43. Jan Arthur writes a $200 check to Bruce Nole who indorses it “Bruce Nole.” Bruce gives the check to Anne Tate
who indorses it “Without Recourse. Anne Tate.” Anne sends the check to Joe Black, MD to pay her medical bill. If
the bank refuses to honor the check, Black:
a. can only collect from Jan Arthur.
b. can only collect from Jan Arthur or Bruce Nole.
c. can collect from the drawer or any indorser whose name appears on the check.
d. has no recourse.
44. Franz signs a $1,000 note payable to ABC Bank. If, to help Franz get the loan approved, Amy also signs the note as
an accommodation maker:
a. Amy‘s liability is the same as that of an accommodation indorser on a check.
b. the liability of each party to the bank is: Franz $500 and Amy $500.
c. Amy has secondary liability on the note.
d. Amy and Franz both have primary liability on the note.
45. Sarah has a checking account at First Bank. Orrin steals one of her blank checks, writes a check for $250, and then
forges Sarah’s signature. He then presents the check to First Bank for payment. First Bank pays the forged
instrument. Which of the following statements is correct?
a. First Bank will have to recredit the $250 to Sarah’s account, but they can collect from Orrin if they can find
him and he has the money.
b. First Bank will have to recredit the $250 to Sarah‘s account, but only if they can collect the $250 from Orrin..
c. Sarah is primarily liable on the check even if she did not sign it and was not negligent in allowing Orrin to take
the blank check.
d. None of these.
46. Sarah has a checking account at First Bank. Orrin steals one of her blank checks, writes a check for $250 to
himself, and then forges Sarah’s signature. Orrin then indorses the instrument to Paul in payment of a debt. Paul, not
realizing Orrin has forged Sarah’s signature, presents the instrument to First Bank for payment. At First Bank’s
request, Paul indorses the instrument, and the bank then pays him $250. Which of the following is correct?
a. Paul has breached the warranties on presentment.
b. Orrin has breached the warranties on presentment.
c. Sarah has breached the warranties on presentment.
d. All of these are correct.
47. Sarah has a checking account at First Bank. Orrin steals one of her blank checks, writes a check for $250 to
himself, and then forges Sarah’s signature. Orrin then indorses the instrument to Paul in payment of a debt. Paul
presents the instrument to First Bank for payment. At First Bank’s request, Paul indorses the instrument, and the
bank then pays him $250. Which of the following is correct?
a. Paul has no contractual liability on the instrument.
b. Orrin has no contractual liability on the instrument.
c. Sarah has no contractual liability on the instrument.
d. All of these are correct.
48. A(n) signs an instrument to lend his credit to an instrument, and his liability is determined by the capacity in
which he signs.
a. indorser
b. accommodation party
c. authorized agent
d. maker
49. Zelda signs a note for $500 to First Bank. If, at the request of both Zelda and the Bank, Ann also signs the note as
an accommodation maker:
a. Zelda is primarily liable on the note; Ann has secondary liability on the note.
b. Ann is primarily liable on the note; Zelda has secondary liability on the note.
c. Ann has primary liability on the note; no one has secondary liability.
d. Zelda is primarily liable on the note; no one has secondary liability.
50. A check is dishonored if:
a. it is presented for payment directly to the payor/drawee bank for immediate payment, which is refused.
b. a payor bank makes timely return of the check.
c. the payor bank becomes accountable for the amount of the check but has not yet made payment.
d. All of these.
51. The use of the qualifying word(s)
credit of the person using the language.
a. “accepted”
b. “certified”
c. “without recourse”
d. “insufficient funds”
is/are understood to place purchasers on notice that they may not rely on the
52. An indorser is discharged if a check is not presented for payment or given to a depositary bank for collection within
days of the indorsement.
a. ten
b. fourteen
c. thirty
d. ninety
53. All of the following except which one are warranted by the transferor of a negotiable instrument?
a. The instrument is not subject to a defense.
b. The transferor has no knowledge of a material alteration.
c. All signatures are authentic and authorized.
d. Transferor has no knowledge of insolvency proceedings instituted with respect to the maker or drawer.
54. Notice of dishonor of an instrument:
a. may be given orally.
b. must be given by returning the unpaid instrument with an attached stamp, ticket, or memorandum stating that
the item was not paid.
c. must meet formal requirements to be effective.
d. All of these.
55. If a holder presents a note for payment to the maker, which one of the following warranties is given?
a. All indorsements are genuine.
b. All signatures are genuine.
c. Holder has no knowledge that any indorsements are forged.
d. Holder is entitled to enforce the note or is authorized to obtain payment on behalf of the person entitled to
enforce the note.
56. Kelly wrote a check to Trish, which Trish immediately changed from $20 to $120. She negotiated the check to Carl
for value, who in turn took it to Kelly’s bank for certification. Kelly’s bank checked his account and certified the
check since there were sufficient funds to cover the check. Thereafter, Carl gave the check to Central Motors
(CM) as part of the down payment for his car. CM presents the check to Kelly’s bank for payment and they
discover the alteration. What consequence?
a. Bank can sue CM for breach of presentment warranty of no alteration.
b. Bank can charge Carl’s account for $120.
c. Bank can refuse to pay CM more than $20.
d. Bank must pay CM $120 and cannot sue them for breach of warranty.
57. Brad wrote a check to Clara for $1,000 on his account at First Bank. He then took it to his bank for certification.
The bank wrote “certified” on the face of the check. Brad then gave the check to Clara. When Clara took the check
to First Bank, they refused to pay, claiming that there was not enough money in Brad’s account to cover the check.
Which of the following is correct?
a. First Bank is primarily liable on the check, because it has already accepted it.
b. Clara has no recourse under the circumstances.
c. Brad must pay Clara $1,000.
d. First Bank must reimburse Brad for the $1,000.
58. A demand note is dishonored if the maker does not pay it:
a. on the day of presentment.
b. before midnight of the day following presentment.
c. within three days of presentment.
d. within ten days of presentment.
59. Wanda makes a note payable to Henry in return for Henry’s car. Henry negotiates the note to his cousin, Sharon,
who accidentally drops it on the floor where it is swept into the garbage. What effect?
a. The note is canceled.
b. The note is ineffective.
c. The obligation is discharged.
d. The obligation is not affected.
60. Which of the following is unconditionally liable on a draft or check as issued?
a. A drawer
b. A drawee
c. An indorser
d. No one
61. William draws a check on City Bank payable to the order of Tara. Tara indorses it to Rebecca. Rebecca deposits it
to her account in Town Bank. Town Bank properly presents it to City Bank, the drawee. City Bank dishonors it
because William did not have enough funds on deposit to cover the check. In this case:
a. William is discharged from liability only if he fails to receive notice of dishonor.
b. City Bank has until midnight of the following day to notify Town Bank, Rebecca, or Tara of the dishonor.
c. if Town Bank received notice of dishonor on Monday, it would have until midnight on Wednesday to notify
Tara or Rebecca.
d. Rebecca has until midnight of the following day after receipt of notice of dishonor to notify Tara.
62. In which of the following situations has conversion NOT occurred?
a. When a drawee bank pays an instrument containing a forged indorsement
b. When a drawee to whom a draft is delivered for acceptance properly returns it upon request
c. When a bank pays an instrument containing only one of two required indorsements
d. When a thief transfers possession of an instrument to someone who knows of the theft
63. Which of the following is a warranty of the transferor?
a. Transferor has no knowledge of any insolvency proceedings.
b. Transferor warrants that all signatures are authentic and authorized.
c. Transferor warrants that he is entitled to enforce the instrument.
d. All of these are warranties of the transferor.
64. Parties that are usually secondarily liable for an instrument are:
a. indorsers and drawers.
b. makers and indorsers.
c. makers and acceptors.
d. acceptors and drawers.
65.
a. Discuss primary liability on a note; on a check.
b. What is secondary liability? What must be done before a person with secondary liability can be
sued? Who has secondary liability on a note? Who has secondary liability on a check?
c. How does contractual liability on the instrument differ from warranty liability?
66.
a. What warranties are given upon transfer?
b. What warranties are given upon presentment?
c. If a person has not signed an instrument, does that mean he has no liability as a result of the
transaction involved? Explain.
67. Thomas is the treasurer of Padgett, Inc. He has authority to sign on behalf of the company. One day, he signs a note
as follows: “Thomas Seggway, as treasurer.” The company’s name does not appear on the note. Is the company
liable on the note? Is Thomas liable on the note? Explain.
68. Ralph is the payee of a negotiable promissory note on which Brian is the maker. Ralph indorses the note in blank and
delivers it to Clark, who then transfers it to David without indorsement. David presents it to Brian for payment when
it becomes due, but Brian claims he signed the note based upon fraud in the inducement and refuses to pay.
a. Who is primarily liable on the instrument? Who is secondarily liable on the instrument?
b. Who has warranty liability? Why? Explain.
c. From whom can David try to collect?
69. How can drawers and indorsers disclaim liability on an instrument? Does any different rule apply to drawers of
checks?
70. Discuss the effect of an unauthorized signature on an instrument.