Question 1

Signature liability is contingent liability.

Accepted Answer

A) True 
 B)False

Question 2

Opalina asks Paolo, who does not understand English, to sign what Opalina says is an application to open a bank account. In fact, the "application" is a note. If sued on the note by an HDC

Accepted Answer

A)  Paolo must pay the note. 
B)  Paolo's best defense would be fraud in the execution. 
C)  Paolo's best defense would be fraud in the inducement. 
D)  Paolo's best defense would be mistake. 
A)  Paolo must pay the note. 
B)  Paolo's best defense would be fraud in the execution. 
C)  Paolo's best defense would be fraud in the inducement. 
D)  Paolo's best defense would be mistake.

Question 3

Dishonor occurs if payment of an instrument is refused with the prescribed time.

Accepted Answer

A) True 
 B)False

Question 4

A person whose name is forged on an instrument is liable to pay only a holder in due course the value of the forged instrument.

Accepted Answer

A) True 
 B)False

Question 5

An authorized agent is never personally liable on a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 6

Dandy Lyin' Furniture Store borrows $100,000 at 6 percent interest from Easy Loan Company and signs a promissory note for that amount. Easy changes the amount of the note to $120,000 and increases the rate to 8 percent. Easy materially altered the note when it changed

Accepted Answer

A)  neither the amount nor the interest rate 
B)  the amount and the interest rate. 
C)  the amount only. 
D)  the interest rate only. 
A)  neither the amount nor the interest rate 
B)  the amount and the interest rate. 
C)  the amount only. 
D)  the interest rate only.

Question 7

Cash National Bank is an HDC of a note for $1,000 on which there is the forged signature of "Dudley." If sued on the note by Cash

Accepted Answer

A)  Dudley must pay the note. 
B)  Dudley's best defense would be fraud in the execution. 
C)  Dudley's best defense would be material alteration. 
D)  Dudley's best defense would be forgery. 
A)  Dudley must pay the note. 
B)  Dudley's best defense would be fraud in the execution. 
C)  Dudley's best defense would be material alteration. 
D)  Dudley's best defense would be forgery.

Question 8

Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or a holder through an HDC.

Accepted Answer

A) True 
 B)False

Question 9

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

A)  Puck, Quik Mart, and Regional Bank. 
B)  Puck and Quik Mart only. 
C)  Puck and Silky only. 
D)  Silky only. 
A)  Puck, Quik Mart, and Regional Bank. 
B)  Puck and Quik Mart only. 
C)  Puck and Silky only. 
D)  Silky only.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

An ordinary holder can recover nothing on an instrument that has been materially altered.

Accepted Answer

A) True 
 B)False

Question 12

An imposter's indorsement on an instrument can be effective against its drawer or maker.

Accepted Answer

A) True 
 B)False

Question 13

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 obligated to pay the note if

Accepted Answer

A)  Dirk defaults on the note. 
B)  Friendly Credit breaches a transfer warranty. 
C)  Friendly Credit negotiates the note to a third party. 
D)  Friendly Credit presents the note for payment. 
A)  Dirk defaults on the note. 
B)  Friendly Credit breaches a transfer warranty. 
C)  Friendly Credit negotiates the note to a third party. 
D)  Friendly Credit presents the note for payment.

Question 14

Fact Pattern 26-1A
Seymour writes a check on his account at Platinum Bank to Teri to pay a debt. Teri negotiates the check by indorsement to Rosanna, who presents it for payment to Onyx Bank.
-Refer to Fact Pattern 26-1A. Teri is

Accepted Answer

A)  not liable for payment under any circumstances. 
B)  primarily liable. 
C)  secondarily liable. 
D)  simultaneously liable. 
A)  not liable for payment under any circumstances. 
B)  primarily liable. 
C)  secondarily liable. 
D)  simultaneously liable.

Question 15

A maker is secondarily liable on an instrument.

Accepted Answer

A) True 
 B)False

Question 16

Laptop Assembly Company gives a $3,000 promissory note to My-T-Fast Delivery Service to deliver a load of computer chips to Laptop's plant. The chips are contaminated during transit, and are useless to Laptop on delivery. If My-T-Fast presents the note for payment

Accepted Answer

A)  Laptop's best defense would be breach of warranty. 
B)  Laptop must pay the note. 
C)  Laptop's best defense would be nondelivery of an instrument. 
D)  Laptop's best defense would be failure of consideration. 
A)  Laptop's best defense would be breach of warranty. 
B)  Laptop must pay the note. 
C)  Laptop's best defense would be nondelivery of an instrument. 
D)  Laptop's best defense would be failure of consideration.

Question 17

An unauthorized signature binds the person whose name is signed.

Accepted Answer

A) True 
 B)False

Question 18

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

A)  immediate. 
B)  imposed only after payment is demanded. 
C)  postponed until the note is dishonored by United Credit Union. 
D)  suspended until payment is due. 
A)  immediate. 
B)  imposed only after payment is demanded. 
C)  postponed until the note is dishonored by United Credit Union. 
D)  suspended until payment is due.

Question 19

Birdie, an accountant for Country Custom Furniture, Inc., issues company checks payable to nonexistent persons drawn on Country's account at Debit Bank. Birdie indorses the checks and deposits them in her account. Country discovers the theft and demands that Debit recredit its account. Debit's best defense is that

Accepted Answer

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

Question 20

Bing signs a note payable to the order of Cameron. Cameron indorses the note and gives it to Daphne as payment for a debt. Daphne presents it to Bing, who pays it. Bing's payment discharges

Accepted Answer

A)  all of the parties. 
B)  only Bing. 
C)  only Cameron. 
D)  only Daphne. 
A)  all of the parties. 
B)  only Bing. 
C)  only Cameron. 
D)  only Daphne.

Exam 26: Liability, Defenses, and Discharge

Signature liability is contingent liability.

Opalina asks Paolo, who does not understand English, to sign what Opalina says is an application to open a bank account. In fact, the "application" is a note. If sued on the note by an HDC

Dishonor occurs if payment of an instrument is refused with the prescribed time.

A person whose name is forged on an instrument is liable to pay only a holder in due course the value of the forged instrument.

An authorized agent is never personally liable on a negotiable instrument.

Dandy Lyin' Furniture Store borrows $100,000 at 6 percent interest from Easy Loan Company and signs a promissory note for that amount. Easy changes the amount of the note to $120,000 and increases the rate to 8 percent. Easy materially altered the note when it changed

Cash National Bank is an HDC of a note for $1,000 on which there is the forged signature of "Dudley." If sued on the note by Cash

Personal defenses are used to avoid payment to an ordinary holder of a negotiable instrument, but not to an HDC or a holder through an HDC.

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

An ordinary holder can recover nothing on an instrument that has been materially altered.

An imposter's indorsement on an instrument can be effective against its drawer or maker.

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 obligated to pay the note if

Fact Pattern 26-1A Seymour writes a check on his account at Platinum Bank to Teri to pay a debt. Teri negotiates the check by indorsement to Rosanna, who presents it for payment to Onyx Bank. -Refer to Fact Pattern 26-1A. Teri is

A maker is secondarily liable on an instrument.

Laptop Assembly Company gives a $3,000 promissory note to My-T-Fast Delivery Service to deliver a load of computer chips to Laptop's plant. The chips are contaminated during transit, and are useless to Laptop on delivery. If My-T-Fast presents the note for payment

An unauthorized signature binds the person whose name is signed.

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

Bing signs a note payable to the order of Cameron. Cameron indorses the note and gives it to Daphne as payment for a debt. Daphne presents it to Bing, who pays it. Bing's payment discharges

Introduction to Law and Legal Reasoning

Courts and Alternative Dispute Resolution

Court Procedures

Constitutional Authority to Regulate Business

Ethics and Business Decision Making

Intentional Torts and Privacy

Negligence and Strict Liability

Intellectual Property and Internet Law

Criminal Law and Cyber Crime

Nature and Terminology

Agreement in Traditional and E-Contracts

Consideration

Capacity and Legality

Mistakes, Fraud, and Voluntary Consent

The Statute of Frauds

Third Party Rights

Performance and Discharge

Breach of Contract and Remedies

The Formation of Sales and Lease Contracts

Title, Risk, and Insurable Interest

Performance Breach of Sales Lease Contracts

Warranties and Product Liability

International Law in a Global Economy

The Function Creation of Negotiable Instruments

Transferability and Holder in Due Course

Checks and Banking in the Digital Age

Creditors Rights and Remedies

Secured Transactions

Bankruptcy Law

Mortgages Foreclosures After the Recession

Agency Formation and Duties

Agency Liability and Termination

Employment, Immigration, and Labor Law

Employment Discrimination

Sole Proprietorships and Franchises

Partnerships and Limited Liability Partnerships

Limited Liability Companies Special Business Forms

Corporate Formation and Financing

Corporate Directors, Officers, Shareholders

Corporate Merger, Consolidation, Termination

Securities Law Corporate Governance

Law for Small Business

Administrative Law

Consumer Law

Environmental Law

Antitrust Law

Professional Liaility and Accountability

Personal Property and Bailments

Real Property Landlord-Tenant Relationships

Insurance

Wills and Trusts

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