Q&A Hero

Q: Which of the following is true regarding discharge by impairment of collateral? A. Discharge cannot occur through impairment of collateral. B. If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral. C. If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument regardless of the extent of the damage to the collateral. D. If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument only if the instrument is in an amount less than $500; otherwise, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral. E. If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs the value of the collateral, the party to the instrument is totally discharged from the instrument only if the instrument is in an amount less than $1,000; otherwise, the party to the instrument is discharged from the instrument to the extent of the damage to the collateral.

Q: A right to _____ is the ability of a party to seek reimbursement. A. reimbursement B. recourse C. renunciation D. remedy E. refusal

Q: Which of the following is an Article 3 personal defense to liability on a negotiable instrument? A. Nonissuance of an instrument B. Modification of obligation by separate agreement C. Nondelivery of the instrument D. Nonissuance of an instrument, modification of obligation by separates agreement, and nondelivery of the instrument E. Nondelivery of the instrument or nonissuance of the instrument, but not modification of obligation by separate agreement

Q: Which of the following will be considered a personal defense to payment of an instrument? A. Breach of contract or warranty B. Fraud in the inducement C. Illegality D. Breach of contract or warranty, fraud in the inducement, and illegality E. Illegality and lack or failure of consideration, but not breach of contract or warranty

Q: When a party's liability for a negotiable instrument is terminated, this party's liability has been _____. A. terminated B. released C. discharged D. abrogated E. delivered

Q: Which of the following occurs when a former holder of an instrument has the instrument transferred back to him by negotiation or other means? A. Cancellation B. Renunciation C. Reacquisition D. Recourse E. Release

Q: Which of the following is true? A. As soon as a transferee discovers a breach of warranty has occurred, he or she can bring suit against the transferor. B. A transferee must wait at least 48 hours after he or she discovers that a breach of warranty has occurred before bringing suit against the transferor. C. A transferee must wait at least 5 days after he or she discovers that a breach of warranty has occurred before bringing suit against the transferor. D. A transferee must wait at least 10 days after he or she discovers that a breach of warranty has occurred before bringing suit against the transferor. E. A transferee must wait at least 30 days after he or she discovers that a breach of warranty has occurred before bringing suit against the transferor.

Q: If an instrument is not an unaccepted draft presented to a drawee, which of the following presentment warranties is applicable? A. That the warrantor of the instrument is entitled to payment. B. That the instrument has not been altered. C. That the warrantor has no knowledge that the drawer's signature or the draft is unauthorized. D. That the warrantor of the instrument is entitled to payment, that the instrument has not been altered, and that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized. E. The warrantor of the instrument is entitled to enforce the instrument and that the warrantor has no knowledge that the drawer's signature or the draft is unauthorized, but not that the instrument has not been altered.

Q: Real defenses apply to _____, and personal defenses do not apply to _____. A. all parties; holders in due course B. holders; holders in due course C. holders; holders D. all parties; holders E. all parties; endorsers

Q: When a party signs a negotiable instrument without knowing that it is, in fact, a negotiable instrument, the party can claim _____. A. negligence B. recklessness C. malice D. fraud in the factum E. fraud and nonacknowledgement

Q: When will a party's negligence not permit the party to escape liability for an unauthorized signature? A. Any type of negligence will result in a party being unable to escape liability for an unauthorized signature. B. The issue of negligence is irrelevant as to the issue of whether a party may escape liability for an unauthorized signature because a party is always liable for an unauthorized signature. C. A party who is negligent may not escape liability for an unauthorized signature if the party whose signature was forged behaved so negligently as to substantially contributes to the making of the forgery. D. A party's negligence will not permit the party to escape liability for an unauthorized signature only if the negligence amounts to a finding of recklessness. E. A party's negligence will not permit the party to escape liability for an unauthorized signature only if the negligence involved a certified check.

Q: Carl, without Eddie's knowledge, impersonates Eddie and thereby convinces Connie, who has never seen Eddie, to write a check to Eddie, on which Carl forges Eddie's name and deposits into his, Carl's, account. Which of the following is true regarding whether Connie will be liable for the amount of the check? A. Under the forgery rule, Connie will be held liable B. Under the transferor rule, Connie will be held liable C. Under the payee rule, Connie will be held liable D. Under the imposter rule, Connie will be held liable E. Under the fictitious payee rule, Connie will not be held liable

Q: Zachary, who has been authorized to write a check from a company account to pay employees, draws bonus checks from the company account for five imaginary employees; endorses the checks in their names; and deposits those into his own bank account. Which of the following is true regarding whether the company will be required to take the loss on the checks? A. Under the fictitious payee rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary. B. Under the imposter rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary. C. Under the transferor rule, the company will be required to take the loss on the checks unless the company can obtain the funds from Zachary. D. Under the employee-liability rule, the company will be able to recover from any bank that cashed the check in addition to Zachary. E. Under the banking liability act, the company will be able to recover from any bank that cashed the check in addition to Zachary.

Q: _____ is a type of warranty regarding instrument. A. Transfer B. Presentment C. Acknowledgement D. Transfer, presentment, and acknowledgement E. Transfer and presentment, but not acknowledgement

Q: How can an accommodation party sign an instrument? A. As a maker B. As a drawer C. As an acceptor D. As an endorser E. All of these

Q: Which of the following results in liability of the principal because the principal approved of an unauthorized agent's signature? A. Ratification B. Authorization C. Acknowledgement D. Pre-approval E. Post-approval

Q: Which of the following is the most likely result if an agent admits to the principal that a check for the principal was forged and placed into the agent's bank account, but the principal does nothing until two months later after the agent leaves town with the funds? A. The checks were forged; the principal can receive reimbursement of the funds from any maker involved or any bank that cashed the checks. B. The principal can receive reimbursement from makers of the checks only. C. The principal can receive reimbursement from any bank that cashed the checks only. D. It is likely that it will be determined that the principal ratified the signatures and that the principal cannot recover from either makers or banks that cashed the checks. E. The principal can recover from either the makers or any banks that cashed the checks only if it can be shown that the agent cannot be located for criminal prosecution.

Q: Which of the following is true regarding the liability of an accommodation party? A. As a maker, an accommodation party has primary liability; but, as an endorser, the party has secondary liability. B. An accommodation party has primary liability both as a maker and as an endorser. C. An accommodation party has secondary liability both as a maker and as an endorser. D. An accommodation party has primary liability as either a maker or endorser only if all other parties to the instrument have filed bankruptcy. E. An accommodation party has primary liability as a maker only if all other parties have filed bankruptcy, and secondary liability in any other case regardless of whether the accommodation party is the maker or endorser.

Q: Which of the following is true in the event an instrument contains more than one endorsement? A. Each endorser is liable for the full amount to the subsequent endorser or to the holder. B. Only the last endorser is liable to the holder and no prior endorsers are liable to a subsequent endorser. C. Each endorser is liable for the full amount to the subsequent endorser, but only the last endorser is liable to any holder. D. The last endorser is liable to the holder, whereas subsequent endorsers are responsible for reimbursing previous endorsers in proportion to the number of endorsers that exist. E. Each endorser is liable to the holder in proportion to the number of endorsers.

Q: A(n) ______ party is a party who signs an instrument to provide credit for another party that has also signed the instrument. A. agreeable B. accommodation C. agent D. principle E. promisor

Q: When a holder presents an instrument in a timely and proper manner, but acceptance or payment is refused, the instrument has been _____. A. destroyed B. dishonored C. converted D. rejected E. refused

Q: If the party that dishonors an instrument is a collecting bank, when must notice of the dishonor be given to a secondarily liable party by the collecting bank? A. Before midnight of the next day B. Within 48 hours C. Within 7 days D. Within 10 days E. Within 30 days

Q: After initially receiving notice of dishonor, when must parties other than a collecting bank give notice of dishonor to a secondarily liable party? A. Before midnight of the next day B. Within 48 hours C. Within 7 days D. Within 10 days E. Within 30 days

Q: Which of the following may be considered a commercially reasonable manner by which notice of dishonor can be given to a secondarily liable party? A. Orally B. In writing C. Electronically D. Orally, in writing, and electronically E. By certified letter only

Q: A(n) _____ is a person who signs an instrument to restrict payment of it, negotiate it, or incur liability. A. maker B. acceptor C. drawer D. endorser E. promisor

Q: Which of the following must occur for a drawer to become liable on an instrument? A. The holder of the instrument must present the instrument in a proper and timely fashion. B. The instrument must be dishonored. C. Notice of the dishonor must be given to the drawer. D. The holder of the instrument must present the instrument in a proper and timely fashion, the instrument must be dishonored, and notice of the dishonor must be given to the drawer. E. The holder of the instrument must present the instrument in a proper and timely fashion and the instrument must be dishonored, but there is no requirement of notice of dishonor since the injured party may proceed directly to court.

Q: Under the UCC, how can proper presentment be made? A. By any commercially reasonable means B. Through a clearinghouse procedure C. At a place designated in the instrument D. By any commercially reasonable means, through a clearinghouse procedure, and also at a place designated in the instrument E. Through a clearinghouse procedure or at the place designated in the instrument, but not by any commercially reasonable means

Q: A(n) _____ promises to pay a set sum to the holder of a promissory note or certificate of deposit. A. maker B. acceptor C. drawer D. endorser E. promisor

Q: A(n) _____ accepts and signs a draft to agree to pay the draft when it is presented. A. maker B. acceptor C. drawer D. endorser E. promisor

Q: Which of the following is a person who orders the drawee to pay? A. Maker B. Acceptor C. Drawer D. Endorser E. Promisor

Q: What type of liability arising when the transfer of the instrument breaches a warranty associated with the instrument? A. Warranty liability B. Payee liability C. Signature liability D. Primary liability E. Secondary liability

Q: A party who is _____ liable is responsible for paying the amount designated on an instrument if the primarily liable party defaults. A. primarily B. secondarily C. warranty D. UCC E. preventable

Q: Which of the following is true regarding liability on negotiable instruments? A. Makers and acceptors are primarily liable for a negotiable instrument, while drawers and endorsers are secondarily liable B. Drawers and endorsers are primarily liable, while makers and acceptors are secondarily liable C. Makers and drawers are primarily liable, while acceptors and endorsers are secondarily liable D. Acceptors and endorsers are primarily liable, while makers and drawers are secondarily liable E. Makers, acceptors, drawers, and endorsers are all secondarily liable

Q: Which type of party must pay the stated amount of an instrument when it is initially presented for payment? A. A party who is secondarily liable B. A party who is a drawer and a party who is secondarily liable C. A party who is an endorser D. A party who is a drawer or an endorser E. A party who is primarily liable

Q: Susan purchased a refrigerator from ABC Appliance store for $700 giving the store a promissory note for that amount. She takes the refrigerator home and discovers that it is defective. She calls ABC Appliance store and tells them that she would like to return the refrigerator. ABC Appliance store tells her that they have assigned the promissory note she provided the store in order to purchase the refrigerator to a finance company. The finance company tells her that it is a holder in due course not subject to her claim of defect. Which of the following is true regarding the rights of parties? A. The finance company is subject to the defenses of Susan because of a Federal Trade Commission (FTC) rule created to protect consumers. B. ABC Appliance store is correct in that Susan cannot assert her defenses against the finance company. C. Susan can assert her defenses against the finance company only if she can prove that the finance company had knowledge that ABC Appliance store sold defective equipment from time to time. D. Susan can assert her defenses against the finance company only because she gave notice of the problem within 5 days of the sale. E. Susan can assert her defenses against the finance company only if she agrees to arbitrate the dispute.

Q: Which of the following is true regarding negotiable instruments in England? A. Promissory notes can be negotiated between parties. B. Checks can be negotiated between parties. C. Bills of exchange can be negotiated between parties. D. Promissory notes can be negotiated between parties, checks can be negotiated between parties, and bills of exchange can be negotiated between parties. E. Promissory notes and checks can be negotiated between parties, but bills of exchange cannot be negotiated between parties.

Q: What type of liability occurs when a person signs a negotiable instrument? A. Warranty liability B. Payee liability C. Signature liability D. Primary liability E. Secondary liability

Q: A type of draft that allows the payee to demand payment at any time from a holder is a _____. A. time instrument B. demand instrument C. shelter principle D. holder in due course E. holder of course

Q: The holder in due course is free from the following personal defenses: A. lack or failure of consideration and breach of contract. B. fraud in the inducement in the underlying contract and breach of contract. C. lack or failure of consideration and fraud in the inducement in the underlying contract. D. lack or failure of consideration, breach of contract, and fraud in the inducement in the underlying contract. E. the holder in due course is not free from any personal defenses.

Q: Which principle states that if an item is transferred from one person to another, the transferee acquires all the rights to transfer or have in the item? A. The shelter principle B. The transfer principle C. The transferee principle D. The transferor principle E. The holder principle

Q: Which of the following is false regarding the ways by which a holder may take an instrument for value? A. The holder performs the promise for which the instrument was issued or has started performance. B. The holder acquires a security interest or other lien in the instrument. C. The holder takes the instrument for payment of a preceding claim. D. The holder exchanges the instrument for another negotiable instrument. E. The holder exchanges the instrument for an irrevocable obligation to a third party.

Q: Under the UCC, _____ is defined as "honesty in fact and the observance of reasonable commercial standards for fair dealing." A. commercial standards B. subjective reasonableness C. objective reasonableness D. good faith E. reasonable investigation

Q: What type of notice prevents a holder from being a holder in due course? A. Notice that the instrument is overdue. B. Notice that the instrument has been dishonored. C. Notice that the instrument was issued as part of a series that is in default. D. Notice that the instrument is overdue, notice that the instrument has been dishonored, and also notice that the instrument was issued as part of a series that is in default. E. Notice that the instrument is overdue or notice that the instrument has been dishonored, but not notice that the instrument was issued as part of a series that is in default.

Q: Under the UCC, when does a person have notice of a fact? A. When the person has actual notice of the fact. B. When the facts and circumstances known to the person at the time in question give the person reason to know that the facts exist. C. When the person receives notice or notification of the facts. D. When the person has actual notice of the fact, when the facts and circumstances known to the person at the time in question give the person reason to know that the facts exist, and also when the person receives notice or notification of the facts. E. When the person has actual knowledge of the fact, or the facts and circumstances known to the person at the time in question give the person reason to know that the fact exists, but not that the person receives notice or notification of the fact.

Q: A party who is in possession of an instrument that is payable to the party or to the bearer of the instrument is known as a(n) _____. A. holder B. bearer C. payee D. issuer E. transferee

Q: If the buyer of goods fails to write the date on the check to the seller, the seller may: A. return the check to the buyer. B. write in the date intended by the buyer. C. demand a new check. D. charge a penalty if it delays full payment. E. sue the buyer.

Q: Which of the following constitutes taking an instrument for value in order to be considered a holder in due course? A. Providing consideration for the instrument B. Providing a bargained-for promise in return for the instrument C. Taking the instrument in exchange for a promise that has already been performed D. Taking the instrument after beginning performance on a promise in return E. All of these

Q: An individual who acquires a negotiable instrument in good faith is called a(n) _____. A. maker B. holder in due course C. acceptor D. endorser E. drawer

Q: Under UCC Section 3, HDC is the abbreviation for _____. A. holder of debt collection B. holder of due conditions C. holder of due complications D. holder in due course E. holder in down companies

Q: Which of the following is not an element that a party must meet to be considered a holder in due course? A. The party must be a holder of a complete and authentic negotiable instrument. B. The holder must take the instrument for value. C. The holder must take the instrument in good faith. D. The holder must take the instrument without notice of defects. E. The holder must either pay for the instrument or receive it as a gift.

Q: If an instrument has been refused by a bank despite a holder's presenting it in a timely and proper manner, that payment has been dishonored.

Q: A party who signs an instrument to provide credit for another party, who has also signed the instrument, is an accommodation party.

Q: If a transfer is through an endorsement, the transfer warranties apply to any future holder. However, if the transfer does not occur through endorsement, the warranties apply only to the transferee.

Q: If Alice makes a proper tender of the full payment of $1,000 due on Richard's note on the note's due date, but Richard improperly refuses to accept the money, Alice will still be liable for the $1,000, but will not have to pay any interest on the amount.

Q: Liability attributed when the transfer of an instrument breaches a warranty associated with an instrument is called signature liability.

Q: According to the UCC, a signature can be any name, word, mark, or symbol used by a party to authenticate a writing.

Q: A party who is primarily liable on an instrument must pay the stated amount when it is presented for payment and make the payment without resorting to any other party.

Q: When an item is transferred, the transferee acquires all the rights the transferor had to the item under the shelter principle.

Q: The purpose of the shelter principle is to protect the holder from losing holder in due course status.

Q: Under FTC regulations, to ensure that complaints do not abuse its status, a subsequent holder of a contract will have the rights of a holder in due course.

Q: A bank has given value for a negotiable instrument to the extent that the bank has a security interest in the instrument.

Q: The UCC's definition of good faith is strictly an objective standard.

Q: A time instrument becomes overdue at any date after the expressed due date on the instrument.

Q: The defenses of lack or failure of consideration, breach of contract, and fraud in the inducement in the underlying contract cannot be used against a holder in due course.

Q: Receiving an instrument as a gift satisfies the holder in due course requirement of taking an instrument for value.

Q: The "for value" requirement of the UCC section 3-302 is the same as taking something with consideration.

Q: If someone forgets to write the date on a check, the UCC allows the holder to complete the check by writing the date as long as it is consistent with the intent of the writer.

Q: Someone who acquires a negotiable instrument in good faith is a holder in due course.

Q: A payee may not be a holder in due course.

Q: Under UCC 3-302, a party may be a holder in due course of a non-negotiable instrument.

Q: Set forth the requirements generally required for a check to be considered properly payable.

Q: What is the difference between a cashier's check and a certified check? Can a bank refuse to certify a check? Assuming the payment is valid, can a bank refuse to issue a cashier's check?

Q: The purpose of holder-in-due-course status is to protect the seller of goods under the UCC.

Q: Set forth the six requirements for an instrument to be negotiable.

Q: Anne orally promises Judy that in return for Judy washing Anne's dog, Anne unconditionally promises to pay Judy $50 the next Wednesday. Is a contract formed, is it negotiable, and why or why not?

Q: What does the Truth-in-Savings Act require regarding information to be provided to customers before accounts are opened?

Q: Stolen Purses. Sandra and Mary were having lunch at their favorite restaurant. Unfortunately, a thief stole their purses containing their ATM cards. Mary notified her bank the next day of the theft of the ATM card. Unfortunately, the card had already been used to fraudulently obtain over $1,000. Sandra thought back to her business law class and did not call her bank, however, because she believed that she would not be liable for any charges on the ATM card because of the rules involving forgeries. Nevertheless, a week or so later when Sandra was in the bank, she casually mentioned to the teller that she needed a new card because hers had been lost. She was shocked when a bank representative attempted to hold her responsible for hundreds of dollars of goods bought with the ATM. Sandra told the bank representative that she refused to cover the amounts, that she was moving her account, and that she wanted all preauthorized payments and EFTs stopped immediately. Which of the following is true regarding the bank's obligation to stop EFT transfers? A. The bank must immediately end any EFTs on the same day requested so long as the request is made during regular business hours. B. The bank must end any EFT payments on the same day requested so long as the request is made by 2 p.m. C. The bank must stop any EFT payments so long as the request is made within 48 hours of the EFT authorization. D. The bank must stop any EFT payments so long as the request is made within five days of the EFT authorization. E. The bank could not stop payment because EFT transfers occur instantaneously.

Q: What is the difference between a demand negotiable instrument and a time negotiable instrument?

Q: Describe a traveler's check setting forth the elements necessary for its proper payment.

Q: Stolen Purses. Sandra and Mary were having lunch at their favorite restaurant. Unfortunately, a thief stole their purses containing their ATM cards. Mary notified her bank the next day of the theft of the ATM card. Unfortunately, the card had already been used to fraudulently obtain over $1,000. Sandra thought back to her business law class and did not call her bank, however, because she believed that she would not be liable for any charges on the ATM card because of the rules involving forgeries. Nevertheless, a week or so later when Sandra was in the bank, she casually mentioned to the teller that she needed a new card because hers had been lost. She was shocked when a bank representative attempted to hold her responsible for hundreds of dollars of goods bought with the ATM. Sandra told the bank representative that she refused to cover the amounts, that she was moving her account, and that she wanted all preauthorized payments and EFTs stopped immediately. For how much can the bank hold Mary responsible based on the fraudulent use of the card? A. Nothing B. $50 C. $100 D. $500 E. For everything charged prior to the time she gave notice