Question 1

A person is ________ if he has agreed to pay the negotiable instrument.
A)certifiably liable
B)secondarily liable
C)primarily liable
D)partially liable

Accepted Answer

A person who is primarily liable has agreed to pay the negotiable instrument.For example,the maker of a promissory note is the person who is primarily liable on the note.

Question 2

The obligation of an acceptor is:
A)to make an unconditional promise to pay a fixed amount of money and is responsible for making good on that promise.
B)to pay the check according to its terms at the time he issued it.
C)to pay the draft according to the terms at the time of its acceptance.
D)to pay the amount due on the instrument according to its terms at the time he indorsed it.

Accepted Answer

The acceptor of a draft is obligated to pay the draft according to the terms at the time of its acceptance.

Question 3

Tom steals Dave's checkbook, writes a check for $1,000,forges Dave's signature,and receives payment from Tom's bank.The bank paid in good faith.Who is liable to the bank for the $1,000 in this case?
A)Tom
B)Dave
C)Both Tom and Dave
D)Neither Tom nor Dave

Accepted Answer

If someone signs a person's name to a negotiable instrument without that person's authorization or approval,the signature does not bind the person whose name appears.

Question 4

Jack received a check as payment for the work he did.He indorsed the check "without recourse." What legal effect does this have?
A)The drawer of the check is discharged from primary liability on the check.
B)Jack is discharged from secondary liability on the check.
C)The drawer of the check is discharged from secondary liability on the check.
D)Jack is discharged from primary liability on the check.

Accepted Answer

The indorser can avoid secondary liability only by qualifying his indorsement,such as "without recourse," on the instrument when he indorses it.

Question 5

Chin wants to buy a small parcel of land.The seller requires a certified check as payment.Chin has a checking account with ABC bank;he prepares a check for the seller and then has the bank certify it.He then presents the check to the seller.Who may now be liable for payment of the amount of the check?
A)Chin only
B)ABC bank only
C)Both Chin and ABC bank
D)Neither Chin nor the ABC bank

Accepted Answer

If the drawee bank certifies the check,it becomes primarily,or absolutely,liable for paying the check as it reads at the time of its acceptance,and its acceptance discharges the drawer and indorsers who indorsed before the acceptance.

Question 6

The drawee does not have liability on the instrument until it ________ the instrument.
A)transfers
B)signs
C)negotiates
D)makes

Accepted Answer

The drawee does not have liability on the instrument until it signs the instrument.

Question 7

According to UCC section 3-401 which of the following does NOT constitute a valid signature of a negotiable instrument?
A)A mark on the document
B)A word on the document
C)Leaving the document intentionally blank
D)Printing the name on the document

Accepted Answer

A signature on a negotiable instrument according to the UCC can be any name,word,or mark.

Question 8

Which of the following is true regarding an indorser's liability on a note?
A)A holder can proceed directly against the indorser without first presenting the note to the maker.
B)A qualified indorsement by the indorser will not disclaim liability against a holder who takes it in good faith and for value.
C)For the indorser to be liable,there must be presentment to the maker,dishonor by the maker,and notice to the indorser.
D)For the indorser to be liable,there need only be presentment to the maker and dishonor by the maker.

Accepted Answer

An indorser is liable upon the dishonor by the maker (of a note),drawer (of an unaccepted draft)or the drawee (of an accepted draft),and the indorser's receipt of notice of the dishonor.

Question 9

Usually,who may have the power to surrender the instrument if full payment is made?
A)Indorser
B)Accommodation maker
C)Party to whom the holder presents the instrument
D)Drawer

Accepted Answer

The party to whom the holder presents the instrument,without dishonoring the instrument,may surrender the instrument if full payment is made.

Question 10

Mike authorizes his agent,Ben to borrow a sum of $10,000 on his behalf from the National Bank.Ben signs his name to a note without disclosing that the signature was on behalf of Mike.Who is liable on the note?
A)Only Mike is liable.
B)National Bank is liable.
C)Both of them are liable.
D)Only Ben is liable.

Accepted Answer

For example,if Principal authorizes Agent to borrow money on Principal's behalf and Agent signs her name to a note without disclosing that the signature was on behalf of Principal,Agent is liable on the note.

Question 11

Which of the following is true regarding a drawee's liability on a check or a draft?
A)The drawee is primarily liable in all cases.
B)The drawee is secondarily liable because the holder must first proceed against the drawer.
C)The drawee is primarily liable if it accepts (certifies)a check.
D)The drawee is secondarily liable only in doubtful cases.

Accepted Answer

If the drawee bank certifies the check,it becomes primarily,or absolutely,liable for paying the check as it reads at the time of its acceptance,and its acceptance discharges the drawer and indorsers who indorsed before the acceptance.

Question 12

If Jay signs Mila's name to a negotiable instrument without Mila's authorization or approval:
A)the signature is not effective as the signature is of the unauthorized signer.
B)the signature cannot be ratified later by the person represented.
C)the signature does not bind the person whose name appears.
D)Jay is not liable on the check.

Accepted Answer

If someone signs a person's name to a negotiable instrument without that person's authorization or approval,the signature does not bind the person whose name appears.

Question 13

Mike signs a note payable to a bank.The bank indorses and negotiates the note to Fay,who then indorses and negotiates it to Sam.Sam presents the note to Mike,who dishonors it.Then Sam decides to pursue Fay and the bank on their secondary indorsers' liability.Against whom can Sam proceed?
A)Fay
B)The bank
C)Both Fay and the bank
D)Neither Fay nor the bank

Accepted Answer

A person who is secondarily liable is like a guarantor on a contract;Article 3 requires a secondary party to pay the negotiable instrument only if a person who is primarily liable defaults on that obligation.

Question 14

A representative is personally liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable if:
A)the instrument identifies the represented person.
B)the form of the signature does not show unambiguously that the signature was made in a representative capacity.
C)the instrument categorically states that the representative would be liable even if the signature has been authorized.
D)it is proved that the original parties did not intend her to be liable on the instrument.

Accepted Answer

Except for the check situation noted above,a representative is personally liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable if the form of the signature does not show unambiguously that the signature was made in a representative capacity.

Question 15

Maya Efrat,Chief Financial Officer for BAZ Inc. ,is authorized to sign checks for BAZ.She signs a check "BAZ Inc.by Efrat,Chief Financial Officer." Which of the following statements is most accurate?
A)Maya and not BAZ Inc.is liable on the check.
B)BAZ Inc.and not Maya is liable on the check.
C)Both BAZ Inc.and Maya are liable on the check.
D)Neither BAZ Inc.nor Maya are liable on the check.

Accepted Answer

When a representative signs an authorized signature to an instrument,then the representative is not bound provided the signature shows "unambiguously" that the signature was made on behalf of the represented person who is named in the instrument.

Question 16

National bank is reluctant to lend money to James because of his shaky financial condition.However,the bank is willing to lend money to James if he signs the note and a friend also signs the note.Here,the friend serves as the:
A)deponent.
B)accommodation party.
C)fiduciary.
D)non-joinder.

Accepted Answer

An accommodation party is a person who signs a negotiable instrument for the purpose of lending her credit to another party to the instrument but is not a direct beneficiary of the value given for the instrument.

Question 17

What form of liability exists when a party is only responsible to pay on a negotiable instrument in case of default of the party who shoulders the obligation of liability for the instrument?
A)Primary Liability
B)Secondary Liability
C)Accidental Liability
D)International Liability

Accepted Answer

The UCC requires a party that is secondary liable to pay on the negotiable instrument only if a person who is primarily liable defaults on that obligation.

Question 18

Menzes is the Treasurer of ABC Corp.As such,he is authorized to sign checks for the corporation.A supplier bills ABC for a legitimate obligation.Menzes makes out a check to the supplier and signs it "ABC Corp. ,by Menzes,Treasurer." Who is liable on this check?
A)ABC only
B)Menzes only
C)ABC and Menzes
D)Neither ABC nor Menzes

Accepted Answer

When a representative signs an authorized signature to an instrument,then the representative is not bound provided the signature shows "unambiguously" that the signature was made on behalf of the represented person who is named in the instrument.

Question 19

Salmond signs a note for the purpose of lending credit to John.Salmond also makes his father Richard sign the note because of his shaky financial condition.This indicates that Richard has signed the note in the capacity of a(n):
A)drawer.
B)accommodation party.
C)drawee.
D)indorser.

Accepted Answer

An accommodation party is a person who signs a negotiable instrument for the purpose of lending her credit to another party to the instrument but is not a direct beneficiary of the value given for the instrument.

Question 20

If a person signs a check as an accommodation indorser:
A)his contractual liability is that of an indorser.
B)his contractual liability is limited to the payment of the principal.
C)his contractual liability is more than that of an indorser.
D)his contractual liability is limited to the payment of the interest.

Accepted Answer

If a person signs a check as an accommodation indorser,his contractual liability is that of an indorser.If the accommodation indorser has to make good on that liability,he can collect in turn from the person on whose behalf he signed.

Quiz 33: Liability of Parties

A person is ________ if he has agreed to pay the negotiable instrument.

The obligation of an acceptor is:

Tom steals Dave's checkbook, writes a check for $1,000,forges Dave's signature,and receives payment from Tom's bank.The bank paid in good faith.Who is liable to the bank for the $1,000 in this case?

Jack received a check as payment for the work he did.He indorsed the check "without recourse." What legal effect does this have?

The drawee does not have liability on the instrument until it ________ the instrument.

According to UCC section 3-401 which of the following does NOT constitute a valid signature of a negotiable instrument?

Which of the following is true regarding an indorser's liability on a note?

Usually,who may have the power to surrender the instrument if full payment is made?

Mike authorizes his agent,Ben to borrow a sum of $10,000 on his behalf from the National Bank.Ben signs his name to a note without disclosing that the signature was on behalf of Mike.Who is liable on the note?

Which of the following is true regarding a drawee's liability on a check or a draft?

If Jay signs Mila's name to a negotiable instrument without Mila's authorization or approval:

Mike signs a note payable to a bank.The bank indorses and negotiates the note to Fay,who then indorses and negotiates it to Sam.Sam presents the note to Mike,who dishonors it.Then Sam decides to pursue Fay and the bank on their secondary indorsers' liability.Against whom can Sam proceed?

A representative is personally liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable if:

Maya Efrat,Chief Financial Officer for BAZ Inc. ,is authorized to sign checks for BAZ.She signs a check "BAZ Inc.by Efrat,Chief Financial Officer." Which of the following statements is most accurate?

National bank is reluctant to lend money to James because of his shaky financial condition.However,the bank is willing to lend money to James if he signs the note and a friend also signs the note.Here,the friend serves as the:

What form of liability exists when a party is only responsible to pay on a negotiable instrument in case of default of the party who shoulders the obligation of liability for the instrument?

Menzes is the Treasurer of ABC Corp.As such,he is authorized to sign checks for the corporation.A supplier bills ABC for a legitimate obligation.Menzes makes out a check to the supplier and signs it "ABC Corp. ,by Menzes,Treasurer." Who is liable on this check?

Salmond signs a note for the purpose of lending credit to John.Salmond also makes his father Richard sign the note because of his shaky financial condition.This indicates that Richard has signed the note in the capacity of a(n) :

If a person signs a check as an accommodation indorser: