36 Questions
What are the two types of liability associated with negotiable instruments?
Signature liability and warranty liability
What are the two types of liability associated with negotiable instruments?
Signature liability and warranty liability
What are the two types of liability associated with negotiable instruments?
Signature liability and warranty liability
Who is primarily liable for negotiable instruments?
Makers and acceptors
Which type of liability arises from a person's signature on the instrument?
Signature liability
Which type of liability arises from a person's signature on the instrument?
Signature liability
What is a qualified indorser?
An indorser who is not liable for signature liability
What is a qualified indorser?
Someone who is only liable if certain conditions are met
What type of liability arises from warranties implied when the person presents the instrument for negotiation?
Warranty liability
What is required for secondary liability?
Proper presentation, dishonor, and timely notice
What is a qualified indorser?
Someone who is secondarily liable for the instrument
Who are primarily liable parties on a negotiable instrument?
Makers and acceptors
Who are primarily liable for negotiable instruments?
Makers and acceptors
What is required for secondary liability on a negotiable instrument?
Proper presentation, dishonor, and timely notice
What is an accommodation party?
An indorser who signs for the purpose of lending their name as credit to another party on the instrument
Who can sign negotiable instruments and bind their principals?
Authorized agents who meet certain requirements
What is required for secondary liability?
Proper presentation, dishonor, and timely notice
What is the purpose of an accommodation party signing a negotiable instrument?
To lend their name as credit to another party on the instrument
What are the requirements for authorized agents signing negotiable instruments?
They must be authorized and meet certain requirements
Why do accommodation parties sign negotiable instruments?
To lend their name as credit to another party on the instrument
What are universal defenses?
Defenses that are valid against all holders
What are universal defenses valid against?
All holders
What are personal defenses?
Defenses that are valid against only ordinary holders
What are the requirements for authorized agents to sign negotiable instruments and bind their principals?
They must have written authorization and be a notary public
Which of the following is not an example of a personal defense?
Lack of consideration
What are universal defenses?
Defenses that are valid against all holders
Which of the following is an example of a personal defense?
All of the above
Which of the following is not a way to discharge liability on a negotiable instrument?
Destruction or accidental mutilation of the instrument
What are personal defenses?
Defenses that are valid against only ordinary holders
What is discharge from liability on a negotiable instrument?
The party obligated to pay no longer has to do so
Which of the following is not an example of a personal defense?
Lack of consideration
When are all parties discharged from liability on a negotiable instrument?
When the party primarily liable pays the full amount due
What are the three ways to discharge liability on a negotiable instrument?
Payment, cancellation, and impairment of recourse
Who can be held liable for impairment of recourse?
Prior indorsers, makers, or drawers
What happens when a party is discharged from liability on an instrument?
They no longer have to pay
Who can be held liable for impairment of recourse on a negotiable instrument?
Prior indorsers, makers, or drawers
Study Notes
- There are two types of liability associated with negotiable instruments: signature liability and warranty liability.
- Signature liability arises from a person's signature on the instrument.
- Warranty liability arises from warranties implied when the person presents the instrument for negotiation.
- A qualified indorser is an exception to signature liability.
- Only makers and acceptors are primarily liable, while drawers and indorsers are secondarily liable.
- Proper presentation, dishonor, and timely notice are required for secondary liability.
- Accommodation parties sign for the purpose of lending their name as credit to another party on the instrument.
- Authorized agents can sign negotiable instruments and bind their principals, but must meet certain requirements.
- Universal defenses are valid against all holders, while personal defenses are valid against only ordinary holders.
- Mental incapacity, extreme duress, and breach of contract are examples of personal defenses.
- Personal defenses can be used to refuse payment on a negotiable instrument.
- Lack of consideration and impossibility of delivery are examples of personal defenses.
- Fraud is another personal defense, but it does not apply if the holder is an HDC.
- Discharge from liability on an instrument means the party obligated to pay no longer has to do so.
- Discharge by payment, cancellation, and impairment of recourse are three ways to discharge liability.
- All parties are discharged when the party primarily liable pays the full amount due.
- Intentional cancellation of an instrument discharges the liability of all parties.
- Destruction or accidental mutilation of an instrument does not count as cancellation.
- Recourse can be sought against prior indorsers, makers, or drawers if a holder collects from an indorser.
- Subsequent indorsers cannot be held liable for impairment of recourse.
This quiz tests your knowledge of the different types of liability associated with negotiable instruments, including signature and warranty liability. You'll also be quizzed on exceptions to liability, such as qualified indorsers, and the proper requirements for secondary liability. Additionally, you'll learn about personal defenses that can be used to refuse payment on a negotiable instrument, as well as ways to discharge liability and seek recourse against prior parties. Test your understanding of negotiable instruments with this informative quiz.
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