Question 1

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 2

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

Accepted Answer

It is true that by paying the holder on an instrument, a party may be discharged from liability. This is because payment satisfies the obligation of the party to the holder of the instrument, thereby releasing them from any further responsibility or liability related to that particular transaction.

Question 3

Warranty liability applies to persons who:

Accepted Answer

Warranty liability applies to all persons who transfer, obtain payment, or obtain acceptance of an instrument.

Question 4

Presentment is excused where the acceptor is undergoing bankruptcy.

Accepted Answer

Under the bankruptcy law, a bankruptcy estate is created and all the property of the bankrupt comes within the control of the bankruptcy court. Therefore, presentment to the acceptor is excused when they are undergoing bankruptcy, as they are not able to pay their debts.

Question 5

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 6

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 statement is true according to the Uniform Commercial Code (UCC) section 3-416(a). It means that the party making presentment of an instrument warrants that they have the right to enforce it or are authorized by the rightful holder to collect payment. This warranty does not extend to a drawee of an unaccepted draft or uncertified check, as they have yet to accept or certify the instrument.

Question 7

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 8

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:

Accepted Answer

In this case, as long as Ace Motors remains the holder of the note, Zoron Company is liable for payment. Even though Anton signed as an agent, the fact that Zoron Company purchased the truck makes them ultimately responsible for paying off the note.

Question 9

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

Accepted Answer

Although Elliot did not endorse the check, he can still be held liable for any unauthorized endorsements or fraud committed by someone else who gains possession of the check. Without Elliot's endorsement, the bank may also refuse to accept or cash the check.

Question 10

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

Accepted Answer

According to the Uniform Commercial Code, if a bank pays a check that contains a forged endorsement, it is considered to have converted the instrument and is therefore liable for any resulting losses.

Question 11

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 12

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 13

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

This is typically true for severe weather warnings, as it is understood that the holder may have been impacted by the weather and unable to give notice until it has passed.

Question 14

Who is primarily liable on a note?

Accepted Answer

The maker of a promissory note is primarily liable for payment according to the terms of the note.

Question 15

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 giving her paycheck to Al's Place as payment for her bar bill does not create a warranty of no insolvency. The company she works for going bankrupt on Monday does not make her liable for breach of any warranty related to her payment of the bar bill.

Question 16

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 17

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 section 3-402, an agent who signs an instrument without disclosing their principal's name is liable to a holder in due course without notice, unless the language used clearly indicates that the agent is not intended to be liable.

Question 18

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 19

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 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

This is in accordance with Section 3-311 of the Uniform Commercial Code (UCC) which provides that if the person entitled to enforce an instrument refuses a tender of payment, then to the extent of the amount of the tender, every party who has a right of recourse against the party making the tender is discharged.

Quiz 28: Liability of Parties