Question 1

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.

Accepted Answer

Leah's notice of the dishonor does not have to be in writing, according to the Uniform Commercial Code. Verbal notice is sufficient.

Question 2

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.

Accepted Answer

B

Question 3

Negotiable instruments are normally issued to fulfill a contract.

Accepted Answer

Negotiable instruments such as checks, promissory notes, and bills of exchange, are typically issued as a means of fulfilling a contractual obligation to pay a certain amount of money.

Question 4

All but which of the following serves as a discharge of a negotiable instrument:
A) payment.
B) cancellation.
C) alteration.
D) presentation.

Accepted Answer

Presentation is the act of showing the instrument for payment or acceptance, not a method of discharge.

Question 5

An accommodation party and a co-maker of a note have the same liability on an instrument.

Accepted Answer

An accommodation party is liable to the holder of the instrument as if they were a primary party, even though they receive no direct benefit, acting merely to lend their credit to another party. A co-maker, on the other hand, is directly obligated to pay the note and typically benefits from the loan. Their liabilities differ in terms of their roles and obligations regarding the note.

Question 6

Drawers and indorsers are secondarily liable on negotiable instruments.

Accepted Answer

Drawers and indorsers are considered as secondary parties who are liable for paying the amount on a negotiable instrument if the primary party (such as the maker or acceptor) defaults on their payment obligations.

Question 7

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.

Accepted Answer

The answer of At the time a check is issued,primary...

Question 8

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.

Accepted Answer

The answer of Maurina is an agent of Southland,and she...

Question 9

Verne 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.

Accepted Answer

According to the Uniform Commercial Code (UCC), when a negotiable instrument such as a draft is validly negotiated to a holder, the holder must present the instrument, show reasonable identification, and surrender the instrument if it is paid in full. This is outlined in UCC § 3-501. Option A refers to the process of handling a dishonored instrument, which is not applicable here. Option C mentions a thumbprint signature and receipt, which are not required by the UCC. Option D is not a valid process for payment of a negotiable instrument.

Question 10

Sandy may be charged a fee,but will not face criminal penalties for writing checks on an account with insufficient funds to pay them.

Accepted Answer

Writing checks on an account with insufficient funds can lead to criminal penalties in many jurisdictions, as it is considered a form of fraud or theft by deception.

Question 11

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

Accepted Answer

Warranty liability refers to the legal obligation that a manufacturer or seller has to repair or replace a product that is found to be defective or unsatisfactory. It is not related to payment on a negotiable instrument.

Question 12

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.

Accepted Answer

Lance is liable for breach of transfer warranty because he indorsed the promissory note to Connie and made a warranty that the signature on the note was genuine. Since the signature was forged, Lance breached this warranty and Connie has the right to sue him for the amount of the note.

Question 13

The accidental destruction of a negotiable instrument will not result in its cancellation.

Accepted Answer

The accidental destruction of a negotiable instrument does not cancel it. The holder of the instrument can still enforce its terms and transfer it, but they may need to present evidence of the destruction to avoid potential disputes.

Question 14

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

Accepted Answer

When an indorser writes "without recourse" above her signature on a negotiable instrument, she effectively disclaims liability for payment. This means that if the instrument is dishonored, the holder cannot turn to the indorser for payment. However, it is important to note that this does not necessarily mean that the indorser is completely off the hook. The indorser may still have certain warranties or obligations under the Uniform Commercial Code or other applicable law.

Question 15

A person cannot be held liable on a negotiable instrument unless that person has signed the instrument.

Accepted Answer

The answer of A person cannot be held liable on...

Question 16

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.

Accepted Answer

The Rock only will be liable because Paula, acting within her authority, indorsed the check on behalf of The Rock Insurance Company, making the company the party responsible for the check.

Question 17

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

Accepted Answer

The answer of An agent must clearly indicate that he...

Question 18

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.

Accepted Answer

The answer of Suppose that Emmett impersonates a famous clown.He...

Question 19

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

Accepted Answer

Joel is the maker of the promissory note and therefore has primary liability to pay it back. Andrew and Luke, as holders in due course, have secondary liability.

Question 20

A drawee has primarily liability on a draft.

Accepted Answer

The answer of A drawee has primarily liability on a...

Quiz 26: Liability For Negotiable Instruments