Question 1

Bing signs a note payable to the order of Cameron.Cameron indorses the note and gives it to Daphne as payment for a debt.Daphne presents it to Bing,who pays it.Bing's payment discharges

Accepted Answer

When Bing pays the note, it discharges all parties involved in the transaction, including Bing, Cameron, and Daphne, as the obligation on the note is fulfilled.

Question 2

Fact Pattern 26-1A (Questions A7-A8 apply)
Seymour writes a check on his account at Platinum Bank to Teri to pay a debt.Teri negotiates the check by indorsement to Rosanna,who presents it for payment to Onyx Bank.
-Refer to Fact Pattern 26-1A.Teri is

Accepted Answer

Teri is secondarily liable as the indorser of the check. She is not primarily liable (as the maker of the check) nor simultaneously liable (as a joint maker or drawer).

Question 3

Chris convinces Dion,who does not understand English,to sign a $1,000 note that Dion believes is an application for a credit card.Chris negotiates the note to EZ Finance Company.Dion

Accepted Answer

Dion can avoid payment on the note even if EZ is a holder in due course (HDC) because Dion was misled into signing the note without understanding its true nature, which constitutes fraud in the execution.

Question 4

Dandy Lyin' Furniture Store borrows $100,000 at 6 percent interest from Easy Loan Company and signs a promissory note for that amount.Easy changes the amount of the note to $120,000 and increases the rate to 8 per?cent.Easy materially altered the note when it changed

Accepted Answer

Easy materially altered the note by changing both the amount and the interest rate, which are significant terms of the promissory note.

Question 5

Cash National Bank is an HDC of a note for $1,000 on which there is the forged signature of "Dudley." If sued on the note by Cash

Accepted Answer

Dudley's best defense would be forgery because his signature was forged, meaning he never authorized the note, and thus he is not liable for it.

Question 6

Birdie,an accountant for Country Custom Furniture,Inc.,issues company checks payable to nonexistent persons drawn on Country's ac?count at Debit Bank.Birdie indorses the checks and deposits them in her account.Country discovers the theft and demands that Debit recredit its account.Debit's best defense is that

Accepted Answer

Country was in a better position than Debit to prevent the theft because they employed Birdie and had the ability to supervise and control her actions.

Question 7

Toby signs a note "payable to the order of United Credit Union." Unless Toby has a valid defense against payment,Toby's liability on this note is

Accepted Answer

By signing a note "payable to the order of United Credit Union," Toby is creating a negotiable instrument that is immediately enforceable against him. Toby's liability is not postponed or suspended, and payment may be demanded at any time by the United Credit Union.

Question 8

Rodeo Ranch's agent Slim is authorized to write checks on Rodeo Ranch's account in Town Bank.Upper Range Corporation is a Rodeo Ranch supplier.Slim writes a check on Rodeo Ranch's account "pay to the order of Upper Range [signed] Slim," indorses it in Upper Range's name,and deposits it in his own account in Verity Bank.If Verity Bank collects payment,the ultimate party most likely to suffer the loss is

Accepted Answer

Slim, Rodeo Ranch's agent, fraudulently deposited the check intended for Upper Range into his own account, resulting in Rodeo Ranch losing the money. Since Upper Range did not participate in or benefit from the fraud, they are not responsible for the loss. Town Bank may also experience a loss due to the fraudulent check, but they may be able to recover the funds from Rodeo Ranch or through insurance. Therefore, the most likely party to suffer the loss is Rodeo Ranch.

Question 9

Opalina asks Paolo,who does not understand English,to sign what Opalina says is an application to open a bank account.In fact,the "application" is a note.If sued on the note by an HDC

Accepted Answer

Paolo's best defense would be fraud in the execution because he was deceived as to the nature of the instrument he signed. He believed he was signing an application to open a bank account, but in fact, he signed a note with the intention of being bound on the note's terms. This is a classic example of fraud in the execution.

Question 10

Puck signs a check "pay to the order of Quik Mart" drawn on Puck's account in Regional Bank.Puck shows the check to Silky,who agrees that the signature is Puck's and that Quik Mart is owed the amount that the check represents.Quik Mart signs the back of the check.Liability on this check extends to

Accepted Answer

The liability on this check extends to Puck and Quik Mart only because Quik Mart has endorsed the check by signing the back. Regional Bank is not liable as they have properly processed the check and Silky is also not liable as they have only verified the authenticity of Puck's signature and Quik Mart's endorsement.

Question 11

Derby Stables writes a check to Extendo Credit,Inc.,that is drawn on Derby's account at Farm & Ranch Bank.If the bank does not accept the check,liability for its amount is on

Accepted Answer

The liability for a check lies with the account holder (Derby Stables) if the bank does not accept it. The payee of the check (Extendo Credit, Inc.) can take legal action against Derby Stables to recover the amount if the bank denies the check.

Question 12

Quincy signs a check payable to Richland Investors,Inc.,and gives it to Richland,leaving the amount blank but authorizing Richland to fill in the check for $1,000.Richland fills in $1,500 and negotiates the check to Silverado Bank,to whom Richland owes $1,500.Silverado Bank,an HDC,can enforce the check for

Accepted Answer

As an HDC, Silverado Bank can enforce the check for the full amount of $1,500, despite the fact that the amount written on the check differs from the amount Quincy authorized Richland to fill in. Under the principle of "negotiable instrument," an HDC takes a check for value, in good faith, without notice of any problems, and without any knowledge of any unauthorized alterations. In this case, Silverado Bank took the check in good faith and for value, since Richland owed them $1,500. Therefore, they are entitled to enforce the check for its full amount of $1,500.

Question 13

Celia,an employee of Delite Dairy Company,forges the signa?ture of Elin,Delite's president,on a Delite check and cashes it at First Federal Bank.Elin would ratify Celia's actions by

Accepted Answer

Ratification is the act of approving or validating an unauthorized act. In this case, Celia's forgery of Elin's signature on the Delite check was unauthorized. Elin can ratify Celia's actions by entering into a repayment agreement with her, indicating her approval of the act. The other options do not indicate approval or validation of the unauthorized act performed by Celia.

Question 14

Fact Pattern 26-1A (Questions A7-A8 apply)
Seymour writes a check on his account at Platinum Bank to Teri to pay a debt.Teri negotiates the check by indorsement to Rosanna,who presents it for payment to Onyx Bank.
-Refer to Fact Pattern 26-1A.If Onyx Bank dishonors the check,Rosanna can obtain payment from Teri

Accepted Answer

Rosanna can obtain payment from Teri if she timely notifies Teri about the dishonored check, as per the rules of notification of dishonor.

Question 15

Audio Science Company's agent Bailey is authorized to draw checks on Audio Science's account in Citizen Bank.The checks are preprinted with the company name.Bailey writes a check "pay to the order of Darlene [signed] Bailey." Darlene presents the check for payment.If Citizen Bank dishonors it,liability extends to

Accepted Answer

Bailey is acting as an agent for Audio Science Company, and the check is drawn on the company's account. Therefore, the liability for the dishonored check extends to Audio Science only, as Bailey is not personally liable when acting within the scope of their authority as an agent.

Question 16

To borrow the money to buy a car,Klaus signs a note "payable to the order of Lake City Auto Financing." Minnie cosigns the note to guarantee the repayment of the loan.Minnie's liability on this note is

Accepted Answer

The answer of To borrow the money to buy a...

Question 17

Nero signs a check "pay to the order of Olive" drawn on Nero's account in Peachtree Bank.Olive signs the back of the check.Secondary liability on this check extends to

Accepted Answer

Secondary liability means that if the person who originally wrote and signed the check (the drawer) cannot pay, then the responsibility falls on another party to pay or make good on the check. Since Olive signed the back of the check, she becomes the endorser who might be held liable if Nero cannot pay. However, Nero remains primarily liable as the drawer. Peachtree Bank, as the bank on which the check is drawn, does not assume secondary liability in this case.

Question 18

Ethel signs a note "payable to the order of Fidelity Bank." Fidelity indorses the note in blank and negotiates it to Ghani,who sells it to Huck.Liability associated with the transfer of the note from Ghani to Huck is

Accepted Answer

The liability associated with the transfer of the note from Ghani to Huck is warranty, as there is an implied warranty that the note is genuine, that Ethel has the right to make it, and that all prior parties have validly negotiated the instrument. If any of these warranties are breached, the transferring party (in this case, Ghani) can be held liable to the subsequent holder (in this case, Huck).

Question 19

Dirk is the maker of a note,on which Erv is secondarily liable.Friendly Credit Company is the current holder of the note.Erv will be obli?gated to pay the note if

Accepted Answer

Erv's liability is secondary, meaning he is only required to pay if Dirk defaults on the note. If Friendly Credit breaches a transfer warranty, negotiates the note to a third party, or presents the note for payment, it does not affect Erv's liability.

Question 20

Laptop Assembly Company gives a $3,000 promissory note to My-T-Fast Delivery Service to de?liver a load of computer chips to Laptop's plant.The chips are contami?nated during transit,and are useless to Laptop on delivery.If My-T-Fast presents the note for payment

Accepted Answer

The answer of Laptop Assembly Company gives a $3,000 promissory...

Quiz 26: Liability,defenses,and Discharge