Question 1

Presentment is excused where the acceptor is undergoing bankruptcy.

Accepted Answer

If the acceptor is undergoing bankruptcy, presentment is excused. This is because the acceptor is unable to pay the debt and the bankruptcy proceedings will determine how the debt will be handled.

Question 2

When a severe weather warning has been declared, a delay in notice is excused to the holder who was prevented from giving the notice until after the severe weather passed.

Accepted Answer

According to common law principles in the United States, a delay in notice due to severe weather may be excused if it was impossible or impracticable for the party to provide notice in a timely manner. This is known as the "impossibility" defense. Therefore, if a holder was prevented from giving notice until after the severe weather passed, they may be excused for the delay. However, the specific circumstances will determine whether the defense is successful.

Question 3

Warranty liability applies to persons who:
A) transfer an instrument.
B) obtain payment of an instrument.
C) obtain acceptance of an instrument.
D) All of these.

Accepted Answer

Warranty liability applies to all the parties involved in an instrument, including those who transfer, obtain payment, or obtain acceptance of the instrument.

Question 4

Charles is the holder of a promissory note, the maker of which is Charles' niece, Margaret. As a birthday gift to Margaret, Charles marked "Canceled" across the face of the note. Margaret remains liable on the note because she did not give Charles anything of value for the cancellation.

Accepted Answer

Margaret does not remain liable on the note because Charles' act of marking "Canceled" on the note as a gift constitutes a voluntary cancellation or release of the debt, which effectively discharges Margaret from her obligation, regardless of whether she gave anything of value for the cancellation.

Question 5

Mary Lou takes her paycheck to Al's Place on Friday night and gives it to the bartender as payment for her running bar bill. If the company she works for goes bankrupt the following Monday, Mary Lou is liable for breach of warranty of no insolvency.

Accepted Answer

Mary Lou cannot be held liable for breach of warranty of no insolvency as she had no way of knowing that her company would go bankrupt.

Question 6

If a drawee bank pays an instrument containing a forged indorsement, the bank is liable for conversion.

Accepted Answer

A drawee bank has a duty to verify the signatures on a presented instrument before paying it. If the bank pays an instrument containing a forged indorsement, it has converted the instrument and is liable to the true owner of the instrument for any resulting losses.

Question 7

If an agent is authorized to execute an instrument on behalf of a principal and signs "Cornwall, principal, by Lyons, agent," only the principal is liable on the instrument.

Accepted Answer

When an agent properly discloses the principal and signs on their behalf, as in the given format, the principal is the party held liable on the instrument, not the agent.

Question 8

A party liable on an instrument who makes proper tender of full payment to a person entitled to enforce the instrument is discharged from liability for the face amount of the instrument and for any interest accrued even if the tender is refused.

Accepted Answer

The answer of A party liable on an instrument who...

Question 9

In all instances other than a drawee of an unaccepted draft or uncertified check, the only presentment warranty that is given is that the warrantor is a person entitled to enforce the instrument or is authorized to obtain payment on behalf of the person entitled to enforce.

Accepted Answer

The Uniform Commercial Code (UCC) provides that in all cases except a drawee of an unaccepted draft or uncertified check, the person presenting the instrument warrants only that they are entitled to enforce the instrument or authorized to obtain payment on behalf of the person entitled to enforce. This is known as the presentment warranty.

Question 10

A bank must give notice of dishonor within one business day and a nonbank within three business days of the day on which it receives notice of dishonor.

Accepted Answer

A bank must give notice of dishonor within one business day, but a nonbank (such as a person or company) must give notice within a "reasonable time," which is generally considered to be no more than 30 days.

Question 11

Dan signs a note "Dan Mason, Agent" without disclosing his principal's name. Dan is liable to a holder in due course without notice that Dan was not intended to be liable.

Accepted Answer

According to the Uniform Commercial Code (UCC) Section 3-402(1), if an agent signs a negotiable instrument without disclosing the principal's identity, the agent becomes personally liable to a holder in due course without notice that the agent was not intended to be liable. Therefore, Dan can be held liable as an agent even if he did not disclose the principal's name.

Question 12

An accommodation maker is not liable on a note since he only agreed to sign as a favor to the maker.

Accepted Answer

An accommodation maker is liable on the note to a holder for value, even though they signed as a favor, because they intend to guarantee the note's payment.

Question 13

Who is primarily liable on a note?
A) The maker
B) The indorsers
C) The drawee bank
D) The holder

Accepted Answer

The maker of a note is the primary liable party as they are the one who signed the note and promised to repay the debt. The indorsers and drawee bank may also have some liability, but their responsibility is secondary to that of the maker. The holder of the note is the party who is owed the debt and does not bear any liability.

Question 14

Discharge of liability on an instrument is final; it cannot be revived.

Accepted Answer

Discharge of liability on an instrument can be revoked or reinstated under certain conditions, such as if the discharge was obtained through fraud or if the party discharging the liability agrees to revive their obligation.

Question 15

Presenters' warranties are exactly the same as transferors' warranties.

Accepted Answer

Presenters' warranties and transferors' warranties differ in scope and application, with presenters' warranties typically being made to the collecting bank regarding the authenticity of the instrument and authority to enforce it, while transferors' warranties are made to subsequent transferees regarding title, signatures, and no alterations.

Question 16

When a draft is accepted by a bank, prior and subsequent indorsers are discharged.

Accepted Answer

When a draft is accepted by a bank, the acceptor (the bank) assumes responsibility for payment at maturity, but prior and subsequent indorsers are not discharged and remain liable until the instrument is paid.

Question 17

By paying the holder on an instrument, a party may be discharged from liability.

Accepted Answer

Payment to the holder of an instrument, such as a check or promissory note, is a common method of discharge from liability. Once the holder receives the payment, the party who made the payment is no longer liable for the debt or obligation.

Question 18

Zoron Company purchased a truck from Ace Motors. The sales personnel at Ace know that Anton Green is an executive at Zoron. To pay for the truck, Anton delivered a $35,000 note to Ace and signed it "Anton Green, Agent." In this case:
A) the signature of the maker is incomplete. Neither Zoron nor Anton is liable on the note.
B) "Zoron Company" does not appear on the note. Only Anton is liable to Ace for payment of the note.
C) as long as Ace Motors remains holder of the note, Zoron Company is liable for payment.
D) if ABC Bank is holder of the note and Zoron Company does not pay, the bank has no recourse against Anton.

Accepted Answer

As long as Ace Motors holds the note, Zoron Company is liable for payment. Anton Green signed the note as an agent of Zoron, thus creating a situation of agency where Zoron is the principal and Anton is the agent. Therefore, Zoron is bound by the actions of its agent.

Question 19

Robert's payroll check was made payable "to the order of Robert Lewis." Robert deposited, but never indorsed, the check in ABC bank. Robert has no warranty liability on the check because his signature is not on the instrument.

Accepted Answer

While Robert may not have a warranty liability on the check, the fact that he deposited it without endorsing it could result in him being liable for any damages or losses incurred by ABC bank or any subsequent parties who handle the check.Indorsing a check is a necessary step in transferring ownership and guaranteeing its validity.

Question 20

If a person entitled to enforce an instrument refuses a tender of payment, the refusal wholly discharges to the extent of the amount of tender every party who has a right of recourse against the party making tender.

Accepted Answer

According to Section 3-311 of the Uniform Commercial Code (UCC), if the person entitled to enforce an instrument refuses a tender of payment, it operates as a discharge to the extent of the amount of tender for every party who has a right of recourse against the party making the tender.

Quiz 28: Liability of Parties