Question 1

A _____ indorsement is one where the indorser disclaims her liability to make the instrument good if the maker or drawer defaults on it.

Accepted Answer

A)  special 
B)  conditional 
C)  qualified 
D)  blank 
A)  special 
B)  conditional 
C)  qualified 
D)  blank C

Question 2

Under the new Article 3, a depositary bank cannot become a holder of a check that is deposited by a customer without an indorsement.

Accepted Answer

A) True 
 B)False  False

Question 3

On June 1, Mike writes a check payable to Pete. Without ever being paid, the check is eventually negotiated to Hal, who receives it on September 15, with notice of the date on its face. Hal is not a holder in due course of the check.

Accepted Answer

A) True 
 B)False  True

Question 4

Which of the following is a "real" defense that is good against a holder in due course of a note?

Accepted Answer

A)  The maker of the note is 15 years old. 
B)  The note was procured by the payee's threat to prosecute the maker for drug dealing. 
C)  No consideration was given for the note. 
D)  The maker was in a seriously delusional state when he completed the note (but had not been declared insane or institutionalized). 
A)  The maker of the note is 15 years old. 
B)  The note was procured by the payee's threat to prosecute the maker for drug dealing. 
C)  No consideration was given for the note. 
D)  The maker was in a seriously delusional state when he completed the note (but had not been declared insane or institutionalized).

Question 5

Anyone other than a bank, who purchases a check indorsed "for deposit," has converted it; unless the indorser received the amount paid for the check or the bank deposited the check in the indorser's account.

Accepted Answer

A) True 
 B)False

Question 6

If a check is drawn "Pay to the order of Maria" and Maria indorses it "pay to the order of Jay, Maria". This falls under:

Accepted Answer

A)  blank indorsement. 
B)  restrictive indorsement. 
C)  special indorsement. 
D)  simple indorsement. 
A)  blank indorsement. 
B)  restrictive indorsement. 
C)  special indorsement. 
D)  simple indorsement.

Question 7

A _____ indorsement can be used with either a blank indorsement or a special indorsement.

Accepted Answer

A)  rebuttal 
B)  conditional 
C)  qualified 
D)  restrictive 
A)  rebuttal 
B)  conditional 
C)  qualified 
D)  restrictive

Question 8

_____ is defined to mean "a signature (other than that of a maker, drawer or acceptor) that alone or accompanied by other words, is made on an instrument for purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser's liability on the instrument."

Accepted Answer

A)  Indemnification 
B)  Recoupment 
C)  Indorsement 
D)  Ratification 
A)  Indemnification 
B)  Recoupment 
C)  Indorsement 
D)  Ratification

Question 9

An instrument that is payable "to the order of cash" can be negotiated simply by giving it to the person to whom you wish to transfer it.

Accepted Answer

A) True 
 B)False

Question 10

The new Article 3 recognizes and enforces indorsements that prohibit further negotiation of the instrument.

Accepted Answer

A) True 
 B)False

Question 11

What is the shelter rule in Article 3?

Accepted Answer

The transferee of an instrument-whether

Question 12

The new Article 3 no longer considers _____ as restrictive indorsements.

Accepted Answer

A)  indorsements for deposit 
B)  conditional indorsements 
C)  indorsements directing the indorsee to act for someone else's benefit 
D)  indorsements for collection 
A)  indorsements for deposit 
B)  conditional indorsements 
C)  indorsements directing the indorsee to act for someone else's benefit 
D)  indorsements for collection

Question 13

If a negotiable instrument is payable on demand, it is overdue:

Accepted Answer

A)  the day before the demand for payment has been made. 
B)  30 days after the demand for payment has been made. 
C)  the day after demand for the payment has been made in a proper manner. 
D)  the week after payment has been demanded. 
A)  the day before the demand for payment has been made. 
B)  30 days after the demand for payment has been made. 
C)  the day after demand for the payment has been made in a proper manner. 
D)  the week after payment has been demanded.

Question 14

Generally, real defenses arise out of the transaction in which the negotiable instrument was issued and are based on negotiable instruments law or contract law.

Accepted Answer

A) True 
 B)False

Question 15

Pete Payee specially indorses a note payable to his order and also uses the words "without recourse." What is the effect of the words "without recourse" here?

Accepted Answer

By these words, Pete effective

Question 16

When a customer deposits a check to her account without an indorsement, then the bank:

Accepted Answer

A)  puts the sign of the manager under the typed name of the customer. 
B)  signs the customer's name. 
C)  stamps the name of the bank on the check to cover for the customer's signature. 
D)  stamps on it that it was deposited by the customer. 
A)  puts the sign of the manager under the typed name of the customer. 
B)  signs the customer's name. 
C)  stamps the name of the bank on the check to cover for the customer's signature. 
D)  stamps on it that it was deposited by the customer.

Question 17

A person cannot be a holder in due course of a negotiable instrument if, when she takes it, the instrument is irregular or some important or material term is blank.

Accepted Answer

A) True 
 B)False

Question 18

_____ indorsements indicate that they are effective only if the payee satisfies a certain condition.

Accepted Answer

A)  Special 
B)  Conditional 
C)  Qualified 
D)  Blank 
A)  Special 
B)  Conditional 
C)  Qualified 
D)  Blank

Question 19

If the holder's name on an instrument is misspelled or wrong, then the indorsement:

Accepted Answer

A)  can be made only in his name. 
B)  can be made only in the name that is on the instrument. 
C)  can be made either in his name or in the name that is on the instrument. 
D)  can be made by putting his name as well as the name that is on the instrument. 
A)  can be made only in his name. 
B)  can be made only in the name that is on the instrument. 
C)  can be made either in his name or in the name that is on the instrument. 
D)  can be made by putting his name as well as the name that is on the instrument.

Question 20

Which of the following indorsements is a special indorsement?

Accepted Answer

A)  "For collection only." 
B)  "Mel Gibbs" 
C)  "Pay to Jack Black in Trust for Mel Gibbs" 
D)  "Pay to the Order of Jack Black, Mel Gibbs" 
A)  "For collection only." 
B)  "Mel Gibbs" 
C)  "Pay to Jack Black in Trust for Mel Gibbs" 
D)  "Pay to the Order of Jack Black, Mel Gibbs"

Exam 32: Negotiation and Holder in Due Course

A _____ indorsement is one where the indorser disclaims her liability to make the instrument good if the maker or drawer defaults on it.

Under the new Article 3, a depositary bank cannot become a holder of a check that is deposited by a customer without an indorsement.

On June 1, Mike writes a check payable to Pete. Without ever being paid, the check is eventually negotiated to Hal, who receives it on September 15, with notice of the date on its face. Hal is not a holder in due course of the check.

Which of the following is a "real" defense that is good against a holder in due course of a note?

Anyone other than a bank, who purchases a check indorsed "for deposit," has converted it; unless the indorser received the amount paid for the check or the bank deposited the check in the indorser's account.

If a check is drawn "Pay to the order of Maria" and Maria indorses it "pay to the order of Jay, Maria". This falls under:

A _____ indorsement can be used with either a blank indorsement or a special indorsement.

An instrument that is payable "to the order of cash" can be negotiated simply by giving it to the person to whom you wish to transfer it.

The new Article 3 recognizes and enforces indorsements that prohibit further negotiation of the instrument.

What is the shelter rule in Article 3?

The new Article 3 no longer considers _____ as restrictive indorsements.

If a negotiable instrument is payable on demand, it is overdue:

Generally, real defenses arise out of the transaction in which the negotiable instrument was issued and are based on negotiable instruments law or contract law.

Pete Payee specially indorses a note payable to his order and also uses the words "without recourse." What is the effect of the words "without recourse" here?

When a customer deposits a check to her account without an indorsement, then the bank:

A person cannot be a holder in due course of a negotiable instrument if, when she takes it, the instrument is irregular or some important or material term is blank.

_____ indorsements indicate that they are effective only if the payee satisfies a certain condition.

If the holder's name on an instrument is misspelled or wrong, then the indorsement:

Which of the following indorsements is a special indorsement?

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