Deck 21: Rights and Duties of Parties

Question 1

Nonnegotiable instruments are subject to the rules of ordinary contracts and can be transferred by assignment.

Answer 1

True

Question 2

If a promissory note falls due on March 9, proper presentment can be made on March 10.

Answer 2

False

Question 3

The maker of a promissory note is a

A) primary party.
B) secondary party.
C) payee.
D) drawee.

Answer 3

A

Question 4

Indorsers are generally liable in the order in which they indorse the instrument.

Question 5

If the drawee of a draft refuses to pay the instrument, it is dishonored.

Question 6

A person who receives a negotiable instrument as a gift is a holder in due course.

Question 7

Notice of the dishonor of a negotiable instrument

A) must be in writing.
B) is necessary to hold a secondary party liable.
C) must be given within ten days.
D) is given to the first indorser first.

Question 8

Indorsers of negotiable instruments are primarily liable for payment of the instrument.

Question 9

Presentment of a note is

A) a demand for payment.
B) required to be made on or before the due date.
C) able to be done by mail, in person, or through a bank.
D) all of these.

Question 10

The maker of a promissory note is considered to be a primary party.

Question 11

Fagan, who held Slick's $500 three-month promissory note dated November 10, presented it to Slick on February 25 and demanded payment. Slick refused to pay it, claiming that presentment had not been made on the proper date. Can Fagan still legally collect on the instrument?

A) Yes; the liability of primary parties is unconditional.
B) Yes; the liability of primary parties is conditional.
C) No; Slick is a secondary party.
D) No, because Slick is the payee.

Question 12

If the amount on an instrument is altered, a holder in due course can enforce the instrument for the original amount.

Question 13

Personal defenses are not good against holders in due course.

Question 14

A signed instrument lacking some piece of information may be transferred to another person with the authority to complete the instrument according to instructions.

Question 15

The Federal Trade Commission has enacted a federal regulation that prohibits the holder in due course concept from being used against consumers.

Question 16

If a promissory note is not presented for payment on the due date, it is discharged.

Question 17

The defense of slight duress is good against all holders.

Question 18

Secondary parties are obligated to pay the holder of an instrument only if

A) the holder of the instrument presents the instrument for payment to the primary party.
B) the primary party dishonors the instrument.
C) the holder of the instrument gives notice of dishonor to the secondary party.
D) all of these.

Question 19

With fraud in the inducement, the maker never intended to create the instrument.

Question 20

A secondary party cannot limit her or his liability by a qualified indorsement.

Question 21

To qualify as a holder in due course, the holder must take the instrument

A) for value.
B) in good faith.
C) without knowledge that the paper might be overdue.
D) under all of the circumstances stated above.

Question 22

To qualify as a holder in due course, the holder must first be a(n)

A) payee of the instrument.
B) holder of the instrument.
C) indorser.
D) assignee.

Question 23

After accepting a draft, the drawee is known as the ____________________.

Question 24

A good defense against a holder in due course is

A) payment at or before maturity.
B) material alteration.
C) slight duress.
D) lack of delivery.

Question 25

____________________ parties are conditionally liable for payment of negotiable instruments.

Question 26

Holders in due course take an instrument subject to

A) personal defenses only.
B) real defenses only.
C) both real and personal defenses.
D) no defenses.

Question 27

Unauthorized completion of an incomplete instrument is

A) a real defense.
B) a personal defense.
C) no defense.
D) either a real defense or a personal defense.

Question 28

An example of a personal defense is

A) minority.
B) forgery.
C) lack of consideration.
D) illegality.

Question 29

The holder of a promissory note fails to present the note to the maker for payment on the date on which it is due. What effect does this have on the liability for payment?

A) It requires court action in order to make the holder liable for payment.
B) It requires court action in order to hold previous indorsers liable for payment.
C) It releases the maker from liability for payment.
D) It releases indorsers from liability for payment.

Question 30

Duress as a legal reason (defense) offered by a primary or secondary party for not paying a holder the amount due on an instrument is

A) sometimes a personal defense.
B) sometimes a real defense.
C) generally no defense at all.
D) sometimes a personal defense and sometimes a real defense.

Question 31

If payment of a negotiable instrument is refused, it is said to be ____________________.

Question 32

The defense that a person was a minor when he or she signed a note is a(n)

A) real defense.
B) invalid defense.
C) personal defense.
D) none of these.

Question 33

Stebbins transferred a promissory note to Hall when the note was past due. Hall knew that the note was past due. This transfer

A) did not make Hall a holder in due course.
B) relieved the maker from liability.
C) limited the maker's liability.
D) gave Hall better title than Stebbins held.

Question 34

Under the provisions of the UCC, in order to hold the drawer liable, an uncertified check must be presented for payment within a maximum of

A) seven days.
B) twenty days.
C) thirty days.
D) sixty days.

Question 35

One who is first obligated to pay a negotiable instrument is called a(n) ____________________ party.

Question 36

____________________ is a demand for payment or acceptance made by or on behalf of a holder of a negotiable instrument.

Question 37

Changing the amount of an instrument is

A) forgery.
B) material alteration.
C) fraud in the execution.
D) unauthorized completion.

Question 38

The amount of a promissory note was changed from $750 to $7,500 by the payee. The maker can be held liable for

A) $750.
B) $7,500.
C) $6,750.
D) nothing.

Question 39

Which of the following situations best indicates that a person would not qualify as a holder in due course?

A) Arranges to pay for the instrument at a later time.
B) The person was notified that a prior indorser was discharged but in good faith.
C) The person took the instrument in payment of a prior debt.
D) The person accepted the instrument from a thief unaware of this fact.

Question 40

To be a holder in due course, a person must take an instrument

A) before its due date.
B) the day after its due date.
C) thirty days after its due date.
D) ten days after its due date.

Question 41

Parties to a negotiable instrument who have liability for payment of the instrument are classified as either primary parties or secondary parties. Distinguish between primary parties and secondary parties.

Question 42

Notice of dishonor must be given by a holder of a negotiable instrument to a secondary party within ____________________ business days after dishonor by the primary party.

Question 43

How does the Shelter Provision relate to the holder in due course concept?

Question 44

A holder who acts honestly and does not take an instrument under suspicious circumstances takes the instrument in ____________________.

Question 45

A person has taken an instrument ____________________ if he or she takes the instrument in payment of a prior debt.

Question 46

Roberts issued a negotiable instrument to Blackmar based on a promise by Blackmar to provide Roberts with a complete gym set to be installed in the basement of his (Roberts) house. Roberts had been looking at this set in a catalog provided by Blackmar for several months, thinking that Blackmar was the salesperson for the company whose name appeared in the catalog. Blackmar, however, had no affiliation with the company. Roberts issued a promissory note to Blackmar thinking that he was paying for the gym set. Blackmar instead indorsed the note and passed it on to Upson for the money he owed to Upson. When Upson presented this note to Roberts for payment, Roberts refused to pay claiming fraud. Is Roberts liable to Upson or can he (Roberts) refuse to make good on the promissory note?

Question 47

In what capacity is an accommodation party liable?

Question 48

What are the three requirements for a holder to become a holder in due course?

Question 49

A person who signs a negotiable instrument in an unauthorized manner is subject to ____________________ liability.

Question 50

A(n) ____________________ is a legal reason offered by a primary or secondary party for not paying a holder the amount due on a negotiable instrument.