Deck 24: Liabilities of Parties, Holders in Due Course and Defenses

Question 1

​ When an alteration is fraudulently made, the party whose obligation is affected by the alteration is discharged.

Answer 1

True

Question 2

Even in cases in which the defendant's negligence made the forgery possible, forgery may be raised successfully against any holder.

Answer 2

False

Question 3

​ Explain any two types of hybrid defenses.

Answer 3

Several defenses may be either universal or limited, depending on the circumstances of a case. These include:
Duress - Whether or not duress is a valid defense against a holder in due course depends on whether the effect of such duress under the state law makes a contract void or voidable. When the duress nullifies a contract, the defense is universal. When the duress merely makes the contract voidable at the option of the victim of the duress, the defense is limited. ​
Incapacity Other Than Minority - In cases of incapacity other than minority, if the effect of the incapacity makes the instrument void, a nullity, the defense is universal. If the effect of the incapacity does not make the instrument a nullity, the defense is limited.

Question 4

Which of the following is a scenario where a universal defense can be applied?

A)A is induced to execute a commercial paper wrongly through misrepresentation.
B)A delivers a check to B, who is a minor, and B loses it.
C)A and B are engaged in a dispute over a contract and a third party is involved.
D)A delivers a check to B with a condition not to deliver it to C, but B delivers it anyway.

Question 5

Which of the following is legally permissible in the case of a theft of a negotiable instrument?

A)A thief can require payment of a stolen paper.
B)A holder can declare the instrument to be void.
C)A thief can pass on the title to the person the paper was made out to.
D)An ordinary holder can require payment of the instrument.

Question 6

An agent who signs an instrument indicating a representative capacity cannot have personal liability on the instrument.

Question 7

A thief can pass good title of an instrument to a holder in due course.

Question 8

Those defenses thought to be so important that they are preserved even against a holder in due course are called real.

Question 9

Which of the following is a definition of a universal defense?

A)It is a defense that can be used only against a holder in due course.
B)It is a defense that cannot be used against a holder in due course.
C)It is a defense that can be used only against the first holder.
D)It is a defense that can be used against any holder.

Question 10

Which of the following is true of primary liability? ​

A)A maker of notes does not carry a primary liability.
B)A drawee is liable only by writing "accepted" and signing the draft.
C)A person with primary liability is liable to pay before the instrument is due.
D)An acceptor of drafts does not carry a primary liability.

Question 11

A check is considered dishonored if it is returned to the holder stamped "insufficient funds."

Question 12

Which of the following is an example of a dishonor?

A)Dan forgets to make presentment of a check but demands money from Ben.
B)Dan issues a check to Ben, who takes it to the bank after six months and the bank declines.
C)Dan issues a check to Ben but it is returned by the bank due to insufficient funds.
D)Dan demands payment of a note from Ben before the due date and Ben declines.

Question 13

Which of the following best describes alteration?

A)It is an authorized change in an instrument that does not necessarily modify the obligation of a party.
B)It is an authorized change in an instrument that is done during the process of theft.
C)It is an unauthorized change in an instrument that purports to modify in any respect the obligation of a party.
D)It is an authorized change in an instrument that is done under duress.

Question 14

A holder for value and in good faith with no knowledge of dishonor, defenses, or claims, or that paper is overdue is known as a .

A)holder in presentment
B)holder in due course
C)holder in good faith
D)holder in liability

Question 15

In order to attain the specially favored status of being a holder in due course, the holder need not give value for the paper.

Question 16

Generally, the rights of the holder of consumer paper are subject to all claims, defenses, and setoffs of the original purchaser arising from the consumer transaction.

Question 17

​ A maker of a note is primarily liable and may be called on for payment.

Question 18

In general, the defenses available in a dispute over a contract can be raised against holders in due course.

Question 19

is the demand for acceptance or payment made on the maker, acceptor, drawee, or other payor of commercial paper.

A)Indorsement
B)Abatement
C)Endorsement
D)Presentment

Question 20

Indorsers and drawers are the parties whose liability on negotiable instruments is ordinarily primary.