Question 1

If an issuer forgets to write the date on a check,what is the effect?

Accepted Answer

A) The payee may write in the date consistent with the intent of the issuer and may transfer the check to a holder in due course. 
B) The check is no good,cannot be completed by anyone,and should be destroyed. 
C) The payee may write in the date consistent with the intent of the issuer,but must put a notation on the check to the effect that it was altered. 
D) The check is good only if the payee can get in touch with the issuer and have the issuer fill in the appropriate date. 
E) The payee may write in the date consistent with the intent of the issuer,but may not transfer the check to a holder in due course. 
A) The payee may write in the date consistent with the intent of the issuer and may transfer the check to a holder in due course. 
B) The check is no good,cannot be completed by anyone,and should be destroyed. 
C) The payee may write in the date consistent with the intent of the issuer,but must put a notation on the check to the effect that it was altered. 
D) The check is good only if the payee can get in touch with the issuer and have the issuer fill in the appropriate date. 
E) The payee may write in the date consistent with the intent of the issuer,but may not transfer the check to a holder in due course. A

Question 2

Kira,who owned a pet store,bought a number of dog leashes from a business called Happy Paws in Florida.Kira,who was somewhat unorganized,was very busy and told her assistant,Gio,to pay her bills,including the bill she owed to Happy Paws.Kira had lost the invoice.She knew that she owed Happy Paws $1,000,and simply told Gio to send Happy Paws $1,000.She told Gio she did not know the address,but that he should be able to find it on the Internet.Gio checked on the Internet and found a listing and an address for a company called Happy Paws in North Carolina.Gio sent the check for $1,000 to Happy Paws in North Carolina.The bookkeeper for Happy Paws in North Carolina did not act in bad faith and thought that the check was for goods sent to Kira.The treasurer endorsed Kira's check along with a number of other checks to ABC Financing Company in order to receive operating funds.Happy Paws in North Carolina was not affiliated with the Florida Happy Paws.In fact,Happy Paws in North Carolina sold booties for children.Happy Paws in North Carolina was also in financial difficulty and went bankrupt.Happy Paws in Florida contacted Kira regarding the $1,000 they were owed.Kira and Gio then discovered their mistake.They requested that Happy Paws in North Carolina refund the money,but bankruptcy prevented that.Kira then attempted to get the funds returned from ABC Financing.What is the most likely result regarding Kira's attempt to receive the funds from ABC Financing and why?

Accepted Answer

It is unlikely that Kira will be able to receive a refund.The reason is that ABC Financing satisfied the following requirements for holder-in-due-course status:

Question 3

Which of the following are types of unqualified endorsements?

Accepted Answer

A) Allonge and blank. 
B) Allonge and special. 
C) Qualified and special. 
D) Blank and special. 
E) Qualified and blank. 
A) Allonge and blank. 
B) Allonge and special. 
C) Qualified and special. 
D) Blank and special. 
E) Qualified and blank. D

Question 4

Under the Shelter Principle:

Accepted Answer

A) The transferee does not acquire all the rights the transferor had in the item. 
B) A holder may acquire the rights and privileges of an HDC even if the instrument is not transferred directly from an HDC. 
C) A holder may not acquire the rights of an HDC unless the instrument is transferred directly from an HDC. 
D) The holder may not acquire the rights of an HDC if the instrument has been previously dishonored. 
E) A holder who engages in fraud still may become an HDC if he or she later obtains the instrument from an HDC. 
A) The transferee does not acquire all the rights the transferor had in the item. 
B) A holder may acquire the rights and privileges of an HDC even if the instrument is not transferred directly from an HDC. 
C) A holder may not acquire the rights of an HDC unless the instrument is transferred directly from an HDC. 
D) The holder may not acquire the rights of an HDC if the instrument has been previously dishonored. 
E) A holder who engages in fraud still may become an HDC if he or she later obtains the instrument from an HDC.

Question 5

What is the effect on Kelsey's status as a holder in due course in taking from the customer the check that was four months old?

Accepted Answer

A) There is no effect on her status as a holder in due course because an instrument is only considered overdue if it is outstanding for one year. 
B) There is no effect on her status as a holder in due course because an instrument such as a check is only considered overdue if it is outstanding for 150 days. 
C) She would not be considered a holder in due course because a check is considered overdue 90 days after its date. 
D) There is no effect on her status as a holder in due course because an instrument is only considered overdue if it is outstanding for 180 days. 
E) It has no effect because a check is never considered overdue. 
A) There is no effect on her status as a holder in due course because an instrument is only considered overdue if it is outstanding for one year. 
B) There is no effect on her status as a holder in due course because an instrument such as a check is only considered overdue if it is outstanding for 150 days. 
C) She would not be considered a holder in due course because a check is considered overdue 90 days after its date. 
D) There is no effect on her status as a holder in due course because an instrument is only considered overdue if it is outstanding for 180 days. 
E) It has no effect because a check is never considered overdue.

Question 6

What kind of endorsement do the words,"Pay to Allan Smith" followed by the endorser's signature create?

Accepted Answer

A) Special 
B) Specific 
C) Blank 
D) Qualified 
E) Allonge 
A) Special 
B) Specific 
C) Blank 
D) Qualified 
E) Allonge

Question 7

Would the school be able to require that Jenna cover the amount of the check based on the law of negotiable instruments?

Accepted Answer

A) Yes,because she signed on the back with a special qualified endorsement. 
B) Yes,because she signed on the back regardless of the type of endorsement. 
C) No,because the check was not properly delivered to Brad. 
D) Yes,because she signed on the back with a blank unqualified endorsement. 
E) No,because she signed on the back using the words,"without recourse." 
A) Yes,because she signed on the back with a special qualified endorsement. 
B) Yes,because she signed on the back regardless of the type of endorsement. 
C) No,because the check was not properly delivered to Brad. 
D) Yes,because she signed on the back with a blank unqualified endorsement. 
E) No,because she signed on the back using the words,"without recourse."

Question 8

Which of the following is not an example of a restrictive endorsement?

Accepted Answer

A) The endorsement for deposit or collection only. 
B) The conditional endorsement. 
C) The endorsement to prohibit further endorsement. 
D) The trust endorsement. 
E) The endorsement specifying without recourse. 
A) The endorsement for deposit or collection only. 
B) The conditional endorsement. 
C) The endorsement to prohibit further endorsement. 
D) The trust endorsement. 
E) The endorsement specifying without recourse.

Question 9

Which of the following is true regarding how a holder may take an instrument for value,but not become a holder in due course?

Accepted Answer

A) The UCC provides that the only method by which a holder may take an instrument for value but not become a holder in due course is when the holder acquires an instrument through taking over an estate. 
B) The UCC does not recognize circumstances under which a holder may take an instrument for value but not become a holder in due course,although under common law,a person who acquired an instrument through taking over an estate was classified as a holder but not a holder in due course. 
C) The UCC provides that a holder may take an instrument for value but not become a holder in due course under the following two circumstances: 1)when the holder purchases the instrument at judicial sale or under legal process,and 2)when the holder acquires an instrument through taking over an estate. 
D) The UCC provides that the only method by which a holder may take an instrument for value but not become a holder in due course is when the holder purchases the instrument at judicial sale or under legal process. 
E) The UCC provides that a holder may take an instrument for value but not become a holder in due course under the following three circumstances: 1)when the holder purchases the instrument at judicial sale or under legal process,2)when the holder acquires an instrument through taking over an estate,and 3)when the holder purchases the instrument as part of a bulk transaction not in the regular course of business of the transferor. 
A) The UCC provides that the only method by which a holder may take an instrument for value but not become a holder in due course is when the holder acquires an instrument through taking over an estate. 
B) The UCC does not recognize circumstances under which a holder may take an instrument for value but not become a holder in due course,although under common law,a person who acquired an instrument through taking over an estate was classified as a holder but not a holder in due course. 
C) The UCC provides that a holder may take an instrument for value but not become a holder in due course under the following two circumstances: 1)when the holder purchases the instrument at judicial sale or under legal process,and 2)when the holder acquires an instrument through taking over an estate. 
D) The UCC provides that the only method by which a holder may take an instrument for value but not become a holder in due course is when the holder purchases the instrument at judicial sale or under legal process. 
E) The UCC provides that a holder may take an instrument for value but not become a holder in due course under the following three circumstances: 1)when the holder purchases the instrument at judicial sale or under legal process,2)when the holder acquires an instrument through taking over an estate,and 3)when the holder purchases the instrument as part of a bulk transaction not in the regular course of business of the transferor.

Question 10

Allison worked for ABC Company as the company treasurer.She took 20 of ABC Company's checks,labeled as belonging to ABC Company.Over the course of one year,she signed and mailed the checks to American Express,her own credit card company,to pay her personal credit card debt.Assuming the court follows Watson Coatings Inc. ,v.American Express Travel Services Inc. ,the case in the text,which of the following is the most likely result in a lawsuit by ABC Company against American Express to recover the amounts of the checks?

Accepted Answer

A) ABC Company will prevail because American Express should have realized that fraud was involved from the fact that the checks were ABC Company checks. 
B) American Express will prevail and will not be required to return funds. 
C) ABC Company will prevail because fraud was involved. 
D) American Express will have to return half of the funds because the parties were equally at fault,American Express for taking the checks,and ABC Company for not more carefully supervising its employee. 
E) ABC Company will prevail because American Express,as a payee,does not qualify as a holder in due course. 
A) ABC Company will prevail because American Express should have realized that fraud was involved from the fact that the checks were ABC Company checks. 
B) American Express will prevail and will not be required to return funds. 
C) ABC Company will prevail because fraud was involved. 
D) American Express will have to return half of the funds because the parties were equally at fault,American Express for taking the checks,and ABC Company for not more carefully supervising its employee. 
E) ABC Company will prevail because American Express,as a payee,does not qualify as a holder in due course.

Question 11

Which of the following was the result in Michael J.Kane,Jr.v.Grace Kroll,the case in the text in which the defendant issued a check to the plaintiff to cover the plaintiff's sale of cows to the defendant's son,but later stopped payment on the check because her son said he could not repay her?

Accepted Answer

A) The plaintiff was allowed to recover on a contract theory although he was not a holder in due course. 
B) The plaintiff was not allowed to recover because,although he was a holder in due course,the stop payment order negated his entitlement to payment. 
C) The plaintiff was allowed to recover because he was a holder in due course. 
D) The plaintiff was not allowed to recover because the defendant established a lack of consideration to her. 
E) The plaintiff was not allowed to recover because the stop payment order prevented the plaintiff from being a holder in due course. 
A) The plaintiff was allowed to recover on a contract theory although he was not a holder in due course. 
B) The plaintiff was not allowed to recover because,although he was a holder in due course,the stop payment order negated his entitlement to payment. 
C) The plaintiff was allowed to recover because he was a holder in due course. 
D) The plaintiff was not allowed to recover because the defendant established a lack of consideration to her. 
E) The plaintiff was not allowed to recover because the stop payment order prevented the plaintiff from being a holder in due course.

Question 12

A holder may still become a holder in due course if he or she is aware of which of the following defects?

Accepted Answer

A) The instrument contains an unauthorized signature. 
B) The instrument is overdue. 
C) There is a claim to the instrument. 
D) The instrument has been dishonored. 
E) The instrument contains a misspelled name. 
A) The instrument contains an unauthorized signature. 
B) The instrument is overdue. 
C) There is a claim to the instrument. 
D) The instrument has been dishonored. 
E) The instrument contains a misspelled name.

Question 13

Which of the following is the result if a payee who receives an instrument with missing information completes the missing information in a way that is inconsistent with the intent of issuer,and the instrument has been clearly materially altered?

Accepted Answer

A) The instrument is considered materially altered,but it only prevents transfer to a holder in due course if the transferee participated in the material alteration. 
B) The person taking the instrument cannot become a holder in due course. 
C) The instrument is considered materially altered,but it only prevents transfer to a holder in due course if the holder in due course had knowledge that the payee had done the alteration. 
D) There is no effect so long as the payee can establish that he or she did not receive any more consideration than that to which the payee was entitled. 
E) The alteration does not prevent a person taking the flawed instrument from becoming a holder in due course. 
A) The instrument is considered materially altered,but it only prevents transfer to a holder in due course if the transferee participated in the material alteration. 
B) The person taking the instrument cannot become a holder in due course. 
C) The instrument is considered materially altered,but it only prevents transfer to a holder in due course if the holder in due course had knowledge that the payee had done the alteration. 
D) There is no effect so long as the payee can establish that he or she did not receive any more consideration than that to which the payee was entitled. 
E) The alteration does not prevent a person taking the flawed instrument from becoming a holder in due course.

Question 14

Which of the following may endorse an instrument made payable to a legal entity such as a partnership?

Accepted Answer

A) The bookkeeper only. 
B) The managing partner only. 
C) Any authorized representative. 
D) The financial officer only. 
E) The treasurer only. 
A) The bookkeeper only. 
B) The managing partner only. 
C) Any authorized representative. 
D) The financial officer only. 
E) The treasurer only.

Question 15

Which of the following is the term for a person creating an endorsement?

Accepted Answer

A) A transferee 
B) An endorsee 
C) A transferor 
D) An allonge 
E) An endorser 
A) A transferee 
B) An endorsee 
C) A transferor 
D) An allonge 
E) An endorser

Question 16

For negotiation,which of the following types of paper require only delivery of the instrument to the holder by the payee?

Accepted Answer

A) Acknowledgement 
B) Order 
C) Transfer 
D) Bearer 
E) Delivery 
A) Acknowledgement 
B) Order 
C) Transfer 
D) Bearer 
E) Delivery

Question 17

What is the effect of an unqualified,blank endorsement?

Accepted Answer

A) It turns an allonge into an endorsement. 
B) It turns a blank endorsement into a special endorsement. 
C) It turns previous bearer paper into order paper. 
D) It turns previous order paper into bearer paper. 
E) It turns an endorsement into an allonge. 
A) It turns an allonge into an endorsement. 
B) It turns a blank endorsement into a special endorsement. 
C) It turns previous bearer paper into order paper. 
D) It turns previous order paper into bearer paper. 
E) It turns an endorsement into an allonge.

Question 18

An endorsement to prohibit further endorsement prohibits further transfer.

Accepted Answer

A) True 
 B)False

Question 19

A party cannot be a holder in due course of a non-negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 20

A payee may not be a holder in due course.

Accepted Answer

A) True 
 B)False

Exam 27: Negotiation, holder in Due Course, and Defenses

If an issuer forgets to write the date on a check,what is the effect?

Which of the following are types of unqualified endorsements?

Under the Shelter Principle:

What is the effect on Kelsey's status as a holder in due course in taking from the customer the check that was four months old?

What kind of endorsement do the words,"Pay to Allan Smith" followed by the endorser's signature create?

Would the school be able to require that Jenna cover the amount of the check based on the law of negotiable instruments?

Which of the following is not an example of a restrictive endorsement?

Which of the following is true regarding how a holder may take an instrument for value,but not become a holder in due course?

Which of the following was the result in Michael J.Kane,Jr.v.Grace Kroll,the case in the text in which the defendant issued a check to the plaintiff to cover the plaintiff's sale of cows to the defendant's son,but later stopped payment on the check because her son said he could not repay her?

A holder may still become a holder in due course if he or she is aware of which of the following defects?

Which of the following is the result if a payee who receives an instrument with missing information completes the missing information in a way that is inconsistent with the intent of issuer,and the instrument has been clearly materially altered?

Which of the following may endorse an instrument made payable to a legal entity such as a partnership?

Which of the following is the term for a person creating an endorsement?

For negotiation,which of the following types of paper require only delivery of the instrument to the holder by the payee?

What is the effect of an unqualified,blank endorsement?

An endorsement to prohibit further endorsement prohibits further transfer.

A party cannot be a holder in due course of a non-negotiable instrument.

A payee may not be a holder in due course.

An Introduction to Dynamic Business Law

Business Ethics

The Uslegal System

Alternative Dispute Resolution

Constitutional Principles

International and Comparative Law

Crime and the Business Community

Tort Law

Negligence and Strict Liability

Product Liability

Liability of Accountants and Other Professionals

Intellectual Property

Introduction to Contracts

Agreement

Consideration

Capacity and Legality

Legal Assent

Contracts in Writing

Third-Party Rights to Contracts

Discharge and Remedies

Introduction to Sales and Lease Contracts

Title,risk of Loss,and Insurable Interest

Performance and Obligations Under Sales and Leases

Remedies for Breach of Sales and Lease Contracts

Warranties

Negotiable Instruments: Negotiability and Transferability

Liability, defenses, and Discharge

Checks and Electronic Fund Transfers

Secured Transactions

Other Creditors Remedies and Suretyship

Bankruptcy and Reorganization

Agency Formation and Duties

Liability to Third Parties and Termination

Forms of Business Organization

Partnerships: Nature, formation, and Operation

Partnerships: Termination and Limited Partnerships

Corporations: Formation and Financing

Corporations: Directors, officers, and Shareholders

Corporations: Mergers, consolidations, terminations

Corporations: Securities and Investor Protection

Employment and Labor Law

Employment Discrimination

Administrative Law

Consumer Law

Environmental Law

Antitrust Law

The Nature of Property, personal Property, and Bailments

Real Property

Landlord-Tenant Law

Insurance Law

Wills and Trusts

Filters