Deck 26: Liability for Negotiable Instruments

Question 1

Paula is a sales agent for The Rock Insurance Company.Paula accepts a check from a customer made payable to her in payment for the premium on an insurance policy.Prior to depositing the check in The Rock's bank account,Paula indorses the check as follows: "The Rock Insurance Company,by Paula Beck,agent." Assuming that Paula has authority to indorse company checks,if the check is dishonored,then between Paula,The Rock,and the bank:

A)Paula only will be liable.
B)Paula and The Rock will be liable.
C)The Rock only will be liable.
D)The bank will be stuck with the dishonored check.

Answer 1

C

Question 2

The Gulf States Section,PGA,Inc.v.Whitney National Bank of New Orleans case addressed liability on a negotiable instrument

A)based on fraud.
B)based on negligence.
C)as an accommodation party.
D)as a signer.

Answer 2

B

Question 3

Verne has possession of a draft that has been validly negotiated to him.His payment process necessarily includes

A)presentment of the draft, dishonor, and notice of dishonor.
B)exhibiting the instrument, showing reasonable identification, and surrendering the draft if it is paid in full.
C)exhibiting the draft, providing a thumbprint signature, and giving a receipt.
D)suspending the underlying debt, applying the shelter rule, and making a demand for payment.

Answer 3

B

Question 4

Maurina Barker is an agent of Southland,and she is authorized to sign checks on Southland's bank account.If Maurina signs a check as "Maurina Barker,as agent for Southland" she is not liable on the instrument.

Question 5

An indorser who writes "without recourse" next to her signature on a negotiable instrument is not liable for payment.

Question 6

Drawers and indorsers are secondarily liable on negotiable instruments.

Question 7

Warranty liability is the liability of someone who gives payment on a negotiable instrument.

Question 8

The accidental destruction of a negotiable instrument will not result in its cancellation.

Question 9

Nelson writes Leah a check for mowing his lawn.Leah deposits the check in her bank,but it is not paid by Nelson's bank.Leah calls Nelson to notify him that her bank returned his check to her unpaid.Leah's notice of the dishonor is insufficient;she must provide written notice.

Question 10

When signing a company check,an agent must clearly indicate that he or she is signing on behalf of the company in order to be free of liability.

Question 11

Assume that Joel signs a promissory note to Andrew,who in turn negotiates the instrument to Luke.Of the three,Joel is the only person who has primary liability.

Question 12

Which rule states that if someone issues an instrument to a person who does not exist,then any indorsement in thename of the payee is valid as long as the person who pays the instrument doesnot know of the fraud?

A)The Imposter Rule
B)The Indorsement Rule
C)The Conversion Rule
D)The Fictitious Payee Rule

Question 13

Lance indorses a promissory note to Connie in exchange for consideration.Unknown to Lance,the note is not good because the maker's signature was forged.Connie later attempts to present the instrument for payment to the original alleged maker,Lilly,who is able to deny liability for payment due to the forged signature.Connie may later sue Lance for breach of a transfer warranty.

Question 14

An accommodation party and a co-maker of a note have the same liability on an instrument.

Question 15

Conversion means that someone has stolen an instrument or a bank has paid a check that has a forged indorsement.

Question 16

Negotiable instruments are normally issued to fulfill a contract.

Question 17

Suppose that Emmett impersonates a famous clown.He goes into an advertising agency and convinces the manager to issue a check to him in the name of the famous clown,purportedly as part of a fund-raising campaign for a nursing home for old retired clowns.If Emmett negotiates the check to a check-cashing store by forging the name of the famous clown,then the ad agency will be able to argue that the bank must reimburse the account because the bank paid a check on a forged signature.

Question 18

Sandy may be charged a fee,but will not face criminal penalties for writing checks on an account with insufficient funds to pay them.

Question 19

A drawee has primarily liability on a draft.

Question 20

Which of the following is NOT one of the five ways to discharge a negotiable instrument?

A)Payment
B)Cancellation
C)Alteration
D)Presentation

Question 21

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

A)check kiting
B)bouncing a check
C)check forgery
D)check covering

Question 22

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

A)the instrument is bearer paper.
B)all signatures are authentic.
C)as far as she knows the issuer is solvent.
D)the instrument has not been altered.

Question 23

What term is used to indicate the termination of liability on an instrument?

A)Collection
B)Discharge
C)Accommodation
D)Conversion

Question 24

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

A)Notice of dishonor after 30 days time
B)The "without recourse" indorsement within the chain
C)Insolvency of drawer
D)Certification of the check

Question 25

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

A)within 3 days of indorsement.
B)within 7 days of indorsement.
C)within 30 days of indorsement.
D)within a reasonable time after the indorsement.

Question 26

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

A)that he or she is a holder
B)that the check has not been altered
C)that the drawee is a solvent institution
D)that all signatures are authentic

Question 27

Which of the following statements regarding instrument liability is TRUE?

A)The holder of an instrument must first ask for payment from those who are secondarily liable.
B)For any given instrument, only one person can be liable at a time.
C)A person with primary liability is unconditionally liable and must pay unless he or she has a valid defense.
D)A person with secondary liability has the same liability to the holder as a person with primary liability.

Question 28

Micah signed a check in the lower right-hand corner and Andrew signed on the back.The presumption is that

A)Micah is the issuer.
B)Micah is the acceptor.
C)Andrew is the drawer.
D)Andrew is the maker and Micah is an indorser.

Question 29

An accommodation party on a negotiable instrument

A)typically receives a direct benefit from the instrument.
B)is always primarily liable for the instrument
C)is the same as a "guarantor" under the UCC.
D)has the same liability to a holder as the person for whom he signed.

Question 30

Generally,indorsers are not liable under signature liability if

A)they write the words "without recourse" next to their signatures on the instrument.
B)they are not the drawee.
C)a check is presented for payment within 30 days after the indorsement.
D)they are an accommodation party.

Question 31

Which of the following will discharge an instrument?

A)John asks Bev, an employee, to take money to the bank to pay off a note, but she keeps the money instead.
B)Two people make an oral agreement to discharge.
C)Chet accidentally leaves a check in his pocket and it is destroyed in the washing machine.
D)The terms of the instrument are intentionally changed.

Question 32

Jessie is the maker of a $1000 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

A)Tyler only.
B)Breanna and Tyler only.
C)either Tyler, Ryan, or Breanna.
D)neither Tyler, Ryan, nor Breanna.

Question 33

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?

A)Yes, Cecilia owes nothing on the check because alteration of a check is a real defense and real defenses are good even against holders in due course.
B)No, Cecilia pays $150 because of the impostor rule.
C)No, Cecilia pays $150 because she in not an indorser or accommodation party.
D)Yes, Cecilia owes nothing unless Corner Bank is a holder in due course in which case she owes the original $15.

Question 34

An instrument ordering someone else to pay money is called

A)an accommodation.
B)a tansfer warranty.
C)a discharge.
D)a draft.

Question 35

Jessie is the maker of a $1000 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.If Liz collects payment from Tyler,then Tyler can demand payment from

A)Ryan and Breanna.
B)Ryan only.
C)Jessie only.
D)Breanna only.

Question 36

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 month's 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?

A)Martin only
B)Only Mack
C)Mack, Marianne, Janet, and Martin
D)Mack, Marianne, and Martin

Question 37

Jane received a check as payment for her performance at a night club.In turn,she gives the check to Paul as a gift,but the check turns out to be worthless when he tries to cash it 45 days later.Does Paul have a claim against Jane?

A)Yes, because he is the holder of the instrument.
B)No, because warranties apply only if the instrument has been transferred for consideration.
C)No, because he did not make a warranty claim within 30 days.
D)Yes, because Jane should have made sure the check was valid before she gave it to Paul.

Question 38

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

A)The drawee
B)The maker
C)The drawer
D)The indorser

Question 39

Check kiting is defined as

A)indorsing a check while knowing that the check is a stolen check.
B)carelessly paying an unauthorized instrument.
C)a scheme of overdrawing account "A" by depositing a check in account "B," then overdrawing account "B" to cover the insufficient funds in account "A."
D)issuing an instrument to an impostor who negotiates the instrument to a bank that is unaware of the fraud.

Question 40

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

A)Tom has secondary contractual liability on the check as an indorser.
B)Tom has no contractual liability on the check because he is the payee.
C)Tom has primary contractual liability on the check as payee.
D)Tom eliminated his liability as an indorser by the type of indorsement he used.

Question 41

Dwight Stringer signed three promissory notes as an agent for his company.The first,he signed "Dwight Stringer,agent for Park Systems,Inc." The second,he signed "Dwight Stringer,Agent." The third note was signed merely "Park Systems,Inc." Discuss the liability of Dwight and Park Systems,Inc.on each of the notes.

Question 42

Explain when presentment warranties apply.Identify the presentment warranties on a check and a promissory note.

Question 43

List the warranties a transferor of a negotiable instrument makes.

Question 44

James Packard,a lawyer representing Robert Marino,received a check for $16,000 in settlement of Robert's case.Instead of turning over the money to Robert or putting it into a trust fund for him,James forged Robert's indorsement and deposited the money into his own account without notifying Robert.Discuss the claims the parties have.

Question 45

List and explain the five different ways to discharge an instrument according to Article 3 of the UCC.