Deck 23: Liability for Negotiable Instruments

Question 1

The Gulf States Section,PGA,Inc.v.Whitney National Bank of New Orleans case addressed liability on a negotiable instrument:

A)based on fraud.
B)based on negligence.
C)as an accommodation party.
D)as a signer.

Answer 1

B

Question 2

Vince has possession of a draft that has been validly negotiated to him.His payment process necessarily includes:

A)presentment of the draft, dishonor, and notice of dishonor.
B)exhibiting the instrument, showing reasonable identification, and surrendering the draft if it is paid in full.
C)exhibiting the draft, providing a thumbprint signature, and giving a receipt.
D)suspending the underlying debt, applying the shelter rule, and making a demand for payment.

Answer 2

B

Question 3

An agent must clearly indicate that he or she is signing on behalf of a principal in order to bind the principal.

Answer 3

False

Question 4

At the time a check is issued,primary liability falls on:

A)the maker.
B)the drawer.
C)the drawee.
D)None of the above.

Question 5

Maurina is an agent of Southland,and she is authorized to sign checks on Southland's bank account.If Maurina signs a check without indicating that she is simply an agent,Maurina will be personally liable on the check.

Question 6

The accidental destruction of a negotiable instrument will result in its cancellation.

Question 7

Suppose that Emmett impersonates a famous clown.He goes into an advertising agency and convinces the manager to issue a check to him in the name of the famous clown,purportedly as part of a fund-raising campaign for a nursing home for old retired clowns.If Emmett negotiates the check to a check-cashing store by forging the name of the famous clown,then the ad agency will be able to argue that the bank must reimburse the account because the bank paid a check on a forged signature.

Question 8

Lance indorses a promissory note to Connie in exchange for consideration.Unknown to Lance,the note is not good because the maker's signature was forged.Connie later attempts to present the instrument for payment to the original alleged maker,Lilly,who is able to deny liability for payment due to the forged signature.Connie may later sue Lance for breach of a transfer warranty.

Question 9

Negotiable instruments are usually not issued to fulfill a contract.

Question 10

Drawers and indorsers are secondarily liable on negotiable instruments.

Question 11

An indorser who writes "without recourse" above her signature on a negotiable instrument is not liable for payment.

Question 12

Assume that Mike signs a promissory note to Carl,who in turn negotiates the instrument to Luke.Of the three,Mike is the only person who has primary liability.

Question 13

Paula is a sales agent for The Rock Insurance Company.Paula accepts a check from a customer made payable to her in payment for the premium on an insurance policy.Prior to depositing the check in The Rock's bank account,Paula indorses the check as follows: "The Rock Insurance Company,by Paula Beck,agent." Assuming that Paula has authority to indorse company checks,if the check is dishonored,then between Paula,The Rock,and the bank:

A)Paula only will be liable.
B)Paula and The Rock will be liable.
C)The Rock only will be liable.
D)The bank will be stuck with the dishonored check.

Question 14

A person who adds her signature to an instrument for the purpose of being liable on it is an accommodation party.

Question 15

When a negotiable instrument is transferred,the transferor warrants that:

A)the instrument has not been altered.
B)all signatures are authentic.
C)as far as she knows the issuer is solvent.
D)all of the above.

Question 16

Nelson writes Leah a check for mowing his lawn.Leah deposits the check in her bank,but it is not paid by Nelson's bank.Leah calls Nelson to notify him that her bank returned his check to her unpaid.Leah's notice of the dishonor is insufficient; she must provide written notice.

Question 17

A person may be held liable on a negotiable instrument even if that person has not signed the instrument.

Question 18

A drawee has primarily liability on a draft.

Question 19

The case Wachova Bank v.Foster Bancshares is about liability for paying a stolen check.

Question 20

Warranty liability is the liability of someone who receives payment on a negotiable instrument.

Question 21

Micah signed a check in the lower right-hand corner and Andrew signed on the back.The presumption is that:

A)Micah is the issuer.
B)Micah is the acceptor.
C)Andrew is the drawer.
D)Andrew is the maker and Micah is an indorser.

Question 22

Which of the following parties has primary liability on a draft?

A)The drawee.
B)The acceptor.
C)The drawer.
D)None of the above.

Question 23

Which of the following will discharge an instrument?

A)A payor tenders payment in full.
B)The parties agree to a discharge.
C)The terms of the instrument are intentionally changed.
D)All of the above.

Question 24

Anyone who presents a check for payment warrants all EXCEPT:

A)he or she is a holder.
B)he or she has no reason to believe the drawer is insolvent.
C)he or she has no reason to believe the drawer's signature is forged.
D)the check has not been altered.

Question 25

If the note is dishonored by Jessie after it is properly presented to her for payment by Liz,then Liz,after giving timely notice to Tyler,Ryan,and Breanna,may collect payment under signature liability from:

A)Tyler only.
B)Breanna and Tyler only.
C)either Tyler, Ryan, or Breanna.
D)neither Tyler, Ryan, nor Breanna.

Question 26

A check was indorsed as follows:
Jessica Hall
Without recourse
Paul Samuels
Collection guaranteed
Melissa Liston

A)Notice of dishonor.
B)The "without recourse" indorsement within the chain.
C)Insolvency of drawer.
D)Certification of the check.

Question 27

Cecilia made a check out to Gideon for $15.Gideon fraudulently changed the check to read $150,and cashed it at Corner Bank.Is Cecilia discharged from liability on the check?

A)Yes, Cecilia owes nothing on the check because alteration of a check is a real defense and real defenses are good even against holders in due course.
B)No, Cecilia pays $150 because of the impostor rule.
C)No, Cecilia pays $150 because she in not an indorser or accommodation party.
D)Yes, Cecilia owes nothing unless Corner Bank is a holder in due course in which case she owes the original $15.

Question 28

Mack writes a check to his maid,Marianne,in payment for services rendered.Marianne indorses the check in blank and gives the check to her masseuse,Janet,in exchange for a neck massage.Without indorsing the check,Janet gives the check to Martin,her newspaper carrier in payment for the next four month's delivery charges.Martin indorses with a special indorsement and negotiates the check to his church,St.Mark.The church indorses the check and deposits it in its bank account.If Mack's bank later dishonors the check,to whom may St.Mark's look for recovery?

A)Martin only.
B)Only Mack.
C)Mack, Marianne, Janet, and Martin.
D)Mack, Marianne, and Martin.

Question 29

Which of the following serves as a discharge of a negotiable instrument?

A)payment.
B)cancellation.
C)alteration.
D)all of the above.

Question 30

To pay for a minor repair,May writes a check for $50 to David,who indorses the check in blank and gives it to his sister,Glenda,for her birthday.She indorses the check in blank and gives it to her trash collector to pay her quarterly bill.Which of the following is correct?

A)David made transfer warranties to Glenda and to her trash collector.
B)David did not make transfer warranties to Glenda because Glenda gave no consideration for the transfer of the check to her.
C)Neither David nor Glenda made any transfer warranties because they indorsed the check with blank indorsements, making the check bearer paper.
D)The trash collector must wait until the check is dishonored before making a transfer warranty claim against Glenda.

Question 31

Which of the following statements concerning check kiting is true?

A)It is illegal.
B)It is a crime.
C)It is defined as a scheme of overdrawing account A by depositing a check in account B, then overdrawing account B to cover the insufficient funds in account A.
D)All of the above.

Question 32

Tom indorsed a check made payable to the order of Tom Jones as follows:
Pay Raymond Berry
/s/ Tom Jones
Raymond negotiated the check to his landlord for his rent.Raymond indorsed the check as follows:
Without Recourse
/s/ Raymond Berry

A)Tom has secondary contractual liability on the check as an indorser.
B)Tom has no contractual liability on the check because he is the payee.
C)Tom has primary contractual liability on the check as payee.
D)Tom eliminated his liability as an indorser by the type of indorsement he used.

Question 33

Soiya is a holder in due course of a check.Soiya goes to the drawee bank,Last Chance Bank,to cash the check.What is the liability of Last Chance?

A)Last Chance Bank is primarily liable on the check.
B)Last Chance Bank is not primarily liable on the check until it accepts the check.
C)Last Chance Bank is secondarily liable on the check.
D)Last Chance Bank is not secondarily liable on the check until it accepts the check.

Question 34

In the case of In re Couchot,the court held that Kathy Couchot:

A)is liable to Star Bank only for the consideration she directly received from the loan.
B)was not liable for the note, since there was a material alteration.
C)must pay the note since she signed as an accommodation party.
D)fraudulently altered the note.

Question 35

If Liz collects payment from Tyler,then Tyler can demand payment from:

A)Ryan and Breanna.
B)Ryan only.
C)Jessie only.
D)Breanna only.

Question 36

Which of the following statements is true concerning an accommodation party?

A)She is not the issuer, the acceptor or the indorser.
B)She is liable on the instrument.
C)She has the same liability to a holder as the person for whom he signed.
D)All of the above.

Question 37

Generally,indorsers are not liable under signature liability if:

A)they write the words "without recourse" next to their signatures on the instrument.
B)they are not the drawee.
C)a check is presented for payment within 30 days after the indorsement.
D)all of the above.

Question 38

Mona co-signs a promissory note with her daughter Beth so Beth can purchase her first car.Mona will be discharged from her obligation on the note:

A)if Beth pays the obligation in full under the terms of the note.
B)if the creditor extends the final due date because of allowing Beth to skip a payment in December.
C)Both of the above.
D)only if Mona dies before Beth's obligation is discharged.

Question 39

When a person indorses a check,the indorser assumes contractual liability based on the indorsement.This liability expires unless presentment is made:

A)within 7 days of indorsement.
B)within 14 days of indorsement.
C)within 30 days of indorsement.
D)liability doesn't expire.

Question 40

The UCC requires that anyone wishing to cash a check must provide:

A)a government issued picture I.D.
B)reasonable identification.
C)thumbprint proof of identity.
D)proof of residence.

Question 41

Olga draws a check payable to Sven.Sven indorses the back of the check "without recourse" and negotiates the check to Hansel who in turn negotiates the check by a blank indorsement and delivers the check to Gretta.Gretta deposits the check in her checking account.If the bank dishonors the check because Olga has filed for bankruptcy,and returns the check to Gretta,who has liability on the check?

Question 42

Explain when presentment warranties apply.Identify the presentment warranties on a check and a promissory note.

Question 43

Discuss the difference between the impostor rule and the fictitious payee rule.

Question 44

Dwight Stringer signed three promissory notes as an agent for his company.The first,he signed "Dwight Stringer,agent for Park Systems,Inc." The second,he signed "Dwight Stringer,Agent." The third note was signed merely "Park Systems,Inc." Discuss the liability of Dwight and Park Systems,Inc.on each of the notes.

Question 45

List the warranties a transferor of a negotiable instrument makes.