Question 1

Which of the following is true regarding liability on negotiable instruments?

Accepted Answer

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 for a negotiable instrument,while makers and acceptors are secondarily liable
C)  Makers and drawers are primarily liable for a negotiable instrument,while acceptors and endorsers are secondarily liable
D)  Acceptors and endorsers are primarily liable for a negotiable instrument,while makers and drawers are secondarily liable
E)  Makers,acceptors,drawers,and endorsers are all secondarily liable for a negotiable instrument.F) A) and D)
G) A) and B)

Question 2

A party who signs an instrument to provide credit for another party who has also signed the instrument is a denomination party.

Accepted Answer

A) True 
 B)False

Question 3

A right to ________ is the ability of a party to seek reimbursement.

Accepted Answer

A)  rescission
B)  recourse
C)  renunciation
D)  revocation
E)  recusalF) B) and D)
G) All of the above

Question 4

What was the result in the Rakestraw v.Rodriguez case referenced in the textbook,a case in which a husband had forged his wife's signature to obtain a loan to start a grocery store?

Accepted Answer

A)  The court affirmed the criminal liability of the husband,but remanded the case for further findings regarding the propriety of the husband's prison sentence for forgery.
B)  The court remanded the case for further findings regarding whether the wife gave her husband express authority to sign her name.
C)  The court ruled that the wife's actions in sharing in profits and in helping run the business effectively voided her signature.
D)  The court ruled that the wife's actions in sharing in profits and in helping run the business effectively ratified her signature.
E)  The court ruled that the wife's actions in sharing in profits and in helping run the business effectively rescinded her signature.F) All of the above
G) D) and E)

Question 5

Hot Dress.Doreen writes a check for a dress to Hot Dresses,Inc.,a small specialty shop owned primarily by Betty.Betty was getting ready to go on an extended European vacation and temporarily closed the shop the day after the dress sale to Doreen.When Betty returned,she had a number of other things to do and did not take Doreen's check and some other checks to the bank for three months.Betty was independently wealthy and only ran the shop as a hobby,so she had not been in need of funds.When Betty finally took Doreen's check to the bank,Betty requested that her bank,ABC Bank,deposit the check into her account.However,when ABC Bank requested payment from Doreen's bank,XYZ Bank,the check was dishonored because of insufficient funds in Doreen's account.Although Betty did not particularly need the funds,she did not like to feel as if she had been cheated; therefore,she demanded that Doreen make the check good.Which of the following parties would be considered the drawer of the check Doreen presented to Betty at Hot Dresses,Inc.?

Accepted Answer

A)  Doreen
B)  Hot Dresses,Inc.
C)  Betty,because she owns Hot Dresses,Inc.
D)  Doreen's bank
E)  Betty's bankF) A) and B)
G) B) and D)

Question 6

According to the Uniform Commercial Code,if a demand instrument is a check,the check is overdue ________ after its date.

Accepted Answer

A)  60 days
B)  90 days
C)  180 days
D)  six months
E)  one yearF) C) and E)
G) B) and D)

Question 7

The purpose of the shelter principle is to discourage the marketability of instruments.

Accepted Answer

A) True 
 B)False

Question 8

When a party signs a negotiable instrument without knowing that it is in fact a negotiable instrument,the party can claim fraud in the exactum.

Accepted Answer

A) True 
 B)False

Question 9

Run Around.Millie issues a note to Bob.Bob endorses the note and transfers it to Anne.Anne endorses the note and transfers it to Henry.In a timely fashion,Henry endorses the note and presents it to Millie for payment.When Henry presents the note to Millie,she asks him for reasonable identification.He did not have any identification with him and told her that she had no right to dishonor the instrument.Millie,however,refused to provide him the funds until he returned with proper identification.Nevertheless,when he returned with proper identification,Millie refused to pay the note,claiming that she lacked the funds with which to do so.Henry proceeded immediately to request that Anne pay the note,but she told him that he would have to get his money from Bob,who cannot be found.Which of the following is true regarding Anne's statement to Henry that he must seek recovery from Bob?

Accepted Answer

A)  Anne is correct.
B)  Anne is correct,but only if Bob is able to pay and has not filed bankruptcy.
C)  Anne is correct in that Henry should seek recovery from Bob only if Millie has filed bankruptcy because,otherwise,Henry should be seeking primary payment from Millie.
D)  Anne is correct unless the notice is for over $10,000,in which case Henry can seek recovery from her without resorting to recovery from Bob or Millie.
E)  Anne is incorrect.Henry may seek recovery from her without first seeking recovery from Bob or Millie.F) C) and E)
G) C) and D)

Question 10

Which of the following is a correct statement regarding discharge by impairment of the collateral?

Accepted Answer

A)  Discharge cannot occur through impairment of the collateral.
B)  If a party posts collateral to ensure his or her performance of the negotiable instrument and the holder of the collateral impairs its value,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 its value,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 its value,the party to the instrument is totally discharged from the instrument only if the instrument is for 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 its value,the party to the instrument is totally discharged from the instrument only if the instrument is for less than $1,000; otherwise,the party to the instrument is discharged from the instrument to the extent of the damage to the collateral.F) C) and D)
G) A) and C)

Question 11

Run Around.Millie issues a note to Bob.Bob endorses the note and transfers it to Anne.Anne endorses the note and transfers it to Henry.In a timely fashion,Henry endorses the note and presents it to Millie for payment.When Henry presents the note to Millie,she asks him for reasonable identification.He did not have any identification with him and told her that she had no right to dishonor the instrument.Millie,however,refused to provide him the funds until he returned with proper identification.Nevertheless,when he returned with proper identification,Millie refused to pay the note,claiming that she lacked the funds with which to do so.Henry proceeded immediately to request that Anne pay the note,but she told him that he would have to get his money from Bob,who cannot be found.Which of the following is the likely result if Henry sues Anne,Bob,and Millie?

Accepted Answer

A)  The judge is likely to rule that Henry can recover from Anne,Bob,or Millie.
B)  The judge is likely to rule that Henry's only option of recovery is against Millie.
C)  The judge is likely to rule that Henry's only option of recovery is against Anne.
D)  The judge is likely to rule that Henry can recover against Bob and that Bob may recover against Millie,but Henry cannot recover directly from Anne.
E)  The judge is likely to rule that Henry's only option for recovery is against Bob.F) B) and E)
G) A) and D)

Question 12

When a party receives a negotiable instrument as a gift,the party will be a holder instead of a holder in due course.

Accepted Answer

A) True 
 B)False

Question 13

According to the shelter principle,if a holder cannot attain holder-in-due course status,the holder cannot acquire the rights and privileges of a holder in due course even if the item is being transferred from a holder in due course.

Accepted Answer

A) True 
 B)False

Exam 18: Holder in Due Course, Liability, and Defenses

When a party signs a negotiable instrument without knowing that it is in fact a negotiable instrument,the party can claim fraud in the exactum.

Correct Answer
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Correct Answer
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Which of the following is true regarding liability on negotiable instruments?

Correct Answer
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Correct Answer
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According to the shelter principle,if a holder cannot attain holder-in-due course status,the holder cannot acquire the rights and privileges of a holder in due course even if the item is being transferred from a holder in due course.

Correct Answer
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What was the result in the Rakestraw v.Rodriguez case referenced in the textbook,a case in which a husband had forged his wife's signature to obtain a loan to start a grocery store?

Correct Answer
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Which of the following is a correct statement regarding discharge by impairment of the collateral?

Correct Answer
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A party who signs an instrument to provide credit for another party who has also signed the instrument is a denomination party.

Correct Answer
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The purpose of the shelter principle is to discourage the marketability of instruments.

Correct Answer
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According to the Uniform Commercial Code,if a demand instrument is a check,the check is overdue ________ after its date.

Correct Answer
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Correct Answer
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When a party receives a negotiable instrument as a gift,the party will be a holder instead of a holder in due course.

Correct Answer
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A right to ________ is the ability of a party to seek reimbursement.

Correct Answer
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Exam 18: Holder in Due Course, Liability, and Defenses

When a party signs a negotiable instrument without knowing that it is in fact a negotiable instrument,the party can claim fraud in the exactum.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is true regarding liability on negotiable instruments?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to the shelter principle,if a holder cannot attain holder-in-due course status,the holder cannot acquire the rights and privileges of a holder in due course even if the item is being transferred from a holder in due course.

Correct AnswerverifiedShow Answer

What was the result in the Rakestraw v.Rodriguez case referenced in the textbook,a case in which a husband had forged his wife's signature to obtain a loan to start a grocery store?

Correct AnswerverifiedShow Answer

Which of the following is a correct statement regarding discharge by impairment of the collateral?

Correct AnswerverifiedShow Answer

A party who signs an instrument to provide credit for another party who has also signed the instrument is a denomination party.

Correct AnswerverifiedShow Answer

The purpose of the shelter principle is to discourage the marketability of instruments.

Correct AnswerverifiedShow Answer

According to the Uniform Commercial Code,if a demand instrument is a check,the check is overdue ________ after its date.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a party receives a negotiable instrument as a gift,the party will be a holder instead of a holder in due course.

Correct AnswerverifiedShow Answer

A right to ________ is the ability of a party to seek reimbursement.

Correct AnswerverifiedShow Answer

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