Question 1

An accommodation party is secondarily liable in case the accommodation is in a ________.

Accepted Answer

The answer of An accommodation party is secondarily liable in...

Question 2

Calvin, a college student, wants to purchase an automobile on credit from IronTilt Motors.He does not have sufficient income or the credit history to justify the extension of credit to him alone.Calvin asks his father to cosign a note to IronTilt Motors, which he does.
-What kind of liability does Calvin's father come under?

Accepted Answer

Calvin's father comes under primary liability because he has agreed to cosign the note, which means he is equally responsible for paying back the loan along with Calvin. Primary liability means that both parties are responsible for repayment of the debt.

Question 3

Sylvester, acting as a representative agent for Jerry, signs a negotiable instrument with the signature-Sylvester, by Jerry, agent.What kind of liability does Sylvester have for this type of signature?

Accepted Answer

Sylvester is not liable on the instrument because he signed as an agent for Jerry, indicating that he was acting on behalf of Jerry and not in his personal capacity.

Question 4

Susan purchases goods by telephone from Parker.Susan has never met Parker.Brenton goes to Susan and pretends to be Parker.Susan draws a check payable to the order of Parker and gives the check to Brenton, believing him to be Parker.Brenton forges Parker's indorsement and indorses the check to his brother, William, with the term "without recourse." William then cashes the check at a liquor store.Under the imposter rule, who is liable on the check?

Accepted Answer

Under the imposter rule, Susan is liable because she negligently gave the check to someone who she thought was Parker but was actually an imposter. Brenton and William are also liable for their roles in the forgery and cashing of the check. The liquor store is not liable because they received the check in good faith from William who had apparent authority to negotiate the check.

Question 5

A person who signs an instrument and lends his or her name, and credit to another party to the instrument is referred to as a(n)________.

Accepted Answer

An accommodation party is a person who signs a negotiable instrument, such as a promissory note, to lend their name and credit to another party who cannot obtain credit on their own. The accommodation party does not receive any direct benefit from the transaction and assumes liability for payment if the primary party defaults on the obligation.

Question 6

Martin borrows $15, 000 from Tom, in the form of a check, and signs a promissory note, promising to pay Tom this amount plus 10 percent interest in one year.Tom indorses the note and negotiates it to Fronston.Fronston indorses the note and negotiates it to Liza.Liza presents the note to Martin for payment when the note is due.Martin refuses to pay the note.Who is secondarily liable to pay Liza?

Accepted Answer

Frontston is secondarily liable for the promissory note as they were the last indorser before Liza. If Martin refuses to pay, Liza can then seek payment from Frontston, who can in turn seek payment from Tom. However, Tom is only secondarily liable if Frontston is unable to pay. The bank that issued the check to Tom is not liable for the promissory note as it is a separate transaction.

Question 7

Maria is the treasurer of Rex Caldwell Corporations.As treasurer, she makes out and signs the payroll checks for the company.Maria draws a payroll check payable to the order of her maid Carolyn Doss, who does not work for the company.Maria does not intend Carolyn to receive this money.She indorses Carolyn's name on the check and names herself as the indorsee.She cashes the check at a liquor store.Under which rule of forged instruments is Maria accountable?

Accepted Answer

Maria is accountable under the fictitious payee rule, which holds that a person who draws a check payable to a fictitious payee or one who does not exist is responsible for any loss resulting from the payment of the instrument. In this case, Carolyn Doss is not an actual employee of the company, making her a fictitious payee. Maria indorsing Carolyn's name and then cashing the check herself only exacerbates her responsibility under this rule.

Question 8

Martha draws a check payable to the order of Stella. Stella indorses the check to Karen. But Leslie steals the check from Karen,  forges Karen's indorsement,  and cashes the check at a liquor store.
-Who is liable to the check?

Accepted Answer

The liquor store is liable because it accepted a check with a forged endorsement. Under the Uniform Commercial Code, a party that cashes a check with a forged endorsement is liable for the loss.

Question 9

Stanley, who owes Milton money, indorses a draft to him with the term "without recourse." The instrument later is dishonored.Which of the following types of indorser is Stanley?

Accepted Answer

Stanley is a qualified indorser because he used the term "without recourse," which limits his liability on the instrument. Stanley will only be held liable if there are specific circumstances, such as forgery or lack of legality.

Question 10

The ________ states that a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is a fabricated person.

Accepted Answer

The fictitious payee rule states that a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is a fabricated person.

Question 11

Cameron, a purported agent, signs a contract and promissory note to purchase a building for Burnstar Constructions, a purported principal.Though Cameron is an unauthorized representative, Burnstar Constructions, the purported principal, likes the deal and accepts it.Which of the following is true of the deal ratified by Burnstar Constructions?

Accepted Answer

Even though Cameron was an unauthorized agent, the principal, Burnstar Constructions, ratified the contract by accepting the deal. Therefore, Burnstar Constructions is liable to honor the promissory note.

Question 12

Martha draws a check payable to the order of Stella. Stella indorses the check to Karen. But Leslie steals the check from Karen,  forges Karen's indorsement,  and cashes the check at a liquor store.
-When the forgery is exposed, who can the liquor store legally recover from?

Accepted Answer

The liquor store can legally recover from Leslie, as they are the one who committed the forgery and fraudulently obtained the money from the check. Martha, Stella, and Karen are not responsible for the actions of Leslie.

Question 13

________ is a demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder.

Accepted Answer

Presentment is the demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder. Accommodation refers to a situation where a person becomes a co-signer or guarantor of a loan or other obligation to assist another person in obtaining credit or fulfilling an obligation. Duress is the use of force or coercion to compel someone to do something against their will. An allonge is a slip of paper attached to a negotiable instrument that provides space for additional endorsements or signatures when the original document is full.

Question 14

A person who has been authorized to sign a negotiable instrument on behalf of another person is known as a(n)________.

Accepted Answer

An agent is a person authorized to sign a negotiable instrument on behalf of another person, known as the principal. A holder in due course is a person who has acquired a negotiable instrument for value, in good faith, and without notice of any defects or claims against it. An accommodation party is a person who signs a negotiable instrument to lend their credit to another party without receiving value in return.

Question 15

Calvin, a college student, wants to purchase an automobile on credit from IronTilt Motors.He does not have sufficient income or the credit history to justify the extension of credit to him alone.Calvin asks his father to cosign a note to IronTilt Motors, which he does.
-What role does Calvin's father fulfill here so that Calvin can buy the car?

Accepted Answer

Calvin's father is acting as an accommodation party by agreeing to cosign the note, which means he is providing his creditworthiness to ensure that the loan is paid back. This allows IronTilt Motors to extend the credit to Calvin based on the father's credit history and income.

Question 16

A person who authorizes an agent to sign a negotiable instrument on his or her behalf is known as a(n)________.

Accepted Answer

The person who authorizes an agent to sign a negotiable instrument on his or her behalf is known as a principal. The principal is the one who gives the authority or power to the agent to act on his or her behalf, and is ultimately responsible for any actions or obligations taken by the agent.

Question 17

Those who disclaim liability and are not secondarily liable on instruments they endorse are referred to as ________.

Accepted Answer

Qualified indorsers disclaim liability by using phrases like "without recourse" during endorsement, indicating they do not wish to be held liable if the instrument is not honored.

Question 18

Stanley, who owes Milton money, indorses a draft to him with the term "without recourse." The instrument later is dishonored.What liability does Stanley have on the instrument?

Accepted Answer

By indorsing the draft with the term "without recourse," Stanley is essentially stating that he will not be held liable for any payment failures or dishonor of the instrument. Therefore, he has no liabilities on the instrument.

Question 19

Those who are secondarily liable on negotiable instruments they endorse are known as ________.

Accepted Answer

The answer of Those who are secondarily liable on negotiable...

Question 20

In which of the following accommodations is an accommodation party primarily liable?

Accepted Answer

An accommodation party is primarily liable in a guarantee of payment. This means that they are responsible for paying the debt if the original party fails to do so. In a guarantee of collection, the accommodation party is only responsible if the debt cannot be collected from the original party. In a guarantee of demand, the accommodation party is responsible only if the creditor demands payment and the original party fails to pay. A guarantee of promise is not a recognized type of accommodation party liability.

Quiz 24: Liability, Defenses, and Discharge

An accommodation party is secondarily liable in case the accommodation is in a ________.

Sylvester, acting as a representative agent for Jerry, signs a negotiable instrument with the signature-Sylvester, by Jerry, agent.What kind of liability does Sylvester have for this type of signature?

A person who signs an instrument and lends his or her name, and credit to another party to the instrument is referred to as a(n) ________.

Martha draws a check payable to the order of Stella. Stella indorses the check to Karen. But Leslie steals the check from Karen, forges Karen's indorsement, and cashes the check at a liquor store. -Who is liable to the check?