Question 1

"Run Around." Millie issues a promissory note to Bob. Bob endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Henry. Henry presents the note to Millie for payment. When Henry presents the note to Millie, she asks him for reasonable identification. He did not have any identification with him and told her that she had no right to dishonor the instrument. Millie continued to insist, so finally, on the same day, Bob obtained clear identification and presented it to her. Nevertheless, even with proper identification, Millie refused to pay the note, claiming that she lacked the funds with which to do so. After properly providing notification of dishonor to both Anne and Bob, Henry requested that Anne pay the note, but she told him that he would have to get his money from Bob. Henry has been trying to call Bob for 35 days, but Bob did not return his telephone calls. Henry is exasperated; and within 40 days of when Millie refuses payment, he notifies Millie, Bob, and Anne that the promissory note has been dishonored by Millie and that he is asserting liability on the note against all of them. Millie calls him up and says that she never dishonored the note, she simply lacks the funds with which to immediately pay and thinks that he should seek recovery elsewhere.

-Which of the following is true regarding when, and if, the note was initially dishonored?

Accepted Answer

A)   The note has never been dishonored because Henry's right to receive payment on the note from someone is acknowledged.
B)   Millie initially dishonored the instrument when she asked for proper identification.
C)   Millie initially dishonored the instrument when she refused to pay it on the basis that she lacked funds with which to do so.
D)   The note was not dishonored until Anne told Henry that he would have to seek recovery from Bob.
E)   The note was considered initially dishonored 30 days after Henry started seeking Bob, but was unable to find him.F) A) and D)
G) A) and C) C

Question 2

Which of the following occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means?

Accepted Answer

A)   Cancellation
B)   Renunciation
C)   Reacquisition
D)   Recourse
E)   ReleaseF) B) and E)
G) B) and D) C

Question 3

Which of the following person orders the drawee to pay?

Accepted Answer

A)   Maker
B)   Acceptor
C)   Drawer
D)   Endorser
E)   PromisorF) All of the above
G) B) and E)

Question 4

After notice of dishonor is received, how long do parties other than a collecting bank have in order to give notice of dishonor to a secondarily liable party?

Accepted Answer

A)   It must be given before midnight of the next day.
B)   It must be given within 48 hours.
C)   It must be given within 7 days.
D)   It must be given within 10 days.
E)   It must be given within 30 days.F) A) and B)
G) B) and E)

Question 5

"Hot Dress." Doreen writes a check for a dress to Hot Dresses Inc., a small specialty shop whose shares are owned primarily by Betty. Betty decided to go on an extended European vacation and temporarily closed down the shop the day after Doreen wrote the check. When Betty returned, she had a number of other things to do and did not take Doreen's check and some other checks to the bank for three months. Betty was independently wealthy and only ran the shop as a hobby, so she had not been in need of funds. When Betty finally took Doreen's check to the bank, Betty requested that her bank, ABC Bank, deposit the check into her account. When ABC Bank, however, requested payment from Doreen's bank, XYZ Bank, the check was dishonored because of insufficient funds in Doreen's account. Although Betty did not particularly need the funds, she did not like to feel as if she had been cheated; therefore, she demanded that Doreen make the check good.
-Who is the drawer of the check Doreen presented to Betty at Hot Dresses Inc.,?

Accepted Answer

A)   Doreen.
B)   Hot Dresses Inc.
C)   Betty, as primary owner of Hot Dresses Inc.
D)   Doreen's bank.
E)   Betty's bank.F) C) and D)
G) B) and C)

Question 6

"Hot Dress." Doreen writes a check for a dress to Hot Dresses Inc., a small specialty shop whose shares are owned primarily by Betty. Betty decided to go on an extended European vacation and temporarily closed down the shop the day after Doreen wrote the check. When Betty returned, she had a number of other things to do and did not take Doreen's check and some other checks to the bank for three months. Betty was independently wealthy and only ran the shop as a hobby, so she had not been in need of funds. When Betty finally took Doreen's check to the bank, Betty requested that her bank, ABC Bank, deposit the check into her account. When ABC Bank, however, requested payment from Doreen's bank, XYZ Bank, the check was dishonored because of insufficient funds in Doreen's account. Although Betty did not particularly need the funds, she did not like to feel as if she had been cheated; therefore, she demanded that Doreen make the check good.
-Which of the following is the most likely result of Betty's request that Doreen pay the amount due on the check?

Accepted Answer

A)   It is likely that Doreen will have to pay the check as a secondarily liable party.
B)   It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 60 days in order to hold a drawer secondarily liable.
C)   It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 30 days in order to hold a drawer secondarily liable.
D)   It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 20 days in order to hold a drawer secondarily liable.
E)   It is unlikely that Doreen will have to pay on the check because the UCC states that a check must be presented within 10 days in order to hold a drawer secondarily liable.F) B) and D)
G) None of the above

Question 7

Which of the following is not a real defense to enforcement of a negotiable instrument?

Accepted Answer

A)   Infancy (being below the legal age of consent) , to the extent that it makes a contract void
B)   Discharge through insolvency proceedings (bankruptcy) 
C)   Forgery
D)   Impairment of collateral
E)   Fraud in the factumF) B) and D)
G) C) and E)

Question 8

Which of the following is true regarding the liability of an accommodation party?

Accepted Answer

A)   As a maker, an accommodation party has primary liability; but as an endorser, the party has secondary liability.
B)   An accommodation party has primary liability both as a maker and as an endorser.
C)   An accommodation party has secondary liability both as a maker and as an endorser.
D)   An accommodation party has primary liability as either a maker or endorser only if all other parties to the instrument have filed bankruptcy.
E)   An accommodation party has primary liability as a maker only if all other parties have filed bankruptcy, and secondary liability in any other case regardless of whether the accommodation party is the maker or endorser.F) B) and C)
G) B) and D)

Question 9

Which of the following is a type of liability arising on an instrument when the transfer of the instrument breaches a warranty associated with the instrument?

Accepted Answer

A)   Warranty liability
B)   Payee liability
C)   Signature liability
D)   Primary liability
E)   Secondary liabilityF) B) and C)
G) A) and B)

Question 10

If Alice makes a proper tender of the full payment of $1,000 due on Richard's note on the note's due date, but Richard improperly refuses to accept the money, any endorsers are discharged from liability.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

Accepted Answer

A)   Only one warranty applies, that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment.
B)   Only one warranty applies, that the instrument has not been altered.
C)   Only one warranty applies, that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
D)   Two warranties are applicable: (1)  that the instrument has not been altered, and (2)  that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
E)   Three warranties are applicable: (1)  that the instrument has not been altered, (2)  that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized, and (3)  that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment.F) A) and B)
G) C) and E)

Question 12

Carl, without Eddie's knowledge, impersonates Eddie and thereby convinces Connie, who has never seen Eddie, to write a check to Eddie for upcoming yard work. Carl then forges Eddie's name and deposits the check into his, Carl's, account. Which of the following is true regarding whether Connie will be liable for the amount of the check?

Accepted Answer

A)   Under the forgery rule, Connie will be held liable.
B)   Under the transferor rule, Connie will be held liable.
C)   Under the payee rule, Connie will be held liable.
D)   Under the imposter rule, Connie will be held liable.
E)   Under the fictitious payee rule, Connie will not be held liable.F) C) and E)
G) B) and D)

Question 13

To hold an endorser secondarily liable on a check, a holder must present a check within ______ days of the endorsement.

Accepted Answer

A)   120
B)   90
C)   60
D)   50
E)   30F) A) and C)
G) C) and E)

Question 14

If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

Accepted Answer

A)   Before midnight of the next day
B)   Within 48 hours
C)   Within 7 days
D)   Within 10 days
E)   Within 30 daysF) A) and C)
G) A) and B)

Question 15

What are the requirements for a holder to turn to secondarily liable parties?

Accepted Answer

The holder must:
(1) Present the note to...

Question 16

Which of the following is true regarding types of warranty liability?

Accepted Answer

A)   There is only one type of warranty in regard to instruments, transfer.
B)   There is only one type of warranty in regard to instruments, presentment.
C)   There is only one type of warranty in regard to instruments, acknowledged.
D)   There are three types of warranties in regard to instruments, transfer, presentment, and acknowledged.
E)   There are two types of warranties in regard to instruments, transfer and presentment.F) A) and E)
G) A) and D)

Question 17

When a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused, the instrument has been ____.

Accepted Answer

A)   Destroyed
B)   Dishonored
C)   Converted
D)   Rejected
E)   RefusedF) D) and E)
G) B) and E)

Question 18

Under the UCC, how can proper presentment be made?

Accepted Answer

A)   By any commercially reasonable means.
B)   Only through a clearinghouse procedure.
C)   Only at a place designated in the instrument.
D)   By any commercially reasonable means, through a clearinghouse procedure, or at a place designated in the instrument.
E)   By any commercially reasonable means or at the place designated in the instrument, but not through a clearinghouse procedure.F) A) and B)
G) A) and C)

Question 19

Discuss whether an authorized agent can be held personally liable on a note if the agent did not sign his or her own name. Further discuss the kind of personal liability an agent has who simply signs his or her name to an instrument.

Accepted Answer

The authorized agent cannot be liable if...

Question 20

Real defenses apply to ____, whereas personal defenses do not apply to ____.

Accepted Answer

A)   All parties; holders in due course.
B)   Holders; holders in due course.
C)   Holders; holders.
D)   All parties; holders.
E)   All parties; endorsers.F) A) and C)
G) A) and B) A

Exam 28: Liability, Defenses, and Discharge

Correct Answer
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C

Which of the following occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means?

Correct Answer
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C

Which of the following person orders the drawee to pay?

Correct Answer
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After notice of dishonor is received, how long do parties other than a collecting bank have in order to give notice of dishonor to a secondarily liable party?

Correct Answer
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Correct Answer
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Which of the following is not a real defense to enforcement of a negotiable instrument?

Correct Answer
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Which of the following is true regarding the liability of an accommodation party?

Correct Answer
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Which of the following is a type of liability arising on an instrument when the transfer of the instrument breaches a warranty associated with the instrument?

Correct Answer
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If Alice makes a proper tender of the full payment of $1,000 due on Richard's note on the note's due date, but Richard improperly refuses to accept the money, any endorsers are discharged from liability.

Correct Answer
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Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

Correct Answer
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Correct Answer
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To hold an endorser secondarily liable on a check, a holder must present a check within ______ days of the endorsement.

Correct Answer
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If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

Correct Answer
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What are the requirements for a holder to turn to secondarily liable parties?

Correct Answer
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The holder must:
(1) Present the note to...
View Answer

Which of the following is true regarding types of warranty liability?

Correct Answer
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When a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused, the instrument has been ____.

Correct Answer
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Under the UCC, how can proper presentment be made?

Correct Answer
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Discuss whether an authorized agent can be held personally liable on a note if the agent did not sign his or her own name. Further discuss the kind of personal liability an agent has who simply signs his or her name to an instrument.

Correct Answer
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The authorized agent cannot be liable if...
View Answer

Real defenses apply to , whereas personal defenses do not apply to .

Correct Answer
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A

Exam 28: Liability, Defenses, and Discharge

Correct AnswerverifiedC

Which of the following occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means?

Correct AnswerverifiedC

Which of the following person orders the drawee to pay?

Correct AnswerverifiedShow Answer

After notice of dishonor is received, how long do parties other than a collecting bank have in order to give notice of dishonor to a secondarily liable party?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not a real defense to enforcement of a negotiable instrument?

Correct AnswerverifiedShow Answer

Which of the following is true regarding the liability of an accommodation party?

Correct AnswerverifiedShow Answer

Which of the following is a type of liability arising on an instrument when the transfer of the instrument breaches a warranty associated with the instrument?

Correct AnswerverifiedShow Answer

If Alice makes a proper tender of the full payment of $1,000 due on Richard's note on the note's due date, but Richard improperly refuses to accept the money, any endorsers are discharged from liability.

Correct AnswerverifiedShow Answer

Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

To hold an endorser secondarily liable on a check, a holder must present a check within ______ days of the endorsement.

Correct AnswerverifiedShow Answer

If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

Correct AnswerverifiedShow Answer

What are the requirements for a holder to turn to secondarily liable parties?

Correct AnswerverifiedThe holder must:(1) Present the note to...View AnswerShow Answer

Which of the following is true regarding types of warranty liability?

Correct AnswerverifiedShow Answer

When a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused, the instrument has been ____.

Correct AnswerverifiedShow Answer

Under the UCC, how can proper presentment be made?

Correct AnswerverifiedShow Answer

Discuss whether an authorized agent can be held personally liable on a note if the agent did not sign his or her own name. Further discuss the kind of personal liability an agent has who simply signs his or her name to an instrument.

Correct AnswerverifiedThe authorized agent cannot be liable if...View AnswerShow Answer

Real defenses apply to ____, whereas personal defenses do not apply to ____.

Correct AnswerverifiedA

Correct Answer
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C

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C

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Correct Answer
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The holder must:
(1) Present the note to...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The authorized agent cannot be liable if...
View Answer

Real defenses apply to , whereas personal defenses do not apply to .

Correct Answer
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A