Question 1

A holder in due course must show that he took the instrument (1) for fair value, (2) in good faith. and (3) without any alteration.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following is true of using the defense of failure of consideration by a maker or drawer of an instrument?

Accepted Answer

A)  It can be used when the instrument is negotiated to a holder in due course. 
B)  It can be used when no consideration exists in the underlying contract for which the instrument was issued. 
C)  It can be used when one of the parties breaches the contract by not furnishing the agreed consideration. 
D)  It can be used if a party, induced by a fraudulent statement to enter a contract, is the holder of a negotiable instrument issued as part of the transaction. 
A)  It can be used when the instrument is negotiated to a holder in due course. 
B)  It can be used when no consideration exists in the underlying contract for which the instrument was issued. 
C)  It can be used when one of the parties breaches the contract by not furnishing the agreed consideration. 
D)  It can be used if a party, induced by a fraudulent statement to enter a contract, is the holder of a negotiable instrument issued as part of the transaction. C

Question 3

A person may not acquire the rights of a holder in due course if she cannot qualify as a holder in due course.

Accepted Answer

A) True 
 B)False  False

Question 4

A defense that may not be used against a holder in due course of a negotiable instrument is a:

Accepted Answer

A)  limited defense. 
B)  personal defense. 
C)  real defense. 
D)  secondary defense. 
A)  limited defense. 
B)  personal defense. 
C)  real defense. 
D)  secondary defense.

Question 5

A holder in due course of a negotiable instrument can never have more rights than previous holders of the instrument.

Accepted Answer

A) True 
 B)False

Question 6

According to the FTC's ____________, holders in due course who possess consumer credit contracts are subject to all claims and defenses that the buyer could use against the seller.

Accepted Answer

A)  shelter provision 
B)  holder in due course rule 
C)  lack of consideration rule 
D)  universal defense rule 
A)  shelter provision 
B)  holder in due course rule 
C)  lack of consideration rule 
D)  universal defense rule

Question 7

A "holder in due course" takes an instrument without notice that anything is wrong with the underlying transaction.

Accepted Answer

A) True 
 B)False

Question 8

Juanita received a negotiable instrument as a Christmas present and is, therefore, a holder in due course.

Accepted Answer

A) True 
 B)False

Question 9

Any person who ____________ contributes to the ____________ of an instrument ____________ exercise the defense of ____________ against a holder in due course who pays the instrument in good faith.

Accepted Answer

A)  negligently; fraud in the inducement; may; alteration 
B)  negligently; presentment; may not; alteration 
C)  intentionally; material alteration; may; alteration 
D)  negligently; material alteration; may not; alteration 
A)  negligently; fraud in the inducement; may; alteration 
B)  negligently; presentment; may not; alteration 
C)  intentionally; material alteration; may; alteration 
D)  negligently; material alteration; may not; alteration

Question 10

A(n) ____________ of a note is required to ____________ the instrument without reservations of any kind.

Accepted Answer

A)  indorser; pay 
B)  maker; pay 
C)  drawer; transfer 
D)  maker; assign 
A)  indorser; pay 
B)  maker; pay 
C)  drawer; transfer 
D)  maker; assign

Question 11

Notice of dishonor of a check may only be given through a Federal Reserve Bank.

Accepted Answer

A) True 
 B)False

Question 12

The modern concept of good faith emerged from within the practices of the medieval principles of the Law Merchant.

Accepted Answer

A) True 
 B)False

Question 13

A check is overdue ninety days after its date.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is true of real defenses?

Accepted Answer

A)  Real defenses can be used against holders, but not holders in due course. 
B)  Anyone who has a real defense is required to pay an instrument. 
C)  Real defenses can be used against everyone, including holders in due course. 
D)  Real defenses include breach of contract, failure or lack of consideration, fraud in the inducement, and payment. 
A)  Real defenses can be used against holders, but not holders in due course. 
B)  Anyone who has a real defense is required to pay an instrument. 
C)  Real defenses can be used against everyone, including holders in due course. 
D)  Real defenses include breach of contract, failure or lack of consideration, fraud in the inducement, and payment.

Question 15

Only the maker of the note is obligated to pay an instrument without reservations of any kind.

Accepted Answer

A) True 
 B)False

Question 16

To be a holder in due course, the person in possession of the instrument must first be an indorser.

Accepted Answer

A) True 
 B)False

Question 17

A holder in due course of a negotiable instrument:

Accepted Answer

A)  can receive more rights than the previous holders. 
B)  cannot transfer greater rights than they have themselves. 
C)  can take an instrument even when it is not indorsed to him or her. 
D)  is a person to whom the instrument is transferred as a gift. 
A)  can receive more rights than the previous holders. 
B)  cannot transfer greater rights than they have themselves. 
C)  can take an instrument even when it is not indorsed to him or her. 
D)  is a person to whom the instrument is transferred as a gift.

Question 18

Charles writes a check payable to Jane on his account at Friendly Bank. Friendly accepts the check, but subsequently determines that there are insufficient funds in Charles' account to pay the check. Explain what liability Charles has.

Accepted Answer

If a bank accepts a

Question 19

Ten-year old Felicity fell in love with a golden retriever puppy which she saw in the window of Pet World. She decided to use the money she had saved from her paper route to buy the dog and wrote a $300 check, payable to Pet World. Does Pet World qualify as a holder in due course?

Accepted Answer

No. To be a holder in due course, a hold

Question 20

Bob purchases a $1,000 negotiable promissory note from a stranger for $100 that appears to be valid. Will Bob qualify as a holder in due course?

Accepted Answer

Good faith means honesty in fa

Exam 17: Holders in Due Course Defenses and Liabilities

A holder in due course must show that he took the instrument (1) for fair value, (2) in good faith. and (3) without any alteration.

Which of the following is true of using the defense of failure of consideration by a maker or drawer of an instrument?

A person may not acquire the rights of a holder in due course if she cannot qualify as a holder in due course.

A defense that may not be used against a holder in due course of a negotiable instrument is a:

A holder in due course of a negotiable instrument can never have more rights than previous holders of the instrument.

According to the FTC's ____________, holders in due course who possess consumer credit contracts are subject to all claims and defenses that the buyer could use against the seller.

A "holder in due course" takes an instrument without notice that anything is wrong with the underlying transaction.

Juanita received a negotiable instrument as a Christmas present and is, therefore, a holder in due course.

Any person who ____________ contributes to the ____________ of an instrument ____________ exercise the defense of ____________ against a holder in due course who pays the instrument in good faith.

A(n) ____________ of a note is required to ____________ the instrument without reservations of any kind.

Notice of dishonor of a check may only be given through a Federal Reserve Bank.

The modern concept of good faith emerged from within the practices of the medieval principles of the Law Merchant.

A check is overdue ninety days after its date.

Which of the following is true of real defenses?

Only the maker of the note is obligated to pay an instrument without reservations of any kind.

To be a holder in due course, the person in possession of the instrument must first be an indorser.

A holder in due course of a negotiable instrument:

Charles writes a check payable to Jane on his account at Friendly Bank. Friendly accepts the check, but subsequently determines that there are insufficient funds in Charles' account to pay the check. Explain what liability Charles has.

Ten-year old Felicity fell in love with a golden retriever puppy which she saw in the window of Pet World. She decided to use the money she had saved from her paper route to buy the dog and wrote a $300 check, payable to Pet World. Does Pet World qualify as a holder in due course?

Bob purchases a $1,000 negotiable promissory note from a stranger for $100 that appears to be valid. Will Bob qualify as a holder in due course?

Ethics, Social Responsibility, and the Law

Sources of the Law

The Judicial Process and Cyber-Procedure

Alternate Dispute Resolution

Criminal Law and Cybercrimes

Tort Law and Cybertorts

The Essentials of Contract Law

Offer, Acceptance, and Mutual Assent

Consideration and Cyber-Payments

Capacity and Legality: The Final Elements

Written Contracts and Cyber-Commerce

Third Parties, Discharge, and Remedies

Sales Contracts: Formation, Title, and Risk of Loss

Sales Contracts Rights, Duties, Breach, and Warranties

Product Liability and Consumer Protection

The Nature of Negotiable Instruments

Bank-Depositor Relationships and Cyber-Banking

Insurance

Mortgages and Security Interests

Bankruptcy and Debt Adjustment

Agency Law

Employment Law

Labor Law

Sole Proprietorships and Partnerships

The Corporate Entity

Corporate Governance

Government Regulation of Corporate Business

Personal Property and Bailments

Real Property and Landlord and Tenant Law

Wills, Trusts, and Advanced Directives

Professional Liability

The Intersection of Law and Science

International Law

Filters

Any person who contributes to the of an instrument exercise the defense of against a holder in due course who pays the instrument in good faith.

A(n) of a note is required to the instrument without reservations of any kind.