Deck 28: Liability, defenses, and Discharge

Question 1

According to the UCC,a signature can be any name,word,mark,or symbol used by a party to authenticate a writing.

Answer 1

True

Question 2

A party who is primarily liable for an instrument must pay without resorting to any other party.

Answer 2

True

Question 3

When the transfer of an instrument breaches a warranty associated with the instrument,which type of liability arises on the instrument?

A)Primary liability
B)Secondary liability
C)Warranty liability
D)Payee liability
E)Signature liability

Answer 3

C
Explanation: A)A party may be liable if the transfer of the instrument breaches a warranty
associated with the instrument.This type of liability is called warranty liability.
B)A party may be liable if the transfer of the instrument breaches a warranty associated with the instrument.This type of liability is called warranty liability.
C)A party may be liable if the transfer of the instrument breaches a warranty associated with the instrument.This type of liability is called warranty liability.
D)A party may be liable if the transfer of the instrument breaches a warranty associated with the instrument.This type of liability is called warranty liability.
E)A party may be liable if the transfer of the instrument breaches a warranty associated with the instrument.This type of liability is called warranty liability.

Question 4

If an accommodated party pays a note when it is due,the accommodated party can force any accommodation party to contribute based upon the number of accommodation parties that exist.

Question 5

Which of the following was the result on appeal in Laborer's Pension Fund v.A & C Envtl. ,Inc. ,the case in the text in which the defending employer claimed that an agreement entered into regarding payment of union dues wrongfully required payment for all defendant's employees when it should have required payment of dues for only a few employees who were working out- of-town within the area of the union involved?

A)That although a representative of the plaintiff misinformed the defending employer of the contents of the written document,the defendant's representative had sufficient opportunity to read the document;and the defending employer was therefore liable for dues of all its employees.
B)That while the defending employer would be liable for all dues under common law,because of applicable federal labor law,the defending employer was liable for dues only for employees working out-of-town within the area of the union involved.
C)That the defending employer had to pay no dues at all because a representative of the plaintiff wrongfully misrepresented the contents of the written document.
D)That the defending employer was liable for all the dues regardless of whether a representative of the plaintiff misinformed the defending employer of the contents of the written document and regardless of whether the defendant's representative had an opportunity to read it.
E)That the defending employer had to pay only the dues of the employees who were working out-of-town within the area of the union involved because a representative of the plaintiff wrongfully misrepresented the contents of the written document.

Question 6

If Teren sends Clem a letter,telling Clem he will not sue to enforce a promissory note,Clem's liability under the note has been discharged.

Question 7

The most common reason that improper presentment occurs is the failure to present an instrument on time.

Question 8

A bank's refusal to pay an instrument signifies that the instrument has been dishonored.

Question 9

A bank is primarily liable for the amount of a check when it accepts the check.

Question 10

Which of the following was the result on appeal in Heartland State Bank v.American Bank & Trust,the case in the text involving whether the defending payor bank timely sent notice of dishonor of a check when it sent notice before midnight on April 11 for a check received on April 10?

A)That the defending bank had no right to return the check because by accepting the check,it became accountable for it.
B)That the bank had no right to return the check because the check was written by one of its customers.
C)That the defending bank had until midnight on April 10 to return the check and that it,therefore,did not act in a timely manner.
D)That the defending bank had until midnight on April 11 to return the check and that it,therefore,acted in a timely manner in doing so.
E)That the defending bank had no right to return the check because the check had already gone through the Federal Reserve System.

Question 11

A secondarily liable party becomes liable even if a primarily liable party does not dishonor the instrument.

Question 12

If Kyoko makes a proper tender of the full payment of $1,000 due on Patrick's note on the note's due date,but Patrick improperly refuses to accept the money,any endorsers are discharged from liability.

Question 13

An agent's signature can create liability for a principal as long as the agent is authorized to sign a negotiable instrument on behalf of the principal.

Question 14

The principal's name must be shown on the instrument in order for the principal to be held liable when an agent signs a note on behalf of the principal.

Question 15

When a person signs a negotiable instrument,which type of liability occurs?

A)Primary liability
B)Signature liability
C)Payee liability
D)Secondary liability
E)Warranty liability

Question 16

The only acceptable method of ratification is for the principal to explicitly approve the signature of the unauthorized agent.

Question 17

If a transfer is through endorsement,transfer warranties apply to any future holders;however,if the transfer does not occur through endorsement,the warranties apply only to the transferee.

Question 18

Liam wrote a check drawn on his account at ABC Bank for $500 made out to Lara Smith for payment for yard work.Liam put the check properly addressed to Lara in the U.S.mail.Through unknown means,a thief obtained the check.The thief altered the name of the payee to Tara Smith,and through expertly forged documents opened an account at XYZ Bank and obtained the funds from Liam's check along with a number of other stolen checks.When the check was then presented to ABC Bank for payment,ABC Bank charged Liam's account in the amount of $500.A few days later,Lara asked Liam for her money;and,after investigating,he became aware of the situation.Assuming the court follows the reasoning of the case in the text,Halliburton Energy Services,Inc. ,v.Fleet National Bank,which of the following is true regarding whether Liam is entitled to a return of his funds?

A)Lara,the payee,bore a risk of loss and,although Liam is not entitled to return of the funds,his debt to Lara is discharged.
B)Liam is entitled to a return of the funds only if he can establish that he notified ABC Bank of the problem within 30 days of receiving the bank statement showing the alteration.
C)Liam is entitled to a return of only ½ of the funds because in such cases,the collecting bank,XYZ Bank,and the drawer,Liam,must share the loss.
D)Liam is entitled to a refund if he can establish that XYZ Bank failed to exercise ordinary care in taking the instrument.
E)As a matter of law,the presenting bank is charged with notice of forgeries;therefore,XYZ must take the loss,and Liam is entitled to a return of his funds.

Question 19

A party who signs a negotiable instrument without knowing that it is,in fact,a negotiable instrument,can claim fraud in the execution as a defense.

Question 20

If an accommodation party pays a note for an accommodated party,the accommodation party has a right of action against the accommodated party to recover the money paid.

Question 21

If the party that dishonors an instrument is a collecting bank,when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

A)Within 10 days
B)Within 30 days
C)Before midnight of the next day
D)Within 7 days
E)Within 48 hours

Question 22

Which of the following is a party who has authority to act on behalf of and bind another party?

A)A principal
B)A real endorser
C)An agent
D)A transferor
E)A warrantor

Question 23

Which of the following is true regarding how an accommodation party may sign an instrument?

A)An accommodation party may sign an instrument only as an endorser or acceptor.
B)An accommodation party may sign an instrument only as a maker or acceptor.
C)An accommodation party may sign an instrument only as a maker.
D)An accommodation party may sign an instrument as a maker,drawer,acceptor,or endorser.
E)An accommodation party may sign an instrument only as a maker or a drawer.

Question 24

What is the name of the party that orders the drawee to pay?

A)Acceptor
B)Promisor
C)Drawer
D)Endorser
E)Maker

Question 25

When it is not possible to determine the status of the signer of an instrument,which of the following is the general rule?

A)The party is considered the drawer.
B)The party is considered the endorser.
C)The party is considered the maker.
D)The party is considered the acceptor.
E)The party is considered an accommodation party.

Question 26

After notice of dishonor is received,how long do parties other than a collecting bank have in order to give notice of dishonor to a secondarily liable party?

A)It must be given within 7 days.
B)It must be given within 10 days.
C)It must be given before midnight of the next day.
D)It must be given within 48 hours.
E)It must be given within 30 days.

Question 27

Which of the following is true regarding the liability of an accommodation party?

A)An accommodation party has primary liability as a maker only if all other parties have filed bankruptcy,and secondary liability in any other case regardless of whether the accommodation party is the maker or endorser.
B)An accommodation party has primary liability as either a maker or endorser only if all other parties to the instrument have filed bankruptcy.
C)As a maker,an accommodation party has primary liability;but as an endorser,the party has secondary liability.
D)An accommodation party has primary liability both as a maker and as an endorser.
E)An accommodation party has secondary liability both as a maker and as an endorser.

Question 28

When a party signs a negotiable instrument,which of the following is true regarding the position of that party?

A)The party may be a drawer or maker,but not an acceptor or an endorser.
B)The party may be a maker,acceptor,or drawer,but not an endorser.
C)The party may be a maker or acceptor,but not a drawer or an endorser.
D)The party may be a drawer,maker,endorser,or acceptor.
E)The party may be a maker,drawer,or endorser,but not an acceptor.

Question 29

Which of the following must occur for a drawer to become liable on a check?

A)The two requirements are that 1)the holder of the instrument present the instrument to the drawer in a proper and timely fashion and 2)the holder establish that the check was wrongfully dishonored.
B)The four requirements are that 1)the holder of the instrument present the instrument to the drawee in a proper and timely fashion,2)the instrument be dishonored,3)notice of the dishonor be given to the drawer,and 4)proof provided by the holder that the check was wrongfully dishonored.
C)The three requirements are that 1)the holder of the instrument present the instrument to the drawee in a proper and timely fashion,2)the instrument be dishonored,and 3)notice of the dishonor be given to the drawer.
D)The only requirement is that the holder of the instrument present the instrument to the drawer in a proper and timely fashion.
E)The only requirement is that the holder of the instrument present the instrument to the drawee in a proper and timely fashion.

Question 30

To hold an endorser secondarily liable on a check,a holder must present a check within how many days of the endorsement?

A)90
B)30
C)50
D)120
E)60

Question 31

When a holder presents an instrument in a timely and proper manner,but acceptance or payment is refused,the instrument has been ________.

A)Rejected
B)Converted
C)Dishonored
D)Refused
E)Destroyed

Question 32

What is the name of the party that accepts and signs a draft to agree to pay the draft when it is presented?

A)Endorser
B)Promisor
C)Acceptor
D)Maker
E)Drawer

Question 33

Which of the following is true in the event an instrument contains more than one endorsement?

A)Each endorser is liable for the full amount to the subsequent endorser or to the holder.
B)Each endorser is liable for the full amount to the subsequent endorser,but only the last endorser is liable to any holder.
C)Each endorser is liable to the holder in proportion to the number of endorsers that exist.
D)The last endorser is liable to the holder,whereas subsequent endorsers are not liable to the holder,but are responsible for reimbursing the last endorser in proportion to the number of endorsers that exist.
E)Only the last endorser is liable to the holder and no prior endorsers are liable to a subsequent endorser.

Question 34

Which kind of party signs an instrument to provide credit for another party that has also signed the instrument?

A)Accommodation
B)Agreeable
C)Promisor
D)Agent
E)Principle

Question 35

Under the UCC,how can proper presentment be made?

A)Only at a place designated in the instrument.
B)By any commercially reasonable means,through a clearinghouse procedure,or at a place designated in the instrument.
C)By any commercially reasonable means or at the place designated in the instrument,but not through a clearinghouse procedure.
D)By any commercially reasonable means.
E)Only through a clearinghouse procedure.

Question 36

Which of the following type of liability establishes that the party must pay the amount due on the instrument if the primarily liable party defaults?

A)A party who has secondary liability.
B)A party who has maker liability.
C)A party who has acceptor liability.
D)A party who has recognition liability.
E)A party who has transfer liability.

Question 37

Which of the following is true regarding what is considered a commercially reasonable manner by which notice of dishonor may be given to a secondarily liable party?

A)The only commercially reasonable manner recognized by the UCC for notice of dishonor is written mail.
B)The only commercially reasonable manner for notice of dishonor recognized by the UCC is certified mail.
C)Due to advances in technology,the only commercially reasonable manner recognized by the UCC for notice of dishonor is electronic communication.
D)The UCC recognizes two manners of delivery for notice of dishonor that are considered commercially reasonable: written and electronic.
E)The UCC recognizes that oral,written,and electronic communications are all commercially reasonable ways in which to provide notice of dishonor.

Question 38

What is the name of the party that promises to pay a set sum to the holder of a promissory note or certificate of deposit?

A)Maker
B)Endorser
C)Promisor
D)Drawer
E)Acceptor

Question 39

What is the name of the party that signs an instrument to restrict payment of it,negotiate it,or incur liability?

A)Endorser
B)Acceptor
C)Drawer
D)Promisor
E)Maker

Question 40

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

A)Issuers and acceptors are primarily liable for a negotiable instrument,while drawers and endorsers are secondarily liable.
B)Drawers and endorsers are primarily liable,while issuers and acceptors are secondarily liable.
C)Issuers and drawers are primarily liable,while acceptors and endorsers are secondarily liable.
D)Drawers are primarily liable,while issuers,acceptors,and endorsers are secondarily liable.
E)Acceptors and endorsers are primarily liable,while issuers and drawers are secondarily liable.

Question 41

Which of the following is not a real defense to enforcement of a negotiable instrument?

A)Infancy being below the legal age of consent),to the extent that it makes a contract void
B)Impairment of collateral
C)Discharge through insolvency proceedings bankruptcy)
D)Forgery
E)Fraud in the factum

Question 42

Which of the following results in liability for the principal because the principal approved of an unauthorized agent's signature?

A)Acknowledgement
B)Pre-approval
C)Ratification
D)Post-approval
E)Authorization

Question 43

When a party is tricked into signing a negotiable instrument without having a chance to determine that it is,in fact,a negotiable instrument,what can the party claim?

A)Recklessness
B)Fraud in the factum
C)Malice
D)Strict liability
E)Negligence

Question 44

Which of the following is false regarding the means by which an instrument may be cancelled by a person entitled to enforce it?

A)A party may cancel an instrument by intentionally mutilating the instrument.
B)Consideration is necessary before a cancellation,a form of contractual agreement,is effective.
C)A party may cancel an instrument by simply writing "paid" on the instrument.
D)A party may cancel an instrument by intentionally destroying the instrument.
E)A party may cancel an instrument by giving the instrument to the obliged party.

Question 45

Zachary,who has been authorized to write a check from a company account to pay employees,draws bonus checks from the company account for five fictitious employees,endorses the checks in their names,and deposits those into his own bank account.Which of the following is true regarding whether the company will be required to take the loss on the checks?

A)Under the employee-liability rule,in addition to its rights in regard to Zachary,the company will be able to recover from any bank that cashed the checks.
B)Under the banking liability act,in addition to its rights in regard to Zachary,the company will be able to recover from any bank that cashed the checks.
C)Under the transferor rule,the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
D)Under the fictitious payee rule,the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
E)Under the imposter rule,the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.

Question 46

[The Furniture Shop] Chloe writes a check for some furniture to The Furniture Shop,a small specialty furniture shop whose shares are owned primarily by Rabia.Rabia decided to go on an extended European vacation and temporarily closed down the shop the day after Chloe wrote the check.When Rabia returned,she had a number of other things to do and did not take Chloe's check and some other checks to the bank for three months.Rabia was independently wealthy and only ran the shop as a hobby,so she had not been in need of funds.When Rabia finally took Chloe's check to the bank,Rabia requested that her bank,ABC Bank,deposit the check into her account.When ABC Bank,however,requested payment from Chloe's bank,XYZ Bank,the check was dishonored because of insufficient funds in Chloe's account.Although Rabia did not particularly need the funds,she did not like to feel as if she had been cheated;therefore,she demanded that Chloe make the check good.
Who is the drawer of the check Chloe presented to Rabia at The Furniture Shop?

A)The Furniture Shop
B)Rabia,as primary owner of The Furniture Shop
C)Chloe
D)Chloe's bank.
E)Rabia's bank.

Question 47

Violet has authority to act on behalf of and bind Ryan.Which of the following legal term describes Ryan's position?

A)Real endorser
B)Warrantor
C)Transferor
D)Agent
E)Principal

Question 48

Which of the following occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means?

A)Reacquisition
B)Release
C)Renunciation
D)Cancellation
E)Recourse

Question 49

Which of the following was the result on appeal in the Case Opener in which the plaintiff optometrist sued the defending bank for cashing over 500 checks that his receptionist fraudulently embezzled through forging his signature?

A)Based on public policy,the plaintiff was denied recovery although no negligence was found on the part of either party.
B)Because only the bank was found negligent,the plaintiff was denied recovery.
C)Because only the bank was found negligent,the plaintiff was entitled to recover the value of the checks.
D)Because both the plaintiff and the bank were found negligent,the plaintiff was denied recovery.
E)Because both the plaintiff and the bank were found negligent,the plaintiff recovered only 50% of his losses.

Question 50

When,if ever,will a party's negligence block a party from escaping liability for an unauthorized signature?

A)A party's negligence will make the party liable for an unauthorized signature only if the negligence rises to the level of gross negligence.
B)A party's negligence will make the party liable for an unauthorized signature only if the negligence amounts to a finding of recklessness.
C)A party who is negligent may not escape liability for an unauthorized signature if the party whose signature was forged behaved so negligently as to substantially contribute to the making of the forgery.
D)The issue of negligence will not as a matter of law block a party from escaping liability for an unauthorized signature.
E)Any type of negligence will result in a party being liable for an unauthorized signature.

Question 51

When a party's liability for a negotiable instrument is terminated,this party's liability has been ________.

A)Discharged
B)Delivered
C)Released
D)Abrogated
E)Terminated

Question 52

Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

A)Only one warranty applies,that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
B)Two warranties are applicable: 1)that the instrument has not been altered,and 2)that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
C)Three warranties are applicable: 1)that the instrument has not been altered,2)that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized,and 3)that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment.
D)Only one warranty applies,that the instrument has not been altered.
E)Only one warranty applies,that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment.

Question 53

Who is the drawee of the check Chloe presented to The Furniture Shop?

A)Rabia's bank
B)Chloe's bank
C)Rabia,as primary owner of The Furniture Shop
D)The Furniture Shop
E)Chloe

Question 54

Which of the following is the most likely result of Rabia's request that Chloe pay the amount due on the check?

A)It is unlikely that Chloe will have to pay on the check because the UCC states that a check must be presented within 30 days in order to hold a drawer secondarily liable.
B)It is unlikely that Chloe will have to pay on the check because the UCC states that a check must be presented within 10 days in order to hold a drawer secondarily liable.
C)It is unlikely that Chloe will have to pay on the check because the UCC states that a check must be presented within 60 days in order to hold a drawer secondarily liable.
D)It is likely that Chloe will have to pay the check as a secondarily liable party.
E)It is unlikely that Chloe will have to pay on the check because the UCC states that a check must be presented within 20 days in order to hold a drawer secondarily liable.

Question 55

Which statement is true regarding types of warranty liability?

A)There are two types of warranties in regard to instruments,transfer and presentment.
B)There is only one type of warranty in regard to instruments,transfer.
C)There is only one type of warranty in regard to instruments,presentment.
D)There are three types of warranties in regard to instruments,transfer,presentment,and acknowledged.
E)There is only one type of warranty in regard to instruments,acknowledged.

Question 56

Which of the following is the most likely result if an agent admits to the principal that a check for the principal was forged by the agent and placed into the agent's bank account,but the principal does nothing until two months later after the agent leaves town with the funds?

A)The principal can receive reimbursement from makers of the checks only.
B)Because the checks were forged,the principal can receive reimbursement of the funds from any maker involved or any bank that cashed the checks.
C)The principal can recover from either the makers or any banks who cashed the checks only if it can be shown that the agent cannot be located for criminal prosecution.
D)The principal can receive reimbursement from any bank that cashed the checks only.
E)It is likely that it will be determined that the principal ratified the signatures and that the principal cannot recover from either makers or banks that cashed the checks.

Question 57

Real defenses apply to ________,whereas personal defenses do not apply to ________.

A)Holders;holders.
B)Holders;holders in due course.
C)All parties;holders in due course.
D)All parties;endorsers.
E)All parties;holders.

Question 58

Carl,without Austin's knowledge,impersonates Austin and thereby convinces Lucía,who has never seen Austin,to write a check to Austin for upcoming yard work.Carl then forges Austin's name and deposits the check into his,Carl's,account.Which of the following is true regarding whether Lucía will be liable for the amount of the check?

A)Under the fictitious payee rule,Lucía will not be held liable.
B)Under the imposter rule,Lucía will be held liable.
C)Under the transferor rule,Lucía will be held liable.
D)Under the payee rule,Lucía will be held liable.
E)Under the forgery rule,Lucía will be held liable.

Question 59

Who among the following was the holder of the check?

A)The Furniture Shop
B)Rabia's bank
C)Chloe's bank
D)Chloe
E)There is no holder in this instance

Question 60

As defined in the UCC,under which of the following circumstances would presentment have occurred?

A)When Rabia requested that Chloe make the check good.
B)When XYZ Bank notified Rabia that it would not pay based upon insufficient funds.
C)When ABC Bank requested payment from XYZ Bank.
D)When Chloe presented the check to The Furniture Shop
E)When Rabia took the check to ABC Bank.

Question 61

Under the UCC,when must a check be presented in order to hold a drawer secondarily liable?

A)Within sixty days of the check's date.
B)Within sixty days of the endorsement.
C)Within twenty-four hours of the check's date.
D)Within thirty days of the endorsement.
E)Within thirty days of the check's date.

Question 62

[Run Around] Hema issues a promissory note to Rahul.Rahul endorses the note and transfers it to Anne.Anne endorses the note and transfers it to Floyd.Floyd presents the note to Hema for payment.When Floyd presents the note to Hema,she asks him for reasonable identification.He did not have any identification with him and told her that she had no right to dishonor the instrument.Hema continued to insist,so finally,on the same day,Rahul obtained clear identification and presented it to her.Nevertheless,even with proper identification,Hema refused to pay the note,claiming that she lacked the funds with which to do so.After properly providing notification of dishonor to both Anne and Rahul,Floyd requested that Anne pay the note,but she told him that he would have to get his money from Rahul.Floyd has been trying to call Rahul for 35 days,but Rahul did not return his telephone calls.Floyd is exasperated;and within 40 days of when Hema refuses payment,he notifies Hema,Rahul,and Anne that the promissory note has been dishonored by Hema and that he is asserting liability on the note against all of them.Hema calls him up and says that she never dishonored the note,she simply lacks the funds with which to immediately pay and thinks that he should seek recovery elsewhere.
Which of the following is true regarding when,and if,the note was initially dishonored?

A)Hema initially dishonored the instrument when she asked for proper identification.
B)The note was not dishonored until Anne told Floyd that he would have to seek recovery from Rahul.
C)Hema initially dishonored the instrument when she refused to pay it on the basis that she lacked funds with which to do so.
D)The note was considered initially dishonored 30 days after Floyd started seeking Rahul,but was unable to find him.
E)The note has never been dishonored because Floyd's right to receive payment on the note from someone is acknowledged.

Question 63

[Diamond Debacle] Prida owns Prida's Jewelry Store.Charla is Prida's top diamond purchasing agent and usually signs promissory notes on Prida's behalf.Unbeknownst to Prida,Charla is considering opening her own diamond business.While at a convention in New York,Charla signs a promissory note with Jirah's Diamonds for the cost of several newly cut stones.Although Prida's Jewelry Store's name does not appear on the note,Jirah is aware that Charla works for Prida's.Charla decides not to quit her job at Prida's and Jirah presents Prida's with the note and demands payment.
Can Prida's Jewelry be held liable for the note?

A)No,because Charla intended to quit her job at Prida's.
B)No,because Charla did not write "as an agent of Prida's" on the note.
C)Yes,if Charla signed the note truly on behalf of Prida's,then Prida's can be held liable even if not identified on the note.
D)No,because Prida's name must appear on the note in order to be held liable.
E)Yes,because Jirah knew that Charla worked for Prida's.

Question 64

Did Dexter dishonor the promissory note?

A)No,Garren only told Dexter about the promissory note and never exhibited the promissory note to Dexter,therefore there was no presentment and Dexter did not dishonor the note.
B)Yes.
C)No,Garren did not present the note in a timely manner,therefore Dexter did not dishonor the note.
D)No,Garren was not a proper party,therefore Dexter did not dishonor the note.
E)No,although Garren met the requirements for presentment and Dexter refused to pay,he did not explicitly dishonor the note.

Question 65

Which of the following is true regarding electronic signatures?

A)Electronic signatures are not widely accepted because of the likelihood of fraud.
B)Banking companies are prohibited from having policies that deem the merchant responsible for a buyer's fraudulent charges.
C)Many banking companies have policies that deem the merchant responsible for the charge if the buyer's payment is fraudulent.
D)Many banking companies have policies that deem the buyer responsible for fraudulent charges.
E)There are few risks for companies who conduct business through an online banking system.

Question 66

Can Charla be held personally liable for the note?

A)Yes,Charla may be personally liable because Jirah is a holder in due course and was not aware Charla signed on behalf of Prida's.
B)No,agents can never be personally liable even if the principal's name does not appear on the note.
C)No because Jirah was a holder in due course.
D)Yes,agents are personally liable when they sign their own name and omit the name of the principal.
E)No,Jirah is not a holder in due course and Charla will not be held liable if she can show that it was not Prida's intent to hold Charla personally liable.

Question 67

Which of the following is true regarding Anne's statement to Floyd that he must seek recovery from Rahul?

A)Anne is correct in stating that Floyd should seek recovery from Rahul only if Hema has filed bankruptcy because,otherwise,Floyd should be pursuing litigation against Hema.
B)Anne is correct.
C)Anne is correct only if Rahul is able to pay and has not filed bankruptcy.
D)Anne is correct unless the note is for over $10,000,in which case Floyd can seek recovery from her without resorting to recovery from Rahul or Hema.
E)Anne is incorrect.Floyd may seek recovery from her without first seeking recovery from Rahul.

Question 68

[Banking Problems] Celine is a loan officer at ABC Bank.Being somewhat dishonest,Celine tells Rohan,a customer of the bank,who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter.She asks him to sign a pledge that he will contribute $50 to the animal shelter.However,through covering pertinent terms of the document,Celine actually had Rohan sign a promissory note made out to her for $5,000,which she later endorsed to Miguel.After leaving the bank,Rohan proceeded to one of his businesses,a used car dealership.Taylor comes in to purchase a used car.He and Rohan agree that Taylor will purchase a car for $3,000.Zoe also comes in,and she and Rohan agree that she will purchase a used car for $4,000.Both Taylor and Zoe make out promissory notes payable to Rohan.At the end of the day,Rohan is looking through the notes and decides that Taylor's was mistakenly made out for$3,000 when it should have been $3,500.Rohan mistakenly,but honestly,believes that the deal was for$3,500.Therefore,he changes the note to reflect that Taylor owes $3,500.Rohan,on the other hand,simply does not like Zoe.He decides that $4,000 was not enough for the car.Accordingly,he changes the note to$4,500.
Which of the following is the most likely result if Rohan refuses payment on the promissory note that was endorsed to Miguel claiming that he never signed it?

A)He will be liable unless he can establish that Miguel was not a holder in due course.
B)He will be liable because an official banking document was involved.
C)He can claim fraud in the inducement,and he will not be liable regardless of whether or not he knew what he was signing.
D)He will not be liable because a party is never liable on a negotiable instrument when it is signed without knowledge that it is,in fact,a negotiable instrument.
E)He can claim fraud in the factum,and whether he is liable or not will depend upon whether a court determines that he should have known what he was signing.

Question 69

Who is primarily liable for a cashier's check?

A)The individual who orders the cashier's check and from whose account the payment is drawn.
B)The endorser of cashier's check.
C)No entity is primarily liable on a cashier's check.
D)The individual who orders the check is primarily liable;the bank is secondarily liable.
E)The bank that issues the cashier's check,as the bank is the maker of the check.

Question 70

Which of the following statements is true about the Negotiable Instruments Law in China?

A)China's law requires discrepancies between the Chinese characters and the numbers to be resolved in favor of the Chinese characters.
B)China's law addresses only banks,not individuals,as endorsers.
C)China's law permits monetary amounts to be written in either Chinese characters or numbers.
D)The purpose of China's law is to promote free trade.
E)China's law specifically addresses the use of promissory notes by individuals.

Question 71

If Garren properly presents the note to Dexter and Dexter simply writes "dishonor" on the note,is there a proper notice of dishonor?

A)No,because the notice does not identify the instrument in question.
B)Yes,because if the word "dishonor" on the instrument is sufficient to constitute notice.
C)No,unless Garren specifically states that he is dishonoring the note.
D)No,because simply writing "dishonor" is insufficient to constitute notice.
E)No,because Garren did not sign his name.

Question 72

Which of the following is true regarding Zoe's liability to Rohan?

A)Zoe's obligation will be enforced only to the amount of $4,000 if payment is to be made to Rohan;but if the note has been negotiated to another holder,Zoe is liable for $4,500.
B)Unless Zoe has a written document from Rohan to the effect that the agreement was for $4,000 only,Zoe and Rohan will be legally required to split the remainder with Zoe being held responsible for $4,250.
C)Because of the fraudulent alteration,Zoe is not liable to Rohan for any amounts under the promissory note.
D)Zoe is liable for $4,000 regardless of whether or not Rohan has negotiated the note to another party.
E)Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan;but in the event the note is negotiated to a holder in due course,Taylor is liable for $3,500.

Question 73

Which of the following is true regarding Floyd's entitlement to payment from Hema?

A)Floyd is only entitled to payment from Hema because Anne dishonored the payment.
B)Floyd is never entitled payment from Hema because he must seek recovery only from Anne.
C)Floyd is not entitled to payment from Hema unless Rahul,in addition to Anne,dishonors the instrument.
D)Floyd is entitled to recover on the note from Hema only if both Anne and Rahul have filed bankruptcy or are otherwise proven insolvent.
E)Floyd is entitled to recover on the note from Hema.

Question 74

Which of the following statements is true regarding detecting fraudulent payment in online transaction systems?

A)Online business cannot require more extensive authentication procedures when a customer makes a payment.
B)There are no options for online businesses to properly authenticate the customer making a payment.
C)Businesses have several options for ensuring their online transaction system can detect fraudulent payment.
D)Businesses have no options to prevent fraud.
E)Insurance that covers fraudulent payments in online transaction systems is not available.

Question 75

Assuming that Rohan admits the modification but it is not considered fraudulent,which of the following is true regarding Taylor's liability on the note?

A)Taylor is liable for $3,000 regardless of whether or not Rohan has negotiated the note to another party.
B)Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan;but in the event the note is negotiated to another holder,Taylor is liable for $3,500.
C)Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan;but in the event the note is negotiated to a holder in due course,Taylor is liable for $3,500.
D)Because of the alteration,Taylor is not liable for any amounts under the promissory note.
E)Unless Taylor has a written document from Rohan to the effect that the agreement was for $3,000 only,Taylor and Rohan will be legally required to split the remainder with Taylor being held responsible for $3,250.

Question 76

Assuming there is proper presentment and notice of dishonor,can Bernard be held liable on the promissory note?

A)Garren has no recourse since he is not a holder in due course.
B)No,only Dexter can be held liable.
C)Yes,and he can sue Dexter who is primarily liable for the note.
D)No,because he is not primarily liable.
E)Yes,but he has no recourse against Dexter.

Question 77

Which of the following is the likely result if Floyd sues Anne,Rahul,and Hema?

A)The judge is likely to rule that Floyd's only option of recovery is against Anne because she provided the note to him,but that Anne can recover from either Rahul or Hema and that if Rahul pays Anne,he can recover from Hema.
B)The judge is likely to rule that Floyd's only option of recovery is against Hema.
C)The judge is likely to rule that Floyd can recover against Rahul and that Rahul may recover against Hema,but Floyd cannot recover directly from Anne because she is too far removed from the maker.
D)The judge is likely to rule that Floyd's only option for recovery is against Rahul who may then recover against Hema.
E)The judge is likely to rule that Floyd can recover from Anne,Rahul,or Hema;but in the event Anne pays Floyd,she can recover from Rahul or Hema;and in the event that Rahul pays Floyd,he can recover from Hema.

Question 78

[Roommate Troubles] Dexter,Bernard,and Garren were roommates who do not get along and decide to go their separate ways when their lease expires on May 31.Dexter owes Bernard $500 and signs a promissory note that he will pay Bernard $500 by July 1.Bernard,who owes Garren money,endorses the back of the note and writes "Pay to the order of Garren" on the back and gives the note to Garren.On July 2,Garren tells Dexter that Bernard signed the promissory note to him,so Dexter should just pay Garren the $500.Dexter refuses to pay Garren anything.Garren then tells Bernard that Dexter dishonored the note and sues Bernard for the value of the note.
Who is primarily liable on the promissory note and who is secondarily liable?

A)Both Dexter and Bernard are primarily liable on the note.
B)Dexter is primarily liable and Bernard is secondarily liable.
C)Bernard is primarily liable and Garren is secondarily liable.
D)Dexter is primarily liable and Garren is secondarily liable.
E)Bernard is primarily liable and Dexter is secondarily liable.

Question 79

If Charla was not authorized to sign the note on behalf of Prida,but Prida subsequently accepted the cut diamonds to sell in her store,which of the following terms best describes the situation?

A)Ratification
B)Dishonor
C)Accommodation
D)Renunciation
E)Presentment

Question 80

Under what circumstances might Charla be held personally liable for the note?

A)If Jirah is a holder in due course and unaware that Charla signed on behalf of Prida's.
B)If Jirah is unaware that Charla signed on behalf of Prida's.
C)If Jirah is a holder in due course.
D)If Charla failed to disclose that she was an agent of Prida's.
E)If Jirah is not a holder in due course and unaware that Charla signed on behalf of Prida's.