Deck 27: Negotiation, Holder in Due Course, and Defenses

Question 1

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

Answer 1

True

Question 2

A bank has given value for a negotiable instrument to the extent that the bank has a security interest in the instrument.

Answer 2

True

Question 3

Once an instrument is negotiable, it remains negotiable.

Answer 3

True

Question 4

The transferability of an instrument may be limited by a restrictive endorsement.

Question 5

The requirement that a holder in due course must take an instrument for value can be satisfied by receiving an instrument as a gift.

Question 6

When an instrument is payable to joint payees, the endorsement only needs to be by the first payee.

Question 7

A person who engages in fraud may not obtain the rights of an HDC.

Question 8

A transaction involving a promissory note is an illegal transaction in Russia.

Question 9

Once negotiable, an instrument remains negotiable but a restrictive endorsement can limit what is done.

Question 10

In order for a holder to acquire the rights and privileges of an HDC, an instrument must be transferred directly from the HDC to the holder.

Question 11

A payee can never be considered a holder in due course.

Question 12

Which of the following did the court determine on appeal in Wawel Savings Bank v. Jersey Tractor Trailer Training Inc., the case in the text in which a lender who perfected an interest in a debtor's collateral claimed to have priority in bankruptcy over an entity who later entered into an agreement whereby it purchased rights to the debtor's accounts receivables?

A) Under the "first in time" rule, the court ruled in favor of the lender who perfected the interest in the debtor's collateral.
B) Under the "first to file" rule, the court ruled in favor of the lender who perfected the interest in the debtor's collateral.
C) The court ruled in favor of the purchaser of receivables on the basis that the agreement the lender had with the debtor did not expressly prohibit the sale of receivables.
D) The court ruled in favor of the purchaser of receivables on the basis that an immediate transaction for value was involved.
E) The court remanded the case for a determination as to whether the purchaser of receivables was a holder in due course or a purchaser of instruments, in which case it would prevail.

Question 13

A negotiable instrument cannot be ________ if it is accidentally found or given to the wrong person.

A) accepted
B) effective
C) valid
D) delivered
E) handled

Question 14

Negotiability can be destroyed by a conditional endorsement.

Question 15

An instrument is dishonored when a party refuses to pay the instrument, such as when a bank refuses to pay because insufficient funds exist.

Question 16

What is meant by the term "delivery" in the process of negotiation?

A) The physical handing of an instrument from someone entitled to it, to the person intended to receive it.
B) The passing of a warranty that the instrument is collectible.
C) The passing of a warranty that an instrument qualifies as a negotiable instrument.
D) The passing of a warranty that the recipient is a holder.
E) The passing of a warranty that the recipient is a holder in due course.

Question 17

At any date after the expressed due date on a time instrument, the instrument becomes overdue.

Question 18

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?

A) ABC Company will prevail because American Express, as a payee, does not qualify as a holder in due course.
B) ABC Company will prevail because American Express should have realized that fraud was involved from the fact that the checks were ABC Company checks.
C) ABC Company will prevail because fraud was involved.
D) American Express will prevail and will not be required to return funds.
E) 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.

Question 19

When a consumer credit contract is transferred to a subsequent holder, the holder obtains all the rights just as if they were the original HDC.

Question 20

Which of the following is a written document signed by the maker or drawer with an unconditional promise or order to pay a certain sum in money on demand or at a specified time to the order of bearer?

A) An acknowledged instrument.
B) A contract instrument.
C) A negotiable instrument.
D) A holder instrument.
E) A delivered instrument.

Question 21

A(n) ________ is the person receiving an endorsement.

A) Allonge
B) Transferor
C) Transferee
D) Endorser
E) Endorsee

Question 22

Which kind of endorsement places a condition on payment?

A) Conditional endorsement.
B) Trust endorsement.
C) Endorsement to prohibit further endorsement.
D) Bearer endorsement.
E) Conditional bearer endorsement.

Question 23

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

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

Question 24

The statement, "Pay to Constance only," with the endorser's signature is an example of which of the following types of endorsements?

A) Conditional endorsement.
B) Trust endorsement.
C) Endorsement to prohibit further endorsement.
D) Bearer endorsement.
E) Conditional bearer endorsement.

Question 25

An order instrument is payable to ________.

A) anyone holding the instrument
B) any bank.
C) a specific, named payee.
D) a future person to be determined.
E) any trust.

Question 26

Which of the following words are necessary for an endorsement to be considered qualified?

A) Addition of the words, "special endorsement."
B) Addition of the words, "restricted endorsement."
C) Addition of the words, "without recourse."
D) Addition of the words, "conditional entrustment."
E) Addition of the words, "trust endorsement."

Question 27

Which of the following is a version of a qualified endorsement?

A) Blank, special, and allonge.
B) Special and allonge, but not blank.
C) Special and blank, but not allonge.
D) Blank and allonge, but not special.
E) There are no qualified endorsements.

Question 28

When an instrument is being transferred to an agent or trustee for the benefit of either the endorser or a third party, which kind of endorsement is used?

A) Conditional endorsement.
B) Trust endorsement.
C) Endorsement to prohibit further endorsement.
D) Bearer endorsement.
E) Conditional bearer endorsement.

Question 29

The words, "Pay to Allan Smith" followed by the endorser's signature create ________

A) a blank endorsement
B) a qualified endorsement
C) a special endorsement
D) a limited endorsement
E) a specific endorsement

Question 30

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

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

Question 31

A(n) ________ endorsement is the endorser's signature along with a named endorsee.

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

Question 32

Which of the following is the payee's or last endorsee's signature and nothing else?

A) A special endorsement.
B) An allonge.
C) A blank endorsement.
D) A qualified endorsement.
E) A restricted endorsement.

Question 33

For negotiation, which of the following types of paper require delivery and an endorsement by the holder?

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

Question 34

Julianne has received a check that she would like to cash, however there is no room for her to endorse the check herself. Julianne can attach a(n) ________ which would allow her to endorse the check.

A) acknowledgement
B) bearer paper
C) special endorsement
D) allonge
E) order paper

Question 35

What is the effect of an unqualified, blank endorsement?

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

Question 36

Which of the following are types of unqualified endorsements?

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

Question 37

For negotiation, ________ requires only delivery of the instrument to the holder by the payee

A) bearer paper
B) an endorsement
C) order paper
D) a transfer
E) an acknowledgement

Question 38

Which of the following types of endorsements attempt to either limit the transferability of the instrument or control the manner of payment under the instrument?

A) Blank qualified.
B) Special qualified.
C) Restrictive.
D) Conditional.
E) Trust.

Question 39

In order to be negotiated, ________ must be endorsed as well as delivered.

A) order paper
B) allonge
C) bank note
D) a blank endorsement
E) qualified endorsements

Question 40

Talon has a check that is written out to him from his aunt for a graduation gift. This type of instrument is known as a(n) ________.

A) order
B) bearer
C) transfer
D) payee
E) acknowledgement

Question 41

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

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 purchases the instrument at judicial sale or under legal process.
B) 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.
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 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.
E) 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.

Question 42

Shira purchased a refrigerator from ABC Appliance store for $800. She takes the refrigerator home and discovers that it is defective. She calls ABC Appliance store and tells them that she would like to return the refrigerator. ABC Appliance store tells her that they have assigned the promissory note she provided the store in order to purchase the refrigerator to a finance company and that the finance company, as a holder in due course, is not subject to defenses. Which of the following is true regarding the rights of parties?

A) The finance company is subject to the defenses of Shira because of the Federal Trade Commission rule created to protect consumers.
B) ABC Appliance store is correct in that Shira cannot assert her defenses against the finance company.
C) Shira can assert her defenses against the finance company only if she can prove that the finance company had knowledge that ABC Appliance store sold defective equipment from time to time.
D) Shira can assert her defenses against the finance company only because she gave notice of the problem within 5 days of the sale.
E) Shira can assert her defenses against the finance company only if she agrees to arbitrate the dispute.

Question 43

An instrument that reads, "Pay to the order of Jones and Green," establishes ________ payees.

A) Joint
B) Concurrent
C) Consecutive
D) Alternative
E) Alternate

Question 44

The ________ is a concept that if an item is transferred from one person to another, the transferee acquires all the rights the transferor had in the item.

A) principle shelter rule
B) shelter principle
C) transferee/transferor principle
D) transferor rule
E) holder in due course rule

Question 45

[Lost Check] Jenna Nguyen teaches business law at Learn-A-Lot University. Learn-A-Lot requested that all of the teachers ask the students to wear T-shirts with "Learn-A-Lot University Football" printed on the front on the day of the first football game. All of the teachers were asked to sell the shirts in class. A student, Quinn, wrote a check to Jenna for $10 for payment for one of the shirts. Quinn, however, put Jenna Nguyen as the payee. Jenna wanted to turn the check over to the school, so on the back of the check, she wrote, "Jenna Nguyen, without recourse." She then gave the check to the treasurer for Learn-A-Lot University, Amelia. Unfortunately, the treasurer for Learn-A-Lot dropped the check on the ground as she was going to the bank. A student, Brad, found the check and promptly took it to the bank and cashed it. The treasurer, Amelia, did not want to get into trouble, so she asked Jenna to personally cover the check because she said that Jenna had endorsed the check on the back guaranteeing payment.
What type of endorsement did Jenna make on the back of the check?

A) A special endorsement.
B) A special qualified endorsement.
C) A blank endorsement.
D) A blank qualified endorsement.
E) An ineffective endorsement because the words "without recourse" have no effect.

Question 46

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?

A) The person taking the instrument cannot become a holder in due course.
B) The alteration does not prevent a person taking the flawed instrument from becoming a holder in due course.
C) 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.
D) 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.
E) 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.

Question 47

[Lost Check] Jenna Nguyen teaches business law at Learn-A-Lot University. Learn-A-Lot requested that all of the teachers ask the students to wear T-shirts with "Learn-A-Lot University Football" printed on the front on the day of the first football game. All of the teachers were asked to sell the shirts in class. A student, Quinn, wrote a check to Jenna for $10 for payment for one of the shirts. Quinn, however, put Jenna Nguyen as the payee. Jenna wanted to turn the check over to the school, so on the back of the check, she wrote, "Jenna Nguyen, without recourse." She then gave the check to the treasurer for Learn-A-Lot University, Amelia. Unfortunately, the treasurer for Learn-A-Lot dropped the check on the ground as she was going to the bank. A student, Brad, found the check and promptly took it to the bank and cashed it. The treasurer, Amelia, did not want to get into trouble, so she asked Jenna to personally cover the check because she said that Jenna had endorsed the check on the back guaranteeing payment.
Was the check properly delivered to Brad?

A) Yes, because it was bearer paper, delivery occurred whenever possession was taken.
B) Yes, because it was order paper, delivery occurred whenever possession was taken.
C) Yes, but only because it was thereafter presented to the bank and cashed.
D) Yes, because both Brad and the bank are considered holders in due course.
E) No, because he was not intended to receive it.

Question 48

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

Question 49

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

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

Question 50

"Pay to the order of Jones or Green," is an instrument that is payable to ________ payees.

A) alternate
B) consecutive
C) concurrent
D) alternative
E) obscure

Question 51

According to the UCC, which of the following is true regarding when a person has notice of a fact?

A) Under the UCC a person has notice of a fact only when the person has actual knowledge of the fact.
B) Under the UCC a person has notice of a fact under the following two circumstances: (1) when the person has actual knowledge of the fact, and (2) when the person receives notice or notification of the fact.
C) Under the UCC a person has notice of a fact under the following three circumstances: (1) when the person has actual knowledge of the fact, (2) when the person receives notice or notification of the fact, and (3) when the person has reason to know the fact exists.
D) Under the UCC a person has notice of a fact only when the person has signed a verification to the effect that notice was received.
E) Under the UCC a person has notice of a fact only when the person receives written notification either through regular mail or electronic means.

Question 52

Which of the following does not prevent a holder from being a holder in due course?

A) Notice that the instrument is overdue.
B) Notice that the instrument has been dishonored.
C) Notice that the instrument was issued as part of a series that is in default.
D) Notice that the instrument has been altered or contains an unauthorized signature.
E) Notice that an employee other than the treasurer of a company signed an instrument.

Question 53

The Japanese Commercial Code does not recognize ________ but recognizes the legal concept of ________.

A) checks and bonds, shoken yuka
B) negotiable instruments, yuka shoken
C) commercial papers, securities equities
D) negotiable instruments, equitable securities
E) investment securities, yuka shoken

Question 54

A(n) ________ is a party in possession of an instrument that is payable to the party or to the bearer.

A) endorsee
B) bearer
C) payee
D) trustee
E) holder

Question 55

Which of the following does the UCC define as, "honesty in fact and the observance of reasonable commercial standards of fair dealing?"

A) Commercial standards.
B) Subjective reasonableness.
C) Objective reasonableness.
D) Good faith.
E) Reasonable investigation.

Question 56

Which statement is true regarding the requirement that a party take an instrument for value in order to be considered a holder in due course?

A) The party must provide consideration.
B) The party must have provided a bargained-for promise.
C) The party must take the instrument in exchange for a promise that has already been performed.
D) The party must have begun performance on a promise and have provided consideration.
E) The party must have provided consideration or received the note as a gift.

Question 57

Which of the following was the result in the Case Opener, involving the check taken in good faith by a market, later returned to the market based on a stop payment order, and purchased from the market by the plaintiff who sued Cigna, the issuer of the check?

A) The plaintiff was allowed to recover under the shelter principle and holder-in-due-course status.
B) The plaintiff was not allowed to recover because he took the check knowing of a problem.
C) The plaintiff was allowed to recover because the market misrepresented the status of the check.
D) The plaintiff was not allowed to recover because of the shelter principle and holder-in-due-course status.
E) The plaintiff was not allowed to recover because the market misrepresented the status of the check.

Question 58

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

A) 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.
B) 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.
C) 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.
D) The check is no good, cannot be completed by anyone, and should be destroyed.
E) The check is good only if the payee can get in touch with the issuer and have the issuer fill in the appropriate date.

Question 59

A party who receives a negotiable instrument as a(n) ________ or through mistake will be a holder instead of a holder in due course.

A) gift
B) value instrument
C) endorsed instrument
D) defective instrument
E) bearer instrument

Question 60

How may the holder endorse the document in the event of a misspelled name?

A) Only with the misspelled name.
B) Only with the holder's actual name.
C) Only with the misspelled name followed by the actual name.
D) With the holder's actual name, with the misspelled name, or with the misspelled name followed by the actual name.
E) Endorsement is impossible in such a situation.

Question 61

A(n) ________ instrument becomes overdue at any time after the expressed due date on it.

A) demand
B) overdue
C) dishonored
D) time
E) illegal

Question 62

[House Painting] Graciela Reyes signed a check agreeing to pay, "Annie Greene, Marney Harris," $1,000. The payment was for painting her house. A problem with the note was that it spelled Annie's last name, "Greene," whereas Annie spells it simply, "Green." Annie and Marney were having a disagreement regarding how to split up the funds for painting the house. Annie proceeded to sign the check on the back, "Annie Green," and presented it to Hiro Murakami to satisfy a debt that she owed him. Hiro Murakami endorsed the check on the back, "Hiro Murakami, without recourse," and gave it to his nephew, Nate, who took it to the bank for payment. Meanwhile, Graciela has stopped payment on the check because, following a rainstorm, all the paint on the house looked spotted. Marney is unhappy because she did not obtain any of the funds and stated that Annie could not legally endorse the instrument because it misspelled her name and also because she, Marney, did not sign it.
What is the effect of the designation, "Hiro Murakami, without recourse?"

A) It has no effect on any subsequent holder.
B) It has no effect on anyone, including, but not limited to, any subsequent holder.
C) It means that Hiro Murakami does not provide any guarantees to subsequent holders if the instrument is later dishonored.
D) It means that Hiro Murakami is providing that any subsequent holder cannot be held liable.
E) It means that Hiro Murakami is providing that neither he nor the person who transferred the instrument to him can be held further liable to any subsequent holder.

Question 63

[House Painting] Graciela Reyes signed a check agreeing to pay, "Annie Greene, Marney Harris," $1,000. The payment was for painting her house. A problem with the note was that it spelled Annie's last name, "Greene," whereas Annie spells it simply, "Green." Annie and Marney were having a disagreement regarding how to split up the funds for painting the house. Annie proceeded to sign the check on the back, "Annie Green," and presented it to Hiro Murakami to satisfy a debt that she owed him. Hiro Murakami endorsed the check on the back, "Hiro Murakami, without recourse," and gave it to his nephew, Nate, who took it to the bank for payment. Meanwhile, Graciela has stopped payment on the check because, following a rainstorm, all the paint on the house looked spotted. Marney is unhappy because she did not obtain any of the funds and stated that Annie could not legally endorse the instrument because it misspelled her name and also because she, Marney, did not sign it.
Which of the following is true regarding Nate's rights in relation to the check?

A) As a holder, Nate may demand payment from either Graciela, Annie, or Marney.
B) As a holder in due course, Nate may demand payment from either Graciela, Annie, or Marney.
C) As a holder, Nate may demand payment from either Graciela or Annie, but not Marney.
D) As a holder in due course, Nate may demand payment from either Graciela or Annie, but not Marney.
E) Nate may not demand payment from either Graciela, Annie, or Marney.

Question 64

[House Painting] Graciela Reyes signed a check agreeing to pay, "Annie Greene, Marney Harris," $1,000. The payment was for painting her house. A problem with the note was that it spelled Annie's last name, "Greene," whereas Annie spells it simply, "Green." Annie and Marney were having a disagreement regarding how to split up the funds for painting the house. Annie proceeded to sign the check on the back, "Annie Green," and presented it to Hiro Murakami to satisfy a debt that she owed him. Hiro Murakami endorsed the check on the back, "Hiro Murakami, without recourse," and gave it to his nephew, Nate, who took it to the bank for payment. Meanwhile, Graciela has stopped payment on the check because, following a rainstorm, all the paint on the house looked spotted. Marney is unhappy because she did not obtain any of the funds and stated that Annie could not legally endorse the instrument because it misspelled her name and also because she, Marney, did not sign it.
Which statement is true regarding the status of Nate?

A) He is not a holder in due course because he did not provide value.
B) He is not a holder because he did not provide value.
C) He is not a holder nor is he a holder in due course because he did not provide value.
D) The fact that a gift was involved does not prevent Nate from being a holder in due course so long as other requirements are satisfied.
E) The fact that a gift was involved does not prevent Nate from being a holder in due course so long as other requirements are satisfied and Nate is not a minor.

Question 65

[House Painting] Graciela Reyes signed a check agreeing to pay, "Annie Greene, Marney Harris," $1,000. The payment was for painting her house. A problem with the note was that it spelled Annie's last name, "Greene," whereas Annie spells it simply, "Green." Annie and Marney were having a disagreement regarding how to split up the funds for painting the house. Annie proceeded to sign the check on the back, "Annie Green," and presented it to Hiro Murakami to satisfy a debt that she owed him. Hiro Murakami endorsed the check on the back, "Hiro Murakami, without recourse," and gave it to his nephew, Nate, who took it to the bank for payment. Meanwhile, Graciela has stopped payment on the check because, following a rainstorm, all the paint on the house looked spotted. Marney is unhappy because she did not obtain any of the funds and stated that Annie could not legally endorse the instrument because it misspelled her name and also because she, Marney, did not sign it.
Which of the following is true regarding the complaint of Marney that she did not also endorse the instrument?

A) She is correct because both names are required in order to provide legal endorsement.
B) She is correct in that her name was needed for legal endorsement, but that is only the case because of the misspelling of Annie's name.
C) She is correct because regardless of whether the payees are listed with no designation as to whether they are alternate or joint, or whether the words, "or" or "and" are used to designated payees, any listed payee must endorse a note in order for it to be properly payable.
D) She is incorrect because Annie properly endorsed the note, and only her signature was needed.
E) She is incorrect, but only if it can be established that Hiro Murakami lacked knowledge that she had not given her consent to the form of the endorsement.

Question 66

For an HDC to take an instrument "in good faith," how does the UCC define good faith?

A) Using the proper degree of caution that an objective, reasonable holder would have.
B) Whether the holder himself acted honestly when taking the instrument.
C) Under reasonable commercial standards of fair dealing.
D) Whether the holder himself acted reasonably when taking the instrument.
E) Good faith is not defined; it is left to the judgment of the individual HDC.

Question 67

When is a time instrument not considered overdue?

A) When a party fails to make a lump-sum payment by the due date.
B) When a party misses an interest payment on the instrument.
C) When a party misses an installment payment on the principal.
D) When a party does not make payment on either the principal or interest.
E) A time instrument is always overdue upon any missed payment.

Question 68

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

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

Question 69

One who possesses a cashier's check payable to someone else is not a(n) ________ even though his name appears on it.

A) holder
B) holder in due course
C) bearer
D) endorser
E) possessor

Question 70

An endorsement that is followed by a statement that restricts payment, and can be used as a defense for the endorser against the endorsee, is which of the following?

A) Endorsement that prohibits further endorsement.
B) Trust endorsement.
C) Special qualified endorsement.
D) Conditional endorsement.
E) Special unqualified endorsement.

Question 71

What happens when an instrument lists two payees but is silent as to whether they are joint or alternative?

A) The instrument is non-negotiable and may not be endorsed by either payee.
B) Courts interpret the instrument as containing joint payees, and the endorsements of both listed payees are required to negotiate it.
C) Courts interpret the instrument as containing alternative payees, and the endorsement of only one listed payee is required to negotiate it.
D) Only the endorsement of the first listed payee is required to negotiate it.
E) The instrument may be endorsed by one or the other payee, but may not be endorsed by both payees.

Question 72

An endorsement that is the endorser's signature followed by a named endorsee, who then becomes the holder of the instrument, is what type of endorsement?

A) Blank unqualified.
B) Special unqualified.
C) Blank qualified.
D) Special qualified.
E) Conditional.

Question 73

[Check Issues] Kelsey owns and operates a currency exchange. A regular customer, Rafe, comes in and cashes a $2,000 check issued by ABC Trucking. The day after Kelsey cashed the check, she received a notice from ABC Trucking that some checks had been stolen. It was later discovered that the checks she cashed for Rafe had been stolen. At the time she took the check, Kelsey was very busy with several customers in line. She simply glanced at the check and cashed it. A reasonable examination would have revealed that the check had been materially altered and changed from the amount of $200 to $2,000. Kelsey decided that she needed to hire some people to help her because she also had a problem with another check. On the same day that she took Rafe's check, she took a check from another customer, Brett. It was later discovered that the check, which was four months old, was the subject of a dispute between Brett and the issuer of the check for whom Brett had done some work. The issuer claimed that the work was improperly done. Both ABC Trucking and the issuer of the check to Brett had stopped payment on the checks. Kelsey claimed that as a holder in due course, she was entitled to payment on both checks.
What is the effect of the check's alteration on Kelsey's status as a holder in due course?

A) The alteration has no effect because a holder is not charged with examining an instrument presented for payment.
B) The alteration will likely prohibit her from being a holder in due course.
C) The alteration will affect her status as a holder in due course only if she had been put on notice of prior criminal behavior in the past on the part of Rafe.
D) The alteration will affect her status as a holder in due course only if the issuer can establish that it was not negligent in allowing a thief to gain access resulting in the alteration.
E) On the basis that the law does not want to unduly burden holders, the alteration will affect her status as a holder in due course only because the instrument was written for an amount in excess of $500.

Question 74

Under which of the following circumstances does a holder taking an instrument for value not become a holder in due course?

A) If the holder acquires a security interest or some other lien in the instrument.
B) If the holder purchases the instrument at a judicial sale or under legal process.
C) If the holder takes the instrument for payment of a preceding claim.
D) If the holder performs the promise for which the instrument was issued.
E) If the holder exchanges the instrument for an irrevocable obligation to a third party.

Question 75

[Lost Check] Jenna Nguyen teaches business law at Learn-A-Lot University. Learn-A-Lot requested that all of the teachers ask the students to wear T-shirts with "Learn-A-Lot University Football" printed on the front on the day of the first football game. All of the teachers were asked to sell the shirts in class. A student, Quinn, wrote a check to Jenna for $10 for payment for one of the shirts. Quinn, however, put Jenna Nguyen as the payee. Jenna wanted to turn the check over to the school, so on the back of the check, she wrote, "Jenna Nguyen, without recourse." She then gave the check to the treasurer for Learn-A-Lot University, Amelia. Unfortunately, the treasurer for Learn-A-Lot dropped the check on the ground as she was going to the bank. A student, Brad, found the check and promptly took it to the bank and cashed it. The treasurer, Amelia, did not want to get into trouble, so she asked Jenna to personally cover the check because she said that Jenna had endorsed the check on the back guaranteeing payment.
Would the school be able to require that Jenna cover the amount of the check based on the law of negotiable instruments?

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

Question 76

[Check Issues] Kelsey owns and operates a currency exchange. A regular customer, Rafe, comes in and cashes a $2,000 check issued by ABC Trucking. The day after Kelsey cashed the check, she received a notice from ABC Trucking that some checks had been stolen. It was later discovered that the checks she cashed for Rafe had been stolen. At the time she took the check, Kelsey was very busy with several customers in line. She simply glanced at the check and cashed it. A reasonable examination would have revealed that the check had been materially altered and changed from the amount of $200 to $2,000. Kelsey decided that she needed to hire some people to help her because she also had a problem with another check. On the same day that she took Rafe's check, she took a check from another customer, Brett. It was later discovered that the check, which was four months old, was the subject of a dispute between Brett and the issuer of the check for whom Brett had done some work. The issuer claimed that the work was improperly done. Both ABC Trucking and the issuer of the check to Brett had stopped payment on the checks. Kelsey claimed that as a holder in due course, she was entitled to payment on both checks.
What is the effect of Kelsey receiving notice the day after she cashed the check for Rafe that the check had been stolen?

A) The notice has no effect on her status as holder in due course because it was provided after she cashed the check.
B) The notice prevents her from being a holder in due course.
C) The notice prevents her from being a holder in due course only if Rafe had been convicted of check cashing offenses in the past since she should have checked his criminal record.
D) The notice prevents her from being a holder in due course only if she subjectively knew that Rafe had been charged criminally with check cashing violations in the past.
E) The notice prevents her from being a holder in due course because it was presented to a business; only individuals can avoid the effect of notice of theft by cashing a check prior to receiving notice.

Question 77

[House Painting] Graciela Reyes signed a check agreeing to pay, "Annie Greene, Marney Harris," $1,000. The payment was for painting her house. A problem with the note was that it spelled Annie's last name, "Greene," whereas Annie spells it simply, "Green." Annie and Marney were having a disagreement regarding how to split up the funds for painting the house. Annie proceeded to sign the check on the back, "Annie Green," and presented it to Hiro Murakami to satisfy a debt that she owed him. Hiro Murakami endorsed the check on the back, "Hiro Murakami, without recourse," and gave it to his nephew, Nate, who took it to the bank for payment. Meanwhile, Graciela has stopped payment on the check because, following a rainstorm, all the paint on the house looked spotted. Marney is unhappy because she did not obtain any of the funds and stated that Annie could not legally endorse the instrument because it misspelled her name and also because she, Marney, did not sign it.
Which of the following is true regarding Marney's claim that the endorsement by Annie was illegal because the note misspelled Annie's name?

A) Marney is correct.
B) Marney is correct, but only because Annie signed the note, "Green," instead of "Greene," as such was on the note.
C) Marney is correct, but only because two payees are listed.
D) Marney is incorrect.
E) Marney is incorrect unless she can prove that Graciela intentionally and purposefully spelled the name wrong to prevent negotiation.

Question 78

An endorsement that restricts the instrument such that it must be collected by a bank for the endorser or for a particular account and cannot be cashed is which of the following?

A) Conditional endorsement.
B) Trust endorsement.
C) Endorsement for deposit or collection only.
D) Endorsement that prohibits further endorsement.
E) Special qualified endorsement.

Question 79

There are two kinds of unqualified endorsements: ________ and ________,

A) partial, qualified.
B) blank, qualified.
C) special, qualified.
D) special, blank.
E) blank, partial.

Question 80

[Check Issues] Kelsey owns and operates a currency exchange. A regular customer, Rafe, comes in and cashes a $2,000 check issued by ABC Trucking. The day after Kelsey cashed the check, she received a notice from ABC Trucking that some checks had been stolen. It was later discovered that the checks she cashed for Rafe had been stolen. At the time she took the check, Kelsey was very busy with several customers in line. She simply glanced at the check and cashed it. A reasonable examination would have revealed that the check had been materially altered and changed from the amount of $200 to $2,000. Kelsey decided that she needed to hire some people to help her because she also had a problem with another check. On the same day that she took Rafe's check, she took a check from another customer, Brett. It was later discovered that the check, which was four months old, was the subject of a dispute between Brett and the issuer of the check for whom Brett had done some work. The issuer claimed that the work was improperly done. Both ABC Trucking and the issuer of the check to Brett had stopped payment on the checks. Kelsey claimed that as a holder in due course, she was entitled to payment on both checks.
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?

A) 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.
B) 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.
C) 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.
D) It has no effect because a check is never considered overdue.
E) She would not be considered a holder in due course because a check is considered overdue 90 days after its date.