Question 1

List the claims and defenses available to a holder in due course under the Revised Article 3 of the Uniform Commercial Code.

Accepted Answer

Under Revised Article 3 of the Uniform Commercial Code, there are four categories of claims and defenses available to a holder in due course. These include:
(1) real defenses-which go to the validity of the instrument;
(2) personal defenses-which generally arise out of the transaction that gave rise to the instrument;
(3) claims to an instrument-which generally concern property or possessory rights in an instrument or its proceeds;
(4) claims in recoupment-which arise out of the transaction that gave rise to the instrument.

Question 2

The claims and defenses to payment of an instrument that go to the validity of the instrument are called _____.

Accepted Answer

A)  real defenses 
B)  personal defenses 
C)  claims in recoupment 
D)  claims to an instrument 
A)  real defenses 
B)  personal defenses 
C)  claims in recoupment 
D)  claims to an instrument A

Question 3

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. B

Question 4

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 5

Under the Revised Article 3 of the Uniform Commercial Code, a check deposited in a depositary bank without indorsement makes the:

Accepted Answer

A)  bank a holder of an item delivered to it only if the customer indorses it. 
B)  bank a holder of an item delivered to it for collection whether or not the customer indorses it. 
C)  customer the holder only if the bank indorses it at the time of delivery. 
D)  customer the holder only if the bank at the time of delivery qualified as a holder. 
A)  bank a holder of an item delivered to it only if the customer indorses it. 
B)  bank a holder of an item delivered to it for collection whether or not the customer indorses it. 
C)  customer the holder only if the bank indorses it at the time of delivery. 
D)  customer the holder only if the bank at the time of delivery qualified as a holder.

Question 6

A claim in recoupment:

Accepted Answer

A)  is a claim of the original payee against the obligor of the instrument. 
B)  must arise from the transaction that gave rise to the instrument. 
C)  is actually not an offset to liability, but a defense to an instrument. 
D)  can make a person a holder in due course even if he knows about it before the negotiation. 
A)  is a claim of the original payee against the obligor of the instrument. 
B)  must arise from the transaction that gave rise to the instrument. 
C)  is actually not an offset to liability, but a defense to an instrument. 
D)  can make a person a holder in due course even if he knows about it before the negotiation.

Question 7

A person who receives a check as a gift cannot qualify as a holder in due course.

Accepted Answer

A) True 
 B)False

Question 8

How does one become a "holder in due course"?

Accepted Answer

In order to become a holder in due cours

Question 9

An instrument payable to bearer may be negotiated by transfer of possession alone.

Accepted Answer

A) True 
 B)False

Question 10

There are three basic kinds of indorsements: (1) special, (2) blank, and (3) constructive.

Accepted Answer

A) True 
 B)False

Question 11

Order paper can be negotiated by transfer of possession of the instrument after indorsement by the person specified.

Accepted Answer

A) True 
 B)False

Question 12

A holder in due course takes a negotiable instrument free of all personal defenses and claims to the instrument, but is subject to claims in recoupment either of the person obligated on the instrument or of a third party.

Accepted Answer

A) True 
 B)False

Question 13

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 14

If an indorser merely signs his name and does not specify to whom the instrument is payable, he has made a constructive indorsement.

Accepted Answer

A) True 
 B)False

Question 15

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 16

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

Accepted Answer

Students' answers may vary. Personal def

Question 17

With instruments payable at a definite time, Revised Article 3 of the Uniform Commercial Code requires that if:

Accepted Answer

A)  the principal is not payable in installments and the due date has not been accelerated, the instrument is overdue on the day after the due date. 
B)  the principal is due in installments and a due date has not been accelerated, the instrument is overdue on the day after the due date. 
C)  a due date for the principal has been accelerated, the instrument is overdue upon default. 
D)  there is a default in payment of the interest but no default in the payment of principal, the instrument becomes overdue. 
A)  the principal is not payable in installments and the due date has not been accelerated, the instrument is overdue on the day after the due date. 
B)  the principal is due in installments and a due date has not been accelerated, the instrument is overdue on the day after the due date. 
C)  a due date for the principal has been accelerated, the instrument is overdue upon default. 
D)  there is a default in payment of the interest but no default in the payment of principal, the instrument becomes overdue.

Question 18

A person is not a holder if she is in possession of an instrument that is payable to bearer.

Accepted Answer

A) True 
 B)False

Question 19

An indorsement that specifies the purpose of the indorsement or specifies the use to be made of the instrument is termed as a _____ indorsement.

Accepted Answer

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

Question 20

Fraud in the essence is an example of a real defense that can be used as a reason against payment of a negotiable instrument to any holder, including a holder in due course.

Accepted Answer

A) True 
 B)False

Exam 39: Negotiation and Holder in Due Course

List the claims and defenses available to a holder in due course under the Revised Article 3 of the Uniform Commercial Code.

The claims and defenses to payment of an instrument that go to the validity of the instrument are called _____.

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

An instrument payable to cash:

Under the Revised Article 3 of the Uniform Commercial Code, a check deposited in a depositary bank without indorsement makes the:

A claim in recoupment:

A person who receives a check as a gift cannot qualify as a holder in due course.

How does one become a "holder in due course"?

An instrument payable to bearer may be negotiated by transfer of possession alone.

There are three basic kinds of indorsements: (1) special, (2) blank, and (3) constructive.

Order paper can be negotiated by transfer of possession of the instrument after indorsement by the person specified.

A holder in due course takes a negotiable instrument free of all personal defenses and claims to the instrument, but is subject to claims in recoupment either of the person obligated on the instrument or of a third party.

If an indorser merely signs his name and does not specify to whom the instrument is payable, he has made a constructive indorsement.

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

With instruments payable at a definite time, Revised Article 3 of the Uniform Commercial Code requires that if:

A person is not a holder if she is in possession of an instrument that is payable to bearer.

An indorsement that specifies the purpose of the indorsement or specifies the use to be made of the instrument is termed as a _____ indorsement.

Fraud in the essence is an example of a real defense that can be used as a reason against payment of a negotiable instrument to any holder, including a holder in due course.

Law, Legal Reasoning, and the Legal Profession

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Business and the Constitution

Crimes

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The Form and Meaning of Contracts

Third Parties Contract Rights

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Introduction to Security

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