Liabilities, etc Questions wrong

Question 1

Under the Negotiable Instruments Article of the UCC, which of the following parties has secondary liability on an instrument?

A.  Acceptor of a note.
B.  An issuer of a cashier's check.
C.  A drawer of a draft.
D.  A maker of a note.

Answer 1

C. A drawer of a draft.

Parties who sign a negotiable instrument have either primary or secondary liability. Drawers of a draft or check have secondary liability.

Wrong Answer

A. Acceptor of a note.

There is no signature classification of an “acceptor” of a note. Acceptors of a draft or check have primary liability, but this is a note

Question 2

Question #3 (AICPA.930542REG-BL)
Robb, a minor, executed a promissory note payable to bearer and delivered it to Dodsen in payment for a stereo system. Dodsen negotiated the note for value to Mellon by delivery alone and without endorsement. Mellon endorsed the note in blank and negotiated it to Bloom for value. Bloom's demand for payment was refused by Robb because the note was executed when Robb was a minor. Bloom gave prompt notice of Robb's default to Dodsen and Mellon. None of the holders of the note were aware of Robb's minority. Which of the following parties will be liable to Bloom?
	  Dodsen  	  Mellon  
	 Yes 	 Yes 
	 Yes 	 No 
	 No 	 No 
	 No 	 Yes

Answer 2

No Yes
The key to liability in this question is the presence or absence of signatures. When a transfer is made without a signature, as was the case with Dodsen’s transfer, transfer warranty applies only to the immediate transferee and there is no contract signature liability. Therefore, only Mellon has rights against Dodsen, and Dodsen is not liable to Bloom. Mellon, however, has signature liability to Bloom, and must pay the instrument if Robb does not.

Question 3

Question #4 (AICPA.930539REG-BL)
On February 15, 1993, P.D. Stone obtained the following instrument from Astor Co. for $1,000. Stone was aware that Helco, Inc., disputed liability under the instrument because of an alleged breach by Astor of the referenced computer purchase agreement.
On March 1, 1993, Willard Bank obtained the instrument from Stone for $3,900. Willard had no knowledge that Helco disputed liability under the instrument.

The reverse side of the instrument is indorsed as follows:

If Willard Bank demands payment from Helco and Helco refuses to pay the instrument because of Astor’s breach of the computer purchase agreement, which of the following statements would be correct?
A. Willard Bank is not a holder in due course because Stone was not a holder in due course.

B. Helco will not be liable to Willard Bank because of Astor’s breach.

C. Stone will be the only party liable to Willard Bank because he was aware of the dispute between Helco and Astor.

D. Helco will be liable to Willard Bank because Willard Bank is a holder in due course.

Answer 3

D. Helco will be liable to Willard Bank because Willard Bank is a holder in due course.

Helco’s defense against Astor is a personal defense and not a universal defense. This means it can only be asserted against Astor and against holders of the instrument who are not holders in due course. The defense may not be asserted against an HDC like Willard Bank. Only universal defenses may be asserted against an HDC.

Wrong Answer

C. Stone will be the only party liable to Willard Bank because he was aware of the dispute between Helco and Astor.

Helco will also be liable. Helco’s defense against Astor is a personal defense and not a universal defense.
This means it can only be asserted against Astor and against holders of the instrument who are not holders in due course. The defense may not be asserted against an HDC like Willard Bank. Only universal defenses may be asserted against an HDC.

Question 4

Question #5 (AICPA.101141REG-SIM)
Which of the following parties has (have) primary liability on a negotiable instrument?

I. Drawer of a check.

II. Drawee of a time draft before acceptance.

III. Maker of a promissory note.

A. I and II only.

B. II and III only.

C. I and III only.

The drawer of a check is secondarily liable. The maker of a note is primarily liable but the combination of these two parties makes the answer incorrect.

D. III only.
The maker of a promissory note is a primary party – the party to whom we turn first for payment.

Answer 4

D. III only.

The maker of a promissory note is a primary party – the party to whom we turn first for payment.

Wrong answer

C. I and III only.

The drawer of a check is secondarily liable. The maker of a note is primarily liable but the combination of these two parties makes the answer incorrect.

Question 5

A maker of a note will have a valid defense against a holder in due course as a result of any of the following conditions except

A. Lack of consideration.

B. Infancy.

C. Forgery.

D. Fraud in the execution.

Answer 5

A. Lack of consideration.

Only universal defenses may be asserted against a holder in due course. Personal defenses may be asserted against only ordinary holders. Universal defenses include infancy, forgery, and fraud in the execution.

Wrong answer

B. Infancy.

Only universal defenses may be asserted against a holder in due course. Personal defenses may be asserted against only ordinary holders. Universal defenses include infancy if a defense of the minor to a simple contract, forgery, and fraud in the execution