Deck 26: B: Liability,defenses,and Discharge

Question 1

Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder.

Answer 1

False

Question 2

Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument,but not to an HDC or a holder through an HDC.

Answer 2

True

Question 3

A signature can be made by use of any device or machine.

Answer 3

True

Question 4

Presentment war?ranties protect the person to whom an instrument is presented for payment.

Question 5

Transfer of an order instrument by indorsement and delivery extends warranty liability to any subsequent holder who takes the instrument in good faith.

Question 6

Failure to present an instrument on time is not improper presentment.

Question 7

A drawer's liability does not arise until presentment and notice of dishonor.

Question 8

Signature liability is contingent liability.

Question 9

An authorized agent binds a principal on an instrument if the agent clearly names the principal in the signature.

Question 10

An unauthorized signature binds the person whose name is signed.

Question 11

An authorized agent is never personally liable on a negotiable instrument.

Question 12

Warranty liability is subject to the conditions of proper presentment,dishonor,and notice of dishonor.

Question 13

An ordinary holder can recover nothing on an instrument that has been materially altered.

Question 14

Destruction or mutilation of a negotiable instrument by accident discharges it.

Question 15

An imposter's indorsement on an instrument can be effective against its drawer or maker.

Question 16

A maker is secondarily liable on an instrument.

Question 17

A person whose name is forged on an instrument is liable to pay only a holder in due course the value of the forged instrument.

Question 18

To properly present a draft for payment,the holder must present it to the drawer.

Question 19

All parties to a negotiable instrument will be discharged when the party primarily liable on it pays to a holder the full amount due.

Question 20

Dishonor occurs if payment of an instrument is refused with the prescribed time.

Question 21

Derby Stables writes a check to Extendo Credit,Inc. ,that is drawn on Derby's account at Farm & Ranch Bank.If the bank does not accept the check,liability for its amount is on

A)Derby.
B)Extendo.
C)Farm & Ranch.
D)the holder of the check.

Question 22

Ethel signs a note "payable to the order of Fidelity Bank." Fidelity indorses the note in blank and negotiates it to Ghani,who sells it to Huck.Liability associated with the transfer of the note from Ghani to Huck is

A)fitness.
B)quality.
C)signature.
D)warranty.

Question 23

Laptop Assembly Company gives a $3,000 promissory note to My-T-Fast Delivery Service to de?liver a load of computer chips to Laptop's plant.The chips are contami?nated during transit,and are useless to Laptop on delivery.If My-T-Fast presents the note for payment

A)Laptop's best defense would be breach of warranty.
B)Laptop must pay the note.
C)Laptop's best defense would be nondelivery of an instrument.
D)Laptop's best defense would be failure of consideration.

Question 24

Celia,an employee of Delite Dairy Company,forges the signa?ture of Elin,Delite's president,on a Delite check and cashes it at First Federal Bank.Elin would ratify Celia's actions by

A)asking First Federal to prosecute Celia for forgery.
B)discharging Celia from Delite 's employment.
C)entering into a repayment agreement with Celia.
D)filing criminal charges against Celia herself.

Question 25

Dandy Lyin' Furniture Store borrows $100,000 at 6 percent interest from Easy Loan Company and signs a promissory note for that amount.Easy changes the amount of the note to $120,000 and increases the rate to 8 per?cent.Easy materially altered the note when it changed

A)neither the amount nor the interest rate
B)the amount and the interest rate.
C)the amount only.
D)the interest rate only.

Question 26

Rodeo Ranch's agent Slim is authorized to write checks on Rodeo Ranch's account in Town Bank.Upper Range Corporation is a Rodeo Ranch supplier.Slim writes a check on Rodeo Ranch's account "pay to the order of Upper Range [signed] Slim," indorses it in Upper Range's name,and deposits it in his own account in Verity Bank.If Verity Bank collects payment,the ultimate party most likely to suffer the loss is

A)no one.
B)Rodeo Ranch.
C)Town Bank.
D)Upper Range.

Question 27

To borrow the money to buy a car,Klaus signs a note "payable to the order of Lake City Auto Financing." Minnie cosigns the note to guarantee the repayment of the loan.Minnie's liability on this note is

A)lateral.
B)primary.
C)secondary.
D)tertiary.

Question 28

Bing signs a note payable to the order of Cameron.Cameron indorses the note and gives it to Daphne as payment for a debt.Daphne presents it to Bing,who pays it.Bing's payment discharges

A)all of the parties.
B)only Bing.
C)only Cameron.
D)only Daphne.

Question 29

Puck signs a check "pay to the order of Quik Mart" drawn on Puck's account in Regional Bank.Puck shows the check to Silky,who agrees that the signature is Puck's and that Quik Mart is owed the amount that the check represents.Quik Mart signs the back of the check.Liability on this check extends to

A)Puck,Quik Mart,and Regional Bank.
B)Puck and Quik Mart only.
C)Puck and Silky only.
D)Silky only.

Question 30

Cash National Bank is an HDC of a note for $1,000 on which there is the forged signature of "Dudley." If sued on the note by Cash

A)Dudley must pay the note.
B)Dudley's best defense would be fraud in the execution.
C)Dudley's best defense would be material alteration.
D)Dudley's best defense would be forgery.

Question 31

Quincy signs a check payable to Richland Investors,Inc. ,and gives it to Richland,leaving the amount blank but authorizing Richland to fill in the check for $1,000.Richland fills in $1,459 and negotiates the check to Silverado Bank,to whom Richland owes $1,459.Silverado Bank,an HDC,can enforce the check for

A)$0.
B)$459.
C)$1,000.
D)$1,459.

Question 32

Toby signs a note "payable to the order of United Credit Union." Unless Toby has a valid defense against payment,Toby's liability on this note is

A)immediate.
B)imposed only after payment is demanded.
C)postponed until the note is dishonored by United Credit Union.
D)suspended until payment is due.

Question 33

Opalina asks Paolo,who does not understand English,to sign what Opalina says is an application to open a bank account.In fact,the "application" is a note.If sued on the note by an HDC

A)Paolo must pay the note.
B)Paolo's best defense would be fraud in the execution.
C)Paolo's best defense would be fraud in the inducement.
D)Paolo's best defense would be mistake.

Question 34

Birdie,an accountant for Country Custom Furniture,Inc. ,issues company checks payable to nonexistent persons drawn on Country's ac?count at Debit Bank.Birdie indorses the checks and deposits them in her account.Country discovers the theft and demands that Debit recredit its account.Debit's best defense is that

A)Birdie was not authorized to issue the checks.
B)Country was in a better position than Debit to prevent the theft.
C)Debit did not know that the checks were not to be paid.
D)the checks were the property of Country,not Debit.

Question 35

Fact Pattern 26-1A
Seymour writes a check on his account at Platinum Bank to Teri to pay a debt.Teri negotiates the check by indorsement to Rosanna,who presents it for payment to Onyx Bank.
Refer to Fact Pattern 26-1A.If Onyx Bank dishonors the check,Rosanna can obtain payment from Teri

A)if Rosanna timely notifies Teri.
B)only if Seymour refuses to pay the check.
C)under any circumstances.
D)under no circumstances.

Question 36

Chris convinces Dion,who does not understand English,to sign a $1,000 note that Dion believes is an application for a credit card.Chris negotiates the note to EZ Finance Company.Dion

A)can avoid payment on the note even if EZ is an HDC.
B)can avoid payment on the note only if EZ is a holder.
C)must pay EZ the amount that it paid for the note.
D)must pay the note in full.

Question 37

Dirk is the maker of a note,on which Erv is secondarily liable.Friendly Credit Company is the current holder of the note.Erv will be obli?gated to pay the note if

A)Dirk defaults on the note.
B)Friendly Credit breaches a transfer warranty.
C)Friendly Credit negotiates the note to a third party.
D)Friendly Credit presents the note for payment.

Question 38

Nero signs a check "pay to the order of Olive" drawn on Nero's account in Peachtree Bank.Olive signs the back of the check.Secondary liability on this check extends to

A)Nero and Olive only.
B)Nero and Peachtree Bank only.
C)Nero only.
D)Peachtree Bank only.

Question 39

Fact Pattern 26-1A
Seymour writes a check on his account at Platinum Bank to Teri to pay a debt.Teri negotiates the check by indorsement to Rosanna,who presents it for payment to Onyx Bank.
Refer to Fact Pattern 26-1A.Teri is

A)not liable for payment under any circumstances.
B)primarily liable.
C)secondarily liable.
D)simultaneously liable.

Question 40

Audio Science Company's agent Bailey is authorized to draw checks on Audio Science's account in Citizen Bank.The checks are preprinted with the company name.Bailey writes a check "pay to the order of Darlene [signed] Bailey." Darlene presents the check for payment.If Citizen Bank dishonors it,liability extends to

A)no one.
B)Audio Science and Bailey.
C)Audio Science only.
D)Bailey only.

Question 41

Ian transfers a note,for consideration,to Jock by blank indorsement and delivery.Jock transfers the note to Kelly,who takes it in good faith.What does Ian warrant to Kelly?

Question 42

Dale issues a check for $4,000,dated June 1,to Evelyn.The check is drawn on First Federal Bank.Evelyn indorses the check and transfers it to Gene.What will trigger the liability of Dale and Evelyn on the check?