Question 1

If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

Accepted Answer

A)   Before midnight of the next day
B)   Within 48 hours
C)   Within 7 days
D)   Within 10 days
E)   Within 30 daysF) A) and B)
G) A) and E)

Question 2

The most common reason that improper presentment occurs is the failure to present an instrument on time.

Accepted Answer

A) True 
 B)False

Question 3

Zachary, who has been authorized to write a check from a company account to pay employees, draws bonus checks from the company account for five fictitious employees, endorses the checks in their names, and deposits those into his own bank account. Which of the following is true regarding whether the company will be required to take the loss on the checks?

Accepted Answer

A)   Under the fictitious payee rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
B)   Under the imposter rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
C)   Under the transferor rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary.
D)   Under the employee-liability rule, in addition to its rights in regard to Zachary, the company will be able to recover from any bank that cashed the checks.
E)   Under the banking liability act, in addition to its rights in regard to Zachary, the company will be able to recover from any bank that cashed the checks.F) C) and D)
G) C) and E)

Question 4

Which of the following results in liability for the principal because the principal approved of an unauthorized agent's signature?

Accepted Answer

A)   Ratification
B)   Authorization
C)   Acknowledgement
D)   Pre-approval
E)   Post-approvalF) B) and C)
G) B) and E)

Question 5

The term ________ occurs when a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused.

Accepted Answer

A)   destroyed
B)   dishonored
C)   converted
D)   rejected
E)   refusedF) A) and D)
G) All of the above

Question 6

Which of the following is true regarding liability on negotiable instruments?

Accepted Answer

A)   Issuers and acceptors are primarily liable for a negotiable instrument, while drawers and endorsers are secondarily liable.
B)   Drawers and endorsers are primarily liable, while issuers and acceptors are secondarily liable.
C)   Issuers and drawers are primarily liable, while acceptors and endorsers are secondarily liable.
D)   Acceptors and endorsers are primarily liable, while issuers and drawers are secondarily liable.
E)   Drawers are primarily liable, while issuers, acceptors, and endorsers are secondarily liable.F) B) and D)
G) C) and D)

Question 7

The UCC states that a check must be presented within ________ days of its date to hold the drawer secondarily liable.

Accepted Answer

A)   7
B)   10
C)   21
D)   30
E)   60F) B) and E)
G) A) and B)

Question 8

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.
-Assuming that Rohan admits the modification but it is not considered fraudulent, which of the following is true regarding Taylor's liability on the note?

Accepted Answer

A)   Because of the alteration, Taylor is not liable for any amounts under the promissory note.
B)   Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan; but in the event the note is negotiated to another holder, Taylor is liable for $3,500.
C)   Taylor's obligation will be enforced only to the amount of $3,000 if payment is to be made to Rohan; but in the event the note is negotiated to a holder in due course, Taylor is liable for $3,500.
D)   Unless Taylor has a written document from Rohan to the effect that the agreement was for $3,000 only, Taylor and Rohan will be legally required to split the remainder with Taylor being held responsible for $3,250.
E)   Taylor is liable for $3,000 regardless of whether or not Rohan has negotiated the note to another party.F) B) and D)
G) None of the above

Question 9

An agent's signature can create liability for a principal as long as the agent is authorized to sign a negotiable instrument on behalf of the principal.

Accepted Answer

A) True 
 B)False

Question 10

If an accommodated party pays a note when it is due, the accommodated party can force any accommodation party to contribute based upon the number of accommodation parties that exist.

Accepted Answer

A) True 
 B)False

Question 11

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.
-Which of the following statements is true regarding detecting fraudulent payment in online transaction systems?

Accepted Answer

A)   Businesses have no options to prevent fraud.
B)   Insurance that covers fraudulent payments in online transaction systems is not available.
C)   Online business cannot require more extensive authentication procedures when a customer makes a payment.
D)   There are no options for online businesses to properly authenticate the customer making a payment.
E)   Businesses have several options for ensuring their online transaction system can detect fraudulent payment.F) A) and B)
G) B) and C)

Question 12

Under the UCC, how can proper presentment be made?

Accepted Answer

A)   By any commercially reasonable means.
B)   Only through a clearinghouse procedure.
C)   Only at a place designated in the instrument.
D)   By any commercially reasonable means, through a clearinghouse procedure, or at a place designated in the instrument.
E)   By any commercially reasonable means or at the place designated in the instrument, but not through a clearinghouse procedure.F) C) and D)
G) None of the above

Question 13

What is the name of the party that accepts and signs a draft to agree to pay the draft when it is presented?

Accepted Answer

A)   Maker
B)   Acceptor
C)   Drawer
D)   Endorser
E)   PromisorF) None of the above
G) C) and D)

Question 14

Which of the following is true in the event an instrument contains more than one endorsement?

Accepted Answer

A)   Each endorser is liable for the full amount to the subsequent endorser or to the holder.
B)   Only the last endorser is liable to the holder and no prior endorsers are liable to a subsequent endorser.
C)   Each endorser is liable for the full amount to the subsequent endorser, but only the last endorser is liable to any holder.
D)   The last endorser is liable to the holder, whereas subsequent endorsers are not liable to the holder, but are responsible for reimbursing the last endorser in proportion to the number of endorsers that exist.
E)   Each endorser is liable to the holder in proportion to the number of endorsers that exist.F) B) and C)
G) A) and E)

Question 15

Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

Accepted Answer

A)   Only one warranty applies, that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment.
B)   Only one warranty applies, that the instrument has not been altered.
C)   Only one warranty applies, that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
D)   Two warranties are applicable: (1)  that the instrument has not been altered, and (2)  that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized.
E)   Three warranties are applicable: (1)  that the instrument has not been altered, (2)  that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized, and (3)  that the warrantor of the instrument is or was entitled to payment or authorized to obtain payment.F) A) and E)
G) B) and D)

Question 16

If Charla was not authorized to sign the note on behalf of Prida, but Prida subsequently accepted the cut diamonds to sell in her store, which of the following terms best describes the situation?

Accepted Answer

A)   Ratification
B)   Accommodation
C)   Presentment
D)   Dishonor
E)   RenunciationF) C) and D)
G) All of the above

Question 17

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500.
-Which of the following is the most likely result if Rohan refuses payment on the promissory note that was endorsed to Miguel claiming that he never signed it?

Accepted Answer

A)   He will be liable because an official banking document was involved.
B)   He will not be liable because a party is never liable on a negotiable instrument when it is signed without knowledge that it is, in fact, a negotiable instrument.
C)   He will be liable unless he can establish that Miguel was not a holder in due course.
D)   He can claim fraud in the factum, and whether he is liable or not will depend upon whether a court determines that he should have known what he was signing.
E)   He can claim fraud in the inducement, and he will not be liable regardless of whether or not he knew what he was signing.F) A) and D)
G) B) and D)

Question 18

________ occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means.

Accepted Answer

A)   Cancellation
B)   Renunciation
C)   Reacquisition
D)   Recourse
E)   ReleaseF) B) and E)
G) A) and D)

Question 19

________ liability results when a person signs a negotiable instrument.

Accepted Answer

A)   Warranty
B)   Payee
C)   Signature
D)   Primary
E)   EndorseeF) A) and D)
G) A) and E)

Question 20

Which of the following is true regarding how an accommodation party may sign an instrument?

Accepted Answer

A)   An accommodation party may sign an instrument only as a maker.
B)   An accommodation party may sign an instrument only as a maker or a drawer.
C)   An accommodation party may sign an instrument only as a maker or acceptor.
D)   An accommodation party may sign an instrument only as an endorser or acceptor.
E)   An accommodation party may sign an instrument as a maker, drawer, acceptor, or endorser.F) C) and D)
G) B) and C)

Exam 28: Liability, Defenses, and Discharge

What is the name of the party that accepts and signs a draft to agree to pay the draft when it is presented?

Correct Answer
verified

The UCC states that a check must be presented within ________ days of its date to hold the drawer secondarily liable.

Correct Answer
verified

________ occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means.

Correct Answer
verified

The term ________ occurs when a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused.

Correct Answer
verified

Correct Answer
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If an accommodated party pays a note when it is due, the accommodated party can force any accommodation party to contribute based upon the number of accommodation parties that exist.

Correct Answer
verified

Correct Answer
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Which of the following is true in the event an instrument contains more than one endorsement?

Correct Answer
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Correct Answer
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The most common reason that improper presentment occurs is the failure to present an instrument on time.

Correct Answer
verified

Which of the following is true regarding liability on negotiable instruments?

Correct Answer
verified

If Charla was not authorized to sign the note on behalf of Prida, but Prida subsequently accepted the cut diamonds to sell in her store, which of the following terms best describes the situation?

Correct Answer
verified

Under the UCC, how can proper presentment be made?

Correct Answer
verified

Which of the following results in liability for the principal because the principal approved of an unauthorized agent's signature?

Correct Answer
verified

Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

Correct Answer
verified

________ liability results when a person signs a negotiable instrument.

Correct Answer
verified

If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

Correct Answer
verified

Which of the following is true regarding how an accommodation party may sign an instrument?

Correct Answer
verified

Correct Answer
verified

An agent's signature can create liability for a principal as long as the agent is authorized to sign a negotiable instrument on behalf of the principal.

Correct Answer
verified

Exam 28: Liability, Defenses, and Discharge

What is the name of the party that accepts and signs a draft to agree to pay the draft when it is presented?

Correct AnswerverifiedShow Answer

The UCC states that a check must be presented within ________ days of its date to hold the drawer secondarily liable.

Correct AnswerverifiedShow Answer

________ occurs when a former holder of an instrument has the instrument transferred back to him or her by negotiation or other means.

Correct AnswerverifiedShow Answer

The term ________ occurs when a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If an accommodated party pays a note when it is due, the accommodated party can force any accommodation party to contribute based upon the number of accommodation parties that exist.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is true in the event an instrument contains more than one endorsement?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The most common reason that improper presentment occurs is the failure to present an instrument on time.

Correct AnswerverifiedShow Answer

Which of the following is true regarding liability on negotiable instruments?

Correct AnswerverifiedShow Answer

If Charla was not authorized to sign the note on behalf of Prida, but Prida subsequently accepted the cut diamonds to sell in her store, which of the following terms best describes the situation?

Correct AnswerverifiedShow Answer

Under the UCC, how can proper presentment be made?

Correct AnswerverifiedShow Answer

Which of the following results in liability for the principal because the principal approved of an unauthorized agent's signature?

Correct AnswerverifiedShow Answer

Which of the following is true regarding the warranty or warranties applicable if an instrument is not an unaccepted draft presented to a drawee?

Correct AnswerverifiedShow Answer

________ liability results when a person signs a negotiable instrument.

Correct AnswerverifiedShow Answer

If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank?

Correct AnswerverifiedShow Answer

Which of the following is true regarding how an accommodation party may sign an instrument?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An agent's signature can create liability for a principal as long as the agent is authorized to sign a negotiable instrument on behalf of the principal.

Correct AnswerverifiedShow Answer

Correct Answer
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