Deck 27: Transfer and Holder in Due Course

Question 1

The requirements for negotiation are the same for both order paper and bearer paper.

Answer 1

False

Question 2

An indorsement may be written on a paper other than the instrument itself as long as the paper with the indorsement is affixed to the instrument.

Answer 2

True

Question 3

Revised Article 3 provides that the impostor rule does not include an impostor who impersonates an agent of a principal and who induces someone to create a negotiable instrument payable to the principal.

Answer 3

False

Question 4

A qualified indorsement destroys negotiability.

Question 5

The fictitious payee rule is based on the idea that employers should bear the risk of their own unscrupulous employees.

Question 6

A blank indorsement converts order paper to bearer paper and leaves bearer paper as bearer paper.

Question 7

The transfer of a nonnegotiable promise or order operates as an assignment.

Question 8

Bearer paper runs to whomever is in possession of it.

Question 9

The "impostor rule" is an exception to the general rule that negotiation of an order instrument requires a valid
indorsement by the person to whose order the instrument is payable.

Question 10

The principal advantage of negotiable instruments is their safety.

Question 11

An indorsement limiting payment to a particular person is effective.

Question 12

Under Article 3, the employer is allowed to recover from its bank, despite the applicability of the fictitious payee rule, if the bank failed to exercise ordinary care in paying the instrument.

Question 13

A bearer instrument is comparable to cash in that it is negotiated by mere possession.

Question 14

A negotiation obtained by duress, mistake, or fraud is ineffective to transfer the instrument.

Question 15

Subsequent indorsers are always bound by an indorsement in trust.

Question 16

Under the shelter rule, the transferee gets the rights of the transferor who is a holder in due course even if the transfer is not for value.

Question 17

A negotiation is void if the transaction in which it occurs is void.

Question 18

Every indorsement is either blank or special.

Question 19

Both negotiable instruments and nonnegotiable undertakings are transferable by assignment and can result in the
transferee's becoming a holder.

Question 20

The type of indorsement used in first negotiating an instrument affects its subsequent negotiation.

Question 21

An indorsement must be written within 1 1/2 inches of the trailing edge of the back of the check and must be written in ink or the check's negotiability is destroyed.

Question 22

Maria gives Joe $250 cash in return for Joe's indorsed check for $300.If Maria subsequently finds out that the check she took was given to Joe in return for a stolen car, Maria is no longer a holder in due course.

Question 23

A check is made payable "to the order of Sam Johnson." If this check is indorsed by Sam Johnson and given to Alex, Alex becomes the holder of the instrument.

Question 24

An executory promise is the giving of value to support holder in due course status.

Question 25

A mere holder or an assignee takes a negotiable instrument subject to all claims and defenses to it.

Question 26

A person who takes a check stamped "NSF" may still be a holder in due course.

Question 27

A bank "gives value" when it allows a depositor to withdraw funds against a deposited item.

Question 28

The status of holder in due course was created to encourage the free transferability of negotiable instruments.

Question 29

Revised Article 3 adopts a definition of good faith that has both a subjective and an objective component.

Question 30

It is necessary that one own the instrument to be a "holder."

Question 31

Glenn indorsed his paycheck by signing just his name and cashed it at the grocery store.The check was stolen from the store, indorsed in a false name and transferred to a convenience store.The convenience store could not be a holder in due course since the check had been stolen and indorsed with a false name.

Question 32

A holder in due course would have the right to collect from the original maker of an instrument even if the maker had a valid personal defense.

Question 33

The shelter rule applies even if the transferee was a party to fraud or illegality affecting the instrument.

Question 34

The "value" requirement of a holder in due course is the same as "consideration" for a contract.

Question 35

A "holder" may transfer the instrument, negotiate it, enforce payment of it subject to valid claims and defenses, and with some exceptions discharge it.

Question 36

A person other than the owner of an instrument cannot be entitled to enforce it.

Question 37

The Code provides that for checks, a reasonable time for demand for payment is sixty days, after which a purchaser should be on notice the paper is overdue for the purpose of becoming a holder in due course.

Question 38

A holder in due course has the same rights under a consumer credit contract as under the UCC as long as a special notice requirement has been met.

Question 39

A person is never entitled to enforce an instrument if that person is not the owner of the instrument or if that person is in wrongful possession of the instrument.

Question 40

Buying a negotiable instrument at a discounted price demonstrates lack of good faith.

Question 41

If there is no indorsee designated on an indorsement bearing only the indorser's signature, it is a(n):

A)qualified indorsement.
B)conditional indorsement.
C)blank indorsement.
D)allonge.

Question 42

Which of the following are not types of restrictive indorsements?

A)Conditional indorsements
B)Indorsements prohibiting further transfer
C)Indorsements in trust
D)Blank indorsements

Question 43

If Kathy indorses a check "without recourse":

A)Kathy is not contractually liable if the check is not paid.
B)negotiability is destroyed.
C)the check cannot be transferred.
D)Kathy cannot transfer good title to the check.

Question 44

An indorsement stating "Pay Paula Hobson only":

A)is designed to restrict the rights of the indorser.
B)is given the same effect as an unrestrictive indorsement.
C)will, under the Code, be effective to prohibit further transfer beyond Paula Hobson.
D)is labeled a "qualified indorsement," and it destroys negotiability.

Question 45

Ricardo is the holder of a check that contains the indorsement "Without Recourse, (signed) Mary Roberts." This indorsement:

A)makes further indorsement impossible.
B)requires a special indorsement by the transferee.
C)limits the liability of Mary Roberts.
D)limits the liability of all subsequent holders including Ricardo.

Question 46

Art signs a promissory note payable to the order of Swains Jewelers for $8,000 for a wedding ring.If the owner of Swains simply signs "Swains Jewelers":

A)the note is restrictively indorsed.
B)the indorsement is ineffective because the note will have to bear the signature of the person who indorsed it.
C)the note is negotiable by delivery.
D)the indorsement will be valid only if dated.

Question 47

Which of the following is not a restrictive indorsement?

A)"Without recourse"
B)"For deposit"
C)"Pay any bank"
D)"For collection"

Question 48

A person who knows that an instrument is overdue or has been dishonored cannot become a holder in due course.

Question 49

A payee may be a holder in due course under the Code.

Question 50

Which of the following is a special indorsement?

A)"John Doe"
B)"Without recourse, John Doe"
C)"Pay to Richard Roe, John Doe"
D)"John Doe, for collection only"

Question 51

Order paper is negotiated by:

A)indorsement alone.
B)delivery alone.
C)either delivery or indorsement.
D)transfer of possession and indorsement.

Question 52

A transfer of order paper:

A)gives the transferee the specifically enforceable right to have the unqualified indorsement of the transferor, whether the transfer was for value or not.
B)to a bank, such as the deposit of a check, without an indorsement requires the bank to provide the customer's indorsement.
C)not for value creates a presumption by the courts that the parties intended to negotiate rather than assign the paper.
D)for value creates a presumption by the courts that a negotiation was intended by the parties unless the parties have agreed that the transfer is to be an assignment, which requires no indorsement.

Question 53

Fraud in the execution of an instrument is a real defense which can be used against a holder in due course.

Question 54

Alexander Schwing indorses his check with his own name and the words "for deposit only." What type of indorsement is this?

A)A blank indorsement
B)A special indorsement
C)An unrestrictive indorsement
D)A blank, restrictive indorsement

Question 55

Delivery alone is insufficient to negotiate an instrument when it is payable to:

A)order and the last indorsement is in blank.
B)cash and signed by the drawer.
C)bearer and is not indorsed.
D)the order of John Jones and is not indorsed.

Question 56

Which of the following is a special unqualified indorsement?

A)Pay to the order of John Doe, without recourse
B)For deposit only, John Jones
C)Without recourse, Sandra Adams
D)Pay to the order of April Smith

Question 57

Assuming a note made by Barbara payable to Carol, which indorsement will limit negotiability?

A)"Pay Al.Carol"
B)"For deposit only, Acct.#602-043.Carol"
C)"Pay Connie for Al.Carol"
D)"Pay Claudia as attorney for John Jones.Carol"

Question 58

The customary manner of disclaiming the indorser's contractual liability is to add which of the following sets of words before or after his signature?

A)For collection only
B)Without recourse
C)Pay to the order of
D)For deposit only

Question 59

Under the shelter rule, a person who is not a holder in due course can obtain the rights of a holder in due course.

Question 60

One who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order or that is indorsed in blank is a(n):

A)bearer.
B)holder.
C)transferor.
D)assignee.

Question 61

A Federal Trade Commission rule limits the rights of a holder in due course of an instrument that evidences a debt arising out of a(n):

A)consumer credit contract.
B)insurance contract.
C)consumer purchase paid for with a check.
D)construction contract.

Question 62

All of the following are "real defenses" except a:

A)note made by a minor.
B)check written while a gun is held to the drawer's head.
C)note given in exchange for worthless securities.
D)check fraudulently changed from $100 to $400.

Question 63

An indorsement that is not in the chain of title is assumed to be a(n):

A)anomalous indorsement.
B)blank indorsement.
C)special indorsement.
D)indorsement in trust.

Question 64

Joanne had a paycheck from Pizza Plaza for $54 made out to her.She indorsed it with her name and gave it to Larry, who in return agreed to paint her living room next Saturday.In this case:

A)the check is not negotiable.
B)Larry is not a "holder."
C)Larry is not a "holder in due course."
D)Larry has given value for the check by his agreement.

Question 65

The notice requirement of the Federal Trade Commission rule for consumer credit contracts has the effect of:

A)limiting the types of defenses to payment available to a consumer.
B)eliminating the real defenses to payment.
C)placing a holder in due course in the position of an assignee.
D)permitting a holder in due course to have a questionable instrument reviewed by the FTC.

Question 66

Real defenses include all but which of the following?

A)Forgery of instrument
B)Minority of maker
C)Material alteration
D)Theft of bearer paper

Question 67

A holder in due course could recover from the maker where the:

A)maker's signature is forged.
B)bearer instrument was stolen after it was completed.
C)maker signed the instrument under physical duress.
D)maker is a fifteen-year-old.

Question 68

Scott buys a television from Joe's TV Store, giving Joe a check for $550.Joe uses a special indorsement and negotiates the check to Tom.Tom carefully changes the amount to read $1550 and loses the check on the way to the bank.Harry picks it up and tries to cash it.What will he get?

A)Scott will have to pay him $550.
B)Joe will have to pay him $550.
C)Tom will have to pay him $1550.
D)No one will have to pay Harry.

Question 69

Which of the following is not a real defense?

A)Forgery
B)Fraudulent alteration
C)Discharge in insolvency proceedings
D)Change in price

Question 70

Erin stole a paycheck from Carl prior to his indorsing it.She then forged Carl's signature and transferred the check to a gas station which took it in good faith, for value, without notice, and without reason to question its authenticity.The gas station:

A)was a holder in due course.
B)could not be a holder.
C)could be a holder, but not a holder in due course.
D)can collect the amount of the check only from the drawer since Carl did not indorse it.

Question 71

Blane indorsed his paycheck in blank and cashed it at a store where he was a well-known customer.The check was then stolen from the store.The store immediately notified Blane's employer, who gave the drawee bank a stop payment order.The thief indorsed the check in a false name and transferred the check to a gas station/convenience store, which took the check in good faith and for value.The check was dishonored when presented to the drawee bank.Which of the following statements is true?

A)The thief was a holder within the Code definition and could negotiate the check.
B)The thief could not negotiate the check because he forged the indorsement.
C)The gas station/convenience store is entitled to nothing from the drawer of the check.
D)The gas station/convenience store could not be a holder in due course because it took the check from a thief.

Question 72

Which one of the following is not a personal defense?

A)Infancy, to the extent that it is a defense to a simple contract
B)Breach of contract
C)Non-delivery of an instrument
D)Failure of consideration

Question 73

Alice Jones receives a bonus of $500 from her boss.She needs cash for her vacation, so she indorses the check to Charlie who gives her $300 cash and an IOU for $200.When Charlie presents the check to Alice's company for payment, her boss says the check was meant for Alex Jones instead; it was all a big mistake.What will Charlie be able to collect from the company?

A)$500
B)$300
C)$420
D)Nothing

Question 74

Clint induces David, by fraud in the inducement, to make an instrument payable to the order of Clint.Clint then negotiates the instrument to Eric, a holder in due course, and later reacquires it from Eric.In this case:

A)Clint is a holder in due course.
B)Clint is not a holder in due course, but he succeeds to the rights of one, because of the shelter rule.
C)Clint does not succeed to Eric's rights as a holder in due course and remains subject to the defense of fraud.
D)because fraud in the inducement is a real defense, it can be used against both Clint and Eric.

Question 75

Cynthia Todd is the holder of a check with the indorsement "Adam Brock." To protect herself, Cynthia may:

A)convert the special indorsement to a blank indorsement.
B)convert the special indorsement to a qualified indorsement.
C)write above Adam's signature, "Pay Cynthia Todd."
D)not convert the indorsements, but could only protect her interest in the check by depositing it in her account as soon as possible.

Question 76

Defenses that may be asserted against a holder in due course are called:

A)personal defenses.
B)real defenses.
C)special defenses.
D)holder in due course defenses.

Question 77

Miller does the payroll for XYZ Company.In between Adams and Bates, he inserts the name Appleton and makes out a weekly paycheck in that name.He keeps the check for himself, signing "Appleton" and cashing it at a local bank.Auditors discovered the fake payee many months later.May XYZ require the bank to recredit?

A)No, because of the holder rule
B)No, because Miller is an XYZ employee and the fictitious payee rule applies
C)Yes, because the indorsement is forged
D)Yes, because the check was, in effect, stolen

Question 78

Laura is in possession of a check which contains the following indorsement, "Sam Smith, without recourse, for collection only." The indorsement would be classified as:

A)blank, qualified, and restrictive.
B)blank, unqualified, and unrestrictive.
C)special, unqualified, and restrictive.
D)special, qualified, and unrestrictive.

Question 79

Personal defenses include all but which of the following?

A)Breach of contract
B)Fraud in the execution
C)Misrepresentation
D)Failure of consideration

Question 80

Which of the following is required regarding indorsements?

A)An indorsement must be written on the back side of the instrument.
B)There must be compliance with Federal Reserve Board guidelines in order for the instrument to be negotiable.
C)An indorsement must be written on the instrument or on a paper affixed to the instrument.
D)An indorsement must be dated.