Question 1

The Uniform Commercial Code (UCC) allows any indorsement in the name of a fictitious payee to be effective as the payee's indorsement in favor of any person that pays the instrument in good faith or takes it for value or for collection.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

The answer of What are the most common ways an...

Question 3

Transfer warranties may not be utilized after the time for giving notice of dishonor has expired.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  The maker of a promissory note is secondarily liable for payment of it. 
B)  The maker of a promissory note makes a conditional promise to pay a fixed amount of money. 
C)  The obligation of the maker is to pay the negotiable instrument according to its terms at the time he issues it. 
D)  The obligation of the maker is owed to an indorser, a person entitled to enforce the instrument.

Question 5

When a person signs a negotiable instrument, she generally becomes contractually liable on the instrument.

Accepted Answer

A) True 
 B)False

Question 6

List the six transfer warranties made by a person who transfers his or her negotiable instrument to someone else and for consideration.

Accepted Answer

The answer of List the six transfer warranties made by...

Question 7

Ivan is a representative of Sigma Inc., Checks are drawn by "Sigma Inc., Payroll Account (signed)
D. Ivan," but the checks are not paid. Who is liable on the instrument-the individual or the corporation?
When a representative signs an authorized signature to an instrument, then the representative is not bound provided the signature shows "unambiguously" that the signature was made on behalf of the represented person who is named in the instrument. Sigma Inc. is, therefore, liable for payment of the checks and not Ivan, even though Ivan signed the checks.

Accepted Answer

The answer of Ivan is a representative of Sigma Inc.,...

Question 8

A person who transfers a negotiable instrument to someone else and for consideration makes a warranty that:

Accepted Answer

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

Question 9

The terms of the contract of the parties to a negotiable instrument are typically set out in the text of the instrument.

Accepted Answer

A) True 
 B)False

Question 10

The rationale for the imposter rule is to put the responsibility for determining the true identity of the payee on the drawer or maker of a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 11

Chang gives a promissory note to Rahim. Rahim indorses it and negotiates it to John, who indorses it and negotiates it to Andy. Which of the following statements is true of this scenario?

Accepted Answer

A)  Even if John and Rahim do not pay the note, Chang cannot be held liable by Andy because Chang is the maker. 
B)  Rahim is primarily liable on the basis of his indorsement. 
C)  John has no liability to Rahim because John indorsed after Rahim indorsed the note. 
D)  John is primarily liable on the basis of his indorsement.

Question 12

Conversion of an instrument:

Accepted Answer

A)  is an authorized assumption and exercise of ownership over it. 
B)  may occur if a person pays an instrument on a forged indorsement. 
C)  differs from conversion of personal property with respect to the applicable laws. 
D)  occurs if it does not lack indorsement necessary for negotiation.

Question 13

If a person has been so negligent in writing or signing a negotiable instrument that he in effect invites an alteration of an unauthorized signature on it, Article 3 of the Uniform Commercial Code (UCC) nevertheless allows her to use the alteration or lack of authorization as a reason for not paying a person who in good faith pays the instrument or takes it for value.

Accepted Answer

A) True 
 B)False

Question 14

"Responsibility" with respect to instruments means the authority to:

Accepted Answer

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

Question 15

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

Accepted Answer

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

Question 16

Contractual liability on negotiable instruments flows from:

Accepted Answer

A)  proper payment of the instruments. 
B)  signatures on the instruments. 
C)  nonpresentment of the instruments. 
D)  writing "without recourse" on the instruments.

Question 17

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

Accepted Answer

The answer of Define the situations that lead to the...

Question 18

Anne borrows $2,000 from Jerry and gives him a promissory note for $2,000 at 10 percent annual interest payable in 100 days. Jerry indorses the note "Pay to the order of Ethan" and negotiates the note to Ethan. At the end of 100 days, Ethan takes the note to Anne. Under these circumstances, if Anne _____.

Accepted Answer

A)  dishonors the note, Ethan can hold Jerry secondarily liable without giving him notice of the dishonor 
B)  dishonors the note, Ethan cannot sue Anne on the basis of her maker's obligation 
C)  dishonors the note, Ethan cannot hold Jerry secondarily liable on his indorsement 
D)  pays Ethan the $2,000 and accrued interest, she can have Ethan mark it "paid" and give it back to her

Question 19

Peter draws a check on his account at Wright Bank payable to the order of Stella. Peter asks Wright Bank to certify the check and the bank certifies it. Stella presents the check to Wright Bank for payment. Which of the following statements is true of this case?

Accepted Answer

A)  Wright Bank becomes primarily or absolutely liable on the check. 
B)  Peter is primarily liable on the check. 
C)  Wright Bank is secondarily liable on the check. 
D)  Wright Bank has no contractual liability on the check whatsoever.

Question 20

When a representative signs an authorized signature to an instrument, then the representative is not bound provided the signature shows unambiguously that the signature was made on behalf of the represented person who is named in the instrument.

Accepted Answer

A) True 
 B)False

Exam 40: Liability of Parties

The Uniform Commercial Code (UCC) allows any indorsement in the name of a fictitious payee to be effective as the payee's indorsement in favor of any person that pays the instrument in good faith or takes it for value or for collection.

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

Transfer warranties may not be utilized after the time for giving notice of dishonor has expired.

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

When a person signs a negotiable instrument, she generally becomes contractually liable on the instrument.

List the six transfer warranties made by a person who transfers his or her negotiable instrument to someone else and for consideration.

A person who transfers a negotiable instrument to someone else and for consideration makes a warranty that:

The terms of the contract of the parties to a negotiable instrument are typically set out in the text of the instrument.

The rationale for the imposter rule is to put the responsibility for determining the true identity of the payee on the drawer or maker of a negotiable instrument.

Chang gives a promissory note to Rahim. Rahim indorses it and negotiates it to John, who indorses it and negotiates it to Andy. Which of the following statements is true of this scenario?

Conversion of an instrument:

"Responsibility" with respect to instruments means the authority to:

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

Contractual liability on negotiable instruments flows from:

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

Peter draws a check on his account at Wright Bank payable to the order of Stella. Peter asks Wright Bank to certify the check and the bank certifies it. Stella presents the check to Wright Bank for payment. Which of the following statements is true of this case?

When a representative signs an authorized signature to an instrument, then the representative is not bound provided the signature shows unambiguously that the signature was made on behalf of the represented person who is named in the instrument.