Liability of Parties to Negotiable Instruments: Comprehensive Learning Quizzes

Question 1

A maker of a negotiable instrument is primarily liable on the instrument, meaning they are ultimately responsible for its payment.

Accepted Answer

True

Answer

False

Question 2

A drawer of a check is primarily liable on the instrument, meaning they are the first party responsible for its payment.

Accepted Answer

False

Answer

True

Question 3

An accommodation party is a person who signs a negotiable instrument with the intention of guaranteeing payment in case the primary obligor defaults.

Accepted Answer

True

Answer

False

Question 4

A holder in due course of a negotiable instrument has the right to enforce the instrument free from most personal defenses that could be asserted by prior parties.

Accepted Answer

True

Answer

False

Question 5

A forged signature on a negotiable instrument is generally not binding on the person whose signature was forged, even if the forgery is convincing.

Accepted Answer

True

Answer

False

Question 6

An alteration of a negotiable instrument without the consent of all parties liable on the instrument may discharge those parties from liability.

Accepted Answer

True

Answer

False

Question 7

A person who accepts a negotiable instrument for value, before its maturity, and without notice of any defenses against it, is generally considered a holder in due course.

Accepted Answer

True

Answer

False

Question 8

The Uniform Commercial Code (UCC), which governs commercial transactions in the United States, contains provisions that specifically address negotiable instruments.

Accepted Answer

True

Answer

False

Question 9

Who is primarily liable for payment on a negotiable instrument?

Accepted Answer

Maker

Answer

Drawer

Answer

Payee

Answer

Indorser

Question 10

Which type of indorsement on a negotiable instrument relieves the indorser of liability?

Accepted Answer

Qualified

Answer

Blank

Answer

Special

Answer

Restrictive

Question 11

What is the effect of a "without recourse" indorsement on a negotiable instrument?

Accepted Answer

Eliminates the indorser's liability

Answer

Limits the indorser's liability to a specific amount

Answer

Guarantees payment of the instrument

Answer

Transfers ownership of the instrument without liability

Question 12

Which of the following is NOT an essential element of a negotiable instrument?

Accepted Answer

Includes a statement that the instrument is "not negotiable"

Answer

Signed by the maker or drawer

Answer

Contains an unconditional promise or order to pay

Answer

Sets forth a fixed amount of money

Question 13

Which of the following is NOT a defense available to a maker of a negotiable instrument?

Accepted Answer

Statute of limitations

Answer

Lack of capacity

Answer

Illegality

Answer

Fraud in the inducement

Question 14

Which party to a negotiable instrument is primarily liable for its payment?

Accepted Answer

Maker

Answer

Drawer

Answer

Payee

Answer

Indorser

Question 15

An indorser of a negotiable instrument is considered which type of party?

Accepted Answer

Secondary party

Answer

Primary party

Answer

Accommodation party

Answer

Holder in due course

Question 16

An accommodation party to a negotiable instrument is most similar to which other party?

Accepted Answer

Surety

Answer

Indorser

Answer

Drawer

Answer

Maker

Question 17

To qualify as a holder in due course, a person must take a negotiable instrument:

Accepted Answer

In good faith, for value, and without notice of defenses

Answer

With knowledge of all defenses

Answer

As a gift

Answer

Without consideration

Question 18

Which of the following is NOT a characteristic of a negotiable instrument?

Accepted Answer

It must be dated

Answer

It must be in writing

Answer

It must be signed by the maker or drawer

Answer

It must be payable in money

Question 19

The purpose of protesting a dishonored negotiable instrument is to:

Accepted Answer

Establish dishonor and give notice to parties

Answer

Accelerate the maturity date

Answer

Create a new cause of action

Answer

Discharge the drawer and indorsers

Question 20

Which type of indorsement can be used to transfer a negotiable instrument without further negotiation?

Accepted Answer

Blank indorsement

Answer

Special indorsement

Answer

Restrictive indorsement

Answer

Qualified indorsement

Question 21

Under the Uniform Commercial Code (UCC), which statement accurately describes negotiable instruments?

Accepted Answer

The UCC provides a comprehensive framework for creating, negotiating, and enforcing negotiable instruments.

Answer

The UCC only applies to negotiable instruments issued by banks and financial institutions.

Answer

The UCC does not recognize the concept of a holder in due course.

Answer

The UCC does not include provisions specifically addressing electronic negotiable instruments.

Question 22

What is the impact of discharge on the legal obligations of parties to negotiable instruments?

Accepted Answer

Terminates liability for the discharged party

Answer

Eliminates all liability for all parties

Answer

Transfers liability to subsequent parties

Question 23

Who bears the primary liability on a promissory note?

Accepted Answer

Maker

Answer

Drawer

Answer

Indorser

Answer

Guarantor

Question 24

When does an indorser incur secondary liability on a negotiable instrument?

Accepted Answer

Upon dishonor of the instrument

Answer

Upon signing the instrument

Answer

Upon delivery of the instrument

Answer

Upon demand for payment

Question 25

Which type of indorsement transfers all rights of the indorser to the indorsee?

Accepted Answer

Blank indorsement

Answer

Special indorsement

Answer

Restrictive indorsement

Answer

Conditional indorsement

Question 26

What is the legal effect of a restrictive indorsement on a negotiable instrument?

Accepted Answer

Limits the negotiability of the instrument

Answer

Prevents the indorsee from transferring the instrument

Answer

Creates a warranty of payment by the indorser

Answer

Extinguishes the liability of the indorser

Question 27

On a negotiable instrument, who is primarily liable to pay according to the terms of the instrument?

Accepted Answer

Maker

Answer

Drawer

Answer

Indorser

Answer

Accommodation party

Question 28

Which of the following statements accurately describes the concept of a holder in due course?

Accepted Answer

Takes a negotiable instrument free from most defenses, enabling enforcement of the instrument's terms

Answer

Takes a negotiable instrument subject to all defenses that could be raised against prior holders

Answer

Has a superior claim to the instrument compared to all other parties

Answer

Acquires title to the instrument but remains subject to certain limited defenses

Question 29

What is the key distinction between the roles of a maker and a drawer in relation to negotiable instruments?

Accepted Answer

The maker signs a promissory note, while the drawer signs a draft or bill of exchange

Answer

The drawer signs a promissory note, while the maker signs a draft or bill of exchange

Answer

There is no meaningful distinction between a maker and a drawer

Answer

The maker is primarily liable, while the drawer is secondarily liable

Question 30

True or False: An accommodation party who lends their name to a negotiable instrument remains liable even if they did not receive any consideration for their signature.

Accepted Answer

True

Answer

False

Question 31

When determining the order of liability among indorsers on a negotiable instrument, which factor is most relevant?

Accepted Answer

The sequence in which they sign the instrument

Answer

The amount of consideration they receive

Answer

The order in which their indorsements are presented

Answer

Their respective financial positions

Question 32

What is the primary effect of a restrictive indorsement on a negotiable instrument?

Accepted Answer

Limits the rights of subsequent holders to further negotiate or transfer the instrument

Answer

Broadens the rights of subsequent holders to enforce the instrument against prior parties

Answer

Converts the instrument into a non-negotiable instrument

Answer

Has no legal effect on the instrument's negotiability

Question 33

On a negotiable instrument, who bears the primary obligation to make payment?

Accepted Answer

Maker

Answer

Drawer

Answer

Indorser

Answer

Acceptor

Question 34

What is the result of an indorsement 'without recourse'?

Accepted Answer

Transfers ownership to the indorsee without exposing the indorser to liability.

Answer

Makes the indorser jointly responsible with the maker.

Answer

Releases the indorser from any potential claims related to the instrument.

Answer

Limits the indorser's liability only if the maker defaults.

Question 35

Who qualifies as a holder in due course of a negotiable instrument?

Accepted Answer

An individual who receives the instrument for value, in good faith, and without knowledge of any defenses.

Answer

An individual who receives the instrument as a gift.

Answer

An individual who receives the instrument as debt payment.

Answer

An individual who acquires the instrument from a thief.

Question 36

Define the distinction between a restrictive indorsement and a qualified indorsement

Accepted Answer

Restrictive limits transferability, while qualified limits indorser liability.

Answer

Qualified limits transferability, while restrictive limits indorser liability.

Answer

They are identical in function.

Answer

Restrictive is made by writing 'for deposit only', while qualified is 'without recourse'.

Question 37

Who bears primary liability on a promissory note?

Accepted Answer

Maker

Answer

Drawer

Answer

Indorser

Answer

Acceptor

Question 38

Which of the following indorsements limits the indorser's liability on a negotiable instrument?

Accepted Answer

Qualified indorsement

Answer

Blank indorsement

Answer

Restrictive indorsement

Answer

Special indorsement

Question 39

Which of the following is NOT a material alteration to a negotiable instrument?

Accepted Answer

Correcting an error in the spelling of the payee's name

Answer

Changing the amount of the instrument

Answer

Changing the date of payment

Answer

Adding the name of an additional maker

Question 40

Who is primarily liable for payment on a negotiable instrument?

Accepted Answer

The party who signs as the maker

Answer

The party who signs as the drawer

Answer

The party who signs as the indorser

Question 41

When does a drawer become liable on a draft?

Accepted Answer

Upon dishonor of the draft by the drawee

Answer

Upon issuance of the draft

Answer

Upon acceptance of the draft by the drawee

Answer

Upon presentation of the draft to the drawee

Question 42

Who is discharged from liability on a negotiable instrument if the holder fails to make presentment for payment within a reasonable time after the instrument is due?

Accepted Answer

Secondary parties, such as indorsers

Answer

All parties to the instrument

Answer

None of the above

Answer

Primary parties, such as the maker or drawer

Question 43

Which of the following is a holder in due course?

Accepted Answer

One who takes the instrument for value, in good faith, and without notice of any defenses

Answer

One who takes the instrument with knowledge of a forged signature

Answer

One who takes the instrument as a gift

Question 44

What is the effect of a material alteration to a negotiable instrument?

Accepted Answer

It voids the instrument

Answer

It makes the alteration void

Answer

It has no effect

Answer

It only affects the liability of the party who made the alteration

Question 45

Which of the following defenses is available to an accommodation party on a negotiable instrument?

Accepted Answer

Lack of consideration

Answer

None of the above

Answer

Material alteration of the instrument

Answer

Illegality of the underlying transaction

Question 46

What is the liability of a person who signs a negotiable instrument as an agent without authority?

Accepted Answer

Personal liability

Answer

No liability

Answer

Liability only to the principal

Answer

Limited liability

Question 47

Who is primarily liable for payment on a promissory note?

Accepted Answer

The maker of the note

Answer

The drawee of the note

Answer

The drawer of the note

Answer

The indorser of the note

Question 48

An indorser who guarantees both payment and collection is known as an:

Accepted Answer

Accommodation indorser

Answer

Blank indorser

Answer

Restrictive indorser

Answer

Qualified indorser

Question 49

Which defense can be asserted against any holder of a negotiable instrument?

Accepted Answer

Real defenses

Answer

Personal defenses

Answer

Invalidity defenses

Answer

Equitable defenses

Question 50

What is the immediate legal consequence of a forged signature on a negotiable instrument?

Accepted Answer

Instrument is void

Answer

Instrument is valid and enforceable

Answer

Instrument is altered

Answer

Instrument is voidable

Question 51

When does a holder acquire the status of a holder in due course?

Accepted Answer

Takes an instrument in good faith, for value, and without notice of defenses or claims

Answer

Takes an instrument for value and without notice of defenses

Answer

Takes an instrument in good faith and without notice of defenses

Question 52

What is the primary liability of the drawer of a check?

Accepted Answer

To pay the amount of the check if it is not paid by the drawee bank

Answer

To guarantee the check is accepted by the drawee bank

Answer

To indorse the check if it is not paid by the maker

Question 53

What is the effect of an unqualified acceptance on a draft?

Accepted Answer

The drawee is unconditionally liable to pay the amount of the draft on presentment

Answer

The drawee is conditionally liable to pay the amount of the draft

Answer

The drawee is only liable to pay the amount of the draft if it has sufficient funds

Question 54

Which action can discharge a party from liability on a negotiable instrument?

Accepted Answer

Payment

Answer

Acceptance

Answer

Indorsement