Question 1

Puck signs a check "pay to the order of Quik Mart" drawn on Puck's account in Regional Bank. Puck shows the check to Silky, who agrees that the signature is Puck's and that Quik Mart is owed the amount that the check represents. Quik Mart signs the back of the check. Liability on this check extends to

Accepted Answer

In this scenario, Puck is the drawer of the check and is therefore liable for it. Quik Mart is the payee and is entitled to receive the amount of the check from Puck. By endorsing the check by signing the back, Quik Mart becomes the holder in due course and assumes liability for the check. Silky, as the person who verified Puck's signature, has no liability for the check. Regional Bank is not liable in this scenario because Puck has sufficient funds in the account to cover the check. Therefore, the only parties with liability on this check are Puck (the drawer) and Quik Mart (the endorsing payee).

Question 2

Don writes a check to Eve drawn on Don's account at First Bank. Eve presents the check for payment to First Bank, which ac?cepts it. The bank is

Accepted Answer

As the check is drawn on Don's account at First Bank, the bank is primarily liable for payment. This means that if there are any issues with the check, such as insufficient funds, it is the bank's responsibility to make sure the check is not paid. However, the bank can still seek reimbursement from Don if necessary.

Question 3

Eula signs a check "pay to the order of Eula" and presents to First National Bank for payment. The types of liability associated with this check are

Accepted Answer

The liability associated with this check is signature and warranty, as Eula has signed the check and is warranting that there are sufficient funds in the account to cover the amount of the check.

Question 4

Sara agrees to cosign a promissory note for Tom to buy a sport utility ve?hi?cle. The note is payable to Unity Bank. Sara is an accommodation

Accepted Answer

Sara is the maker because she has agreed to cosign the promissory note, making her equally responsible for the repayment of the loan as Tom. As an accommodation maker, she has essentially lent her creditworthiness to Tom to help him secure the loan.

Question 5

Fact Pattern 26-1A 
Roy writes a check on his account at State Bank to Teri to pay a debt. Teri negotiates the check by indorsement to Uma, who presents it for payment to Vital Bank.
-Refer to Fact Pattern 26-1A. Teri is

Accepted Answer

Teri is secondarily liable as the indorser of the check. If the check bounces, Uma can seek payment from Teri before or after seeking payment from Roy.

Question 6

Super Company's agent Tyra is authorized to draw checks on Super's account in Unity Bank. The checks are preprinted with Super's name. Tyra writes a check "pay to the order of Vern [signed] Tyra." Vern negotiates the check to Weber, who does not know about the agency relationship. If Weber presents the check for payment and Unity Bank dishonors it, liability extends to

Accepted Answer

Super is liable because Tyra was acting within her authority as an agent of Super Company when she wrote the check. The preprinted checks with Super's name indicate that the check is drawn on Super's account, making Super responsible for honoring it.

Question 7

State Bank receives a check drawn by Tricia. The check is re?ceived af?ter the established "cutoff" hour. Payment can be postponed without dishonor

Accepted Answer

According to the rules of the Uniform Commercial Code (UCC), if a check is received after the established cutoff hour, payment can be postponed without dishonor until the close of the next business day. Therefore, option D is the correct answer. Option A is incorrect because payment cannot be postponed indefinitely. Option B is also incorrect because payment can be postponed under certain circumstances as stated by the UCC. Option C is incorrect because Tricia's personal demands do not affect the bank's ability to postpone payment.

Question 8

To borrow the money to buy a car, Klaus signs a note "payable to the order of Lake City Auto Financing." Minnie cosigns the note to guarantee the repayment of the loan. Minnie's liability on this note is

Accepted Answer

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

Question 9

Fact Pattern 26-1A 
Roy writes a check on his account at State Bank to Teri to pay a debt. Teri negotiates the check by indorsement to Uma, who presents it for payment to Vital Bank.
-Refer to Fact Pattern 26-1A. If State Bank dishonors the check, Uma can obtain payment from Teri

Accepted Answer

If State Bank dishonors the check, Uma can only obtain payment from Teri if Uma notifies Teri in a timely manner. This is because Teri is the previous indorser and might be held liable for the dishonored check. Therefore, Uma needs to give Teri the opportunity to resolve the situation before pursuing other options.

Question 10

Grady signs a note "payable to the order of Home Mortgage Service," and Home Mortgage takes possession of the note. The focus of any liability associated with this note is on

Accepted Answer

The focus of liability associated with the note is on the instrument (the note) and any related warranties. This means that if there are issues with the note, such as forgery or lack of consideration, those issues would be the primary focus of liability. Additionally, any warranties made by Grady regarding the validity of the note would also be a focus of liability. The underlying contract and formalities of the instrument are important, but not the primary focus of liability in this scenario.

Question 11

Toby signs a note "payable to the order of United Credit Union." Unless Toby has a valid defense against payment, Toby's liability on this note is

Accepted Answer

By signing a note payable to the order of United Credit Union, Toby is creating a negotiable instrument. As the maker of this instrument, Toby is immediately liable for payment unless he has a valid defense against payment. Therefore, Toby's liability on this note is immediate.

Question 12

Fact Pattern 26-1B 
Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lou who, in turn, indorses it to Mona, who then in?dorses it to Nat, the present holder.
-Refer to Fact Pattern 26-1B. Suppose that Mona pays Nat on the note. With timely notice to the proper parties, Mona may collect payment on the note from

Accepted Answer

When Mona pays Nat and becomes the holder of the note, she can collect payment on the note from any prior endorsers, which in this case are Jake, Kim, and Lou. Therefore, with timely notice to the proper parties, Mona may collect payment on the note from choice A.

Question 13

Fact Pattern 26-1B 
Jake is the maker of a $2,000 promissory note payable to Kim. Kim indorses the note to Lou who, in turn, indorses it to Mona, who then in?dorses it to Nat, the present holder.
-Refer to Fact Pattern 26-1B. Nat properly pre?sents the note to Jake for pay?ment, but Jake dishonors it. With timely notice to the proper parties, Nat may collect payment on the note from

Accepted Answer

Under the principle of transferability, anyone who becomes a holder of a negotiable instrument has the right to enforce payment from any prior endorsers if the instrument is dishonored. In this case, Nat can collect payment from Kim, Lou, or Mona since they are all prior endorsers of the note. However, Nat would need to provide timely notice of dishonor to each of them.

Question 14

Nero signs a check "pay to the order of Olive" drawn on Nero's account in Plum Bank. Olive signs the back of the check. Secondary liability on this check extends to

Accepted Answer

Secondary liability on a check extends to both the drawer (Nero) and the endorser (Olive), as they both have legal responsibilities and obligations if the check is dishonored. Plum Bank is not liable for this check unless they were somehow negligent or at fault in processing it.

Question 15

Ed acquires a check drawn on First National Bank. To present the check for payment, he may use any commercially reasonable

Accepted Answer

According to the Uniform Commercial Code, a person can use any commercially reasonable means of communication to present a check for payment, which includes electronic, oral, or written means of communication. Therefore, the best choice is C as it includes all the possible means of communication.

Question 16

Superior Company draws a check payable to Ted. Uri makes a note payable to Vital Finance Corporation. Primarily liable parties include

Accepted Answer

Uri is primarily liable as the maker of the note, while Superior, as the drawer of a check, is secondarily liable.

Question 17

Dirk is the maker of a note, on which Erv is secondarily liable. Friendly Credit Company is the current holder of the note. Erv will be obli?gated to pay the note if

Accepted Answer

Erv is secondarily liable on the note, meaning that he will only be obligated to pay if Dirk defaults. Friendly Credit's actions, such as breaching a transfer warranty or negotiating the note to a third party, do not affect Erv's obligation. Only if Dirk defaults on the note will Erv be obligated to pay.

Question 18

Rex signs a check "pay to the order of Sophie" drawn on Rex's account in Town Bank. To impose liability on Rex if Town Bank dishonors the check, Sophie should present it for payment within

Accepted Answer

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

Question 19

Ethel signs a note "payable to the order of Fidelity Bank." Fidelity indorses the note in blank and negotiates it to Ghani, who sells it to Huck. Liability associated with the transfer of the note from Ghani to Huck is

Accepted Answer

The liability associated with the transfer of the note from Ghani to Huck is warranty. Warranty is the assurance that the person transferring the note has the right to do so and that there are no problems with its authenticity or payment. If there are any issues with the note, the person transferring it can be held liable for any resulting losses or damages.

Question 20

Biff signs a note "payable to the order of County Credit Union." Unless Biff has a valid defense against payment, Biff's liability on this note is

Accepted Answer

Biff's liability on the note is primary because he is the maker of the note and has a direct obligation to pay it.

Quiz 26: Liability, Defenses, and Discharge