Chapter 13.3 Study Guide Questions

An indorser is a party with ___1.___.

1. Secondary Liability

What are the two liabilities that can arise on a negotiable instrument?

1. Signature Liability 2. Warranty Liability

What are the two general categories of defenses to liability on a negotiable instrument?

1. Universal Defenses 2. Personal Defenses

To be liable on a negotiable instrument, what must a person do?

Sign the instrument.

A transfer warranty, made by a person who transfers an instrument for consideration to all subsequent transferees, impliedly makes five warranties relating to good title, authentic signatures, no alterations, no defenses, and no insolvencies.

True

Generally, when an indorsement is forged or unauthorized, the burden of loss falls on the first party to take the instrument with the forged or unauthorized indorsement.

True

Intentional cancellation by the holder of an instrument discharges the liability of all parties. Intentionally writing "Paid" across the face of an instrument cancels it, as does intentionally tearing it up.

True

Universal defenses are valid against all holders.

True

An instrument signed by a person who has been declared mentally incompetent by a court is:

Unenforceable by any holder, including an HDC.