Question 1

Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder.

Accepted Answer

A) True 
 B)False

Question 2

The completion of an originally incomplete instrument in an unauthorized manner is not a defense against payment on the instrument to an HDC.

Accepted Answer

A) True 
 B)False

Question 3

The dishonor of an instrument relieves secondary parties of liability.

Accepted Answer

A) True 
 B)False

Question 4

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor​

Accepted Answer

A)  ​indefinitely. 
B)  ​under no circumstances. 
C)  ​for thirty days. 
D)  ​until the following business day. 
A)  ​indefinitely. 
B)  ​under no circumstances. 
C)  ​for thirty days. 
D)  ​until the following business day.

Question 5

Owen is a holder of a note obtained from Purchase Money, Inc. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to​

Accepted Answer

A)  ​more defenses. 
B)  ​no defenses. 
C)  ​some defenses, but not as many. 
D)  ​the same defenses. 
A)  ​more defenses. 
B)  ​no defenses. 
C)  ​some defenses, but not as many. 
D)  ​the same defenses.

Question 6

A person is not liable on an instrument unless he or she has signed it personally or through an authorized representative.

Accepted Answer

A) True 
 B)False

Question 7

Equity Credit Company has in its possession an instrument dated May 1, 2014. The instrument is payable to the order of First Choice Moving & Storage Company "on June 1, 2015," for $5,000. In the upper left corner is an address for Greater Metro Development Corporation-10 Corporate Park Avenue, Chicago, Illinois-and in the lower right corner is the signature of "Hilltop Investments, Inc., By Ida, President." In the lower left corner is stamped "ACCEPTED: Greater Metro Development Corporation by John, President, May 5, 2014." On the back is the signature of "First Choice Moving & Storage Company by Kathleen, President." Who, if anyone, is primarily liable on this instrument on May 1? On May 5? Who, if anyone, is secondarily liable on this instrument?

Accepted Answer

No one is primarily liable on this instr

Question 8

Curt writes a check on his account at North Bank to Mandy, a famous singer. The person claiming to be Mandy is an imposter, however, named Debra. Debra indorses the check to Portions, a casino, for which North Bank cashes it. Ultimately, the loss will most likely fall on​

Accepted Answer

A)  ​Curt. 
B)  ​North Bank. 
C)  ​Mandy. 
D)  ​Portions. 
A)  ​Curt. 
B)  ​North Bank. 
C)  ​Mandy. 
D)  ​Portions.

Question 9

Fact Pattern 17-2
Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank.
-Refer to Fact Pattern 17-2.If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas​

Accepted Answer

A)  ​if O'Leary timely notifies Niklas. 
B)  ​only if Lisa refuses to pay the check. 
C)  ​only to the extent that Lisa overpaid her debt to Niklas. 
D)  ​under no circumstances. 
A)  ​if O'Leary timely notifies Niklas. 
B)  ​only if Lisa refuses to pay the check. 
C)  ​only to the extent that Lisa overpaid her debt to Niklas. 
D)  ​under no circumstances.

Question 10

If a promissory note is incomplete at the time a maker signs it, the maker is not obligated to pay.

Accepted Answer

A) True 
 B)False

Question 11

Presentment warranties protect the person to whom an instrument is presented for payment.

Accepted Answer

A) True 
 B)False

Question 12

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation​

Accepted Answer

A)  ​drawee. 
B)  ​indorser. 
C)  ​maker. 
D)  ​drawer. 
A)  ​drawee. 
B)  ​indorser. 
C)  ​maker. 
D)  ​drawer.

Question 13

Warranty liability arises only from a transferor's signature.

Accepted Answer

A) True 
 B)False

Question 14

Celine issues a note "payable to the order of Celine," forges Dash's signature as the maker, and indorses the note "pay to Erica." Celine sells the note to Erica, who negotiates it by indorsement and delivery to Forest. Forest can extend liability to​

Accepted Answer

A)  ​no one. 
B)  ​Celine. 
C)  ​Dash. 
D)  ​all of the parties. 
A)  ​no one. 
B)  ​Celine. 
C)  ​Dash. 
D)  ​all of the parties.

Question 15

Nan, an accountant for Outdoor Outfitters, Inc., issues company checks payable to nonexistent persons drawn on Outdoor's account at Peerless Bank. Nan indorses the checks and deposits them in her account. Outdoor discovers the theft and demands that Peerless recredit its account. Peerless's best defense is that​

Accepted Answer

A)  ​Nan was not authorized to issue the checks. 
B)  ​Outdoor was in a better position than Peerless to prevent the theft. 
C)  ​Peerless did not know that the checks were not to be paid. 
D)  ​the checks were the property of Outdoor, not Peerless. 
A)  ​Nan was not authorized to issue the checks. 
B)  ​Outdoor was in a better position than Peerless to prevent the theft. 
C)  ​Peerless did not know that the checks were not to be paid. 
D)  ​the checks were the property of Outdoor, not Peerless.

Question 16

When an instrument has a forged indorsement, the loss usually falls on the first party to take the instrument.

Accepted Answer

A) True 
 B)False

Question 17

Fact Pattern 17-1
Chuck is the maker of a $200,000 promissory note payable to Investors Corporation. Investors indorses the note to Equity Lenders, which in turn indorses it to Select Holdings LLC, which then indorses it to Global Bank, the present holder.
-Refer to Fact Pattern 17-1.Suppose that Select Holdings pays Global Bank on the note. With timely notice to the proper parties, Select Holdings may then collect payment on the note from​

Accepted Answer

A)  ​Chuck, Investors, or Equity Lenders. 
B)  ​Chuck or Investors only. 
C)  ​Equity Lenders only. 
D)  ​no one. 
A)  ​Chuck, Investors, or Equity Lenders. 
B)  ​Chuck or Investors only. 
C)  ​Equity Lenders only. 
D)  ​no one.

Question 18

Isabel transfers a note, for consideration, to Juliet by blank indorsement and delivery. Juliet transfers the note to Kip, who takes it in good faith. In this situation, Isabel warrants to Kip that​

Accepted Answer

A)  ​he is entitled to enforce the note. 
B)  ​the note has been fully paid. 
C)  ​any defense to payment on the note can be assered against him. 
D)  ​none of the choices. 
A)  ​he is entitled to enforce the note. 
B)  ​the note has been fully paid. 
C)  ​any defense to payment on the note can be assered against him. 
D)  ​none of the choices.

Question 19

Dental Clinic agent Emma is authorized to write checks on the clinic's account in Finance Bank. Pharma Corporation is a clinic supplier. Emma writes a check on the clinc's account "pay to the order of Pharma [signed] Emma," indorses it in Pharma's name, and deposits it in her own account at Third Bank. If the bank collects payment, the ultimate party most likely to suffer the loss is​

Accepted Answer

A)  ​no one. 
B)  ​Dental Clinic. 
C)  ​Finance Bank. 
D)  ​Pharma. 
A)  ​no one. 
B)  ​Dental Clinic. 
C)  ​Finance Bank. 
D)  ​Pharma.

Question 20

Realty Acquisitions borrows $1,000,000 at 4 percent interest from Shady Credit Lenders and signs a promissory note for that amount. Without the borrower's authorization, Shady changes the amount of the note to $1,200,000 and increases the rate to 8 percent. Shady materially altered the note when​

Accepted Answer

A)  Realty borrowed $1,000,000. 
B)  ​Shady changed the amount and the interest rate. 
C)  ​Shady decided to change the terms. 
D)  ​Shady failed to obtain Realty's authorization. 
A)  Realty borrowed $1,000,000. 
B)  ​Shady changed the amount and the interest rate. 
C)  ​Shady decided to change the terms. 
D)  ​Shady failed to obtain Realty's authorization.

Exam 17: Liability, Defenses, and Discharge

Discharge in bankruptcy is no defense on any instrument regardless of the status of the holder.

The completion of an originally incomplete instrument in an unauthorized manner is not a defense against payment on the instrument to an HDC.

The dishonor of an instrument relieves secondary parties of liability.

Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor​

Owen is a holder of a note obtained from Purchase Money, Inc. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to​

A person is not liable on an instrument unless he or she has signed it personally or through an authorized representative.

Curt writes a check on his account at North Bank to Mandy, a famous singer. The person claiming to be Mandy is an imposter, however, named Debra. Debra indorses the check to Portions, a casino, for which North Bank cashes it. Ultimately, the loss will most likely fall on​

Fact Pattern 17-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 17-2.If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas​

If a promissory note is incomplete at the time a maker signs it, the maker is not obligated to pay.

Presentment warranties protect the person to whom an instrument is presented for payment.

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation​

Warranty liability arises only from a transferor's signature.

Celine issues a note "payable to the order of Celine," forges Dash's signature as the maker, and indorses the note "pay to Erica." Celine sells the note to Erica, who negotiates it by indorsement and delivery to Forest. Forest can extend liability to​

When an instrument has a forged indorsement, the loss usually falls on the first party to take the instrument.

Isabel transfers a note, for consideration, to Juliet by blank indorsement and delivery. Juliet transfers the note to Kip, who takes it in good faith. In this situation, Isabel warrants to Kip that​

Realty Acquisitions borrows $1,000,000 at 4 percent interest from Shady Credit Lenders and signs a promissory note for that amount. Without the borrower's authorization, Shady changes the amount of the note to $1,200,000 and increases the rate to 8 percent. Shady materially altered the note when​

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Gulf Bank receives a check drawn by Hayley. The check is received after the established "cutoff" hour. Payment can be postponed without dishonor

Owen is a holder of a note obtained from Purchase Money, Inc. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to

Curt writes a check on his account at North Bank to Mandy, a famous singer. The person claiming to be Mandy is an imposter, however, named Debra. Debra indorses the check to Portions, a casino, for which North Bank cashes it. Ultimately, the loss will most likely fall on

Fact Pattern 17-2 Lisa writes a check on her account at Metro Bank to Niklas to pay a debt. Niklas negotiates the check by indorsement to O'Leary, who presents it for payment to Prime Bank. -Refer to Fact Pattern 17-2.If Prime Bank dishonors the check, O'Leary can obtain payment from Niklas

Dulcey agrees to cosign a promissory note for Excavation Equipment Inc. to buy a backhoe. The note is payable to Premier Bank. Dulcey is an accommodation

Celine issues a note "payable to the order of Celine," forges Dash's signature as the maker, and indorses the note "pay to Erica." Celine sells the note to Erica, who negotiates it by indorsement and delivery to Forest. Forest can extend liability to

Isabel transfers a note, for consideration, to Juliet by blank indorsement and delivery. Juliet transfers the note to Kip, who takes it in good faith. In this situation, Isabel warrants to Kip that

Realty Acquisitions borrows $1,000,000 at 4 percent interest from Shady Credit Lenders and signs a promissory note for that amount. Without the borrower's authorization, Shady changes the amount of the note to $1,200,000 and increases the rate to 8 percent. Shady materially altered the note when