Deck 26: Transferability and Holder in Due Course

Question 1

A holder takes an instrument for value if he or she inherits an instrument.

Answer 1

False

Question 2

To avoid the risk of loss from theft, a holder may convert a blank indorsement to a special indorsement.

Answer 2

True

Question 3

A blank indorsement can consist of a mere signature.

Answer 3

True

Question 4

There are no limitations on the shelter principle.

Question 5

Negotiating order instruments requires either delivery or indorsement but not both.

Question 6

A purchaser can become an HDC of an instrument even if it is so incomplete that an element of negotiability is lacking.

Question 7

Usually, indorsements are qualified indorsements.

Question 8

A holder takes an instrument for value if he or she accepts the instru?ment in payment of a preexisting obligation.

Question 9

An indorsement is a signature, with or without additional words or statements.

Question 10

Often, whether a holder will be able to obtain payment on an instrument will depend on whether he or she is a holder in due course.

Question 11

An indorsement should be identical to the name of the indorsee, regardless of how the name appears on the instrument.

Question 12

A holder cannot become an HDC if he or she has no?tice of any claim to the instrument or defense against it.

Question 13

For a check, a "reasonable time" is ninety days after the date of the check.

Question 14

An instrument payable to two or more persons in the alternative requires the indorsement of both payees for negotiation.

Question 15

The shelter principle extends the benefits of HDC status and is designed to aid the HDC in readily disposing of the instrument.

Question 16

A transfer by assignment can make it possible for a transferee to receive more rights in the instrument than the prior possessor had.

Question 17

An instrument is dishonored when the party to whom the instrument is presented refuses to pay it.

Question 18

A person who takes a negotiable instrument from a thief cannot become an HDC even if he or she acted honestly in the process of acquiring the instrument.

Question 19

A holder takes an instrument for value by promising to perform or give value in the future.

Question 20

A restrictive indorsement does not destroy negotiability.

Question 21

Flossie signs a check payable to Glenn and gives it to him, leaving the amount blank but authorizing him to fill it in for $1,000. Glenn fills in $1,500 and negotiates the check to Home Federal Bank, an HDC. Home Federal can enforce the check for

A) $0.
B) $500.
C) $1,000.
D) $1,500.

Question 22

Baxter obtains a check payable to his order from Chanel. For Baxter to negotiate this order instrument to Darlene requires

A) indorsement and delivery.
B) assignment and a promise to pay.
C) presentment and dishonor.
D) good faith and value.

Question 23

Edgar possesses a check that is "payable to cash." Fawn steals the check and delivers it to Godfrey, an innocent third person. All rights to the check are

A) Edgar's.
B) Fawn's.
C) Godfrey's.
D) lost.

Question 24

Erin indorses a check, "Pay to Farmers Cooperative, Inc., if they deliver the grain by May 1, 2015." This is

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

Question 25

Entrepreneur Auto Rentals owes Sole Saver Auto Dealership $20,000. Entrepreneur executes a note to Sole Saver as security for the debt. This security

A) does not constitute sufficient consideration for HDC status.
B) does not satisfy the value requirement for HDC status.
C) satisfies the consideration requirement for HDC status.
D) satisfies the value requirement for HDC status.

Question 26

Roderick negotiates a bearer instrument to Shauna by

A) assignment.
B) delivery.
C) indorsement.
D) promising to pay it.

Question 27

Dirk transfers a note by signing it and delivering it to Edwina. Dirk is

A) an indorser.
B) an indorsee.
C) a promisee.
D) a promisor.

Question 28

Bowie is a holder of a promissory note obtained from Credit Lenders, Inc. Regarding the defenses against payment of the note to which Credit Lenders is subject, Bowie, as an ordinary holder, is subject to

A) more defenses.
B) no defenses.
C) some defenses, but not as many.
D) the same defenses.

Question 29

Dane transfers a draft by signing it and delivering it to Ebony. Ebony is

A) an indorser.
B) an indorsee.
C) a promisee.
D) a promisor.

Question 30

Plumbing & Pipes Supply Company issues a promissory note as a demand instrument with a due date of October 5. Quantum Loan Company accepts the note. Quantum Loan has notice that the note is overdue if the firm takes the note

A) after October 5.
B) before October 5.
C) on October 5.
D) at any time.

Question 31

Giuseppe writes a check "payable to bearer" and hands it to Hamilton. Imogene steals the check and delivers it to Jocelyn, an innocent third person. Hamilton can recover the proceeds of the check from

A) Imogene.
B) Jocelyn.
C) Giuseppe.
D) no one.

Question 32

Mortimer negotiates an instrument to Nadia. Negotiation is the transfer of an instrument

A) for valuable consideration under a contract.
B) in such form that the transferee becomes a holder.
C) pursuant to preliminary contract discussions.
D) without the payment of a recognized medium of exchange.

Question 33

Muni Investment Company signs a check payable to Enterprise Lenders, Inc., to buy a promissory note executed by Fallow Corporation. This check

A) does not constitute sufficient consideration for HDC status.
B) does not satisfy the value requirement for HDC status.
C) satisfies the consideration requirement for HDC status.
D) satisfies the value requirement for HDC status.

Question 34

Secure Loan Company has notice that a promissory note is overdue if the note is a demand instrument and Secure Loan takes it

A) an unreasonable time after its due date.
B) before its due date.
C) on its due date.
D) without noticing its due date.

Question 35

Fact Pattern 26-1B (Questions B8-B10 apply)
Destiny obtains a check payable to her order from Eugenia. Destiny signs the back and adds the notation "without recourse."
Refer to Fact Pattern 26-1B. By writing "without recourse" with her signature, Destiny

A) avoids the risk of loss from theft of the instrument.
B) relieves herself of liability on the instrument.
C) converts the check into a nonnegotiable instrument.
D) locks the instrument into the bank collection process.

Question 36

At 1
A) acquired the note with notice that it was overdue.

A)m., on the sidewalk in front of Ace Credit Corporation, which is closed, Ben buys a $500 promissory note for $50 from Curt. When pre?sented with Ben's demand for payment, Diane, the maker of the note, could successfully claim that Ben
B) did not acquire the instrument in good faith.
C) did not give value for the instrument.
D) none of the choices.

Question 37

Fact Pattern 26-1B (Questions B8-B10 apply)
Destiny obtains a check payable to her order from Eugenia. Destiny signs the back and adds the notation "without recourse."
Refer to Fact Pattern 26-1B. Destiny's signature and the notation "without recourse" constitute

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

Question 38

Diego is the payee of a bearer instrument-a promissory note in the amount of $1,000. Emil offers to harvest Diego's field of alfalfa in October in ex?change for the note. Diego agrees and delivers the note to Emil. Emil is not an HDC of the note because he

A) was not the original payee on the note.
B) did not take the note without notice.
C) did not acquire the note in good faith.
D) did not give value for the note.

Question 39

Elinor performs ten hours of house cleaning for Floyd in exchange for a promissory note for $400. At the time that Elinor accepts the note, she is aware that bankruptcy proceedings are being filed against Floyd. Elinor can

A) obtain HDC status.
B) not obtain HDC status, because she knows that there are bankruptcy proceedings against Floyd.
C) not obtain HDC status, because she did not fulfill the value requirement.
D) not obtain HDC status, because she did not fulfill the good faith requirement.

Question 40

Fact Pattern 26-1B (Questions B8-B10 apply)
Destiny obtains a check payable to her order from Eugenia. Destiny signs the back and adds the notation "without recourse."
Refer to Fact Pattern 26-1B. After Destiny signs the back and adds the notation "without recourse," she adds, "Pay to Florence." This constitutes

A) a blank qualified indorsement.
B) a special qualified indorsement.
C) a restrictive indorsement.
D) none of the choices.

Question 41

Discount Retail Warehouse Corporation pays its employees every two weeks. Ethel, a Discount Retail employee, receives her paycheck and indorses the back ("Ethel Smith"), but loses the check before cashing it or depositing it. Garth finds it. Has the check been nego?tiated to Garth? If Garth signs the back of the check beneath Ethel's signature, can he cash it? If so, what might Ethel have done to avoid the loss?

Question 42

Loren signs a note that states, "Payable in thirty days." The note is dated March 2. Micah buys the note on April 3. Is Micah an HDC of the note? Explain.