Deck 28: Liability, Defenses, and Discharge

Question 1

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.

Answer 1

False

Question 2

The type of liability that occurs based on a person signing a negotiable instrument is referred to as which of the following?

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

Answer 2

Signature liability

Question 3

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.

Answer 3

True

Question 4

The fact that a bank refuses to pay an instrument means that it has been dishonored.

Question 5

Which of the following is the general rule when it is not possible to determine the status of the signer of an instrument?

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

Question 6

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

Question 7

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) Acceptors and endorsers are primarily liable, while issuers and drawers are secondarily liable.
E) Drawers are primarily liable, while issuers, acceptors, and endorsers are secondarily liable.

Question 8

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

Question 9

Which of the following promises to pay a set sum to the holder of a promissory note or certificate of deposit?

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

Question 10

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

Question 11

Barry wrote a check drawn on his account at ABC Bank for $500 made out to Susie Smith for payment for yard work. Barry put the check properly addressed to Susie in the U.S. mail. Through unknown means, a thief obtained the check. The thief altered the name of the payee to Trudy Smith, and through expertly forged documents opened an account at XYZ Bank and obtained the funds from Barry's check along with a number of other stolen checks. When the check was then presented to ABC Bank for payment, ABC Bank charged Barry's account in the amount of $500. A few days later, Susie asked Barry 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 Barry is entitled to a return of his funds?

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

Question 12

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

Question 13

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 the defending employer had to pay no dues at all because a representative of the plaintiff wrongfully misrepresented the contents of the written document.
B) 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.
C) 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.
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 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.

Question 14

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 15

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

Question 16

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

Question 17

When a bank accepts a check, it is primarily liable for the amount of the check.

Question 18

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

Question 19

Which of the following accepts and signs a draft to agree to pay the draft when it is presented?

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

Question 20

Which of the following is a type of liability arising on an instrument when the transfer of the instrument breaches a warranty associated with the instrument?

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

Question 21

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

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

Question 22

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

A) The only requirement is that the holder of the instrument present the instrument to the drawer in a proper and timely fashion.
B) The only requirement is that the holder of the instrument present the instrument to the drawee in a proper and timely fashion.
C) 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.
D) 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.
E) 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.

Question 23

To hold an endorser secondarily liable on a check, a holder must present a check within ______ days of the endorsement.

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

Question 24

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) Because the checks were forged, the principal can receive reimbursement of the funds from any maker involved or any bank that cashed the checks.
B) The principal can receive reimbursement from makers of the checks only.
C) The principal can receive reimbursement from any bank that cashed the checks only.
D) 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.
E) 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.

Question 25

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

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

Question 27

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

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

Question 28

Under the UCC, how can proper presentment be made?

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

Question 29

A[n] ______ party signs an instrument to provide credit for another party that has also signed the instrument.

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

Question 30

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

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

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

Question 32

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

Question 33

Which of the following person orders the drawee to pay?

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

Question 34

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

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

Question 35

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

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

Question 36

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) Only the last endorser is liable to the holder and no prior endorsers are liable to a subsequent endorser.
C) Each endorser is liable for the full amount to the subsequent endorser, but only the last endorser is liable to any holder.
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) Each endorser is liable to the holder in proportion to the number of endorsers that exist.

Question 37

Which of the following person signs an instrument to restrict payment of it, negotiate it, or incur liability?

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

Question 38

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

Question 39

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

Question 40

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

A) Any type of negligence will result in a party being liable for an unauthorized signature.
B) The issue of negligence will not as a matter of law block a party from escaping liability for an unauthorized signature.
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) A party's negligence will make the party liable for an unauthorized signature only if the negligence amounts to a finding of recklessness.
E) A party's negligence will make the party liable for an unauthorized signature only if the negligence rises to the level of gross negligence.

Question 41

"Run Around." Millie issues a promissory note to Bob. Bob endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Henry. Henry presents the note to Millie for payment. When Henry presents the note to Millie, 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. Millie continued to insist, so finally, on the same day, Bob obtained clear identification and presented it to her. Nevertheless, even with proper identification, Millie 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 Bob, Henry requested that Anne pay the note, but she told him that he would have to get his money from Bob. Henry has been trying to call Bob for 35 days, but Bob did not return his telephone calls. Henry is exasperated; and within 40 days of when Millie refuses payment, he notifies Millie, Bob, and Anne that the promissory note has been dishonored by Millie and that he is asserting liability on the note against all of them. Millie 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) The note has never been dishonored because Henry's right to receive payment on the note from someone is acknowledged.
B) Millie initially dishonored the instrument when she asked for proper identification.
C) Millie 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 not dishonored until Anne told Henry that he would have to seek recovery from Bob.
E) The note was considered initially dishonored 30 days after Henry started seeking Bob, but was unable to find him.

Question 42

"Run Around." Millie issues a promissory note to Bob. Bob endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Henry. Henry presents the note to Millie for payment. When Henry presents the note to Millie, 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. Millie continued to insist, so finally, on the same day, Bob obtained clear identification and presented it to her. Nevertheless, even with proper identification, Millie 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 Bob, Henry requested that Anne pay the note, but she told him that he would have to get his money from Bob. Henry has been trying to call Bob for 35 days, but Bob did not return his telephone calls. Henry is exasperated; and within 40 days of when Millie refuses payment, he notifies Millie, Bob, and Anne that the promissory note has been dishonored by Millie and that he is asserting liability on the note against all of them. Millie 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 the likely result if Henry sues Anne, Bob, and Millie?

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

Question 43

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

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

Question 44

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

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

Question 45

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

-Who among the following was the holder of the check?

A) Doreen
B) Hot Dresses Inc.
C) Doreen's bank
D) Betty's bank
E) There is no holder in this instance

Question 46

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

-Which of the following is the most likely result of Betty's request that Doreen pay the amount due on the check?

A) It is likely that Doreen will have to pay the check as a secondarily liable party.
B) It is unlikely that Doreen 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.
C) It is unlikely that Doreen 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.
D) It is unlikely that Doreen 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.
E) It is unlikely that Doreen 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.

Question 47

"Run Around." Millie issues a promissory note to Bob. Bob endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Henry. Henry presents the note to Millie for payment. When Henry presents the note to Millie, 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. Millie continued to insist, so finally, on the same day, Bob obtained clear identification and presented it to her. Nevertheless, even with proper identification, Millie 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 Bob, Henry requested that Anne pay the note, but she told him that he would have to get his money from Bob. Henry has been trying to call Bob for 35 days, but Bob did not return his telephone calls. Henry is exasperated; and within 40 days of when Millie refuses payment, he notifies Millie, Bob, and Anne that the promissory note has been dishonored by Millie and that he is asserting liability on the note against all of them. Millie 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 Anne's statement to Henry that he must seek recovery from Bob?

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

Question 48

"Run Around." Millie issues a promissory note to Bob. Bob endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Henry. Henry presents the note to Millie for payment. When Henry presents the note to Millie, 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. Millie continued to insist, so finally, on the same day, Bob obtained clear identification and presented it to her. Nevertheless, even with proper identification, Millie 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 Bob, Henry requested that Anne pay the note, but she told him that he would have to get his money from Bob. Henry has been trying to call Bob for 35 days, but Bob did not return his telephone calls. Henry is exasperated; and within 40 days of when Millie refuses payment, he notifies Millie, Bob, and Anne that the promissory note has been dishonored by Millie and that he is asserting liability on the note against all of them. Millie 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 Henry's entitlement to payment from Millie?

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

Question 49

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

-Who is the drawee of the check Doreen presented to Hot Dresses Inc.,?

A) Doreen
B) Hot Dresses Inc.
C) Betty, as primary owner of Hot Dresses Inc.
D) Doreen's bank
E) Betty's bank

Question 50

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

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

A) When Doreen presented the check to Hot Dresses Inc.
B) When Betty took the check to ABC Bank.
C) When ABC Bank requested payment from XYZ Bank.
D) When XYZ Bank notified Betty that it would not pay based upon insufficient funds.
E) When Betty requested that Doreen make the check good.

Question 51

Which of the following is true regarding types of warranty liability?

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

Question 52

"Banking Problems." Constance is a loan officer at ABC Bank. Being somewhat dishonest, Constance tells Henry, 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. In fact, through covering pertinent terms of the document, she had him sign a promissory note made out to her for $5,000, which she later endorsed to Richard. After leaving the bank, Henry proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Henry agree that Taylor will purchase a car for $3,000. Martha also comes in, and she and Henry agree that she will purchase a used car for $4,000. Both Taylor and Martha make out promissory notes payable to Henry. At the end of the day, Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Henry mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Henry, on the other hand, simply does not like Martha. 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 Henry refuses payment on the promissory note that was endorsed to Richard claiming that he never signed it?

A) He will be liable because an official banking document was involved.
B) 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.
C) He will be liable unless he can establish that Richard was not a holder in due course.
D) 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.
E) He can claim fraud in the inducement, and he will not be liable regardless of whether or not he knew what he was signing.

Question 53

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 of the instrument is or was entitled to payment or authorized to obtain payment.
B) Only one warranty applies, that the instrument has not been altered.
C) Only one warranty applies, that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
D) 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.
E) 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.

Question 54

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 fictitious payee rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
B) 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.
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 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.
E) 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.

Question 55

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

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

Question 56

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

-Who is the drawer of the check Doreen presented to Betty at Hot Dresses Inc.,?

A) Doreen.
B) Hot Dresses Inc.
C) Betty, as primary owner of Hot Dresses Inc.
D) Doreen's bank.
E) Betty's bank.

Question 57

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

Question 58

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

Question 59

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

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

Question 60

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) Discharge through insolvency proceedings (bankruptcy)
C) Forgery
D) Impairment of collateral
E) Fraud in the factum

Question 61

What are the requirements for a holder to turn to secondarily liable parties?

Question 62

Set forth the five items that a party warrants when the party transfers an instrument for consideration.

Question 63

Discuss whether an authorized agent can be held personally liable on a note if the agent did not sign his or her own name. Further discuss the kind of personal liability an agent has who simply signs his or her name to an instrument.

Question 64

Effie received a check written by Sam whom she did not really trust. Accordingly, she rushed to his bank to get the check cashed. The bank told her that presentment would be considered as being made on the next business day and refused to immediately give her the funds. The bank representative told her that the bank's cut-off hour was 2:00 p.m. and that she did not present the check until 3:00 p.m. Effie was upset and told the bank that it wrongfully dishonored the check in violation of provisions of the UCC. Discuss the rights of the parties.

Question 65

Set forth the eight real defenses and explain their significance.

Question 66

"Banking Problems." Constance is a loan officer at ABC Bank. Being somewhat dishonest, Constance tells Henry, 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. In fact, through covering pertinent terms of the document, she had him sign a promissory note made out to her for $5,000, which she later endorsed to Richard. After leaving the bank, Henry proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Henry agree that Taylor will purchase a car for $3,000. Martha also comes in, and she and Henry agree that she will purchase a used car for $4,000. Both Taylor and Martha make out promissory notes payable to Henry. At the end of the day, Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Henry mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Henry, on the other hand, simply does not like Martha. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.

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

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

Question 67

"Banking Problems." Constance is a loan officer at ABC Bank. Being somewhat dishonest, Constance tells Henry, 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. In fact, through covering pertinent terms of the document, she had him sign a promissory note made out to her for $5,000, which she later endorsed to Richard. After leaving the bank, Henry proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Henry agree that Taylor will purchase a car for $3,000. Martha also comes in, and she and Henry agree that she will purchase a used car for $4,000. Both Taylor and Martha make out promissory notes payable to Henry. At the end of the day, Henry is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Henry mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Henry, on the other hand, simply does not like Martha. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.

-Which of the following is true regarding Martha's liability to Henry?

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