Deck 26: A: Liability,defenses,and Discharge

Question 1

Presentment war?ranties protect the person who presents an instrument for payment.

Answer 1

False

Question 2

Intentional cancellation of an instrument discharges the liability of all parties.

Answer 2

True

Question 3

A drawer is secondarily liable on an instrument.

Answer 3

True

Question 4

Every person who signs a negotiable instrument is liable for payment of that instrument when it comes due.

Question 5

Transfer warranties attempt to impose liability on the wrongdoer or the person who dealt face to face with the wrongdoer.

Question 6

Universal defenses are good against all holders except HDCs and holders through HDCs.

Question 7

The completion of an originally incomplete instrument in an unauthor?ized manner is not a defense against payment on the instrument to an HDC.

Question 8

An unauthorized signature never binds the person whose name is signed.

Question 9

A person who issues a negotiable instrument based on false statements by the other party will be able to avoid payment on that instrument to any party.

Question 10

Dishonor occurs when acceptance of an instrument cannot be obtained within the prescribed time.

Question 11

An agent who signs just her own name on an instrument will be personally liable to a holder in due course who has not notice of her agency status.

Question 12

An acceptor is primarily liable on an instrument.

Question 13

When an instrument has a forged indorsement,the loss usually falls on its maker or drawer.

Question 14

An unauthorized signature will not bind the person whose name is signed even if his or her negligence substantially contributed to the forgery.

Question 15

If delivery of goods becomes impossible,a party who has issued a draft or note under the contract must still pay it.

Question 16

Under the UCC,a fictitious payee's indorsement is not treated as a forgery.

Question 17

Warranty liability on a negotiable instrument does not require a signature and extends to both signers and nonsigners.

Question 18

A person who forges a check can be held personally liable for payment by a holder in due course.

Question 19

The dishonor of an instrument relieves secondary parties of liability.

Question 20

When there is a breach of an underlying contract for which an instrument was issued,the maker of a note can refuse to pay it.

Question 21

Superior Company draws a check payable to Ted.Uri makes a note payable to Vital Finance Corporation.Primarily liable parties include

A)Superior,Ted,Uri,and Vital.
B)Superior,Ted,and Uri only.
C)Superior and Uri only.
D)Uri only.

Question 22

Sara agrees to cosign a promissory note for Tom to buy a sport utility ve?hi?cle.The note is payable to Uno Bank.Sara is an accommodation

A)drawee.
B)indorser.
C)maker.
D)signatory.

Question 23

Cole issues a note "payable to the order of Cole," forges Dylan's signature as the maker,and indorses the note "pay to Eton." Cole sells the note to Eton,who negotiates it by indorsement and delivery to Franz.Franz negotiates the note to Gert.On this note,Gert can extend liability to

A)no one.
B)only Cole,Eton,or Franz.
C)only Eton or Franz.
D)only Franz.

Question 24

Rex signs a check "pay to the order of Sophie" drawn on Rex's account in Town Bank.To impose liability on Rex if Town Bank dishonors the check,Sophie should present it for payment within

A)one year.
B)six months.
C)ten days.
D)thirty days.

Question 25

Delores's Restaurante borrows $100,000 at 6 percent interest from El Credito y Dinero Company and signs a promissory note for that amount.El Credito changes the amount of the note to $120,000 and increases the rate to 8 per?cent.Delores's best defense against payment on the note is

A)breach of warranty.
B)failure of consideration.
C)material alteration.
D)nondelivery of an instrument.

Question 26

Vera gives Willy a $459 check as payment for a debt.Willy crudely raises the amount of the check to $5,000 and transfers it to Xtreem Sportz store for a new bike.Xtreem deposits the check in its Yankee Bank account.Vera is liable for the payment of $5,000 to

A)no one.
B)Willy,Xtreem Sportz,and Yankee Bank.
C)Willy only.
D)Xtreem Sportz and Yankee Bank only.

Question 27

Fact Pattern 26-1B
Jake is the maker of a $2,000 promissory note payable to Kim.Kim indorses the note to Lyron who,in turn,indorses it to Mona,who then in?dorses it to Neville,the present holder.
Refer to Fact Pattern 26-1B.Neville properly pre?sents the note to Jake for pay?ment,but Jake dishonors it.With timely notice to the proper parties,Neville may collect payment on the note from

A)Kim,Lyron,or Mona.
B)Kim or Lyron only.
C)Mona only.
D)no one.

Question 28

Pete,a Quality Company employee,is authorized to use Quality checks to buy supplies.Pete alters one of the checks to increase its $700 amount by $100,and exchanges it at Retail Office Supply for $700 worth of sup?plies and $100 cash.He keeps the cash.On the check,Retail-an HDC-may obtain pay?ment for

A)$0.
B)$100.
C)$700.
D)$800.

Question 29

Blayne writes a check "pay to the order of Cherry" drawn on Blayne's account at Dixie Bank.Cherry presents the check for payment to Dixie Bank,which ac?cepts it.The bank is

A)not liable for payment.
B)primarily liable for payment.
C)secondarily liable for payment.
D)simultaneously liable,with Blayne,for payment.

Question 30

GR8 Products,Inc. ,warrants its goods to be free of defects.Heck is?sues a note to obtain goods from GR8 that prove defective.If GR8 presents the note for payment

A)Heck's best defense would be breach of warranty.
B)Heck must pay the note.
C)Heck's best defense would be fraud in the inducement.
D)Heck's best defense would be failure of consideration.

Question 31

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

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

Question 32

On January 1,Kane issues a note payable to Lorena on May 1.On April 29,Kane dies.In this situation,the note is

A)dishonored.
B)payable immediately.
C)payable within a reasonable time.
D)payable May 1.

Question 33

Eula signs a check "pay to the order of Eula" and presents to First National Bank for payment.The types of liability associated with this check are

A)fitness and quality.
B)potential and real.
C)sealed and delivered.
D)signature and warranty.

Question 34

Molly signs a promissory note payable to Nano Credit Corporation while mentally incompetent but before a court judges her to be mentally incompetent.The note is

A)payable to any bearer of the note.
B)payable to any holder of the note.
C)payable to the court only.
D)voidable.

Question 35

Pacific Bank receives a check drawn by Qiana.The check is re?ceived af?ter the established "cutoff" hour.Payment can be postponed without dishonor

A)indefinitely.
B)under no circumstances.
C)unless Qiana personally demands acceptance.
D)until the close of the next business day.

Question 36

Kip is Lulu's agent and is authorized to write checks on Lulu's account in Metro Bank.Kip writes a check "pay to the order of Nemo." Kip signs the check "Lulu,by Kip,agent." If Metro Bank dishonors the check,liability extends to

A)Kip and Lulu.
B)Kip only.
C)Lulu only.
D)no one.

Question 37

Burt,a mentally impaired person,is asked by Carl to sign a piece of pa?per that Carl says is an autograph book.In fact,the document is a note.If later sued on the note by an HDC

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

Question 38

Fact Pattern 26-1B
Jake is the maker of a $2,000 promissory note payable to Kim.Kim indorses the note to Lyron who,in turn,indorses it to Mona,who then in?dorses it to Neville,the present holder.
Refer to Fact Pattern 26-1B.Suppose that Mona pays Neville on the note.With timely notice to the proper parties,Mona may collect payment on the note from

A)Jake,Kim,or Lyron.
B)Jake or Kim only.
C)Lyron only.
D)no one.

Question 39

Bob writes a check on his account at County Bank to Darby,a fa?mous singer.The person claiming to be Darby is an imposter,however,named Etta.Etta indorses the check to Felipe,for whom County Bank cashes it.Ultimately,the loss will most likely fall on

A)Bob.
B)County Bank.
C)Darby.
D)Felipe.

Question 40

Dewey is Ezra's agent and is not authorized to sign checks or notes on Ezra's behalf.Despite the lack of authority,Dewey issues a note "payable to the order of Fab Finance Company [signed] Ezra,by Dewey." Liability on this note extends to

A)Dewey and Ezra.
B)Dewey only.
C)Ezra only.
D)no one.

Question 41

Kris is an administrative assistant with Little Financial Corporation,but has no authority to sign Little Financial checks.Kris orders merchandise from My-T-Fine Retail Company delivered to her home and pays with a Little Financial check,signing "Little Financial Corp.by Kris,admin.assist." My-T-Fine does not know that Kris has no authority to sign the check.Who is liable on the check,and why?

Question 42

Commercial Credit Company has in its possession an instrument dated May 1,2009.The instrument is payable to the order of Alpha Company "on June 1,2009," for $5,000.In the upper left corner is an address for Beta Corporation-10 Corporate Park Avenue,Chicago,Illinois-and in the lower right corner is the signature of "Delta,Inc. ,By Eve,President." In the lower left corner is stamped "ACCEPTED: Beta Corporation by Frank,President,May 5,2009." On the back is the signature of "Alpha Company by Gail,President." Who,if anyone,is primarily liable on this instrument on May 1? On May 5? Who,if anyone,is secondarily liable on this instrument?