Q&A Hero

Q: Certified checks must be made available by: A. the next day after the day of deposit. B. within four days. C. on the same day. D. any business day.

Q: Brian signs a promissory note for $500 payable to Harwich. Harwich indorses the note "Pay to order of Stephen, Harwich" and negotiates it to Stephen. Stephen fraudulently changes the $500 to $5,000. Under these circumstances, Brian is discharged from his liability as maker of note because: A. Brian has not forged the signature. B. the instrument is not negotiable. C. the amount for which he was liable was altered. D. Stephen is insolvent.

Q: Joan carefully completes and signs a $1,000 note payable to Pete. Pete skillfully changes the amount of the note to $10,000, and negotiates it to Hilda for that amount. Hilda qualifies as a holder in due course. When Hilda presents the altered note to Joan for payment, Joan refuses to pay a penny more than $1,000. Which of the following is true? A. Joan is not liable to Hilda. B. Joan is liable to Hilda for $1,000. C. Joan is liable to Hilda for $10,000. D. Joan's liability to Hilda will be determined by the relative negligence of Joan and Hilda.

Q: What section of the UCC addresses enforcement of a negotiable interest that has been altered? A. 1-201 B. 3-407 C. 3-670 D. 6-224

Q: How can an indorser avoid secondary liability on the instrument? Can an indorser disclaim transfer warranty liability?

Q: Which of the following statements holds true for conversion? A. Conversion occurs if an instrument has the indorsement necessary for negotiation. B. Conversion occurs if an instrument is purchased or paid by a drawee to a person entitled to payment. C. An action for conversion may not be brought by the maker, drawer, or acceptor of the instrument. D. An action for conversion may not be brought by a payee or an indorsee who received delivery of the instrument.

Q: According to Revised Article 3 if a bank pays a check that contains a forged indorsement: A. the bank has converted the check by wrongfully paying it. B. the person whose indorsement was forged has converted the check. C. the person whose indorsement was forged is liable to the bank. D. the forger is liable to the person whose indorsement was forged.

Q: In which of the following situations is the obligor not likely to be fully discharged from his or her liability on a negotiable instrument? A. Jerry wrote a check to Elaine. Elaine cashes the check later. B. Edward lends Monica $1,000 toward her college expenses. She gives Edward a promissory note for $1,000, which Edward accidentally tears up. C. On June 1, 2002, Kim receives a draft from Kurt payable on July 1, 2002. Kurt then pays her in cash and cancels the draft. D. John fraudulently increases the amount due on the check from Bruce.

Q: The rationale for the fictitious payee rule is that: A. the bank should bear the immediate loss of the forged instruments. B. the holder in due course should bear the immediate loss of the forged instruments. C. the employer of the wrongdoer should bear the immediate loss of forged instruments. D. the wrongdoer should bear the immediate loss of the forged instruments.

Q: According to Revised Article 3 of the UCC, the risk of loss from fraudulent indorsements by employees: A. should fall on the holder in due course. B. should fall on the employer. C. should fall on the bank. D. should fall on the employee.

Q: "Responsibility" with respect to instruments includes: A. those who have access to instruments that are in incoming or outgoing mail. B. those who process instruments received by the employer. C. those who have access to instruments as they are transported. D. those who have access to instruments as they are stored.

Q: XYZ Bank pays a check that contains a restrictive indorsement "for collection." This indicates that: A. the bank has paid the check illegally. B. the bank has not acted in good faith. C. the bank was negligent with the payment of the check. D. the bank has converted the check.

Q: Where the impostor has impersonated a person authorized to act for a payee: A. the responsibility for determining the true identity of the payee is on the bank. B. the impostor has the power to negotiate a check drawn payable to the payee. C. the later holder does not have good title to the check as the payee's signature is not valid. D. the loss is shared by the maker and the bank that negotiated the forged instrument.

Q: Mila owes Brad (whom she has not met) $4,000. James claiming to be Brad gets Mila to issue him a check of $4,000. James forges Brad's indorsement and transfers the check to Hall. Which of the following statements holds true for this situation? A. The responsibility for determining the true identity of the payee is on Hall. B. James has the power to negotiate a check drawn payable to Brad. C. Hall does not have good title to the check as Brad's signature is not valid. D. The loss is shared by Mila and Hall, who is the holder of the forged instrument.

Q: The rationale for the impostor rule is that the responsibility for determining the true identity of the payee: A. is shared by the bank and the maker of the negotiable instrument. B. is on the drawer or maker of the negotiable instrument. C. is on the bank that negotiates the instrument. D. is on the payee whose name is mentioned in the negotiable instrument.

Q: Bill submits a time card for a non-existent employee. The employer issues the payroll check. Bill forges the indorsement and negotiates the check to Ted. Which of the following statements holds true for this situation? A. The loss from the forged check is borne by the holder in due course. B. The check cannot be negotiated as it carries the signature of a non-existent person. C. The employer has the right to refuse payment to Ted. D. Ted submits the check to the employer and gets the mentioned amount.

Q: In the event of a breach of a presentment warranty: A. the drawee is entitled to compensation for expenses and loss of interest resulting from the breach to compensate for the amount paid by the drawee. B. the drawee's right to recover damages for breach of warranty is annulled by any failure on the part of the drawee to exercise ordinary care in making payment. C. the warrantor may defend by showing that the indorsement is effective under the impostor or fictitious payee rules. D. the drawee can withdraw an amount equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer.

Q: If the drawee bank mistakenly paid a check with a forged or unauthorized drawer's signature on it: A. the bank can recover the amount from the person whose name had been mentioned in the check albeit without authorization. B. the bank can recover if it paid the check to a presenter who had taken the instrument in good faith and for value. C. the bank cannot recover if it paid the check to a forger or unauthorized signer. D. the bank cannot recover it if the presenter had taken the instrument in good faith and for value.

Q: Susan Smith steals a valuable necklace from Pamela Jones. The necklace bears Jones's full name. Smith takes the necklace to a pawnshop, sells it to the shop, and gets a check for $10,000 in the name of Pamela Jones. Smith then indorses the check in Jones's name and transfers it to Harry Anderson. Which of the following is true about this situation? A. Harry cannot be a holder because the indorsement was forged. B. Harry cannot be a holder because of the "imposter rule." C. The check has been negotiated to Harry. D. Susan Smith can keep the necklace since she is now the owner.

Q: Jerry Hall makes out a note for $100 in such a way that someone could alter it to read $100,000. Someone alters the note and negotiates it to Pete Mason, who can qualify as a holder in due course. Which of the following statements is true for this situation? A. Jerry shall share the loss with the bank where she holds an account. B. Jerry does not have to pay Pete who currently possesses the note. C. Pete can collect $10,000 from the person who "raised" the note. D. Pete can collect $10,000 from Jerry.

Q: The transferor of which of the following instrument cannot disclaim transfer warranties? A. Check B. Promissory note C. Draft D. Invoice

Q: All signatures on a negotiable instrument are guaranteed to be treated as authentic due to what type of warranty? A. Transfer warranty B. International commerce warranty C. Principal agent warranty D. Invoice protection warranty

Q: Which of the following is not one of the presentment warranties that the holder of an unaccepted draft makes to the drawee? A. That the draft has not been altered. B. That the draft is not subject to a defense or a claim in recoupment. C. That the holder has no knowledge that the signature of the drawer is unauthorized. D. That the holder is entitled or authorized to obtain payment.

Q: Able carefully drew a check for $10 on her checking account at ABC bank, payable to the order of Baker. Baker altered the check to read $100, and then negotiated it to Cain. Cain presented the check for payment to ABC bank, which paid Cain $100. The bank then deducted $100 from Able's account. When Able saw her bank statement she demanded that ABC credit her account for the altered check. ABC credited Able's account and then sued Cain. Is Cain liable? A. Yes, because Cain violated a presentment warranty. B. Yes, because Cain was a holder of the check. C. No, Cain is not liable if Cain acted in good faith and was unaware of Baker's alteration. D. No, because Cain is not holder in due course.

Q: Which of the following is true regarding a transferor's liability on a transfer warranty? A. The warranties apply only when the transfer was accompanied by the transferor's indorsement. B. The transferor is liable only after presentment to the drawee or a primarily liable party, followed by that party's dishonor. C. It applies even when there was no consideration for the transfer. D. If the transfer was by indorsement, the warranty extends to all subsequent transferees, and not just the immediate transferee.

Q: All of the following constitute transfer warranties under Article 3 except: A. that all signatures on the instrument are authentic or authorized. B. that the instrument has not been altered. C. that the instrument is not subject to any defense or claim in recoupment. D. that the instrument is negotiable.

Q: Which of the following is both a transfer warranty and a presentment warranty? Assume that the instrument in question is a draft. A. That the draft has not been altered. B. That the draft is negotiable. C. That the draft is not subject to any defense or claim for recoupment. D. That the drawer is not insolvent.

Q: If Jay signs Mila's name to a negotiable instrument without Mila's authorization or approval: A. the signature is not effective as the signature is of the unauthorized signer. B. the signature cannot be ratified later by the person represented. C. the signature does not bind the person whose name appears. D. Jay is not liable on the check.

Q: According to UCC section 3-401 which of the following does NOT constitute a valid signature of a negotiable instrument? A. A mark on the document B. A word on the document C. Leaving the document intentionally blank D. Printing the name on the document

Q: Tom steals Dave's checkbook, completes a check for $1,000, forges Dave's signature, and gets payment from Tom's bank. The bank paid in good faith. Who is liable to the bank for the $1,000 in this case? A. Tom B. Dave C. Both Tom and Dave D. Neither Tom nor Dave

Q: Usually, who may have the power to surrender the instrument if full payment is made? A. Indorser B. Accommodation maker C. Party to whom the holder presents the instrument D. Drawer

Q: Maya Efrat, Chief Financial Officer for BAZ Inc., is authorized to sign checks for BAZ Inc. She signs a check "BAZ Inc. by Efrat, Chief Financial Officer." Which of the following statements is most accurate? A. Maya and not BAZ Inc. is liable on the check. B. BAZ Inc. and not Maya is liable on the check. C. Both BAZ Inc. and Maya are liable on the check. D. Neither BAZ Inc. nor Maya are liable on the check.

Q: National bank is reluctant to lend money to James and takes a note from him because of his shaky financial condition. However, the bank is willing to lend money to James if he signs the note and a friend also signs the note. Here the friend serves as the: A. deponent. B. accommodation party. C. fiduciary. D. non-joinder.

Q: If a person signs a check as an accommodation indorser: A. his contractual liability is that of an indorser. B. his contractual liability is limited to the payment of the principal. C. his contractual liability is more than that of an indorser. D. his contractual liability is limited to the payment of the interest.

Q: Mike authorizes his agent, Ben to borrow a sum of $10,000 on his behalf from the National Bank. Ben signs his name to a note without disclosing that the signature was on behalf of Mike. Who is liable on the note? A. Only Mike is liable. B. National Bank is liable. C. Both of them are liable. D. Only Ben is liable.

Q: A representative is personally liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable if: A. the instrument identifies the represented person. B. the form of the signature does not show unambiguously that the signature was made in a representative capacity. C. the instrument categorically states that the representative would be liable even if the signature has been authorized. D. it is proved that the original parties did not intend her to be liable on the instrument.

Q: The drawee does not have liability on the instrument until it _____ the instrument. A. transfers B. signs C. negotiates D. makes

Q: Which of the following is true regarding an indorser's liability on a note? A. A holder can proceed directly against the indorser without first presenting the note to the maker. B. A qualified indorsement by the indorser will not disclaim liability against a holder who takes it in good faith and for value. C. For the indorser to be liable, there must be presentment to the maker, dishonor by the maker, and notice to the indorser. D. For the indorser to be liable, there need only be presentment to the maker and dishonor by the maker.

Q: Jack received a check as payment for the work he did. He indorsed the check "without recourse." What legal effect does this have? A. The drawer of the check is discharged from primary liability on the check. B. Jack is discharged from secondary liability on the check. C. The drawer of the check is discharged from secondary liability on the check. D. Jack is discharged from primary liability on the check.

Q: Salmond signs a note for the purpose of lending credit to John. Salmond also makes his father Richard sign the note because of his shaky financial condition. This indicates that Richard has signed the note in the capacity of a(n): A. drawer. B. accommodation party. C. drawee. D. indorser.

Q: Menzes is the Treasurer of ABC Corp. As such, he is authorized to sign checks for the corporation. A supplier bills ABC for a legitimate obligation. Menzes makes out a check to the supplier and signs it "ABC Corp., by Menzes, Treasurer." Who is liable on this check? A. ABC only. B. Menzes only. C. ABC and Menzes. D. Neither ABC nor Menzes.

Q: Which of the following is true regarding a drawee's liability on a check or a draft? A. The drawee is primarily liable in all cases. B. The drawee is secondarily liable because the holder must first proceed against the drawer. C. The drawee is primarily liable if it accepts (certifies) a check. D. The drawee is secondarily liable only in doubtful cases.

Q: Chin wants to buy a small parcel of land. The seller requires a certified check as payment. Chin has a checking account with ABC bank; he prepares a check for the seller and then has the bank certify it. He then presents the check to the seller. Who may now be liable for payment of the amount of the check? A. Chin only. B. ABC bank only. C. Both Chin and ABC bank. D. Neither Chin nor the ABC bank.

Q: The obligation of an acceptor is: A. to make an unconditional promise to pay a fixed amount of money and is responsible for making good on that promise. B. to pay the check according to its terms at the time he issued it. C. to pay the draft according to the terms at the time of its acceptance. D. to pay the amount due on the instrument according to its terms at the time he indorsed it.

Q: What form of liability exists when a party is only responsible to pay on a negotiable instrument in case of default of the party who shoulders the obligation of liability for the instrument? A. Primary Liability B. Secondary Liability C. Accidental Liability D. International Liability

Q: Potter owes George $500. Potter writes a check payable to George for that amount. Later, George loses the check. Potter is now discharged from his liability on the check.

Q: UCC section 3-604 allows for the liability associated with a negotiable instrument to be canceled by the person entitled to enforce the instrument.

Q: Mike signs a note payable to a bank. The bank indorses and negotiates the note to Fay, who then indorses and negotiates it to Sam. Sam presents the note to Mike, who dishonors it. Then Sam decides to pursue Fay and the bank on their secondary indorsers' liability. Against whom can Sam proceed? A. Fay. B. The bank. C. Both Fay and the bank. D. Neither Fay nor the bank.

Q: Presentment warranties are made by any prior transferor of the instrument at the time the person transfers the instrument.

Q: Jason has knowledge of the fact that the check given to him bears Julie's forged signature. Despite the said fact, he presents the check to ABC Bank. ABC Bank pays Jason, under a mistaken belief that the signature on the check is authentic. Bank cannot recover that payment from Jason.

Q: Dick steals a computer belonging to Tom from his house. Then Dick represents himself as Tom and sells the computer to Lawrence. Here, Lawrence draws a check payable to Tom and delivers the check to Tom. Here, Tom is called the impostor.

Q: Any authorized ownership and exercise over an instrument is referred to as conversion.

Q: An indorsing transferor of a negotiable instrument makes six transfer warranties to all subsequent transferees.

Q: Warranties do not apply without the indorsement of the transferor.

Q: The UCC provides for a transfer warranty on unauthorized or repetitive remotely created checks.

Q: A transferor of a negotiable instrument for consideration warrants to his transferee that the negotiable instrument has not been altered.

Q: Bob authorizes Steward to borrow money on his behalf. Steward signs his name on a note in his individual capacity i.e. without disclosing that the signature is on behalf of Bob. Then Steward becomes liable for the note.

Q: Susie Q. signs a promissory note with her typical signature, a X. Susie's mark will be sufficient to be considered a signature and establish liability in the instrument.

Q: A holder of a check or draft who wants to get payment on it should first present the check or draft to the drawer.

Q: The notice required of a dishonored check from the drawer to an indorser to hold the indorsers' to their contractual obligation can be either written or oral.

Q: Revised Article 3 of the UCC provides that the drawer of a cashier's check has the same obligation as the issuer of a note.

Q: A drawee has no liability on a draft unless it certifies or accepts the draft.

Q: An indorser to a negotiable instrument is generally primarily liable.

Q: The negotiable instruments of a corporation have to be signed by an agent of the corporation who is authorized to sign the instrument.

Q: What are the four categories of claims listed in Revised Article 3?

Q: Indorsers are not contractually liable on negotiable instruments they indorse.

Q: Signing a promissory note is an example of establishing primary liability in a negotiable instrument.

Q: The maker of a promissory note is the person who is secondarily liable on the note.

Q: Pete Payee specially indorses a note payable to his order and also uses the words "without recourse." What is the effect of the words "without recourse" here?

Q: What are the general requirements to become a holder in due course?

Q: What is the shelter rule in Article 3?

Q: _____ are legal reasons for avoiding or reducing liability of an individual who is liable on a negotiable instrument. A. Personal defenses B. Procedural defenses C. Real defenses D. Excuse defenses

Q: Which of the following is a personal defense against a holder in due course? A. Fraud in the essence B. Forgery C. Breach of contract D. Minority or infancy

Q: What is the term for when law renders an obligation to pay an instrument void. A. Forgery B. Comity C. Illegality D. Duress

Q: Which of the following is generally true about the Federal Trade Commission's (FTC) regulations of the holder in due course rule? A. Some states have eliminated the holder in due course rule by repealing the previous version of Article 3 and refusing to adopt the new version. B. The FTC has seriously limited the rule's impact in consumer credit situations in which the consumer signs a note or an installment sales contract, or gets financing from a third party. C. These changes in the holder in due course rule reflect the economic power and political influence of business interests, especially banks. D. Overall, the FTC's changes in the holder in due course rule are insignificant, especially in consumer cases.

Q: What are the three significant effects resulting from the indorsement of a negotiable instrument?

Q: In which of the following situations is an instrument termed as overdue? A. Where a check was made out 60 days ago. B. Where there is a default in payment of interest on a note, but not in the payment of the principle. C. Where the principal on a note is due in installments and an installment has not been paid. D. Where a note dated January 1 is payable "30 days after date" and is paid on January 31.

Q: In the context of overdue instruments, if a due date for the principal has been accelerated: A. the instrument is overdue when the court passes a judgment to that effect. B. the instrument is overdue on the day after the grace period of seven days from the accelerated due date. C. the instrument is overdue on the day after the accelerated due date. D. the instrument is overdue on the day of the due date.

Q: Which of the following is NOT a defense specified in Revised Article 3? A. By way of damages B. Real defenses C. Claims to an instrument D. Claims in recoupment

Q: Which of the following is a "real" defense that is good against a holder in due course of a note? A. The maker of the note is 15 years old. B. The note was procured by the payee's threat to prosecute the maker for drug dealing. C. No consideration was given for the note. D. The maker was in a seriously delusional state when he completed the note (but had not been declared insane or institutionalized).