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

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Question 1

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Which of the following is true if an instrument contains more than one endorsement?

A) Each endorser is liable for the full amount to any subsequent endorser or to any holder.
B) Only the last endorser is liable to the holder,and no prior endorsers are liable to a subsequent endorser.
C) Each endorser is liable for the full amount to the subsequent endorser,but only the last endorser is liable to any holder.
D) The last endorser is liable to the holder,whereas subsequent endorsers are responsible for reimbursing previous endorsers in proportion to the number of endorsers that exist.
E) Each endorser is liable to the holder in proportion to the number of endorsers.

F) B) and C)
G) C) and D)

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Question 2

Multiple Choice

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Which of the following is true regarding the liability of an accommodation party?

A) As a maker,an accommodation party has primary liability,but as an endorser,the accommodation party has secondary liability.
B) An accommodation party has primary liability both as a maker and as an endorser.
C) An accommodation party has secondary liability both as a maker and as an endorser.
D) An accommodation party has primary liability as either a maker or endorser,but only if all other parties to the instrument have filed for and received bankruptcy protection.
E) An accommodation party has primary liability as a maker only if all other parties to the instrument have filed for and received bankruptcy protection,and secondary liability in any other case regardless of whether the accommodation party is a maker or an endorser.

F) A) and B)
G) B) and D)

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Question 3

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Which type of party must pay the stated amount of an instrument when it is initially presented for payment?

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.When ABC Bank,however,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 is the drawee of the check Doreen presented to Hot Dresses,Inc.?

The "for value" requirement for holder-in-due-course status is the same as taking something for consideration.

Check Cashing Business.Susan owns and operates a check cashing business.A customer,Bob,claiming to be Sam,came in and cashed a $2,000 check issued by ABC Trucking to Sam.The day after Susan cashed the check,she received a notice from ABC Trucking that some checks had been stolen.It was later discovered that the customer had forged Sam's name on the check issued by ABC Trucking.At the time she took the ABC Trucking check,Susan was very busy with several customers in line.She simply glanced at the check and cashed it.A reasonable examination would have revealed that the check had been materially altered and changed from the amount of $200 to $2,000.Susan decided that she needed to hire some people to help her because she also had a problem with another check.On the same day that she took the ABC Trucking check,she took a check from another customer,Maurice.It was later discovered that the check from Maurice,which was four months old,was the subject of a dispute between Maurice and the issuer of the check for whom Maurice had done some work.The issuer claimed that the work was improperly done.Both ABC Trucking and the issuer of the check to Maurice stopped payment on the checks.Susan claims that she was entitled to the status of a holder in due course and was entitled to payment on both checks.What is the effect of Susan receiving notice the day after she cashed the check for Bob that the check had been stolen?

When can a transferee bring suit against a transferor for a breach of warranty regarding a negotiable instrument?

In the context of holder-in-due-course status,explain what a personal defense is,and list the personal defenses.Also,explain what a real defense is,and list the real defenses.

According to the Uniform Commercial Code,a party who signs as an issuer of an instrument is liable for the amount of the instrument ________.

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

What type of notice prevents a holder from being a holder in due course?

A party who is in possession of an instrument that is payable to the party or to the bearer of the instrument is known as a(n) ________.

When a party receives a negotiable instrument as a gift or acquires it through mistake,the party will become a(n) ________.

If a demand instrument is a check,the Uniform Commercial Code states that the check is overdue 30 days after its date.

Bruce,who works for Laura's used car dealership,forges Laura's name to two checks,cashes the checks,and deposits the funds into his own bank account.Later,Bruce's conscience starts to bother him and he confesses to Laura.Bruce promises to repay her if she will only give him some time.Laura wants to keep Bruce as an employee because he is great with sales,so she agrees to give him some time in which to repay her.Ten months later,Bruce gets angry with Laura because he thinks she cheated him on a commission and leaves town without ever reimbursing her for the checks.Laura tells the bank that she wants her account credited.The bank asks for your advice.What would you tell the bank,and why?

Which of the following may be considered a commercially reasonable manner by which notice of dishonor can be given to a secondarily liable party?

A party who is ________ liable is responsible for paying the amount designated on an instrument if the primarily liable party defaults.

Check Cashing Business.Susan owns and operates a check cashing business.A customer,Bob,claiming to be Sam,came in and cashed a $2,000 check issued by ABC Trucking to Sam.The day after Susan cashed the check,she received a notice from ABC Trucking that some checks had been stolen.It was later discovered that the customer had forged Sam's name on the check issued by ABC Trucking.At the time she took the ABC Trucking check,Susan was very busy with several customers in line.She simply glanced at the check and cashed it.A reasonable examination would have revealed that the check had been materially altered and changed from the amount of $200 to $2,000.Susan decided that she needed to hire some people to help her because she also had a problem with another check.On the same day that she took the ABC Trucking check,she took a check from another customer,Maurice.It was later discovered that the check from Maurice,which was four months old,was the subject of a dispute between Maurice and the issuer of the check for whom Maurice had done some work.The issuer claimed that the work was improperly done.Both ABC Trucking and the issuer of the check to Maurice stopped payment on the checks.Susan claims that she was entitled to the status of a holder in due course and was entitled to payment on both checks.What is the effect on Susan's status as a holder in due course in taking the check from the customer that was four months old?

According to the Uniform Commercial Code,a signature can be a name or a word,but not a mark or a symbol,used by a party to authenticate a writing.

The purpose of holder-in-due-course status is to protect a financial intermediary.