Question 1

Explain personal defenses against the payment of negotiable instruments.Give suitable examples.

Accepted Answer

Students' answers may vary.Personal defe

Question 2

A forged indorsement will never prevent a person from becoming a holder.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is true of negotiating an instrument?

Accepted Answer

A)  It must not be transferred involuntarily. 
B)  It must be transferred voluntarily. 
C)  It must be transferred by a person other than the issuer. 
D)  It must be transferred by the issuer. 
A)  It must not be transferred involuntarily. 
B)  It must be transferred voluntarily. 
C)  It must be transferred by a person other than the issuer. 
D)  It must be transferred by the issuer.

Question 4

The Federal Trade Commission rule designed to protect consumers against operation of the holder excludes persons who sell to consumers on credit.

Accepted Answer

A) True 
 B)False

Question 5

An indorsement is made by adding the signature of the holder of the instrument to the instrument,usually on the back of it,either alone or with other words.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is a partial defense against a holder in due course and a complete defense against a non-holder in due course?

Accepted Answer

A)  Illegality that makes a contract voidable 
B)  Fraud in the inducement of any underlying contract 
C)  Alteration of the completed instrument 
D)  Lack or failure of consideration 
A)  Illegality that makes a contract voidable 
B)  Fraud in the inducement of any underlying contract 
C)  Alteration of the completed instrument 
D)  Lack or failure of consideration

Question 7

If a person receives a check that has been signed but the space where the amount of the check is to be written is blank,then he or she cannot be a holder in due course of that check.

Accepted Answer

A) True 
 B)False

Question 8

Any person who can trace his title to an instrument back to a holder in due course receives rights similar to a holder in due course even if he cannot meet the requirements himself.This is known as the _____.

Accepted Answer

A)  shelter rule 
B)  holder in due course rule 
C)  Federal Trade Commission rule 
D)  irregular paper law 
A)  shelter rule 
B)  holder in due course rule 
C)  Federal Trade Commission rule 
D)  irregular paper law

Question 9

Which of the following is a real defense that can be used to avoid or reduce liability on a negotiable instrument?

Accepted Answer

A)  Fraud in the inducement 
B)  Discharge in bankruptcy 
C)  Breach of contract 
D)  Conditional issuance 
A)  Fraud in the inducement 
B)  Discharge in bankruptcy 
C)  Breach of contract 
D)  Conditional issuance

Question 10

If Jonathan indorses an instrument in blank and gives it to Lily,she _____.

Accepted Answer

A)  must indorse it before it can be negotiated further 
B)  may negotiate it without indorsing it 
C)  cannot convert the blank indorsement to a special one 
D)  is not liable even if she indorses it as it was given to her by Jonathan 
A)  must indorse it before it can be negotiated further 
B)  may negotiate it without indorsing it 
C)  cannot convert the blank indorsement to a special one 
D)  is not liable even if she indorses it as it was given to her by Jonathan

Question 11

An art dealer sells a painting to Priya,telling her that it is an original painting made by a famous painter,and takes Priya's check for $500 in payment.Before making the sale,the art dealer was aware that the painting is not genuine,and it is a forgery.Can Priya claim any defenses against the payment made to the art dealer?

Accepted Answer

Yes,Priya can claim "fraud in the induce

Question 12

Except for the special provisions concerning depositary banks,if an order instrument is transferred without indorsement,the _____.

Accepted Answer

A)  instrument has not been negotiated 
B)  transferee can qualify as a holder 
C)  transferee has the right to the qualified indorsement of the transferor 
D)  transferee has none of the rights of the transferor to enforce the instrument 
A)  instrument has not been negotiated 
B)  transferee can qualify as a holder 
C)  transferee has the right to the qualified indorsement of the transferor 
D)  transferee has none of the rights of the transferor to enforce the instrument

Question 13

The use of a qualified indorsement eliminates the contractual liability of the indorser.

Accepted Answer

A) True 
 B)False

Question 14

The Federal Trade Commission (FTC)regulation:

Accepted Answer

A)  cannot fine a seller who fails to include the FTC notice in the note or contract. 
B)  does not apply to persons who sell to consumers on credit. 
C)  is designed to protect consumers against operation of the holder in due course rule. 
D)  is designed to make the consumer subject to all claims and defenses of a potential holder. 
A)  cannot fine a seller who fails to include the FTC notice in the note or contract. 
B)  does not apply to persons who sell to consumers on credit. 
C)  is designed to protect consumers against operation of the holder in due course rule. 
D)  is designed to make the consumer subject to all claims and defenses of a potential holder.

Question 15

Bella contracted with Marco Furnishing to complete the work on her house by November 1,2013.She gave Marco a negotiable promissory note in the amount of $20,000 payable to the order of Marco on November 1.Marco then negotiated the note to the bank.He,however,could not complete the work by November 1.In this scenario,which of the following statements is true if the bank is able to qualify as a holder in due course?

Accepted Answer

A)  Bella is not liable to the bank because Marco breached the contract, not her. 
B)  The bank can collect the amount from Marco because he negotiated the note to the bank. 
C)  The bank can be held liable by Bella if she asserts personal defense against the bank as Marco did not complete the work on time. 
D)  Bella cannot assert personal defense against the bank and avoid payment as it was a negotiation, and not a simple contract. 
A)  Bella is not liable to the bank because Marco breached the contract, not her. 
B)  The bank can collect the amount from Marco because he negotiated the note to the bank. 
C)  The bank can be held liable by Bella if she asserts personal defense against the bank as Marco did not complete the work on time. 
D)  Bella cannot assert personal defense against the bank and avoid payment as it was a negotiation, and not a simple contract.

Question 16

If an indorsement contains the signature of the indorser along with the words indicating to whom,or to whose order,and the instrument is payable,it can be termed as a _____.

Accepted Answer

A)  special indorsement 
B)  restrictive indorsement 
C)  blank indorsement 
D)  qualified indorsement 
A)  special indorsement 
B)  restrictive indorsement 
C)  blank indorsement 
D)  qualified indorsement

Question 17

Hamid has a check indorsed "Pay to the order of Hamid Ali." Hamid gives the check to Yasmin without indorsing it.Which of the following statements is true of this case?

Accepted Answer

A)  Yasmin is not a holder of the check because she failed to indorse the check. 
B)  Yasmin is not a holder of the check because Hamid failed to indorse the check. 
C)  Yasmin is a holder of the check because only delivery was necessary to negotiate the check. 
D)  Yasmin is a holder of the check because she may supply the missing indorsement herself. 
A)  Yasmin is not a holder of the check because she failed to indorse the check. 
B)  Yasmin is not a holder of the check because Hamid failed to indorse the check. 
C)  Yasmin is a holder of the check because only delivery was necessary to negotiate the check. 
D)  Yasmin is a holder of the check because she may supply the missing indorsement herself.

Question 18

Explain the nature and meaning of an indorsement.

Accepted Answer

An indorsement is made by adding the sig

Question 19

An instrument payable to cash:

Accepted Answer

A)  can be negotiated only after indorsement by the person specified. 
B)  is known as an order paper. 
C)  may be negotiated by transfer of possession alone. 
D)  does not allow the person who takes the instrument to ask for an indorsement for her protection. 
A)  can be negotiated only after indorsement by the person specified. 
B)  is known as an order paper. 
C)  may be negotiated by transfer of possession alone. 
D)  does not allow the person who takes the instrument to ask for an indorsement for her protection.

Question 20

When the holder of an instrument has presented it for payment or acceptance and it has then been refused,the negotiable instrument:

Accepted Answer

A)  is considered overdue. 
B)  has been dishonored. 
C)  is considered unauthorized. 
D)  has been held to be irregular. 
A)  is considered overdue. 
B)  has been dishonored. 
C)  is considered unauthorized. 
D)  has been held to be irregular.

Exam 39: Negotiation and Holder in Due Course

Explain personal defenses against the payment of negotiable instruments.Give suitable examples.

A forged indorsement will never prevent a person from becoming a holder.

Which of the following statements is true of negotiating an instrument?

The Federal Trade Commission rule designed to protect consumers against operation of the holder excludes persons who sell to consumers on credit.

An indorsement is made by adding the signature of the holder of the instrument to the instrument,usually on the back of it,either alone or with other words.

Which of the following is a partial defense against a holder in due course and a complete defense against a non-holder in due course?

If a person receives a check that has been signed but the space where the amount of the check is to be written is blank,then he or she cannot be a holder in due course of that check.

Any person who can trace his title to an instrument back to a holder in due course receives rights similar to a holder in due course even if he cannot meet the requirements himself.This is known as the _____.

Which of the following is a real defense that can be used to avoid or reduce liability on a negotiable instrument?

If Jonathan indorses an instrument in blank and gives it to Lily,she _____.

Except for the special provisions concerning depositary banks,if an order instrument is transferred without indorsement,the _____.

The use of a qualified indorsement eliminates the contractual liability of the indorser.

The Federal Trade Commission (FTC)regulation:

If an indorsement contains the signature of the indorser along with the words indicating to whom,or to whose order,and the instrument is payable,it can be termed as a _____.

Hamid has a check indorsed "Pay to the order of Hamid Ali." Hamid gives the check to Yasmin without indorsing it.Which of the following statements is true of this case?

Explain the nature and meaning of an indorsement.

An instrument payable to cash:

When the holder of an instrument has presented it for payment or acceptance and it has then been refused,the negotiable instrument:

Law, Legal Reasoning, and the Legal Profession

Dispute Settlement

Business Ethics and Corporate Social Responsibility

Business and the Constitution

Crimes

Intentional Torts

Negligence and Strict Liability

Licensing and Intellectual Propertypart Two Contracts

The Nature and Origins of Contracts

Creating a Contract: Offers

Creating a Contract: Acceptances

Consideration

Capacity to Contract

Voluntary Consent

Illegality

The Form and Meaning of Contracts

Third Parties Contract Rights

Performance and Remediespart Three Sales

Formation and Terms of Sales Contracts

Warranties and Product Liability

Performance of Sales Contracts

Remedies for Breach of Sales Contractspart Four Agency and Employment

The Agency Relationship-Creation, duties, and Termination

Liability of Principals and Agents to Third Parties

Employment Laws-Part Five Business Organizations

Which Form of Business Organization

Partnerships

Formation and Termination of Corporations

Management of the Corporate Business

Financing the Corporation and the Role of the Shareholders

Securities Regulation

Legal Liability of Accountantspart Six Property

Personal Property and Bailments

Real Property

Landlord and Tenant

Estates and Trusts

Insurance-Part Seven Commercial Paper

Negotiable Instruments

Liability of Parties

Checks and Electronic Fund Transfers-Part Eight Credit Transactions

Introduction to Security

Security Interests in Personal Property

Bankruptcy-Part Nine Government Regulation

The Antitrust Laws

Consumer Protection Laws

Environmental Regulation

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