Question 1

A blank indorsement is preferred over a special indorsement,as a blank indorsement prevents against theft.

Accepted Answer

A) True 
 B)False  False

Question 2

Wayne issues a draft payable to Molly.Molly indorses the draft in blank on the back and gives it to Jerry.Which of the following statements correctly describes the status of this instrument?

Accepted Answer

A)  The draft started out as bearer paper,but Molly converted it to order paper. 
B)  The draft started out as order paper,but Molly converted it to bearer paper. 
C)  The draft started out as bearer paper and it is still bearer paper. 
D)  The draft started out as order paper and it is still order paper. 
A)  The draft started out as bearer paper,but Molly converted it to order paper. 
B)  The draft started out as order paper,but Molly converted it to bearer paper. 
C)  The draft started out as bearer paper and it is still bearer paper. 
D)  The draft started out as order paper and it is still order paper. B

Question 3

A check is drawn "payable to Tami Thomas,M.D.,in trust for Cathy Wilson." Dr.Thomas indorses the check to a computer store in payment for a computer that she personally purchased.The computer store as indorsee has not adhered to the instructions on the check.Who is the computer store liable to and why?

Accepted Answer

The computer store is liable to Cathy Wilson for any losses that arose because of its noncompliance with the restrictive indorsement in trust as indicated on the check.This type of indorsement is sometimes referred to as a trust indorsement or an agency indorsement.

Question 4

Which of the following would constitute "notice" of a fact for the holder in due course purposes?

Accepted Answer

A)  actual knowledge of the fact 
B)  having received notice or notification of the fact 
C)  having reason to know from facts and circumstances of the fact 
D)  A,B,and C 
E)  A and B only 
A)  actual knowledge of the fact 
B)  having received notice or notification of the fact 
C)  having reason to know from facts and circumstances of the fact 
D)  A,B,and C 
E)  A and B only

Question 5

What effect can indorsements have on the character of negotiable instruments?

Accepted Answer

A)  Indorsements can convert bearer paper to order paper,but not vice versa. 
B)  Indorsements can convert order paper to bearer paper,but not vice versa. 
C)  Indorsements can convert order paper to bearer paper,and can convert bearer paper to order paper. 
D)  Indorsements can convert order paper to bearer paper,and can convert bearer paper to order paper,so long as the instrument expressly allows such conversions. 
E)  Indorsement cannot change either bearer or order paper to the other classification. 
A)  Indorsements can convert bearer paper to order paper,but not vice versa. 
B)  Indorsements can convert order paper to bearer paper,but not vice versa. 
C)  Indorsements can convert order paper to bearer paper,and can convert bearer paper to order paper. 
D)  Indorsements can convert order paper to bearer paper,and can convert bearer paper to order paper,so long as the instrument expressly allows such conversions. 
E)  Indorsement cannot change either bearer or order paper to the other classification.

Question 6

What is dishonor in connection with a negotiable instrument?

Accepted Answer

A)  an instrument being created in connection with a fraudulent transaction 
B)  any potential transferee refusing to accept the instrument 
C)  the refusal of the maker or drawer to pay the instrument when it is presented for payment 
D)  the transfer of an order instrument without the proper indorsement 
A)  an instrument being created in connection with a fraudulent transaction 
B)  any potential transferee refusing to accept the instrument 
C)  the refusal of the maker or drawer to pay the instrument when it is presented for payment 
D)  the transfer of an order instrument without the proper indorsement

Question 7

Because an indorsement is not required on bearer paper to deliver it,the indorsement has no legal effect.

Accepted Answer

A) True 
 B)False

Question 8

In order to become a holder in due course,one must take a negotiable instrument without notice of the following EXCEPT:

Accepted Answer

A)  that the instrument is overdue 
B)  that the instrument has been dishonored 
C)  that the instrument was signed by an agent 
D)  that there was a claim to it by another person 
E)  that there is a defense against it 
A)  that the instrument is overdue 
B)  that the instrument has been dishonored 
C)  that the instrument was signed by an agent 
D)  that there was a claim to it by another person 
E)  that there is a defense against it

Question 9

Negotiation of which type(s)of instrument requires indorsement?

Accepted Answer

A)  bearer instruments only 
B)  order instruments only 
C)  both bearer and order instruments 
D)  neither bearer nor order instruments 
A)  bearer instruments only 
B)  order instruments only 
C)  both bearer and order instruments 
D)  neither bearer nor order instruments

Question 10

Which of the following is not required in order for someone to be a holder in due course of a negotiable instrument?

Accepted Answer

A)  taking the instrument directly from the maker or drawer 
B)  taking the instrument in good faith 
C)  taking the instrument without notice of any defenses 
D)  taking the instrument for value 
A)  taking the instrument directly from the maker or drawer 
B)  taking the instrument in good faith 
C)  taking the instrument without notice of any defenses 
D)  taking the instrument for value

Question 11

A holder,through a holder in due course,qualifies for the rights of a holder in due course under the shelter principle.

Accepted Answer

A) True 
 B)False

Question 12

Under the red light doctrine a person cannot become a holder in due course of an instrument if there is obvious evidence of an irregularity in the instrument.

Accepted Answer

A) True 
 B)False

Question 13

The negotiation of an order instrument requires:

Accepted Answer

A)  delivery only 
B)  indorsement only 
C)  delivery and indorsement 
D)  delivery,indorsement,and acceptance 
E)  delivery and acceptance 
A)  delivery only 
B)  indorsement only 
C)  delivery and indorsement 
D)  delivery,indorsement,and acceptance 
E)  delivery and acceptance

Question 14

An indorsement is the signature of a signer,who is also the maker,that is placed on the instrument to negotiate it to another person.

Accepted Answer

A) True 
 B)False

Question 15

Don,who owed Dan $1,000 for his share of the cost of a fishing trip they took together 2 years ago,transferred to Dan a check for $700 that he had just received from a customer.Has Dan given value for holder in due course purposes?

Accepted Answer

A)  Yes,because accepting an instrument in payment of a prior debt is considered to be value given for holder in due course purposes. 
B)  Yes,but only if Dan still intends to collect the remaining $300 from Don. 
C)  No,because the check was less than the amount of the debt. 
D)  No,because the check was from a business transaction and the debt was personal. 
E)  No,because Don had a preexisting duty to pay Dan the $1,000. 
A)  Yes,because accepting an instrument in payment of a prior debt is considered to be value given for holder in due course purposes. 
B)  Yes,but only if Dan still intends to collect the remaining $300 from Don. 
C)  No,because the check was less than the amount of the debt. 
D)  No,because the check was from a business transaction and the debt was personal. 
E)  No,because Don had a preexisting duty to pay Dan the $1,000.

Question 16

A holder is the same as a holder in due course.

Accepted Answer

A) True 
 B)False

Question 17

When an instrument has no room for an indorsement,it may be written on an allonge.

Accepted Answer

A) True 
 B)False

Question 18

If a virgule - a slash mark - is used between two names listed on an instrument,this means that either person may individually indorse and negotiate the instrument.

Accepted Answer

A) True 
 B)False

Question 19

Dad has a negotiable instrument that he gives to his daughter as a birthday present.Dad is a holder in due course of that instrument.Circumstances arise such that the daughter can collect that instrument only if she has holder in due course status.Which of the following best describes this situation?

Accepted Answer

A)  The daughter is not a holder in due course,so she cannot collect on this instrument. 
B)  The daughter qualifies as a holder in due course,so she can collect on this instrument. 
C)  The daughter does not qualify as a holder in due course,but she can claim the holder in due course status of her father and collect the instrument. 
D)  The shelter provision cannot apply to the daughter in this situation. 
A)  The daughter is not a holder in due course,so she cannot collect on this instrument. 
B)  The daughter qualifies as a holder in due course,so she can collect on this instrument. 
C)  The daughter does not qualify as a holder in due course,but she can claim the holder in due course status of her father and collect the instrument. 
D)  The shelter provision cannot apply to the daughter in this situation.

Question 20

A restrictive indorsement is one that has no instructions or conditions attached to the payment of the funds.

Accepted Answer

A) True 
 B)False

Exam 23: Transferability and Holder In Due Course

A blank indorsement is preferred over a special indorsement,as a blank indorsement prevents against theft.

Wayne issues a draft payable to Molly.Molly indorses the draft in blank on the back and gives it to Jerry.Which of the following statements correctly describes the status of this instrument?

Which of the following would constitute "notice" of a fact for the holder in due course purposes?

What effect can indorsements have on the character of negotiable instruments?

What is dishonor in connection with a negotiable instrument?

Because an indorsement is not required on bearer paper to deliver it,the indorsement has no legal effect.

In order to become a holder in due course,one must take a negotiable instrument without notice of the following EXCEPT:

Negotiation of which type(s)of instrument requires indorsement?

Which of the following is not required in order for someone to be a holder in due course of a negotiable instrument?

A holder,through a holder in due course,qualifies for the rights of a holder in due course under the shelter principle.

Under the red light doctrine a person cannot become a holder in due course of an instrument if there is obvious evidence of an irregularity in the instrument.

The negotiation of an order instrument requires:

An indorsement is the signature of a signer,who is also the maker,that is placed on the instrument to negotiate it to another person.

Don,who owed Dan $1,000 for his share of the cost of a fishing trip they took together 2 years ago,transferred to Dan a check for $700 that he had just received from a customer.Has Dan given value for holder in due course purposes?

A holder is the same as a holder in due course.

When an instrument has no room for an indorsement,it may be written on an allonge.

If a virgule - a slash mark - is used between two names listed on an instrument,this means that either person may individually indorse and negotiate the instrument.

A restrictive indorsement is one that has no instructions or conditions attached to the payment of the funds.

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