Question 1

Tom indorsed a check made payable to the order of Tom Jones as follows: Pay Raymond Berry
/s/ Tom Jones
Raymond negotiated the check to his landlord for his rent. Raymond indorsed the check as follows:
Without Recourse
/s/ Raymond Berry
With regard to Tom's indorsement, which statement is correct?

Accepted Answer

Tom has indorsed the check as an indorser by directing payment to Raymond Berry. As an indorser, Tom has secondary contractual liability on the check.

Question 2

Anyone who presents a check for payment makes certain warranties. Which of the following is NOT one of those warranties?

Accepted Answer

While a check presenter warrants that the drawee bank is real, they do not warrant that the drawee bank is solvent.

Question 3

Which of the following parties has primary liability on a draft?

Accepted Answer

The maker of a draft is the party who creates and signs it, thereby assuming primary liability to pay the amount specified on the draft. The drawee is the party who is ordered to pay the amount specified, but does not assume liability until they accept the draft. The drawer is the party who initiates the draft and directs payment to be made, but does not assume liability unless they have endorsed the draft. The indorser is a party who endorses the draft and therefore assumes secondary liability, meaning they may be held responsible for payment if the primary party (i.e. the maker or drawee) is unable to pay.

Question 4

An accommodation party on a negotiable instrument

Accepted Answer

An accommodation party on a negotiable instrument agrees to sign the instrument to lend their creditworthiness to another party's obligation. They do not typically receive a direct benefit from the instrument and are not always primarily liable for the instrument. They are different from a guarantor under the UCC, as their liability can be as great as the person for whom they signed. Therefore, the best choice is D, which states that an accommodation party has the same liability to a holder as the person for whom they signed.

Question 5

Alejandro signs on the back of an instrument; he is considered to be

Accepted Answer

An indorser is someone who signs on the back of an instrument to transfer ownership or guarantee payment. Alejandro's signature on the back of the instrument makes him an indorser. An acceptor would be someone who agrees to pay a draft or bill of exchange. An issuer is someone who creates and issues the instrument. None of these apply to Alejandro in this situation.

Question 6

Which of the following statements regarding instrument liability is TRUE?

Accepted Answer

A person with primary liability is unconditionally liable and must pay unless he or she has a valid defense. Secondary liability, on the other hand, means that the person is only liable if the primary parties do not pay. The holder of an instrument can go directly to the person with primary liability for payment. Therefore, statement A and D are incorrect. Statement B is also incorrect because multiple people can be liable for the same instrument.

Question 7

Cecilia made a check out to Gideon for $15. Gideon fraudulently changed the check to read $150, and cashed it at Corner Bank. Is Cecilia discharged from liability on the check?

Accepted Answer

Cecilia is not liable for the altered amount unless Corner Bank is a holder in due course. As a general rule, alteration of a check discharges the drawer's liability unless the alteration is authorized or made in good faith. However, if the check is negotiated to a holder in due course, the holder can enforce the instrument for its altered amount against the drawer. Therefore, if Corner Bank is a holder in due course, Cecilia would be liable for the original amount of $15.

Question 8

Discharge means that

Accepted Answer

Discharge means that liability on an instrument terminates. This could happen for various reasons such as payment of the instrument, cancellation of the instrument, or release of the signer from their obligation to pay the instrument.

Question 9

Jessie is the maker of a $1,000 promissory note in favor of Tyler. Tyler subsequently indorses the note to Ryan by signing just his name. Ryan in turn indorses it to Breanna by indorsing the back of the note, "Without recourse, Ryan." Breanna then indorses it to Liz, the present holder, with a special indorsement. If the note is dishonored by Jessie after it is properly presented to her for payment by Liz, then Liz, after giving timely notice to Tyler, Ryan, and Breanna, may collect payment under signature liability from

Accepted Answer

The answer of Jessie is the maker of a $1,000...

Question 10

Ivy wants to buy a necklace from Bethany for $500 and offers to write a check. To protect herself, Bethany insists that Ivy give her a certified check. If Ivy does this, who then becomes primarily liable?

Accepted Answer

If Ivy provides a certified check, the issuing bank becomes primarily liable for the payment, not Bethany or Ivy. A certified check is a check that has been verified by the issuing bank that the funds are available to cover the check amount. Therefore, if Ivy's certified check bounces or cannot be cashed for any reason, it is the issuing bank's responsibility to make sure the payment is made.

Question 11

What term is used to indicate the passing on of an instrument that one knows to be forged?

Accepted Answer

To utter means to pass on or circulate a forged instrument with the knowledge that it is fake.

Question 12

When a negotiable instrument is transferred, the transferor warrants all of the following EXCEPT

Accepted Answer

The transferor does not warrant that the instrument is bearer paper. Bearer paper is a type of negotiable instrument that is payable to whoever possesses it, regardless of whether they are the original payee or not. It does not require any endorsement. Therefore, the transferor does not need to warrant that the instrument is bearer paper as it is inherent in the nature of the instrument itself. However, the transferor does warrant that the other three statements are true.

Question 13

Lana wrote a check knowing that she did not have sufficient funds in her account. What is this practice called?

Accepted Answer

This practice is commonly known as "bouncing a check" or "a bad check" and is illegal. It can result in fees, legal action, and damage to one's credit score. Check kiting involves taking advantage of the time it takes for funds to clear between different accounts and is also illegal. Check forgery involves falsifying a signature on a check, while check covering is simply depositing funds to cover a previously written check.

Question 14

A check was indorsed as follows: Jessica Hall
Without recourse
Paul Samuels
Collection guaranteed
Melissa Liston
Which of the following will discharge all of the indorsers?

Accepted Answer

Certification of the check by the bank on which it is drawn discharges all indorsers from liability because the bank accepts primary liability for payment of the check.

Question 15

An instrument ordering someone else to pay money is called a(n)

Accepted Answer

A draft is a written order from one party, called the drawer, instructing another party, called the drawee, to pay a certain amount to a third party, called the payee. It is essentially an instrument ordering someone else to pay money.

Question 16

Check kiting is defined as

Accepted Answer

Check kiting is a fraudulent scheme where an individual, often aided by an accomplice, writes a check to themselves from one account (account A) and deposits it in another account (account B). They then withdraw funds from account B before the check has cleared, and use them to cover the overdraft in account A. This creates a cycle of moving funds back and forth between accounts before the bank has time to complete the necessary checks for clearance.

Question 17

Which of the following will discharge an instrument?

Accepted Answer

The intentional alteration of the terms of an instrument, such as changing the amount payable or the due date, without the consent of all parties involved, discharges the instrument. This is because the integrity of the original agreement has been compromised.

Question 18

When a person indorses a check, the indorser assumes contractual liability based on the indorsement. This liability expires unless presentment is made

Accepted Answer

The answer of When a person indorses a check, the...

Question 19

Mack writes a check to his maid, Marianne, in payment for services rendered. Marianne indorses the check in blank and gives the check to her masseuse, Janet, in exchange for a neck massage. Without indorsing the check, Janet gives the check to Martin, her newspaper carrier, in payment for the next four months' delivery charges. Martin indorses with a special indorsement and negotiates the check to his church, St. Mark. The church indorses the check and deposits it in its bank account. If Mack's bank later dishonors the check, to whom may St. Mark's look for recovery?

Accepted Answer

St. Mark's can look for recovery from Mack (the drawer), Marianne (the first indorser), and Martin (who gave a special indorsement). Janet, who did not indorse the check, is not liable to St. Mark's.

Question 20

Generally, indorsers are not liable under signature liability if

Accepted Answer

If an indorser writes the words "without recourse" next to their signature on the instrument, they are not liable for signature liability. This indicates that the indorser is not guaranteeing payment and is not responsible if the instrument is dishonored.

Quiz 26: Liability for Negotiable Instruments

Tom indorsed a check made payable to the order of Tom Jones as follows: Pay Raymond Berry /s/ Tom Jones Raymond negotiated the check to his landlord for his rent. Raymond indorsed the check as follows: Without Recourse /s/ Raymond Berry With regard to Tom's indorsement, which statement is correct?