Question 1

Community Bank receives a check drawn by Dennis. The check lacks a proper indorsement. Payment can be postponed without dishonor​

Accepted Answer

According to the Uniform Commercial Code (UCC), a bank may delay payment on a check that lacks a proper indorsement until the proper indorsement is obtained. This is known as a "conditional acceptance." However, the delay cannot be indefinite, and the UCC provides a time limit of 30 days for obtaining the proper indorsement. Therefore, option D is the best choice.

Question 2

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation​

Accepted Answer

Dulcey is agreeing to cosign the promissory note, meaning she is becoming a maker of the note by accepting responsibility for repayment. Being a drawee or drawer is not applicable in this situation, and being an indorser would involve endorsing the note after it has already been issued, which is not the case here.

Question 3

To borrow the money to buy a car, Megan signs a note "payable to the order of Purchase Financing." Olaf cosigns the note to guarantee the repayment of the loan. Olaf's liability on this note is​

Accepted Answer

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

Question 4

Darby writes a check to Education Loan Management, Inc., that is drawn on Darby's account at Federal Bank. If the bank does not accept the check, liability for its amount is on​

Accepted Answer

The liability for the amount of the check falls on Darby, as they are the one who issued the check from their account at Federal Bank. If the bank does not accept the check, it is likely because there are insufficient funds in Darby's account to cover the amount of the check. Therefore, Darby is responsible for making sure there are enough funds to cover the check before issuing it.

Question 5

Fran signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Holly, who sells it to Iona. Liability associated with the transfer of the note from Holly to Iona is​

Accepted Answer

The answer of Fran signs a note "payable to the...

Question 6

Resource Industries Inc.'s agent Polly is authorized to draw checks on the company's account in Sterling Bank. The checks are preprinted with the company name. Polly writes a check "pay to the order of Don [signed] Polly." Don presents the check for payment. If the bank dishonors it, liability extends to​

Accepted Answer

The answer of Resource Industries Inc.'s agent Polly is authorized...

Question 7

Logan is Mining Corporation's agent and is authorized to write checks on Mining's account in Northwest Bank. Logan writes a check "pay to the order of Oceanside Resort." Logan signs the check "Mining Corporation, by Logan, agent." Northwest Bank dishonors the check. Liability extends to​

Accepted Answer

As a general rule, an agent of a disclosed principal is not personally liable on contracts entered into on behalf of the principal. Here, Logan signed the check on behalf of Mining Corporation and identified himself as an agent. Therefore, Logan is not personally liable. Oceanside is not liable because it was a properly identified payee on the check. The liability ultimately falls on Mining Corporation as the principal for whom Logan was acting as an agent when he wrote the check.

Question 8

Fact Pattern 17-1
Chuck is the maker of a $200,000 promissory note payable to Investors Corporation. Investors indorses the note to Equity Lenders, which in turn indorses it to Select Holdings LLC, which then indorses it to Global Bank, the present holder.
-Refer to Fact Pattern 17-1.Suppose that Select Holdings pays Global Bank on the note. With timely notice to the proper parties, Select Holdings may then collect payment on the note from​

Accepted Answer

Select Holdings can collect payment on the note from Chuck, Investors, or Equity Lenders with timely notice to the proper parties. As an indorser, Select Holdings has the right to seek payment from any prior party in the chain of indorsements.

Question 9

Fact Pattern 17-2
Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
-Refer to Fact Pattern 17-2.If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas​

Accepted Answer

O'Leary has the right to obtain payment from Niklas if they notify him in a timely manner of the dishonor of the check. This is in accordance with the rules of the Uniform Commercial Code (UCC) regarding the rights of subsequent holders of negotiable instruments.

Question 10

Elena, an employee of Builders, Inc., forges the signature of Carly, Builders's president, on a company check and cashes it at Delta Bank. Carly would ratify Elena's actions by​

Accepted Answer

Ratification is the act of approving and accepting an unauthorized act of an agent on behalf of a principal. If Carly wants to ratify Elena's actions, she must accept the consequences of Elena's actions and compensate the bank for damages suffered due to the forgery. The most practical way to make Delta Bank whole again would be to enter into a repayment agreement with Elena. Therefore, option C is the best choice. The other options are not appropriate for ratification. Prosecuting Elena or discharging her from employment would indicate that Carly does not accept Elena's actions, and filing criminal charges herself would be an unnecessary step because the authorities would likely prosecute Elena already.

Question 11

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within​

Accepted Answer

The answer of Orson signs a check "pay to the...

Question 12

Jen is the maker of a note, on which Bart is secondarily liable. Credit Instruments Company (CIC) is the current holder of the note. Bart will be obligated to pay the note if​

Accepted Answer

Bart's liability is secondary, which means that he is only obligated to pay if the primary obligor (Jen) defaults on the note.

Question 13

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor​

Accepted Answer

According to the scenario, Gulf Bank can delay the payment without dishonor until the following business day. This is because they received the check after the established "cutoff" hour, which means it is considered a late deposit. However, they cannot postpone it indefinitely or for thirty days, as that would be considered unreasonable and could result in dishonor of the check. Therefore, the best choice is D, until the following business day.

Question 14

Hilltop Bank is an HDC of a note for $1,000 on which there is the forged signature of "Rob." If sued on the note by Hilltop, Rob's best defense would be​

Accepted Answer

The best defense for Rob would be forgery, as the signature on the note is forged and thus the note is not valid.

Question 15

Cici signs a check "pay to the order of Doug" drawn on Cici's account in East Bank. Cici shows the check to Frieda, who agrees that the signature is Cici's and that Doug is owed the amount the check represents. Doug signs the back of the check. Liability on this check extends to​

Accepted Answer

As the check was signed by Cici and endorsed by Doug, liability rests only with Cici and Doug, not with Frieda or East Bank.

Question 16

Fact Pattern 17-1
Chuck is the maker of a $200,000 promissory note payable to Investors Corporation. Investors indorses the note to Equity Lenders, which in turn indorses it to Select Holdings LLC, which then indorses it to Global Bank, the present holder.
-Refer to Fact Pattern 17-1.Global Bank properly presents the note to Chuck for payment, but he dishonors it. With timely notice to the proper parties, Global Bank may collect payment on the note from​

Accepted Answer

Global Bank may seek payment from any of the previous indorsers, including Investors, Equity Lenders, or Select Holdings, as long as timely notice is given to each of them. This is because each indorser is liable for payment of the note to subsequent holders. However, if Global Bank fails to give timely notice to any of the previous indorsers, its ability to collect payment from that party may be limited or lost altogether.

Question 17

Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is​

Accepted Answer

By signing the note "payable to the order of Account Collection Agency," Len is essentially creating a negotiable instrument that can be transferred to another party. If the Account Collection Agency presents the note for payment and Len has no valid defense, his liability for payment is immediate.

Question 18

Olivia is Physicians Clinic agent and is not authorized to sign checks or notes on its behalf. Despite the lack of authority, Olivia issues a note "payable to the order of Loan Company [signed] Physicians Clinic, by Olivia." Liability on this note extends to​

Accepted Answer

Olivia, as an agent of Physicians Clinic, does not have the authority to sign checks or notes on behalf of the company. Therefore, Olivia is personally liable for the note she issued. Neither Physicians Clinic nor Loan Company would be liable for this unauthorized act.

Question 19

Fact Pattern 17-2
Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
-Refer to Fact Pattern 17-2.Niklas is​

Accepted Answer

Niklas is secondarily liable because he indorsed the check, making him responsible for its payment only if the drawer (Lisa) and the primary party (O'Leary) do not satisfy their liability.

Question 20

Celine issues a note "payable to the order of Celine," forges Dash's signature as the maker, and indorses the note "pay to Erica." Celine sells the note to Erica, who negotiates it by indorsement and delivery to Forest. Forest can extend liability to​

Accepted Answer

Celine, as the forger of Dash's signature, is not liable on the note. Dash, as the purported maker whose signature was forged, is also not liable on the note. Forest can only extend liability to the parties who are prior to him in the chain of negotiation, which in this case is Celine.

Quiz 17: Liability, Defenses, and Discharge

Community Bank receives a check drawn by Dennis. The check lacks a proper indorsement. Payment can be postponed without dishonor​

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation​

To borrow the money to buy a car, Megan signs a note "payable to the order of Purchase Financing." Olaf cosigns the note to guarantee the repayment of the loan. Olaf's liability on this note is​

Darby writes a check to Education Loan Management, Inc., that is drawn on Darby's account at Federal Bank. If the bank does not accept the check, liability for its amount is on​

Fran signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Holly, who sells it to Iona. Liability associated with the transfer of the note from Holly to Iona is​

Logan is Mining Corporation's agent and is authorized to write checks on Mining's account in Northwest Bank. Logan writes a check "pay to the order of Oceanside Resort." Logan signs the check "Mining Corporation, by Logan, agent." Northwest Bank dishonors the check. Liability extends to​

Fact Pattern 17-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 17-2.If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas​

Elena, an employee of Builders, Inc., forges the signature of Carly, Builders's president, on a company check and cashes it at Delta Bank. Carly would ratify Elena's actions by​

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within​

Jen is the maker of a note, on which Bart is secondarily liable. Credit Instruments Company (CIC) is the current holder of the note. Bart will be obligated to pay the note if​

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor​

Hilltop Bank is an HDC of a note for $1,000 on which there is the forged signature of "Rob." If sued on the note by Hilltop, Rob's best defense would be​

Cici signs a check "pay to the order of Doug" drawn on Cici's account in East Bank. Cici shows the check to Frieda, who agrees that the signature is Cici's and that Doug is owed the amount the check represents. Doug signs the back of the check. Liability on this check extends to​

Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is​

Olivia is Physicians Clinic agent and is not authorized to sign checks or notes on its behalf. Despite the lack of authority, Olivia issues a note "payable to the order of Loan Company [signed] Physicians Clinic, by Olivia." Liability on this note extends to​

Fact Pattern 17-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 17-2.Niklas is​

Celine issues a note "payable to the order of Celine," forges Dash's signature as the maker, and indorses the note "pay to Erica." Celine sells the note to Erica, who negotiates it by indorsement and delivery to Forest. Forest can extend liability to​

Community Bank receives a check drawn by Dennis. The check lacks a proper indorsement. Payment can be postponed without dishonor

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation

To borrow the money to buy a car, Megan signs a note "payable to the order of Purchase Financing." Olaf cosigns the note to guarantee the repayment of the loan. Olaf's liability on this note is

Darby writes a check to Education Loan Management, Inc., that is drawn on Darby's account at Federal Bank. If the bank does not accept the check, liability for its amount is on

Fran signs a note "payable to the order of Guaranty Bank." Guaranty indorses the note in blank and negotiates it to Holly, who sells it to Iona. Liability associated with the transfer of the note from Holly to Iona is

Logan is Mining Corporation's agent and is authorized to write checks on Mining's account in Northwest Bank. Logan writes a check "pay to the order of Oceanside Resort." Logan signs the check "Mining Corporation, by Logan, agent." Northwest Bank dishonors the check. Liability extends to

Fact Pattern 17-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 17-2.If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas

Elena, an employee of Builders, Inc., forges the signature of Carly, Builders's president, on a company check and cashes it at Delta Bank. Carly would ratify Elena's actions by

Orson signs a check "pay to the order of Painless Dental" drawn on Orson's account in Quantum Bank. To impose liability on Orson if the bank dishonors the check, Painless Dental should present it for payment within

Jen is the maker of a note, on which Bart is secondarily liable. Credit Instruments Company (CIC) is the current holder of the note. Bart will be obligated to pay the note if

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor

Hilltop Bank is an HDC of a note for $1,000 on which there is the forged signature of "Rob." If sued on the note by Hilltop, Rob's best defense would be

Cici signs a check "pay to the order of Doug" drawn on Cici's account in East Bank. Cici shows the check to Frieda, who agrees that the signature is Cici's and that Doug is owed the amount the check represents. Doug signs the back of the check. Liability on this check extends to

Len signs a note "payable to the order of Account Collection Agency." Unless Len has a valid defense against payment, his liability on this note is

Olivia is Physicians Clinic agent and is not authorized to sign checks or notes on its behalf. Despite the lack of authority, Olivia issues a note "payable to the order of Loan Company [signed] Physicians Clinic, by Olivia." Liability on this note extends to

Fact Pattern 17-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 17-2.Niklas is

Celine issues a note "payable to the order of Celine," forges Dash's signature as the maker, and indorses the note "pay to Erica." Celine sells the note to Erica, who negotiates it by indorsement and delivery to Forest. Forest can extend liability to