Question 1

Material alteration consists of adding to any part of a signed instrument, removing any part of a signed instrument, or making changes to the dollar amount of the instrument.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following actions by a holder constitutes the complete cancellation of a negotiable instrument?

Accepted Answer

A)   destruction or mutilation of the negotiable instrument to eliminate obligation
B)   deliberately striking out the signature of an indorser
C)   releasing an obligor from liability
D)   surrendering collateral without the consent of the parties who would benefit from itE) C) and D)
F) All of the above

Question 3

________ is a type of personal defense when a wrongdoer makes a false statement to another person to lead them to enter into a contract and issue a negotiable instrument.

Accepted Answer

A)   Forgery
B)   Discharge in bankruptcy
C)   Fraud in the inducement
D)   Extreme duressE) A) and C)
F) A) and D)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

A person who signs an instrument and lends his or her name, and credit to another party to the instrument is referred to as a(n)  ________.

Accepted Answer

A)   agent
B)   qualified indorser
C)   unqualified indorser
D)   accommodation partyE) A) and B)
F) None of the above

Question 6

What are the requirements for imposing secondary liability for a negotiable instrument?

Accepted Answer

A party is secondarily liable on a negot...

Question 7

All parties are discharged from liability on a negotiable instrument when ________.

Accepted Answer

A)   the instrument is presented for payment
B)   the signature of the indorser is intentionally struck out
C)   the instrument is accidentally destroyed or mutilated
D)   a drawee in good faith pays an unaccepted instrument in full to the holderE) C) and D)
F) A) and D)

Question 8

Cameron, a purported agent, signs a contract and promissory note to purchase a building for Burnstar Constructions, a purported principal. Though Cameron is an unauthorized representative, Burnstar Constructions, the purported principal, likes the deal and accepts it. Which of the following is true of the deal ratified by Burnstar Constructions?

Accepted Answer

A)   The deal is invalid due to the fraud in the inducement rule.
B)   The deal is invalid due to the fraud in the inception rule.
C)   Burnstar Constructions is liable on the note.
D)   Cameron is liable on the note.E) B) and C)
F) All of the above

Question 9

A transferee who took an instrument in good faith may recover damages for breach of transfer warranty from the warrantor equal to the loss suffered.

Accepted Answer

A) True 
 B)False

Question 10

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 indorserE) A) and D)
F) A) and B)

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

"All signatures are genuine or authorized" is a transfer warranty that a transferor of a negotiable instrument for consideration makes.

Accepted Answer

A) True 
 B)False

Question 14

Warranty liability is imposed whether or not the transferor signed the instrument.

Accepted Answer

A) True 
 B)False

Question 15

Stanley, who owes Milton money, indorses a draft to him with the term "without recourse." The instrument later is dishonored. What liability does Stanley have on the instrument?

Accepted Answer

A)   He has no liabilities on the instrument.
B)   He has to pay Milton if the instrument defaults.
C)   He has primary liabilities.
D)   He has secondary liabilities.E) None of the above
F) A) and C)

Question 16

An accommodation party is secondarily liable if the accommodation is in a ________.

Accepted Answer

A)   guarantee of promise
B)   guarantee of demand
C)   guarantee of collection
D)   guarantee of paymentE) None of the above
F) All of the above

Question 17

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 liabilityE) All of the above
F) A) and B)

Question 18

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 MackE) B) and C)
F) A) and D)

Question 19

________ is a demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder.

Accepted Answer

A)   Accommodation
B)   Duress
C)   Presentment
D)   AllongeE) None of the above
F) A) and C)

Question 20

A person who authorizes an agent to sign a negotiable instrument on his or her behalf is known as a(n)  ________.

Accepted Answer

A)   agent
B)   accommodation party
C)   principal
D)   assignorE) C) and D)
F) All of the above

Exam 24: Liability, Defenses, and Discharge

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

Correct Answer
verified

An accommodation party is secondarily liable if the accommodation is in a ________.

Correct Answer
verified

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

Correct Answer
verified

A person who authorizes an agent to sign a negotiable instrument on his or her behalf is known as a(n) ________.

Correct Answer
verified

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?

Correct Answer
verified

________ is a type of personal defense when a wrongdoer makes a false statement to another person to lead them to enter into a contract and issue a negotiable instrument.

Correct Answer
verified

What are the requirements for imposing secondary liability for a negotiable instrument?

Correct Answer
verified
A party is secondarily liable on a negot...
View Answer

A person who signs an instrument and lends his or her name, and credit to another party to the instrument is referred to as a(n) ________.

Correct Answer
verified

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 ________.

Correct Answer
verified

All parties are discharged from liability on a negotiable instrument when ________.

Correct Answer
verified

________ is a demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder.

Correct Answer
verified

Warranty liability is imposed whether or not the transferor signed the instrument.

Correct Answer
verified

Material alteration consists of adding to any part of a signed instrument, removing any part of a signed instrument, or making changes to the dollar amount of the instrument.

Correct Answer
verified

Stanley, who owes Milton money, indorses a draft to him with the term "without recourse." The instrument later is dishonored. What liability does Stanley have on the instrument?

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

A transferee who took an instrument in good faith may recover damages for breach of transfer warranty from the warrantor equal to the loss suffered.

Correct Answer
verified

"All signatures are genuine or authorized" is a transfer warranty that a transferor of a negotiable instrument for consideration makes.

Correct Answer
verified

Which of the following actions by a holder constitutes the complete cancellation of a negotiable instrument?

Correct Answer
verified

Correct Answer
verified

Exam 24: Liability, Defenses, and Discharge

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

Correct AnswerverifiedShow Answer

An accommodation party is secondarily liable if the accommodation is in a ________.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A person who authorizes an agent to sign a negotiable instrument on his or her behalf is known as a(n) ________.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

________ is a type of personal defense when a wrongdoer makes a false statement to another person to lead them to enter into a contract and issue a negotiable instrument.

Correct AnswerverifiedShow Answer

What are the requirements for imposing secondary liability for a negotiable instrument?

Correct AnswerverifiedA party is secondarily liable on a negot...View AnswerShow Answer

A person who signs an instrument and lends his or her name, and credit to another party to the instrument is referred to as a(n) ________.

Correct AnswerverifiedShow Answer

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 ________.

Correct AnswerverifiedShow Answer

All parties are discharged from liability on a negotiable instrument when ________.

Correct AnswerverifiedShow Answer

________ is a demand for acceptance or payment of an instrument made upon the maker, acceptor, drawee, or other payer by or on behalf of the holder.

Correct AnswerverifiedShow Answer

Warranty liability is imposed whether or not the transferor signed the instrument.

Correct AnswerverifiedShow Answer

Material alteration consists of adding to any part of a signed instrument, removing any part of a signed instrument, or making changes to the dollar amount of the instrument.

Correct AnswerverifiedShow Answer

Stanley, who owes Milton money, indorses a draft to him with the term "without recourse." The instrument later is dishonored. What liability does Stanley have on the instrument?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A transferee who took an instrument in good faith may recover damages for breach of transfer warranty from the warrantor equal to the loss suffered.

Correct AnswerverifiedShow Answer

"All signatures are genuine or authorized" is a transfer warranty that a transferor of a negotiable instrument for consideration makes.

Correct AnswerverifiedShow Answer

Which of the following actions by a holder constitutes the complete cancellation of a negotiable instrument?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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A party is secondarily liable on a negot...
View Answer

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