Question 1

The rationale for the imposter rule is to put the responsibility for determining the true identity of the payee on the drawer or maker of a negotiable instrument.

Accepted Answer

The imposter rule places the responsibility on the drawer or maker of a negotiable instrument to determine the true identity of the payee in order to avoid liability for making payment to an imposter.

Question 2

Revised Article 3 of the Uniform Commercial Code (UCC) provides that in the event of a breach of a transfer warranty, a beneficiary of the transfer warranties who took the instrument in good faith may recover from the warrantor an amount equal to three times the loss suffered as a result of the breach (i.e., treble damages).

Accepted Answer

Revised Article 3 of the UCC does not provide for treble damages in the event of a breach of a transfer warranty. It allows for recovery of the loss suffered but does not specify treble damages.

Question 3

The terms of the contract of the parties to a negotiable instrument are set out in:
A) the text of the instrument.
B) Article 3 of the Uniform Commercial Code.
C) the cashier's check.
D) Article 5 of the Uniform Commercial Code.

Accepted Answer

When a person signs a negotiable instrument, whether as maker, drawer, or indorser, or in some other capacity, she generally becomes contractually liable on the instrument. This depends on the capacity in which the person signed the instrument. The terms of the contract of the parties to a negotiable instrument are not set out in the text of the instrument. Rather, Article 3 of the Uniform Commercial Code supplies the terms, which are as much part of the instrument as if they were part of its text.

Question 4

The maker of a promissory note is primarily liable for payment of it.

Accepted Answer

The maker of a promissory note is the person who signs the note and is primarily responsible for payment of it.

Question 5

Contractual liability on negotiable instruments flows from:
A) proper payment of the instruments.
B) signatures on the instruments.
C) nonpresentment of the instruments.
D) writing "without recourse" on the instruments.

Accepted Answer

Liability on negotiable instruments flows from signatures on the instruments as well as actions taken concerning them. It can arise from the fact that a person has signed a negotiable instrument or has authorized someone else to sign it. The liability depends on the capacity in which the person signs the instrument.

Question 6

The Uniform Commercial Code (UCC) allows any indorsement in the name of a fictitious payee to be effective as the payee's indorsement in favor of any person that pays the instrument in good faith or takes it for value or for collection.

Accepted Answer

This is a correct statement regarding the UCC and fictitious payees.

Question 7

If a person purporting to act as a representative signs an instrument by signing either the name of the represented person or the name of the signer, that signature binds the represented person to the same extent she would be bound if the signature were on a simple contract.

Accepted Answer

This is the principle of vicarious liability in agency law. When a representative signs an instrument in the name of the represented person, it is as if the represented person signed the instrument themselves. This is based on the idea that the representative is acting within the scope of their authority and the principal (represented person) has given permission for them to do so.

Question 8

A person who is secondarily liable is like a(n):
A) guarantor on a contract.
B) assignor to a contract.
C) assignee to a contract.
D) drawer of a negotiable instrument.

Accepted Answer

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

Question 9

When a person signs a negotiable instrument, she generally becomes contractually liable on the instrument.

Accepted Answer

When a person signs a negotiable instrument, such as a check or promissory note, they are agreeing to fulfill the terms of the instrument and become contractually liable for its payment or performance. This is one of the defining characteristics of negotiable instruments.

Question 10

Which of the following statements is true of the obligations of a maker?
A) The maker of a promissory note is secondarily liable for payment of it.
B) The maker of a promissory note makes a conditional promise to pay a fixed amount of money.
C) The obligation of the maker is to pay the negotiable instrument according to its terms at the time he issues it.
D) The obligation of the maker is owed to an indorser, a person entitled to enforce the instrument.

Accepted Answer

The maker of a promissory note is primarily liable for payment of it. The maker promises unconditionally to pay a fixed amount of money and is responsible for making good on that promise. The obligation of the maker is to pay the negotiable instrument according to its terms at the time he issues it or, if it is not issued, then according to its terms at the time it first came into possession of a holder.

Question 11

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.

Accepted Answer

This statement is correct as per the principle of agency law. A representative is not personally bound if they sign an authorized signature on behalf of the represented person, as long as it is clear that the signature was made on behalf of the represented person.

Question 12

A person entitled to enforce a negotiable instrument may not discharge the liability of the parties to the instrument by canceling or renouncing it.

Accepted Answer

A person entitled to enforce a negotiable instrument can discharge the liability of the parties to the instrument by intentionally canceling it or renouncing their rights to it, as per the provisions of the Uniform Commercial Code (UCC) regarding negotiable instruments.

Question 13

Under Revised Article 3 of the Uniform Commercial Code (UCC), presentment must be made by written communication.

Accepted Answer

Under Revised Article 3 of the Uniform Commercial Code (UCC), presentment can be made by any means of communication that allows the recipient to record the information transmitted (including oral, electronic, or written communication).

Question 14

A person who transfers a negotiable instrument to someone else and for consideration does not warrant that all signatures on the instrument are authentic or authorized.

Accepted Answer

When a person transfers a negotiable instrument for consideration, they do indeed warrant that all signatures on the instrument are authentic and authorized, among other warranties. This is part of the transfer warranties under the Uniform Commercial Code (UCC).

Question 15

Transfer warranties may not be utilized after the time for giving notice of dishonor has expired.

Accepted Answer

The answer of Transfer warranties may not be utilized after...

Question 16

If an authorized representative signs his name as the representative of a drawer of a check without noting his representative status, but the check is payable from an account of the represented person who is identified on the check, the signer is not liable on the check as long as his signature was authorized.

Accepted Answer

As long as the signature was authorized and the represented person's account is the one from which the check is payable, the signer is not liable on the check even if their representative status is not noted.

Question 17

If a drawee bank mistakenly paid a check over a stop-payment order, the bank cannot recover if it paid the check to a presenter who had taken the instrument in good faith and for value.

Accepted Answer

This is known as the "holder in due course" rule, which protects someone who takes a negotiable instrument in good faith and for value from defenses that may be raised against the original payee or previous parties.

Question 18

The terms of the contract of the parties to a negotiable instrument are typically set out in the text of the instrument.

Accepted Answer

The answer of The terms of the contract of the...

Question 19

Which of the following statements is true of contractual liability on negotiable instruments?
A) It can arise even when a person has not signed the negotiable instrument.
B) It cannot arise when a person has authorized someone else to sign the negotiable instrument.
C) It can arise from negligence relating to the issuance.
D) It cannot arise from improper payment.

Accepted Answer

Liability on a negotiable instrument can arise from the fact that a person has signed a negotiable instrument or has authorized someone else to sign it. The liability depends on the capacity in which the person signs the instrument. Liability also arises from (1) transfer or presentment of an instrument, (2) negligence relating to the issuance, alteration, or indorsement of the instrument, (3) improper payment, or (4) conversion.

Question 20

If a person has been so negligent in writing or signing a negotiable instrument that he in effect invites an alteration of an unauthorized signature on it, Article 3 of the Uniform Commercial Code (UCC) nevertheless allows her to use the alteration or lack of authorization as a reason for not paying a person who in good faith pays the instrument or takes it for value.

Accepted Answer

Under Article 3 of the Uniform Commercial Code (UCC), if a person has been negligent to the point of facilitating a forgery or alteration of a negotiable instrument, they may be precluded from asserting the alteration or lack of authorization as a defense against a holder in due course or a party who took the instrument in good faith and for value.

Quiz 40: Liability of Parties