Question 1

A person who knows that an instrument is overdue or has been dishonored cannot become a holder in due course.

Accepted Answer

A) True 
 B)False

Question 2

Glenn indorsed his paycheck by signing just his name and cashed it at the grocery store. The check was stolen from the store, indorsed in a false name and transferred to a convenience store. The convenience store could not be a holder in due course since the check had been stolen and indorsed with a false name.

Accepted Answer

A) True 
 B)False

Question 3

Under the shelter rule, the transferee gets the rights of the transferor who is a holder in due course even if the transfer is not for value.

Accepted Answer

A) True 
 B)False

Question 4

A "holder" may transfer the instrument, negotiate it, enforce payment of it subject to valid claims and defenses, and with some exceptions discharge it.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not a real defense?

Accepted Answer

A)  Forgery 
B)  Fraudulent alteration 
C)  Discharge in insolvency proceedings 
D)  Change in price 
A)  Forgery 
B)  Fraudulent alteration 
C)  Discharge in insolvency proceedings 
D)  Change in price

Question 6

A person other than the owner of an instrument cannot be entitled to enforce it.

Accepted Answer

A) True 
 B)False

Question 7

Buying a negotiable instrument at a discounted price demonstrates lack of good faith.

Accepted Answer

A) True 
 B)False

Question 8

An indorsement that is not in the chain of title is assumed to be a(n):

Accepted Answer

A)  anomalous indorsement. 
B)  blank indorsement. 
C)  special indorsement. 
D)  indorsement in trust. 
A)  anomalous indorsement. 
B)  blank indorsement. 
C)  special indorsement. 
D)  indorsement in trust.

Question 9

Erin stole a paycheck from Carl prior to his indorsing it. She then forged Carl's signature and transferred the check to a gas station which took it in good faith, for value, without notice, and without reason to question its authenticity. The gas station:

Accepted Answer

A)  was a holder in due course. 
B)  could not be a holder. 
C)  could be a holder, but not a holder in due course. 
D)  can collect the amount of the check only from the drawer since Carl did not indorse it. 
A)  was a holder in due course. 
B)  could not be a holder. 
C)  could be a holder, but not a holder in due course. 
D)  can collect the amount of the check only from the drawer since Carl did not indorse it.

Question 10

A transfer of order paper:

Accepted Answer

A)  gives the transferee the specifically enforceable right to have the unqualified indorsement of the transferor, whether the transfer was for value or not. 
B)  to a bank, such as the deposit of a check, without an indorsement requires the bank to provide the customer's indorsement. 
C)  not for value creates a presumption by the courts that the parties intended to negotiate rather than assign the paper. 
D)  for value creates a presumption by the courts that a negotiation was intended by the parties unless the parties have agreed that the transfer is to be an assignment, which requires no indorsement. 
A)  gives the transferee the specifically enforceable right to have the unqualified indorsement of the transferor, whether the transfer was for value or not. 
B)  to a bank, such as the deposit of a check, without an indorsement requires the bank to provide the customer's indorsement. 
C)  not for value creates a presumption by the courts that the parties intended to negotiate rather than assign the paper. 
D)  for value creates a presumption by the courts that a negotiation was intended by the parties unless the parties have agreed that the transfer is to be an assignment, which requires no indorsement.

Question 11

A holder in due course could recover from the maker where the:

Accepted Answer

A)  maker's signature is forged. 
B)  bearer instrument was stolen after it was completed. 
C)  maker signed the instrument under physical duress. 
D)  maker is a fifteen-year-old. 
A)  maker's signature is forged. 
B)  bearer instrument was stolen after it was completed. 
C)  maker signed the instrument under physical duress. 
D)  maker is a fifteen-year-old.

Question 12

The principal advantage of negotiable instruments is their safety.

Accepted Answer

A) True 
 B)False

Question 13

Scott buys a television from Joe's TV Store, giving Joe a check for $550. Joe uses a special indorsement and negotiates the check to Tom. Tom carefully changes the amount to read $1550 and loses the check on the way to the bank. Harry picks it up and tries to cash it. What will he get?

Accepted Answer

A)  Scott will have to pay him $550. 
B)  Joe will have to pay him $550. 
C)  Tom will have to pay him $1550. 
D)  No one will have to pay Harry. 
A)  Scott will have to pay him $550. 
B)  Joe will have to pay him $550. 
C)  Tom will have to pay him $1550. 
D)  No one will have to pay Harry.

Question 14

Answer the following:
a. What is the advantage to the indorser of a qualified indorsement?
b. What is the advantage of a restrictive indorsement?
a.  A qualified indorsement disclaims or limits the contract liability on an instrument

Accepted Answer

(example: "without recourse").

Question 15

Revised Article 3 provides that the impostor rule does not include an impostor who impersonates an agent of a principal and who induces someone to create a negotiable instrument payable to the principal.

Accepted Answer

A) True 
 B)False

Question 16

A qualified indorsement destroys negotiability.

Accepted Answer

A) True 
 B)False

Question 17

Maria gives Joe $250 cash in return for Joe's indorsed check for $300. If Maria subsequently finds out that the check she took was given to Joe in return for a stolen car, Maria is no longer a holder in due course.

Accepted Answer

A) True 
 B)False

Question 18

A person is never entitled to enforce an instrument if that person is not the owner of the instrument or if that person is in wrongful possession of the instrument.

Accepted Answer

A) True 
 B)False

Question 19

Abby needs some quick cash, so she hits upon a scheme. She tells Frank that she is collecting for foreign refugees, so Frank makes out a check for $100 payable to the order of Abby. Abby indorses it and delivers it to Joanne for $90 cash. Joanne gives it to Margaret as a present. Frank discovers Abby's deception and refuses to pay Margaret. Will he win?

Accepted Answer

A)  No, because Margaret is a holder in due course 
B)  No, because of the shelter rule 
C)  Yes, since Margaret did not take the check for value 
D)  Yes, since the check was not negotiated to Margaret 
A)  No, because Margaret is a holder in due course 
B)  No, because of the shelter rule 
C)  Yes, since Margaret did not take the check for value 
D)  Yes, since the check was not negotiated to Margaret

Question 20

A bearer instrument is comparable to cash in that it is negotiated by mere possession.

Accepted Answer

A) True 
 B)False

Exam 27: Transfer and Holder in Due Course

A person who knows that an instrument is overdue or has been dishonored cannot become a holder in due course.

Under the shelter rule, the transferee gets the rights of the transferor who is a holder in due course even if the transfer is not for value.

A "holder" may transfer the instrument, negotiate it, enforce payment of it subject to valid claims and defenses, and with some exceptions discharge it.

Which of the following is not a real defense?

A person other than the owner of an instrument cannot be entitled to enforce it.

Buying a negotiable instrument at a discounted price demonstrates lack of good faith.

An indorsement that is not in the chain of title is assumed to be a(n):

Erin stole a paycheck from Carl prior to his indorsing it. She then forged Carl's signature and transferred the check to a gas station which took it in good faith, for value, without notice, and without reason to question its authenticity. The gas station:

A transfer of order paper:

A holder in due course could recover from the maker where the:

The principal advantage of negotiable instruments is their safety.

Scott buys a television from Joe's TV Store, giving Joe a check for $550. Joe uses a special indorsement and negotiates the check to Tom. Tom carefully changes the amount to read $1550 and loses the check on the way to the bank. Harry picks it up and tries to cash it. What will he get?

Answer the following: a. What is the advantage to the indorser of a qualified indorsement? b. What is the advantage of a restrictive indorsement? a. A qualified indorsement disclaims or limits the contract liability on an instrument

Revised Article 3 provides that the impostor rule does not include an impostor who impersonates an agent of a principal and who induces someone to create a negotiable instrument payable to the principal.

A qualified indorsement destroys negotiability.

Maria gives Joe $250 cash in return for Joe's indorsed check for $300. If Maria subsequently finds out that the check she took was given to Joe in return for a stolen car, Maria is no longer a holder in due course.

A person is never entitled to enforce an instrument if that person is not the owner of the instrument or if that person is in wrongful possession of the instrument.

A bearer instrument is comparable to cash in that it is negotiated by mere possession.

Introduction to Law

Business Ethics and the Social Responsibility of Business

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance, Breach, and Discharge

Contract Remedies

Relationship of Principal and Agent

Relationship With Third Parties

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Products Liability: Warranties and Strict Liability in Tort

Sales Remedies

Form and Content

Liability of Parties

Bank Deposits, Collections, and Funds Transfers

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature, Formation, and Powers

Financial Structure

Management Structure

Fundamental Changes

Secured Transactions and Suretyship

Bankruptcy

Protection of Intellectual Property

Antitrust

Consumer Protection

Employment Law

Securities Regulation

Accountants Legal Liability

Environmental Law

International Business Law

Introduction to Property, Property Insurance, Bailments, and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Decedents Estates

the Legal Environment of Business

Contracts

Agency

Sales

Negotiable Instruments

Unincorporated Business Associations

Corporations

Debtor and Creditor Relations

Regulation of Business

Property

Filters

Answer the following: a. What is the advantage to the indorser of a qualified indorsement? b. What is the advantage of a restrictive indorsement? _a_.^A^qualifie^d^indorsemen^t^disclaim^s^o^r^limit^s^th^e^contrac^t^liabilit^y^oⁿ^aⁿ^instrument