to their indorser's liability.
D)only to a nonholder in possession of the instrument.

Question 15

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 16

A material change in a negotiable instrument does not discharge any party whose contract is changed.

Question 17

A person who is primarily liable has agreed to pay the negotiable instrument.

Question 18

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

Question 19

Liability on a negotiable instrument:

A)can arise only by transfer of an instrument.
B)cannot arise from non-presentment.
C)can arise from negligence relating to the issuance.
D)cannot arise from improper payment.

Question 20

An indorsing transferor makes all five transfer warranties to his/her immediate transferee.

Question 21

Under the Revised Article 3 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 form the warrantor an amount equal to the loss suffered as a result of the breach.
D)no damages may be recovered.

Question 22

A person who transfers a negotiable instrument to someone else and for consideration warrants:

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

Question 23

The indorser's liability is discharged if the check is not presented within:

A)7 days after the date of endorsement.
B)14 days after the date of endorsement.
C)30 days after the date of endorsement.
D)48 hours after the endorsement.

Question 24

People who presents 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 materially 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 25

Devon draws a check payable to the order of Jen on his account at Big Bank.Jen properly negotiates the check to Seth,who sells the check to Andy.Seth indorsed without recourse.Andy deposits the check in his bank account at Mega Bank without indorsing the check.Who has liability to Mega Bank?

A)Big Bank
B)Seth
C)Jen
D)Jen,Seth and Andy

Question 26

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 27

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

A)The maker of a promissory note is secondarily liable for payment of it.
B)He 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,who is a person entitled to enforce the instrument.

Question 28

Alice drew a check on her account at the Third National Bank payable to the order of Aaron.When Aaron presented the check for payment,Third National refused to honor the check.Under these circumstances:

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

Question 29

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

A)Bertha
B)Mack
C)Both Mack and Bertha
D)Neither Mack nor Bertha

Question 30

Mila borrows $1,000 from Pedro to pay for school and gives Pedro a note for that amount.Pedro wants Mila's father to sign as an accommodation party.Mila's father signs below Mila's signature on the fall of the note.Who has liability to Pedro?

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

Question 31

Who is primarily liable on a check when it is issued?

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

Question 32

Peter draws a check on his account in Third National Bank payable to the order of Stella.When Peter draws the check,he gets Third National Bank to certify the check.Stella presents the check to Third National Bank for payment but the bank refuses to honor the check.What is the result?

A)Third National Bank becomes primarily or absolutely liable on the check.
B)Peter is primarily liable on the check and Third National Bank is secondarily liable on the check.
C)Both Peter and Third National Bank are primarily liable on the check.
D)Third National Bank has no contractual liability on the check whatsoever.

Question 33

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)do nothing-he/she loses any rights to the instrument.
D)not enforce it as completed.

Question 34

Susan borrows $1,000 from Jack and gives him a promissory note for $1,000 at 9 percent annual interest payable in 90 days.Jack indorses the note "Pay to the order of Robin" and negotiates the note to Robin.At the end of 90 days,Robin takes the note to Susan.Under these circumstances:

A)if Susan dishonors the note Robin can hold Jack secondarily liable without giving him notice of the dishonor.
B)if Susan dishonors the note,Robin cannot sue Susan on the basis of her maker's obligation.
C)if Susan dishonors the note,Robin cannot hold Jack secondarily secondarily liable on his indorsement.
D)if Susan pays Robin the $1,000 and accrued interest,she can have Robin mark it "paid" and give it back to her.

Question 35

A non-indorsing transferor:

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

Question 36

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

A)both James and the bank are liable to Terry.
B)James is liable to Terry on the basis of drawer's obligation.
C)James transfers his duties as a drawer to the drawee bank and the bank is liable.
D)neither James nor the bank is liable to Terry.

Question 37

Who is primarily liable on a certified check?

A)The payee
B)The drawer
C)The certifying drawee bank
D)No party is primarily liable

Question 38

Ted stole Ron's checkbook and wrote a check for $100,forging Ron's signature.Under these circumstances:

A)Ted but not Ron is liable on the check.
B)Ron but not Ted is liable on the check.
C)both Ted and Ron are liable on the check.
D)the bank will be liable on the check.

Question 39

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

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

Question 40

The acceptor's obligation:

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

Question 41

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

Question 42

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 only if it lacks indorsement necessary for negotiation.

Question 43

Explain the five transferor's warranties.

Question 44

With respect to instruments,"responsibility" means the authority:

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

Question 45

Tim stole from Wes a check payable to the order of Wes.Tim forged Wes's signature and presented the check for payment at American Bank,which honored the check.If Wes sues American Bank for the amount of the check,under what theory,if any,can Wes recover the funds from the Bank?

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

Question 46

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

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

Question 47

The imposter rule regarding negotiable instruments:

A)was devised 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 latter holders of an instrument.

Question 48

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

Question 49

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

Question 50

Who is entitled to enforce an instrument?