Question 1

Ellen draws a check on his checking account at Center Bank "payable to the order of Cary Gardner." When Cary presents the check for payment,Center Bank refuses to pay it even though there are sufficient funds in Ellen's account to pay Cary.Can Cary collect the amount of the check? If yes,how?

Accepted Answer

The answer of Ellen draws a check on his checking...

Question 2

Mara draws a $1,000 check on Royal Bank "payable to the order of Peyton." Peyton cleverly raises the check to $10,000 and indorses and negotiates the check to Nathan.Nathan presents the check for payment to Royal Bank.Royal Bank pays the check as altered ($10,000)and debits Mara's account.When Mara discovers the alteration,she demands that the bank re-credit her account,which the bank does.Who are the parties that can recover against the wrongdoing and how?

Accepted Answer

The answer of Mara draws a $1,000 check on Royal...

Question 3

Transfer and presentment warranties shift the risk of loss to the party who was in the best position to prevent the loss.

Accepted Answer

Transfer and presentment warranties are designed to allocate the risk of loss in commercial transactions. These warranties shift the risk to the party who is in the best position to prevent the loss. For example, if a check is transferred, the transfer warranty shifts the risk of loss due to a forged or altered check to the transferring party because they were in the best position to prevent such a loss. Similarly, a presentment warranty shifts the risk of loss from an uncollectible check to the party who presents it for payment because they were in the best position to identify any issues with the check before presenting it.

Question 4

Give an example of a situation where a personal defense cannot be raised against an HDC.

Accepted Answer

The answer of Give an example of a situation where...

Question 5

Diana borrows $10,000 from Thomas and signs a promissory note,promising to pay Thomas this amount plus 10 percent interest in one year.Thomas indorses the note and negotiates it to Frank.Frank indorses the note and negotiates it to Lila.Lila presents the note to Diana for payment when the note is due.Diana refuses to pay the note.How can each person recover the money?

Accepted Answer

The answer of Diana borrows $10,000 from Thomas and signs...

Question 6

A negotiable instrument is considered canceled if it is destroyed or mutilated by accident or by an unauthorized third party.

Accepted Answer

A negotiable instrument is not considered canceled merely because it is destroyed or mutilated. It must be intentionally canceled by the holder or through a legal process to be considered as such. Accidental destruction or mutilation does not automatically cancel the instrument's negotiability or its underlying obligations.

Question 7

Jenna signs a promissory note to pay $1,000 to Adam.Adam cleverly raises the note to $10,000 and negotiates the note to Ned.Ned indorses the note and negotiates it to Mark.When Mark presents the note to Jenna,how much does she need to pay? Can Mark collect any sum of the money from Ned? If yes,how much?

Accepted Answer

The answer of Jenna signs a promissory note to pay...

Question 8

Explain with an example how a holder who does not qualify as a holder in due course in his or her own right becomes a holder in due course.

Accepted Answer

The answer of Explain with an example how a holder...

Question 9

Give an example of a situation where a universal defense can be raised against an HDC.

Accepted Answer

The answer of Give an example of a situation where...

Question 10

An accommodation party who signs an instrument guaranteeing payment is secondarily liable on the instrument.

Accepted Answer

An accommodation party, by definition, is someone who signs a negotiable instrument (such as a check or promissory note) to guarantee payment by someone else (such as the borrower or buyer). This party is secondarily liable, meaning they are responsible for payment only if the primary party (the borrower or buyer) fails to pay. This is different from a co-signer or co-maker, who is jointly and severally liable for payment along with the primary party.

Question 11

Where an indorsement on an instrument has been forged or is unauthorized,the loss falls on the party who first takes the forged instrument after the forgery.

Accepted Answer

This is known as the "forged indorsement rule" and is recognized in most jurisdictions. The rationale behind this rule is that the person who takes the forged instrument is in a better position to prevent the loss compared to the innocent party who had no involvement in the forgery.

Question 12

The fictitious payee rule states that if an imposter forges the indorsement of the named payee,the drawer or maker is liable on the instrument to any person who,in good faith,pays the instrument or takes it for value or for collection.

Accepted Answer

The fictitious payee rule actually states that if an imposter induces the drawer to issue an instrument to a payee who does not exist or is not intended to have an interest in the instrument, the indorsement by any person in the name of the payee is effective as the indorsement of the payee.

Question 13

Discuss,with an example,the circumstances under which value is given to the holder.

Accepted Answer

The answer of Discuss,with an example,the circumstances under which value...

Question 14

Primary liability refers to the liability on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due.

Accepted Answer

Primary liability refers to the direct and immediate responsibility to pay on a negotiable instrument, without needing another party to default first.

Question 15

Arnold draws a check payable to the order of Matthew.Linda steals the check from Matthew,forges Matthew's indorsement,and cashes the check at a liquor store.Who is liable and why?

Accepted Answer

The answer of Arnold draws a check payable to the...

Question 16

Warranty liability is imposed whether or not the transferor signed the instrument.

Accepted Answer

Warranty liability is imposed on all parties involved in the transfer of an instrument, regardless of whether or not they actually signed it. This is because warranties are a legal obligation that transfer with the instrument itself, rather than simply with the individuals who originally signed it.

Question 17

Any passage of an instrument other than its issuance and presentment for payment is considered a transfer.

Accepted Answer

A transfer of an instrument can occur through endorsement, assignment, or negotiation.

Question 18

Where an indorsement on an instrument has been forged or is unauthorized,the loss falls on the party who first takes the forged instrument after the forgery.Discuss,with an example,a circumstance when this rule is not applicable.

Accepted Answer

The answer of Where an indorsement on an instrument has...

Question 19

An unauthorized signature by a purported agent acts as the signature of the purported principal.

Accepted Answer

An unauthorized signature by a purported agent does not act as the signature of the purported principal unless the principal has ratified the signature or is otherwise bound by the agent's authority.

Question 20

Unless otherwise agreed,indorsers are liable to each other in the order in which they indorsed the instrument.

Accepted Answer

This statement is true as per the provisions of the Uniform Commercial Code (UCC), which governs negotiable instruments like checks and promissory notes. According to UCC § 3-415, each indorser is liable to subsequent indorsers and the holder in the order of indorsement. This means that if the instrument is dishonored, each indorser can be held responsible for paying the amount owed based on the order they endorsed it.

Quiz 21: Holder in Due Course and Liability of Parties