Question 1

Which of the following is both a transfer warranty and a presentment warranty? Assume that the instrument in question is a draft.

Accepted Answer

A draft that has not been altered is both a transfer warranty and a presentment warranty.

Question 2

If the drawee bank mistakenly paid a check with a forged or unauthorized drawer's signature on it:

Accepted Answer

If the drawee bank mistakenly paid a check over a stop-payment order,paid a check with a forged or unauthorized drawer's signature on it,or paid despite the lack of sufficient funds in the drawer's account to cover the check,the bank cannot recover if it paid the check to a presenter who had taken the instrument in good faith and for value.In that case,the drawee bank would have to pursue someone else,such as the forger or unauthorized signer,or seller whose goods proved to be defective.

Question 3

"Responsibility" with respect to instruments includes:

Accepted Answer

"Responsibility" with respect to instruments means the authority to process instruments received by the employer.

Question 4

The transferor of which of the following instrument cannot disclaim transfer warranties?

Accepted Answer

Transferors of instruments other than checks may disclaim the transfer warranties.

Question 5

The rationale for the impostor rule is that the responsibility for determining the true identity of the payee:

Accepted Answer

The rationale for the impostor rule is to put the responsibility for determining the true identity of the payee on the drawer or maker of a negotiable instrument.The drawer is in a better position to do this than some later holder of the check who may be entirely innocent.

Question 6

Mila owes Brad (whom she has not met)$4,000.James,claiming to be Brad,gets Mila to issue him a check of $4,000.James forges Brad's indorsement and transfers the check to Hall.Which of the following statements is true?

Accepted Answer

Where the impostor has impersonated a person authorized to act for a payee,such as claiming to be Jack Jones,the president of Jones Enterprises,the impostor has the power to negotiate a check drawn payable to Jones Enterprises.

Question 7

Bill submits a time card for a non-existent employee.The employer issues the payroll check.Bill forges the indorsement and negotiates the check to Ted.Which of the following statements is true?

Accepted Answer

The Code allows any indorsement in the name of the fictitious payee to be effective as the payee's indorsement in favor of any person that pays the instrument in good faith or takes it for value or for collection.

Question 8

Where the impostor has impersonated a person authorized to act for a payee:

Accepted Answer

Where the impostor has impersonated a person authorized to act for a payee,such as claiming to be Jack Jones,the president of Jones Enterprises,the impostor has the power to negotiate a check drawn payable to Jones Enterprises.

Question 9

All signatures on a negotiable instrument are guaranteed to be treated as authentic due to what type of warranty?

Accepted Answer

A person who transfers a negotiable instrument to someone else makes warranty that all signatures on the instrument are authentic.

Question 10

Jerry Hall makes out a note for $100 in such a way that someone could alter it to read $10,000.Someone alters the note and negotiates it to Pete Mason,who can qualify as a holder in due course.Which of the following statements is true?

Accepted Answer

If a person has been negligent,Article 3 of the UCC precludes her from using the alteration or lack of authorization as a reason for not paying a person that in good faith pays the instrument or takes it for value.

Question 11

The rationale for the fictitious payee rule is that:

Accepted Answer

The rationale for the fictitious payee rule is similar to that for the impostor rule.If someone has a dishonest employee or agent who is responsible for the forgery of some checks,the employer of the wrongdoer should bear the immediate loss of those checks rather than some other innocent party.In turn,the employer must locate the unfaithful employee or agent and try to recover from him.

Question 12

Able carefully drew a check for $10 on her checking account at ABC bank,payable to the order of Baker.Baker altered the check to read $100,and then negotiated it to Cain.Cain presented the check for payment to ABC bank,which paid Cain $100.The bank then deducted $100 from Able's account.When Able saw her bank statement she demanded that ABC credit her account for the altered check.ABC credited Able's account and then sued Cain.Is Cain liable?

Accepted Answer

If an unaccepted draft (such as a check)is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft,then the person obtaining payment or acceptance warrants to the drawee making payment or accepting the draft in good faith that the draft has not been altered.

Question 13

In the event of a breach of a presentment warranty:

Accepted Answer

A drawee who makes payment may recover as damages for any breach of a presentment warranty an amount equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer because of the payment.

Question 14

XYZ Bank pays a check that contains a restrictive indorsement "for collection." This indicates that:

Accepted Answer

As is true under the original version of Article 3 of the UCC,if a check contains a restrictive indorsement (such as "for deposit" or "for collection")that shows a purpose of having the check collected for the benefit of a particular account,then any person who purchases the check or any depositary bank or payor bank that takes it for immediate payment converts the check unless the indorser receives the proceeds or the bank applies them consistent with the indorsement.

Question 15

All of the following constitute transfer warranties under Article 3 except:

Accepted Answer

The six transfer warranties do not include that the instrument is negotiable.

Question 16

Which of the following statements holds true for conversion?

Accepted Answer

An action for conversion may not be brought by the maker,drawer,or acceptor of the instrument.

Question 17

According to Revised Article 3 of the UCC,the risk of loss from fraudulent indorsements by employees:

Accepted Answer

Revised Article 3 specifically addresses employer responsibility for fraudulent indorsements by employees and adopts the principle that the risk of loss for such indorsements by employees who are entrusted with responsibilities for instruments (primarily checks)should fall on the employer rather than on the bank that takes the check or pays it.

Question 18

Susan Smith steals a valuable necklace from Pamela Jones.The necklace bears Jones's full name.Smith takes the necklace to a pawnshop,sells it to the shop,and gets a check for $10,000 in the name of Pamela Jones.Smith then indorses the check in Jones's name and transfers it to Harry Anderson.Which of the following is true?

Accepted Answer

The rationale for the impostor rule is to put the responsibility for determining the true identity of the payee on the drawer or maker of a negotiable instrument.The drawer is in a better position to do this than some later holder of the check who may be entirely innocent.The impostor rule allows that later holder to have good title to the check by making the payee's signature valid although it is not the signature of the person with whom the drawer or maker thought he was dealing.

Question 19

Which of the following is not one of the presentment warranties that the holder of an unaccepted draft makes to the drawee?

Accepted Answer

Presentment warranties include that the warrantor is,or was,at the time the warrantor transferred the draft,a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft,the draft has not been altered and the warrantor has no knowledge that the signature of the drawer of the draft has not been authorized.

Question 20

Which of the following is true regarding a transferor's liability on a transfer warranty?

Accepted Answer

If the transfer is by indorsement,the transferor makes six transfer warranties to all subsequent transferees.

Quiz 33: Liability of Parties