Question 1

Fraud in the inducement is a personal defense that is not effective against HDCs.

Accepted Answer

A) True 
 B)False

Question 2

A(n)  ________ defense is a type of defense that can be raised against enforcement of a negotiable instrument by an ordinary holder but not against an HDC.

Accepted Answer

A)   discharge in bankruptcy
B)   extreme duress
C)   personal
D)   universalE) A) and C)
F) B) and C)

Question 3

Joan signs a promissory note to pay $1,000 to Alex. Alex cleverly raises the note to $10,000 and negotiates the note to Ned. Ned indorses the note and negotiates it to Mark. When Mark presents the note to Joan for payment, she has to pay only the original amount of the note, $1,000.

Accepted Answer

A) True 
 B)False

Question 4

The defense of breach of contract is effective against an HDC.

Accepted Answer

A) True 
 B)False

Question 5

Rhodes, a college student, wants to purchase a motorcycle on credit from Landier Motors. He does not have sufficient income or the credit history to justify the extension of credit to him alone. Rhodes asks his father to cosign a note to Landier Motors, which he does. What kind of liability does Rhodes's father come under?

Accepted Answer

A)   secondary liability
B)   primary liability
C)   fringe liability
D)   warranty liabilityE) B) and C)
F) B) and D)

Question 6

Implied warranties are made when a negotiable instrument is originally issued.

Accepted Answer

A) True 
 B)False

Question 7

A person represented by an agent is known as the principal.

Accepted Answer

A) True 
 B)False

Question 8

Maria is the treasurer of Rex Caldwell Corporation. As treasurer, she makes out and signs the payroll checks for the company. Maria draws a payroll check payable to the order of her maid Carolyn Doss, who does not work for the company. Maria does not intend Carolyn to receive this money. She indorses Carolyn's name on the check and names herself as the indorsee. She cashes the check at a liquor store. Under which rule of forged instruments is Maria accountable?

Accepted Answer

A)   good faith rule
B)   exclusionary rule
C)   imposter rule
D)   fictitious payee ruleE) B) and D)
F) A) and D)

Question 9

A contract made by a person who has not yet been adjudicated to be mentally incompetent is considered void.

Accepted Answer

A) True 
 B)False

Question 10

Liability in which a person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on the instrument is referred to as ________.

Accepted Answer

A)   warranty liability
B)   unqualified liability
C)   contract liability
D)   accommodationE) A) and B)
F) A) and C)

Question 11

A ________ defense is a type of defense that can be raised against both holders and HDCs.

Accepted Answer

A)   universal
B)   personal
C)   fraud in the inducement
D)   breach of contractE) All of the above
F) A) and B)

Question 12

The ________ states that a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is a fabricated person.

Accepted Answer

A)   imposter rule
B)   fictitious payee rule
C)   fraud in the inception rule
D)   fraud in the inducement ruleE) A) and B)
F) C) and D)

Question 13

What is material alteration as a universal defense to a negotiable instrument?

Accepted Answer

Universal defense is a defense that can ...

Question 14

Fraud in the inception is a type of personal defense.

Accepted Answer

A) True 
 B)False

Question 15

Sylvester, acting as a representative agent for Jerry, signs a negotiable instrument with the signature-Jerry, by Sylvester, agent. What kind of liability does Sylvester have for this type of signature?

Accepted Answer

A)   He is not liable on the instrument.
B)   He is liable to the payee.
C)   He is liable to Jerry.
D)   He is liable to the HDC of the instrument.E) None of the above
F) A) and B)

Question 16

Discharge of an instrument by payment or cancellation is a type of ________.

Accepted Answer

A)   warranty liability
B)   transfer warranty
C)   personal defense
D)   universal defenseE) A) and C)
F) A) and B)

Question 17

Marks used in lieu of a written signature cannot be used for indorsements.

Accepted Answer

A) True 
 B)False

Question 18

A person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on it.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following is a characteristic of a presentment warranty on an instrument presented for payment?

Accepted Answer

A)   The transferor has no knowledge of any insolvency.
B)   The transferor has good title to the instrument.
C)   No defenses of any party are good against the transferor.
D)   The instrument has not been materially altered.E) A) and C)
F) All of the above

Question 20

A person who has been authorized to sign a negotiable instrument on behalf of another person is known as a(n)  ________.

Accepted Answer

A)   holder in due course
B)   accommodation party
C)   agent
D)   principalE) B) and C)
F) None of the above

Exam 24: Liability, Defenses, and Discharge

Fraud in the inducement is a personal defense that is not effective against HDCs.

Correct Answer
verified

A ________ defense is a type of defense that can be raised against both holders and HDCs.

Correct Answer
verified

Joan signs a promissory note to pay $1,000 to Alex. Alex cleverly raises the note to $10,000 and negotiates the note to Ned. Ned indorses the note and negotiates it to Mark. When Mark presents the note to Joan for payment, she has to pay only the original amount of the note, $1,000.

Correct Answer
verified

A person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on it.

Correct Answer
verified

Marks used in lieu of a written signature cannot be used for indorsements.

Correct Answer
verified

Which of the following is a characteristic of a presentment warranty on an instrument presented for payment?

Correct Answer
verified

Sylvester, acting as a representative agent for Jerry, signs a negotiable instrument with the signature-Jerry, by Sylvester, agent. What kind of liability does Sylvester have for this type of signature?

Correct Answer
verified

Discharge of an instrument by payment or cancellation is a type of ________.

Correct Answer
verified

A person represented by an agent is known as the principal.

Correct Answer
verified

The ________ states that a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is a fabricated person.

Correct Answer
verified

A(n) ________ defense is a type of defense that can be raised against enforcement of a negotiable instrument by an ordinary holder but not against an HDC.

Correct Answer
verified

A contract made by a person who has not yet been adjudicated to be mentally incompetent is considered void.

Correct Answer
verified

Liability in which a person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on the instrument is referred to as ________.

Correct Answer
verified

What is material alteration as a universal defense to a negotiable instrument?

Correct Answer
verified
Universal defense is a defense that can ...
View Answer

The defense of breach of contract is effective against an HDC.

Correct Answer
verified

Fraud in the inception is a type of personal defense.

Correct Answer
verified

Correct Answer
verified

A person who has been authorized to sign a negotiable instrument on behalf of another person is known as a(n) ________.

Correct Answer
verified

Correct Answer
verified

Implied warranties are made when a negotiable instrument is originally issued.

Correct Answer
verified

Exam 24: Liability, Defenses, and Discharge

Fraud in the inducement is a personal defense that is not effective against HDCs.

Correct AnswerverifiedShow Answer

A ________ defense is a type of defense that can be raised against both holders and HDCs.

Correct AnswerverifiedShow Answer

Joan signs a promissory note to pay $1,000 to Alex. Alex cleverly raises the note to $10,000 and negotiates the note to Ned. Ned indorses the note and negotiates it to Mark. When Mark presents the note to Joan for payment, she has to pay only the original amount of the note, $1,000.

Correct AnswerverifiedShow Answer

A person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on it.

Correct AnswerverifiedShow Answer

Marks used in lieu of a written signature cannot be used for indorsements.

Correct AnswerverifiedShow Answer

Which of the following is a characteristic of a presentment warranty on an instrument presented for payment?

Correct AnswerverifiedShow Answer

Sylvester, acting as a representative agent for Jerry, signs a negotiable instrument with the signature-Jerry, by Sylvester, agent. What kind of liability does Sylvester have for this type of signature?

Correct AnswerverifiedShow Answer

Discharge of an instrument by payment or cancellation is a type of ________.

Correct AnswerverifiedShow Answer

A person represented by an agent is known as the principal.

Correct AnswerverifiedShow Answer

The ________ states that a drawer or maker is liable on a forged or unauthorized indorsement if the person signing as or on behalf of a drawer or maker intends the named payee to have no interest in the instrument or when the person identified as the payee is a fabricated person.

Correct AnswerverifiedShow Answer

A(n) ________ defense is a type of defense that can be raised against enforcement of a negotiable instrument by an ordinary holder but not against an HDC.

Correct AnswerverifiedShow Answer

A contract made by a person who has not yet been adjudicated to be mentally incompetent is considered void.

Correct AnswerverifiedShow Answer

Liability in which a person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on the instrument is referred to as ________.

Correct AnswerverifiedShow Answer

What is material alteration as a universal defense to a negotiable instrument?

Correct AnswerverifiedUniversal defense is a defense that can ...View AnswerShow Answer

The defense of breach of contract is effective against an HDC.

Correct AnswerverifiedShow Answer

Fraud in the inception is a type of personal defense.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A person who has been authorized to sign a negotiable instrument on behalf of another person is known as a(n) ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Implied warranties are made when a negotiable instrument is originally issued.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Universal defense is a defense that can ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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