Question 1

[Paying Debts] Felicia writes a $500 promissory note to Arut. Arut, who owes money to Gibson, endorses the note and gives it to Gibson. Gibson then pays off a debt to Branson with the $500 note. Branson, who has some business dealings with Felicia, writes "Pay to the order of Felicia" on the same $500 note, places as "X" where his signature should be, and transfers the note to Felicia, who endorses the note to Tonya.
-If, instead of endorsing the note to Tonya, Felicia had wanted to demand payment on the note from Branson, could Branson be held liable since he did not sign his name?

Accepted Answer

A)   No, a signature is required to hold a party liable for a negotiable instrument.
B)   Yes, because the "X" Branson wrote on the instrument could constitute a signature if Branson used it with the intent to authenticate the instrument.
C)   No, because the "X" does not constitute a signature because it does not identify the endorser.
D)   Yes, the "X" could constitute a signature, but only if Branson also printed his name on the note.
E)   No, public policy would not support holding a party liable for payment if that party did not actually sign the instrument.F) A) and D)
G) A) and C)

Question 2

Which of the following was the result on appeal in the Case Opener in which the plaintiff optometrist sued the defending bank for cashing over 500 checks that his receptionist fraudulently embezzled through forging his signature?

Accepted Answer

A)   Because both the plaintiff and the bank were found negligent, the plaintiff was denied recovery.
B)   Because only the bank was found negligent, the plaintiff was denied recovery.
C)   Because both the plaintiff and the bank were found negligent, the plaintiff recovered only 50% of his losses.
D)   Because only the bank was found negligent, the plaintiff was entitled to recover the value of the checks.
E)   Based on public policy, the plaintiff was denied recovery although no negligence was found on the part of either party.F) B) and D)
G) A) and E)

Question 3

The bank that issues a cashier's check is ________ for the amount of the check as soon as the cashier's check is created.

Accepted Answer

A)   primarily liable
B)   secondarily liable
C)   partially liable
D)   not liable
E)   endorsee liableF) B) and E)
G) A) and D)

Question 4

[Diamond Debacle] Prida owns Prida's Jewelry Store. Charla is Prida's top diamond purchasing agent and usually signs promissory notes on Prida's behalf. Unbeknownst to Prida, Charla is considering opening her own diamond business. While at a convention in New York, Charla signs a promissory note with Jirah's Diamonds for the cost of several newly cut stones. Although Prida's Jewelry Store's name does not appear on the note, Jirah is aware that Charla works for Prida's. Charla decides not to quit her job at Prida's and Jirah presents Prida's with the note and demands payment.
-Can Charla be held personally liable for the note?

Accepted Answer

A)   Yes, agents are personally liable when they sign their own name and omit the name of the principal.
B)   Yes, Charla may be personally liable because Jirah is a holder in due course and was not aware Charla signed on behalf of Prida's.
C)   No, Jirah is not a holder in due course and Charla will not be held liable if she can show that it was not Prida's intent to hold Charla personally liable.
D)   No, agents can never be personally liable even if the principal's name does not appear on the note.
E)   No because Jirah was a holder in due course.F) B) and D)
G) A) and B)

Question 5

The only acceptable method of ratification is for the principal to explicitly approve the signature of the unauthorized agent.

Accepted Answer

A) True 
 B)False

Question 6

A party who is/has ________ for an instrument must pay the amount on the instrument if the primarily liable party defaults?

Accepted Answer

A)   transfer liability
B)   primarily liable
C)   maker liability
D)   recognized liable
E)   secondarily liableF) A) and B)
G) All of the above

Question 7

Real defenses are also known as ________ and apply to all parties.

Accepted Answer

A)   purposeful defenses
B)   party defenses
C)   universal defenses
D)   proprietary defenses
E)   personal defensesF) A) and D)
G) None of the above

Question 8

A holder must present a check within ________ days of the endorsement to hold an endorser secondarily liable on a check.

Accepted Answer

A)   30
B)   60
C)   90
D)   120
E)   180F) B) and D)
G) A) and E)

Question 9

Which of the following was the result on appeal in Laborer's Pension Fund v. A & C Envtl., Inc., the case in the text in which the defending employer claimed that an agreement entered into regarding payment of union dues wrongfully required payment for all defendant's employees when it should have required payment of dues for only a few employees who were working out- of-town within the area of the union involved?

Accepted Answer

A)   That the defending employer had to pay no dues at all because a representative of the plaintiff wrongfully misrepresented the contents of the written document.
B)   That the defending employer had to pay only the dues of the employees who were working out-of-town within the area of the union involved because a representative of the plaintiff wrongfully misrepresented the contents of the written document.
C)   That although a representative of the plaintiff misinformed the defending employer of the contents of the written document, the defendant's representative had sufficient opportunity to read the document; and the defending employer was therefore liable for dues of all its employees.
D)   That the defending employer was liable for all the dues regardless of whether a representative of the plaintiff misinformed the defending employer of the contents of the written document and regardless of whether the defendant's representative had an opportunity to read it.
E)   That while the defending employer would be liable for all dues under common law, because of applicable federal labor law, the defending employer was liable for dues only for employees working out-of-town within the area of the union involved.F) C) and E)
G) A) and D)

Question 10

For a holder to turn to secondarily liable parties, what are the requirements?

Accepted Answer

The holder must:
(1) Present the note to...

Question 11

If Teren sends Clem a letter, telling Clem he will not sue to enforce a promissory note, Clem's liability under the note has been discharged.

Accepted Answer

A) True 
 B)False

Question 12

What is the name of the party that signs an instrument to restrict payment of it, negotiate it, or incur liability?

Accepted Answer

A)   Maker
B)   Acceptor
C)   Drawer
D)   Endorser
E)   PromisorF) D) and E)
G) B) and C)

Question 13

[Paying Debts] Felicia writes a $500 promissory note to Arut. Arut, who owes money to Gibson, endorses the note and gives it to Gibson. Gibson then pays off a debt to Branson with the $500 note. Branson, who has some business dealings with Felicia, writes "Pay to the order of Felicia" on the same $500 note, places as "X" where his signature should be, and transfers the note to Felicia, who endorses the note to Tonya.
-Since Tonya is now the holder of the note, who is liable to Tonya on the promissory note?

Accepted Answer

A)   Felicia is primarily liable, and Arut, Gibson, and Branson are secondarily liable.
B)   Felicia, Arut, Gibson, and Branson are equally liable.
C)   Only Felicia, because the liability of past holders was renunciated.
D)   Only Felicia, because when Felicia reacquired the note, she cancelled Arut's, Gibson's, and Branson's endorsements.
E)   Felicia is primarily liable, and Arut and Gibson are secondarily liable. Branson is not liable since he did not sign the note.F) A) and E)
G) A) and B)

Question 14

When the transfer of an instrument breaches a ________ associated with the instrument, warranty liability results.

Accepted Answer

A)   clause
B)   warranty
C)   time limit
D)   primary liability
E)   secondary liabilityF) B) and C)
G) All of the above

Question 15

If a transfer is through endorsement, transfer warranties apply to any future holders; however, if the transfer does not occur through endorsement, the warranties apply only to the transferee.

Accepted Answer

A) True 
 B)False

Question 16

[Run Around] Hema issues a promissory note to Rahul. Rahul endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Floyd. Floyd presents the note to Hema for payment. When Floyd presents the note to Hema, she asks him for reasonable identification. He did not have any identification with him and told her that she had no right to dishonor the instrument. Hema continued to insist, so finally, on the same day, Rahul obtained clear identification and presented it to her. Nevertheless, even with proper identification, Hema refused to pay the note, claiming that she lacked the funds with which to do so. After properly providing notification of dishonor to both Anne and Rahul, Floyd requested that Anne pay the note, but she told him that he would have to get his money from Rahul. Floyd has been trying to call Rahul for 35 days, but Rahul did not return his telephone calls. Floyd is exasperated; and within 40 days of when Hema refuses payment, he notifies Hema, Rahul, and Anne that the promissory note has been dishonored by Hema and that he is asserting liability on the note against all of them. Hema calls him up and says that she never dishonored the note, she simply lacks the funds with which to immediately pay and thinks that he should seek recovery elsewhere.
-Which of the following is true regarding Anne's statement to Floyd that he must seek recovery from Rahul?

Accepted Answer

A)   Anne is correct.
B)   Anne is correct only if Rahul is able to pay and has not filed bankruptcy.
C)   Anne is correct in stating that Floyd should seek recovery from Rahul only if Hema has filed bankruptcy because, otherwise, Floyd should be pursuing litigation against Hema.
D)   Anne is correct unless the note is for over $10,000, in which case Floyd can seek recovery from her without resorting to recovery from Rahul or Hema.
E)   Anne is incorrect. Floyd may seek recovery from her without first seeking recovery from Rahul.F) None of the above
G) C) and E)

Question 17

Which of the following is true regarding what is considered a commercially reasonable manner by which notice of dishonor may be given to a secondarily liable party?

Accepted Answer

A)   The only commercially reasonable manner for notice of dishonor recognized by the UCC is certified mail.
B)   The UCC recognizes two manners of delivery for notice of dishonor that are considered commercially reasonable: written and electronic.
C)   The only commercially reasonable manner recognized by the UCC for notice of dishonor is written mail.
D)   Due to advances in technology, the only commercially reasonable manner recognized by the UCC for notice of dishonor is electronic communication.
E)   The UCC recognizes that oral, written, and electronic communications are all commercially reasonable ways in which to provide notice of dishonor.F) D) and E)
G) B) and E)

Question 18

________ apply to all parties, whereas ________ defenses do not apply to holders in due course.

Accepted Answer

A)   Personal defenses, real
B)   Real defenses; personal
C)   Holder's rights; real
D)   Personal rights; personal defenses
E)   Personal defenses; holder's rightsF) B) and C)
G) D) and E)

Question 19

________ does not discharge a party's liability for a negotiable instrument

Accepted Answer

A)   Presentment
B)   Payment or tender of payment
C)   Cancelation or renunciation by the holder
D)   Reacquisition
E)   Impairment of collateralF) C) and E)
G) A) and B)

Question 20

Set forth the eight real defenses and explain their significance.

Accepted Answer

Real defenses are as follows:
1. Infancy...

Exam 28: Liability, Defenses, and Discharge

apply to all parties, whereas defenses do not apply to holders in due course.

Correct Answer
verified

________ does not discharge a party's liability for a negotiable instrument

Correct Answer
verified

Real defenses are also known as ________ and apply to all parties.

Correct Answer
verified

Set forth the eight real defenses and explain their significance.

Correct Answer
verified
Real defenses are as follows:
1. Infancy...
View Answer

Correct Answer
verified

The only acceptable method of ratification is for the principal to explicitly approve the signature of the unauthorized agent.

Correct Answer
verified

The bank that issues a cashier's check is ________ for the amount of the check as soon as the cashier's check is created.

Correct Answer
verified

A holder must present a check within ________ days of the endorsement to hold an endorser secondarily liable on a check.

Correct Answer
verified

When the transfer of an instrument breaches a ________ associated with the instrument, warranty liability results.

Correct Answer
verified

Which of the following is true regarding what is considered a commercially reasonable manner by which notice of dishonor may be given to a secondarily liable party?

Correct Answer
verified

If a transfer is through endorsement, transfer warranties apply to any future holders; however, if the transfer does not occur through endorsement, the warranties apply only to the transferee.

Correct Answer
verified

Which of the following was the result on appeal in the Case Opener in which the plaintiff optometrist sued the defending bank for cashing over 500 checks that his receptionist fraudulently embezzled through forging his signature?

Correct Answer
verified

Correct Answer
verified

What is the name of the party that signs an instrument to restrict payment of it, negotiate it, or incur liability?

Correct Answer
verified

A party who is/has ________ for an instrument must pay the amount on the instrument if the primarily liable party defaults?

Correct Answer
verified

Correct Answer
verified

For a holder to turn to secondarily liable parties, what are the requirements?

Correct Answer
verified
The holder must:
(1) Present the note to...
View Answer

Correct Answer
verified

Correct Answer
verified

If Teren sends Clem a letter, telling Clem he will not sue to enforce a promissory note, Clem's liability under the note has been discharged.

Correct Answer
verified

Exam 28: Liability, Defenses, and Discharge

________ apply to all parties, whereas ________ defenses do not apply to holders in due course.

Correct AnswerverifiedShow Answer

________ does not discharge a party's liability for a negotiable instrument

Correct AnswerverifiedShow Answer

Real defenses are also known as ________ and apply to all parties.

Correct AnswerverifiedShow Answer

Set forth the eight real defenses and explain their significance.

Correct AnswerverifiedReal defenses are as follows:1. Infancy...View AnswerShow Answer

Correct AnswerverifiedShow Answer

The only acceptable method of ratification is for the principal to explicitly approve the signature of the unauthorized agent.

Correct AnswerverifiedShow Answer

The bank that issues a cashier's check is ________ for the amount of the check as soon as the cashier's check is created.

Correct AnswerverifiedShow Answer

A holder must present a check within ________ days of the endorsement to hold an endorser secondarily liable on a check.

Correct AnswerverifiedShow Answer

When the transfer of an instrument breaches a ________ associated with the instrument, warranty liability results.

Correct AnswerverifiedShow Answer

Which of the following is true regarding what is considered a commercially reasonable manner by which notice of dishonor may be given to a secondarily liable party?

Correct AnswerverifiedShow Answer

If a transfer is through endorsement, transfer warranties apply to any future holders; however, if the transfer does not occur through endorsement, the warranties apply only to the transferee.

Correct AnswerverifiedShow Answer

Which of the following was the result on appeal in the Case Opener in which the plaintiff optometrist sued the defending bank for cashing over 500 checks that his receptionist fraudulently embezzled through forging his signature?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the name of the party that signs an instrument to restrict payment of it, negotiate it, or incur liability?

Correct AnswerverifiedShow Answer

A party who is/has ________ for an instrument must pay the amount on the instrument if the primarily liable party defaults?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

For a holder to turn to secondarily liable parties, what are the requirements?

Correct AnswerverifiedThe holder must:(1) Present the note to...View AnswerShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If Teren sends Clem a letter, telling Clem he will not sue to enforce a promissory note, Clem's liability under the note has been discharged.

Correct AnswerverifiedShow Answer

apply to all parties, whereas defenses do not apply to holders in due course.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Real defenses are as follows:
1. Infancy...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The holder must:
(1) Present the note to...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified