Question 1

Transfer warranties cannot be disclaimed with respect to checks.

Accepted Answer

A) True 
 B)False

Question 2

Calvin,a college student,wants to purchase an automobile on credit from IronTilt Motors.He does not have sufficient income or the credit history to justify the extension of credit to him alone.Calvin asks his father to co-sign a note to IronTilt Motors,which he does.What role does Calvin's father fulfill here so that Calvin can buy the car?

Accepted Answer

A) an accommodation party 
B) an agent 
C) a principal 
D) a qualified indorser

Question 3

Martha draws a check payable to the order of Stella.Stella indorses the check to Karen.But Leslie steals the check from Karen,forges Karen's indorsement,and cashes the check at a liquor store.Who is liable on the check?

Accepted Answer

A) the liquor store 
B) Martha 
C) Stella 
D) Leslie

Question 4

If a universal defense is proven,the holder or HDC cannot recover on the negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 5

Lolek,who owes Stanislaw money,indorses a draft to him with the term "without recourse." The instrument later is dishonored.Which of the following types of indorsers is Lolek?

Accepted Answer

A) a holder 
B) an agent 
C) an unqualified indorser 
D) a qualified indorser

Question 6

A(n)________ defense is a type of defense that can be raised against enforcement of a negotiable instrument by an ordinary holder but not against an HDC.

Accepted Answer

A) discharge in bankruptcy 
B) extreme duress 
C) personal 
D) universal

Question 7

A purported principal is liable for an unauthorized signature by a purported agent.

Accepted Answer

A) True 
 B)False

Question 8

An agent is only liable on the instrument that he or she signs in if it clearly mentions the principal.

Accepted Answer

A) True 
 B)False

Question 9

A(n)________ is an action or event that relieves certain parties from liability on negotiable instruments.

Accepted Answer

A) presentment 
B) discharge 
C) accommodation 
D) breach of contract

Question 10

An instrument is not considered canceled if it is destroyed or mutilated by accident or by an unauthorized third party.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is a characteristic of a presentment warranty on an instrument presented for payment?

Accepted Answer

A) The transferor has no knowledge of any insolvency. 
B) The transferor has good title to the instrument. 
C) No defenses of any party are good against the transferor. 
D) The instrument has not been materially altered.

Question 12

Susan purchases goods by telephone from Parker.Susan has never met Parker.Brenton goes to Susan and pretends to be Parker.Susan draws a check payable to the order of Parker and gives the check to Brenton,believing him to be Parker.Brenton forges Parker's indorsement and indorses the check to his brother,William,with the term "without recourse." William then cashes the check at a liquor store.Under the imposter rule,who is liable on the check?

Accepted Answer

A) Brenton 
B) the liquor store 
C) Susan 
D) William

Question 13

Implied warranties are made when a negotiable instrument is originally issued.

Accepted Answer

A) True 
 B)False

Question 14

Personal and universal defenses can be raised against a normal holder of a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 15

Martha draws a check payable to the order of Stella.Stella indorses the check to Karen.But Leslie steals the check from Karen,forges Karen's indorsement,and cashes the check at a liquor store.When the forgery is exposed,whom can the liquor store legally recover from?

Accepted Answer

A) Martha 
B) Leslie 
C) Karen 
D) Stella

Question 16

Presentment warranties are made by the drawer of a check or draft.

Accepted Answer

A) True 
 B)False

Question 17

An accommodation party who signs an instrument guaranteeing payment is secondarily liable on the instrument.

Accepted Answer

A) True 
 B)False

Question 18

Liability on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due is referred to as ________.

Accepted Answer

A) secondary liability 
B) unqualified liability 
C) fringe liability 
D) warranty liability

Question 19

Jennifer signs a promissory note to pay $2,500 to Clara.Clara negotiates the instrument and indorses it to Anthony.Anthony alters the note to make the payment amount $25,000 and negotiates the note to Nicholas.Nicholas indorses the note and negotiates it to Mack.Nicholas and Mack are both unaware of Anthony's alteration.If Mack presents the note to Jennifer for payment,how much,if anything is Jennifer obligated to pay?

Accepted Answer

A) $25,000 
B) $22,500 
C) $2,500 
D) Jennifer is not obliged to pay Mack

Question 20

A drawee is primarily liable on a draft when ________.

Accepted Answer

A) the instrument is issued 
B) the instrument is dishonored 
C) the instrument is presented for payment 
D) the drawee is an acceptor to the instrument

Exam 24: Liability, defenses, and Discharge

Transfer warranties cannot be disclaimed with respect to checks.

Martha draws a check payable to the order of Stella.Stella indorses the check to Karen.But Leslie steals the check from Karen,forges Karen's indorsement,and cashes the check at a liquor store.Who is liable on the check?

If a universal defense is proven,the holder or HDC cannot recover on the negotiable instrument.

Lolek,who owes Stanislaw money,indorses a draft to him with the term "without recourse." The instrument later is dishonored.Which of the following types of indorsers is Lolek?

A(n) ________ defense is a type of defense that can be raised against enforcement of a negotiable instrument by an ordinary holder but not against an HDC.

A purported principal is liable for an unauthorized signature by a purported agent.

An agent is only liable on the instrument that he or she signs in if it clearly mentions the principal.

A(n) ________ is an action or event that relieves certain parties from liability on negotiable instruments.

An instrument is not considered canceled if it is destroyed or mutilated by accident or by an unauthorized third party.

Which of the following is a characteristic of a presentment warranty on an instrument presented for payment?

Implied warranties are made when a negotiable instrument is originally issued.

Personal and universal defenses can be raised against a normal holder of a negotiable instrument.

Martha draws a check payable to the order of Stella.Stella indorses the check to Karen.But Leslie steals the check from Karen,forges Karen's indorsement,and cashes the check at a liquor store.When the forgery is exposed,whom can the liquor store legally recover from?

Presentment warranties are made by the drawer of a check or draft.

An accommodation party who signs an instrument guaranteeing payment is secondarily liable on the instrument.

Liability on a negotiable instrument that is imposed on a party only when the party primarily liable on the instrument defaults and fails to pay the instrument when due is referred to as ________.

A drawee is primarily liable on a draft when ________.