Question 1

Logan is Mining Corporation's agent and is authorized to write checks on Mining's account in Northwest Bank. Logan writes a check "pay to the order of Oceanside Resort." Logan signs the check "Mining Corporation, by Logan, agent." Northwest Bank dishonors the check. Liability extends to
A) Logan.
B) Oceanside.
C) Mining Corporation.
D) no one.

Accepted Answer

As Logan is authorized to write checks on Mining Corporation's account, the liability for the dishonored check ultimately belongs to the corporation. However, Logan may also face personal liability if it is found that he acted outside of his authority or engaged in fraud. Oceanside has no liability as they were the intended recipient of the check and did not do anything wrong.

Question 2

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within
A) one year.
B) six months.
C) ten days.
D) thirty days.

Accepted Answer

According to the Uniform Commercial Code (UCC), Painless Dental should present the check for payment within 30 days to impose liability on Orson if the bank dishonors the check. This is known as the "statute of limitations" for presenting checks. After 30 days, Orson will not be liable for the check if the bank dishonors it.

Question 3

Vera gives Will a $500 check as payment for a debt. Will crudely increases the amount of the check to $5,000 and deposits the check in his First Bank account. Vera is liable for the payment of $5,000 to
A) no one.
B) Will and First Bank.
C) First Bank only.
D) Will only.

Accepted Answer

The answer of Vera gives Will a $500 check as...

Question 4

Doyle gives a check to eMarket Finance to buy 100 shares of stock in FabNu Corporation for Doyle. The price of the shares is constantly fluctuating. eMarket asks Doyle to leave the amount of the check blank and allow it to fill in the price when making the purchase. Doyle agrees. eMarket buys the stock when the price is $4,000, but fills in the check for $5,000. The check is negotiated as payment for a $5,000 debt to Guido & Hollis Accountants (G&H), which takes the check in good faith and without notice of eMarket's act. G&H later learns that eMarket was not authorized to fill in the check for $1,000 over the price. Is G&H an HDC? If so, for how much?

Accepted Answer

The answer of Doyle gives a check to eMarket Finance...

Question 5

Fact Pattern 23-1 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
Refer to Fact Pattern 23-1. I f Prime Bank dishonors the check, O'Leary can obtain payment from Niklas
A) if O'Leary timely notifies Niklas.
B) only if Lisa refuses to pay the check.
C) only to the extent that Lisa overpaid her debt to Niklas.
D) under no circumstances.

Accepted Answer

O'Leary can seek payment from Niklas if he provides timely notice of dishonor, as Niklas is an indorser and is secondarily liable.

Question 6

GR8 Products, Inc., warrants its goods to be free of defects. Harold issues an instrument to GR8 to obtain goods that prove to be defective. With respect to payment on the instrument, Harold
A) is liable only to a subsequent holder of the instrument.
B) has a universal defense against it.
C) has a personal defense against it.
D) cannot avoid it.

Accepted Answer

Harold has a personal defense against the instrument because the goods were defective, which is a breach of warranty. This defense can be used against the original payee but not against a holder in due course.

Question 7

Fanny signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Haji, who sells it to Iona. Liability associated with the transfer of the note from Haji to Iona is
A) no liability.
B) contractual liability.
C) signature liability.
D) warranty liability.

Accepted Answer

Warranty liability arises when a negotiable instrument is transferred, and the transferor provides certain implied warranties to the transferee, such as the instrument being genuine and not altered.

Question 8

Jack pays Kelly in good faith for a promissory note. Kelly warrants that the note has not been altered. This is
A) a presentment warranty.
B) a transfer warranty.
C) a signature warranty.
D) a breach of warranty.

Accepted Answer

The answer of Jack pays Kelly in good faith for...

Question 9

Equity Credit Company has in its possession an instrument dated May 1, 2017. The instrument is payable to the order of First Choice Moving & Storage Company "on June 1, 2018," for $5,000. In the upper left corner is an address for Greater Metro Development Corporation-10 Corporate Park Avenue, Chicago, Illinois-and in the lower right corner is the signature of "Hilltop Investments, Inc., By Ida, President." In the lower left corner is stamped "ACCEPTED: Greater Metro Development Corporation by John, President, May 5, 2017." On the back is the signature of "First Choice Moving & Storage Company by Kathleen, President." Who, if anyone, is primarily liable on this instrument on May 1?  On May 5? Who, if anyone, is secondarily liable on this instrument?

Accepted Answer

The answer of Equity Credit Company has in its possession...

Question 10

Olivia is Physicians Clinic agent and is not authorized to sign checks or notes on its behalf. Despite the lack of authority, Olivia issues a note "payable to the order of Loan Company [signed] Physicians Clinic, by Olivia." Liability on this note extends to
A) Physicians Clinic.
B) Olivia.
C) Loan Company.
D) no one.

Accepted Answer

As Olivia was not authorized to sign checks or notes on behalf of Physicians Clinic, she cannot bind the clinic to the note. Therefore, the liability on the note extends only to Olivia, who signed it.

Question 11

Owen is a holder of a promissory note obtained from Purchase Money, Inc.  Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to
A) more defenses.
B) no defenses.
C) some defenses, but not as many.
D) the same defenses.

Accepted Answer

The answer of Owen is a holder of a promissory...

Question 12

Fact Pattern 23-1 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
Refer to Fact Pattern 23-1. Niklas is
A) not liable for payment under any circumstances.
B) primarily liable.
C) secondarily liable.
D) contractually liable.

Accepted Answer

Niklas, as an indorser, is secondarily liable. This means he is liable for payment if the primary party (the bank) does not pay, provided certain conditions are met.

Quiz 23: Negotiable Instruments: Transfer and Liability

Logan is Mining Corporation's agent and is authorized to write checks on Mining's account in Northwest Bank. Logan writes a check "pay to the order of Oceanside Resort." Logan signs the check "Mining Corporation, by Logan, agent." Northwest Bank dishonors the check. Liability extends to

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within

Vera gives Will a $500 check as payment for a debt. Will crudely increases the amount of the check to $5,000 and deposits the check in his First Bank account. Vera is liable for the payment of $5,000 to

Fact Pattern 23-1 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. Refer to Fact Pattern 23-1. I f Prime Bank dishonors the check, O'Leary can obtain payment from Niklas

GR8 Products, Inc., warrants its goods to be free of defects. Harold issues an instrument to GR8 to obtain goods that prove to be defective. With respect to payment on the instrument, Harold

Fanny signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Haji, who sells it to Iona. Liability associated with the transfer of the note from Haji to Iona is

Jack pays Kelly in good faith for a promissory note. Kelly warrants that the note has not been altered. This is

Olivia is Physicians Clinic agent and is not authorized to sign checks or notes on its behalf. Despite the lack of authority, Olivia issues a note "payable to the order of Loan Company [signed] Physicians Clinic, by Olivia." Liability on this note extends to

Owen is a holder of a promissory note obtained from Purchase Money, Inc. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to

Fact Pattern 23-1 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. Refer to Fact Pattern 23-1. Niklas is