Question 1

accommodation party

Accepted Answer

- a person who signs an instrument for the purpose of lending his or her name as credit to another party on the instrument

Question 2

dishonor

Accepted Answer

- to refuse to accost or pay a draft or a promissory note when it is properly presented - an instrument is dishonored when presentment is properly made and acceptance or payment is refused or cannot be obtained within the prescribed time

Question 3

fictitious payee

Accepted Answer

- a payee on a negotiable instrument whom the maker or drawer does not intend to have an interest in the instrument - indorsements by fictitious payees are not treated as unauthorized under Article 3 of the Uniform Commercial Code

Question 4

imposter

Accepted Answer

- one who, by use of the mail, telephone, or personal appearance, induces a maker or drawer to issue an instrument in the name of an impersonated payee - indorsements by imposters are not treated as unauthorized under Article 3 of the Uniform Commercial Code

Question 5

personal defense

Accepted Answer

- a define that can be used to avoid payment to an ordinary holder of a negotiable instrument but not a holder in due course (HDC) or a holder with the rights of an HDC

Question 6

presentment warranty

Accepted Answer

- person who presents an instrument for payment or acceptance that (1) he or she is entitled to enforce the instrument or authorized on behalf of a person who is entitled, (2) the instrument has not been altered, (3) he or she has no knowledge that the signature of the drawer is unauthorized

Question 7

transfer warranty

Accepted Answer

- an implied warranty, made by any person who transfer an instrument for consideration to subsequent transferees and holders who take the instrument in good faith, that (1) the transferor is entitled to enforce the instrument, (2) all signatures are authentic and authorized, (3) the instrument has not been altered, (4) the instrument is not subject to a defense or claim of any party that can be asserted against the transferor, and (5) the transferor has no knowledge of an insolvency proceedings against the maker, the acceptor, or the drawer of the instrument

Question 8

universal defense

Accepted Answer

- a defense that is valid against all holders of a negotiable instrument, including holder in due course (HDCs) and holders with rights of HDCs - universal defenses are also called real defenses

Question 9

SAMPLE TEST QUESTIONS 1. Duke signs a note "payable to the order of Equity Bank." Unless Duke has a valid defense against payment, his liability on this note is : a. impaired b. primary c. secondary d. qualified

Accepted Answer

ANSWER : (B) CORRECT : (B)

Question 10

SAMPLE TEST QUESTIONS 2. Rubin writes a check drawn on his account at Clearwater Bank and payable to the order of Gwyn. The bank does not pay the check. Rubin is : a. absolved of liability on the check b. liable to Gwyn for the amount of the check c. liable to the bank for the amount of the check d. entitled to payment of the amount of the check from Gwyn

Accepted Answer

ANSWER : (A) CORRECT : (B)

Question 11

SAMPLE TEST QUESTIONS 3. Employment Personnel Company draws a check payable to Felix. Felix indorses the back and negotiates the check to Guaranty Bank. Primarily liable on the note is : a. Employment Personnel b. Felix c. Guaranty Bank d. none of the choices

Accepted Answer

ANSWER : (A) CORRECT : (D)

Question 12

SAMPLE TEST QUESTIONS 4. Lewis makes a note payable to MaxiFinance Corporation, indorses the back of the note, and negotiates it to Notes & Drafts Investments, Inc. Primarily liable on the note is : a. none of the choices b. MaxiFinance c. Notes & Drafts Investments d. Lewis

Accepted Answer

ANSWER : (D) CORRECT : (D)

Question 13

SAMPLE TEST QUESTIONS 5. Fiona writes a check "pay to the order of Gerri" drawn on Fiona's account at Home State Bank. Gerri present the check for payment to Home State, which accepts it. Primarily liable on the check is : a. Fiona b. Gerri c. Home State d. none of the choices

Accepted Answer

ANSWER : (A) CORRECT : (C)

Question 14

FACT PATTERN 14-1B Charlton is the maker of a $200,000 promissory note payable to Development & Sales Corporation. Development & Sales indorses the note to Equity Lenders, which in turn indorses it to First Select Investors, which then indorses it to Global Bank, the present holder.

Accepted Answer

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Question 15

FACT PATTERN 14-1B 6. Refer to Fact Pattern 14-1B. Global Bank properly presents the note to Charlton for payment, but he dishonors it. With timely notice to the proper parties, Global Bank may collect payment on the note from : a. Development & Sales, Equity Lenders, or First Select b. Development & Sales or Equity Lenders only c. First Select only d. no one

Accepted Answer

ANSWER : (A) CORRECT : (A)

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Chapter 14 - Liability, Defenses, and Discharge Flashcards

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