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Exam 28: Liability, Defenses, and Discharge

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Question 31

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When a party signs a(n) ________, the party may be a drawer, maker, endorser, or acceptor

A) contract
B) non-negotiable instrument
C) negotiable instrument
D) endorsing document
E) application

F) A) and B)
G) A) and E)

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Question 32

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[Roommate Troubles] Dexter, Bernard, and Garren were roommates who do not get along and decide to go their separate ways when their lease expires on May 31. Dexter owes Bernard $500 and signs a promissory note that he will pay Bernard $500 by July 1. Bernard, who owes Garren money, endorses the back of the note and writes "Pay to the order of Garren" on the back and gives the note to Garren. On July 2, Garren tells Dexter that Bernard signed the promissory note to him, so Dexter should just pay Garren the $500. Dexter refuses to pay Garren anything. Garren then tells Bernard that Dexter dishonored the note and sues Bernard for the value of the note. -Did Dexter dishonor the promissory note?

A) Yes.
B) No, although Garren met the requirements for presentment and Dexter refused to pay, he did not explicitly dishonor the note.
C) No, Garren only told Dexter about the promissory note and never exhibited the promissory note to Dexter, therefore there was no presentment and Dexter did not dishonor the note.
D) No, Garren did not present the note in a timely manner, therefore Dexter did not dishonor the note.
E) No, Garren was not a proper party, therefore Dexter did not dishonor the note.

F) None of the above
G) D) and E)

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Question 33

Multiple Choice

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[Roommate Troubles] Dexter, Bernard, and Garren were roommates who do not get along and decide to go their separate ways when their lease expires on May 31. Dexter owes Bernard $500 and signs a promissory note that he will pay Bernard $500 by July 1. Bernard, who owes Garren money, endorses the back of the note and writes "Pay to the order of Garren" on the back and gives the note to Garren. On July 2, Garren tells Dexter that Bernard signed the promissory note to him, so Dexter should just pay Garren the $500. Dexter refuses to pay Garren anything. Garren then tells Bernard that Dexter dishonored the note and sues Bernard for the value of the note. -If Garren properly presents the note to Dexter and Dexter simply writes "dishonor" on the note, is there a proper notice of dishonor?

Alfred works for and has authority to act on behalf of and bind Joel in contracts, who is his employer. Alfred would be considered ________

A ________ is a person who signs as a party ordering payment.

Which of the following must occur for a drawer to become liable on a check?

Who among the following was the holder of the check?

Which of the following is not a real defense to enforcement of a negotiable instrument?

A(n) ________ promises to pay a set sum to the holder of a promissory note or certificate of deposit.

A(n) ________ party is a party who signs an instrument to provide credit for another party that has also signed the instrument.

Which of the following is the most likely result of Rabia's request that Chloe pay the amount due on the check?

A secondarily liable party becomes liable even if a primarily liable party does not dishonor the instrument.

[Diamond Debacle] Prida owns Prida's Jewelry Store. Charla is Prida's top diamond purchasing agent and usually signs promissory notes on Prida's behalf. Unbeknownst to Prida, Charla is considering opening her own diamond business. While at a convention in New York, Charla signs a promissory note with Jirah's Diamonds for the cost of several newly cut stones. Although Prida's Jewelry Store's name does not appear on the note, Jirah is aware that Charla works for Prida's. Charla decides not to quit her job at Prida's and Jirah presents Prida's with the note and demands payment. -Can Prida's Jewelry be held liable for the note?

Which of the following was the result on appeal in Heartland State Bank v. American Bank & Trust, the case in the text involving whether the defending payor bank timely sent notice of dishonor of a check when it sent notice before midnight on April 11 for a check received on April 10?

Liam wrote a check drawn on his account at ABC Bank for $500 made out to Lara Smith for payment for yard work. Liam put the check properly addressed to Lara in the U.S. mail. Through unknown means, a thief obtained the check. The thief altered the name of the payee to Tara Smith, and through expertly forged documents opened an account at XYZ Bank and obtained the funds from Liam's check along with a number of other stolen checks. When the check was then presented to ABC Bank for payment, ABC Bank charged Liam's account in the amount of $500. A few days later, Lara asked Liam for her money; and, after investigating, he became aware of the situation. Assuming the court follows the reasoning of the case in the text, Halliburton Energy Services, Inc., v. Fleet National Bank, which of the following is true regarding whether Liam is entitled to a return of his funds?

[Paying Debts] Felicia writes a $500 promissory note to Arut. Arut, who owes money to Gibson, endorses the note and gives it to Gibson. Gibson then pays off a debt to Branson with the $500 note. Branson, who has some business dealings with Felicia, writes "Pay to the order of Felicia" on the same $500 note, places as "X" where his signature should be, and transfers the note to Felicia, who endorses the note to Tonya. -If, instead of demanding payment on the note, Tonya returns the note to Felicia without marking it in any way, is Felicia still liable on the note?

[The Furniture Shop] Chloe writes a check for some furniture to The Furniture Shop, a small specialty furniture shop whose shares are owned primarily by Rabia. Rabia decided to go on an extended European vacation and temporarily closed down the shop the day after Chloe wrote the check. When Rabia returned, she had a number of other things to do and did not take Chloe's check and some other checks to the bank for three months. Rabia was independently wealthy and only ran the shop as a hobby, so she had not been in need of funds. When Rabia finally took Chloe's check to the bank, Rabia requested that her bank, ABC Bank, deposit the check into her account. When ABC Bank, however, requested payment from Chloe's bank, XYZ Bank, the check was dishonored because of insufficient funds in Chloe's account. Although Rabia did not particularly need the funds, she did not like to feel as if she had been cheated; therefore, she demanded that Chloe make the check good. -Who is the drawer of the check Chloe presented to Rabia at The Furniture Shop?

[Banking Problems] Celine is a loan officer at ABC Bank. Being somewhat dishonest, Celine tells Rohan, a customer of the bank, who is wealthy and rarely checks the status of outstanding loans and balances that she is collecting money for a local animal shelter. She asks him to sign a pledge that he will contribute $50 to the animal shelter. However, through covering pertinent terms of the document, Celine actually had Rohan sign a promissory note made out to her for $5,000, which she later endorsed to Miguel. After leaving the bank, Rohan proceeded to one of his businesses, a used car dealership. Taylor comes in to purchase a used car. He and Rohan agree that Taylor will purchase a car for $3,000. Zoe also comes in, and she and Rohan agree that she will purchase a used car for $4,000. Both Taylor and Zoe make out promissory notes payable to Rohan. At the end of the day, Rohan is looking through the notes and decides that Taylor's was mistakenly made out for $3,000 when it should have been $3,500. Rohan mistakenly, but honestly, believes that the deal was for $3,500. Therefore, he changes the note to reflect that Taylor owes $3,500. Rohan, on the other hand, simply does not like Zoe. He decides that $4,000 was not enough for the car. Accordingly, he changes the note to $4,500. -Which of the following is true regarding Zoe's liability to Rohan?

[Run Around] Hema issues a promissory note to Rahul. Rahul endorses the note and transfers it to Anne. Anne endorses the note and transfers it to Floyd. Floyd presents the note to Hema for payment. When Floyd presents the note to Hema, 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. Hema continued to insist, so finally, on the same day, Rahul obtained clear identification and presented it to her. Nevertheless, even with proper identification, Hema refused to pay the note, claiming that she lacked the funds with which to do so. After properly providing notification of dishonor to both Anne and Rahul, Floyd requested that Anne pay the note, but she told him that he would have to get his money from Rahul. Floyd has been trying to call Rahul for 35 days, but Rahul did not return his telephone calls. Floyd is exasperated; and within 40 days of when Hema refuses payment, he notifies Hema, Rahul, and Anne that the promissory note has been dishonored by Hema and that he is asserting liability on the note against all of them. Hema calls him up and says that she never dishonored the note, she simply lacks the funds with which to immediately pay and thinks that he should seek recovery elsewhere. -Which of the following is true regarding when, and if, the note was initially dishonored?

A party who signs a negotiable instrument without knowing that it is, in fact, a negotiable instrument, can claim negligence as a defense.