Chapter 28. Liability of Parties
1. Warranty liability may be imposed on both nonsigners and signers of an instrument.
a. True
b. False
2. Presentment is a condition to the holder’s right to recover from parties with primary liability.
a. True
b. False
3. Philip uses a signature stamp to sign his checks and carelessly leaves it accessible to third parties. Jeremy finds the
stamp and uses it to write several checks without Philip’s authorization. Renee, who takes a check for value and in
good faith, will be subject to Philip’s defense of unauthorized signature.
a. True
b. False
4. An accommodation party will always be secondarily liable on an instrument.
a. True
b. False
5. A drawee bank is primarily liable after it accepts the check.
a. True
b. False
6. A drawee bank “accepts” a check by certification.
a. True
b. False
7. A drawee bank’s refusal to certify a check constitutes a dishonor of the instrument.
a. True
b. False
8. Once a check is issued, the drawee bank becomes primarily liable.
a. True
b. False
9. The signature of the maker of a note may be typewritten or by means of a signature stamp so long as it represents
an intention to authenticate the instrument.
a. True
b. False
10. Presentment for payment is excused if the person entitled to enforce the instrument cannot with reasonable diligence
present the instrument.
a. True
b. False
11. A time draft presented for payment is due on the due date or presentment date, whichever is later.
a. True
b. False
12. Before an indorser can be held responsible for payment of a check, the check must be presented to the drawee bank
for payment.
a. True
b. False
13. Drawers of checks may disclaim contractual liability by using the words “without recourse.”
a. True
b. False
14. In the banking system, the time for dishonor of a check can vary greatly depending on the number of banks involved
in the collection process.
a. True
b. False
15. Presentment for payment is one step necessary to charge an indorser with the obligation to pay.
a. True
b. False
16. Return for lack of proper indorsement constitutes a dishonor of the check.
a. True
b. False
17. Failure to give notice of dishonor will discharge the drawer from having to pay on the instrument.
a. True
b. False
18. Notice of dishonor is waived if presentment has been waived.
a. True
b. False
19. What warranties are given by presenters depend upon who is the payor or acceptor.
a. True
b. False
20. Delay in notice may be excused where the holder was too busy at work to send notices that day.
a. True
b. False
21. When a severe weather warning has been declared, a delay in notice is excused to the holder who was prevented
from giving the notice until after the severe weather passed.
a. True
b. False
22. Presentment is excused where the acceptor is undergoing bankruptcy.
a. True
b. False
23. An accommodation maker is not liable on a note since he only agreed to sign as a favor to the maker.
a. True
b. False
24. If an agent is authorized to execute an instrument on behalf of a principal and signs “Cornwall, principal, by Lyons,
agent,” only the principal is liable on the instrument.
a. True
b. False
25. Robert‘s payroll check was made payable “to the order of Robert Lewis.” Robert deposited, but never indorsed, the
check in ABC bank. Robert has no warranty liability on the check because his signature is not on the instrument.
a. True
b. False
26. Mary Lou takes her paycheck to Al’s Place on Friday night and gives it to the bartender as payment for her running
bar bill. If the company she works for goes bankrupt the following Monday, Mary Lou is liable for breach of
warranty of no insolvency.
a. True
b. False
27. Dan signs a note “Dan Mason, Agent” without disclosing his principal’s name. Dan is liable to a holder in due course
without notice that Dan was not intended to be liable.
a. True
b. False
28. Presenters’ warranties are exactly the same as transferors‘ warranties.
a. True
b. False
29. Discharge of liability on an instrument is final; it cannot be revived.
a. True
b. False
30. By paying the holder on an instrument, a party may be discharged from liability.
a. True
b. False
31. Charles is the holder of a promissory note, the maker of which is Charles‘ niece, Margaret. As a birthday gift to
Margaret, Charles marked “Canceled” across the face of the note. Margaret remains liable on the note because she
did not give Charles anything of value for the cancellation.
a. True
b. False
32. When a draft is accepted by a bank, prior and subsequent indorsers are discharged.
a. True
b. False
33. A party liable on an instrument who makes proper tender of full payment to a person entitled to enforce the
instrument is discharged from liability for the face amount of the instrument and for any interest accrued even if the
tender is refused.
a. True
b. False
34. A bank must give notice of dishonor within one business day and a nonbank within three business days of the day on
which it receives notice of dishonor.
a. True
b. False
35. If a drawee bank pays an instrument containing a forged indorsement, the bank is liable for conversion.
a. True
b. False
36. If a person entitled to enforce an instrument refuses a tender of payment, the refusal wholly discharges to the extent
of the amount of tender every party who has a right of recourse against the party making tender.
a. True
b. False
37. In all instances other than a drawee of an unaccepted draft or uncertified check, the only presentment warranty that
is given is that the warrantor is a person entitled to enforce the instrument or is authorized to obtain payment on
behalf of the person entitled to enforce.
a. True
b. False
38. Zoron Company purchased a truck from Ace Motors. The sales personnel at Ace know that Anton Green is an
executive at Zoron. To pay for the truck, Anton delivered a $35,000 note to Ace and signed it “Anton Green, Agent.”
In this case:
a. the signature of the maker is incomplete. Neither Zoron nor Anton is liable on the note.
b. “Zoron Company” does not appear on the note. Only Anton is liable to Ace for payment of the note.
c. as long as Ace Motors remains holder of the note, Zoron Company is liable for payment.
d. if ABC Bank is holder of the note and Zoron Company does not pay, the bank has no recourse against Anton.
39. Warranty liability applies to persons who:
a. transfer an instrument.
b. obtain payment of an instrument.
c. obtain acceptance of an instrument.
d. All of these.
40. Who is primarily liable on a note?
a. The maker
b. The indorsers
c. The drawee bank
d. The holder
41. To certify a check, the bank must:
a. tell the one who presents it.
b. send a letter to the drawer.
c. write the acceptance on the check.
d. Any of these will be sufficient.
42. Bob took a check written by Jack to Jack’s bank to be certified. The bank stamped “Certified” on it and gave it back
to Bob. What consequence?
a. Bob can only demand the money from Jack.
b. The bank is now primarily liable on the check.
c. The bank would have to pay if Jack doesn’t.
d. Bob would have to pay if the bank doesn’t.