Question 1

An indorsee who accepts a defective instrument qualifies as a holder in due course.

Accepted Answer

A) True 
 B)False

Question 2

What are qualified indorsements?

Accepted Answer

The Uniform Commercial Code (UCC) permit

Question 3

A(n) ________ is an instrument that is payable to a specific payee or indorsed to a specific indorsee.

Accepted Answer

A)  bearer bond 
B)  bearer paper 
C)  allonge 
D)  order paper 
A)  bearer bond 
B)  bearer paper 
C)  allonge 
D)  order paper

Question 4

________ are required to negotiate order paper, but they are not required to negotiate bearer paper.

Accepted Answer

A)  Securities 
B)  Collaterals 
C)  Indorsements 
D)  Warranties 
A)  Securities 
B)  Collaterals 
C)  Indorsements 
D)  Warranties

Question 5

The transfer of rights under a nonnegotiable contract is known as an assignment.

Accepted Answer

A) True 
 B)False

Question 6

A(n) ________ is a signature and other directions written by or on behalf of the holder somewhere on an instrument.

Accepted Answer

A)  recommendation 
B)  assignment 
C)  indorsement 
D)  reference 
A)  recommendation 
B)  assignment 
C)  indorsement 
D)  reference

Question 7

An instrument containing a qualified indorsement can be further negotiated.

Accepted Answer

A) True 
 B)False

Question 8

An instrument that is refused payment when presented for payment is called a ________.

Accepted Answer

A)  blank instrument 
B)  restrictive instrument 
C)  demand instrument 
D)  dishonored instrument 
A)  blank instrument 
B)  restrictive instrument 
C)  demand instrument 
D)  dishonored instrument

Question 9

A holder in due course is subject to all the claims and defenses that can be asserted against the transferor.

Accepted Answer

A) True 
 B)False

Question 10

Which order paper when indorsed becomes a bearer paper?

Accepted Answer

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

Question 11

A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order, or to bearer, or in blank is referred to as a(n) ________.

Accepted Answer

A)  holder 
B)  holder in due course 
C)  assignor 
D)  assignee 
A)  holder 
B)  holder in due course 
C)  assignor 
D)  assignee

Question 12

An indorsement that does not specify a particular indorsee is known as a ________.

Accepted Answer

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

Question 13

If a person promises to perform but has not yet done so, no value has been given, and that person is not an HDC.

Accepted Answer

A) True 
 B)False

Question 14

An instrument can be converted from order paper to bearer paper and vice versa many times until the instrument is paid.

Accepted Answer

A) True 
 B)False

Question 15

An indorsement that contains the signature of the indorser and specifies the person to whom the indorser intends the instrument to be payable is known as a(n) ________.

Accepted Answer

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

Question 16

An indorser is allowed to indorse an instrument so as to make the indorsee his collecting agent.

Accepted Answer

A) True 
 B)False

Question 17

The transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder is referred to as a(n) ________.

Accepted Answer

A)  negotiation 
B)  assignment 
C)  indorsement 
D)  insurance 
A)  negotiation 
B)  assignment 
C)  indorsement 
D)  insurance

Question 18

Which of the following requirements has to be met for a holder to qualify as a holder in due course (HDC) under the shelter principle?

Accepted Answer

A)  The holder must not be in possession of a prior negotiable instrument. 
B)  The holder must have notice of a defense or claim against the payment of the instrument. 
C)  The holder must have been a party to a fraud or an illegality affecting the instrument. 
D)  The holder must have acquired the instrument from an HDC. 
A)  The holder must not be in possession of a prior negotiable instrument. 
B)  The holder must have notice of a defense or claim against the payment of the instrument. 
C)  The holder must have been a party to a fraud or an illegality affecting the instrument. 
D)  The holder must have acquired the instrument from an HDC.

Question 19

If an instrument is payable jointly using the word "and," both persons' indorsements are necessary to negotiate the instrument.

Accepted Answer

A) True 
 B)False

Question 20

What happens if the name of the indorsee or payee is misspelled in an indorsement?

Accepted Answer

A)  The instrument becomes nonnegotiable. 
B)  The instrument can be indorsed with the misspelled name. 
C)  The instrument has to be remade to be valid. 
D)  The instrument cannot be subsequently indorsed. 
A)  The instrument becomes nonnegotiable. 
B)  The instrument can be indorsed with the misspelled name. 
C)  The instrument has to be remade to be valid. 
D)  The instrument cannot be subsequently indorsed.

Exam 23: Holder in Due Course and Transferability

An indorsee who accepts a defective instrument qualifies as a holder in due course.

What are qualified indorsements?

A(n) ________ is an instrument that is payable to a specific payee or indorsed to a specific indorsee.

________ are required to negotiate order paper, but they are not required to negotiate bearer paper.

The transfer of rights under a nonnegotiable contract is known as an assignment.

A(n) ________ is a signature and other directions written by or on behalf of the holder somewhere on an instrument.

An instrument containing a qualified indorsement can be further negotiated.

An instrument that is refused payment when presented for payment is called a ________.

A holder in due course is subject to all the claims and defenses that can be asserted against the transferor.

Which order paper when indorsed becomes a bearer paper?

A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order, or to bearer, or in blank is referred to as a(n) ________.

An indorsement that does not specify a particular indorsee is known as a ________.

If a person promises to perform but has not yet done so, no value has been given, and that person is not an HDC.

An instrument can be converted from order paper to bearer paper and vice versa many times until the instrument is paid.

An indorsement that contains the signature of the indorser and specifies the person to whom the indorser intends the instrument to be payable is known as a(n) ________.

An indorser is allowed to indorse an instrument so as to make the indorsee his collecting agent.

The transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder is referred to as a(n) ________.

Which of the following requirements has to be met for a holder to qualify as a holder in due course (HDC) under the shelter principle?

If an instrument is payable jointly using the word "and," both persons' indorsements are necessary to negotiate the instrument.

What happens if the name of the indorsee or payee is misspelled in an indorsement?

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