Deck 25: Transferability and Holder in Due Course

Question 1

An instrument payable to two persons jointly requires the indorsement of only one of the payees for negotiation.

Answer 1

False

Question 2

An HDC takes a negotiable instrument free of most defenses to it.

Answer 2

True

Question 3

An allonnge is required to negotiate a bearer instrument.

Answer 3

False

Question 4

An indorsee cannot use the notation "without recourse" to avoid liabil?ity for payment on the instrument.

Question 5

Under the UCC, a transfer of rights under a contract is a negotiation.

Question 6

A holder takes an instrument for value if he or she accepts the instru?ment as security for an antecedent debt.

Question 7

An order instrument is negotiated by delivery alone.

Question 8

A blank indorsement can consist of a mere signature.

Question 9

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

Question 10

A person who receives an instrument as a gift normally possesses the rights of an HDC.

Question 11

A transfer of a negotiable instrument cannot give a holder more rights than its prior possessor.

Question 12

A blank indorsement converts a bearer instrument to an order instrument.

Question 13

The recipient of a negotiable instrument becomes a holder regardless of the form of the transfer.

Question 14

A restrictive indorsement requires an indorsee to comply with certain in?structions regarding the funds involved.

Question 15

A promise to give value in the future is normally sufficient to confer the rights of an HDC on one in possession of a negotiable instrument.

Question 16

A payee whose name is misspelled on an instrument cannot indorse the instrument.

Question 17

A blank indorsement specifies no particular indorsee.

Question 18

A negotiable instrument can be transferred by assignment.

Question 19

An allonge is required to negotiate an order instrument.

Question 20

A negotiable instrument can only be transferred by negotiation.

Question 21

A person can become an HDC only by acquiring an instrument that is so incomplete as to lack an element of negotiability.

Question 22

A person who acquires a check stamped "insufficient funds" is put on no?tice and therefore acquires HDC status.

Question 23

To become an HDC, a person must take an instrument with no?tice of any claim, defense, or defect.

Question 24

An instrument is not defective simply because it is overdue.

Question 25

A holder takes an instrument for value by performing the promise for which the instrument was issued.

Question 26

A holder takes an instrument for value if he or she accepts the instru?ment as payment for an antecedent debt.

Question 27

If a note is payable in thirty days, payment is due by midnight on the thir?tieth day.

Question 28

Any installment note payment that is less than the amount due will put the holder on notice that some of the principal is overdue.

Question 29

The shelter principle may apply to anyone who can trace his or her title back to an HDC.

Question 30

An instrument is defective if it has been previously honored.

Question 31

A person who accepts an instrument that has been completed without knowing that it was incomplete when originally issued cannot be an HDC.

Question 32

For an ordinary holder to become an HDC, the person from whom the holder acquired a negotiable instrument must have acted in good faith.

Question 33

Knowledge of one defense does not preclude a person from asserting HDC status in regard to all other defenses.

Question 34

A person can become an HDC only if a defense against payment is appar?ent on the face of the instrument.

Question 35

Good faith, for purposes of UCC Article 3, is "honesty in fact and the ob?servance of reasonable commercial standards of fair dealing."

Question 36

A holder takes an instrument for value if he or she gives a check as pay?ment for it.

Question 37

An instrument is not defective because it has been previ?ously dis?honored.

Question 38

Under the shelter principle, one who acquires his or her title through an HDC acquires the HDC's rights.

Question 39

If a note is payable on a Sunday or holiday, then the payment of the note will be due on the next business day.

Question 40

A person who in good faith acquires a negotiable instrument from a thief cannot become an HDC.

Question 41

Tyrone transfers a note by signing it and delivering it to Uri. Tyrone is

A) an indorser.
B) a notary.
C) a note passer.
D) a promisor.

Question 42

Eve possesses an instrument that is "payable to bearer." She loses it. Flik finds it. On this instrument, Flik may

A) collect payment.
B) not collect payment, because he did not give value for it.
C) not collect payment, because he found it.
D) not collect payment, because he is not the "bearer."

Question 43

Troy transfers a draft by signing it and delivering it to Uma. Troy is

A) an indorser.
B) a draft dodger.
C) a drafter.
D) a promisor.

Question 44

To pay for a new desk bought at Office Outlet, Pete makes a check pay?able to "Offs Outlet." A proper indorsement of the check is

A) "Office Outlet" only.
B) "Offs Outlet" only.
C) "Office Outlet" or "Offs Outlet."
D) "Pete" only.

Question 45

Velma transfers a note by signing it and delivering it to Woz. Woz is

A) a delivery person.
B) an indorsee.
C) a note passer.
D) a promisee.

Question 46

Ina signs a check payable to Jan and gives it to her. Jan in?dorses the back, and transfers the check to Ked. To negotiate the check to Lois, Ked must

A) write "Ked" on the back and deliver the check to Lois.
B) write "pay to the order of Lois [signed] Ked" on the back and de?liver the check to Lois.
C) only deliver the check to Lois.
D) transfer the check through the drawee bank.

Question 47

Lauren transfers an instrument to Miguel in a form and by a means that makes Miguel a "holder." This is

A) a holding.
B) an assignment.
C) negotiation.
D) presentment.

Question 48

On the back of a check payable to Nero, he writes "Pay to Odell, without recourse" and signs it. This

A) does not effect the check's negotiability or any party's liability.
B) relieves Nero of liability on the check.
C) relieves Odell of liability on the check.
D) renders the check nonnegotiable.

Question 49

Ollie negotiates an order instrument to Phil by

A) assignment of its rights under a contract.
B) delivery with any necessary indorsement.
C) making an unconditional promise to pay.
D) presenting it in response to a demand by B.

Question 50

Petra signs a check payable to Quincy, who in?dorses the back, gives it to Regional Credit Union, and receives cash. The transfer of the check from Quincy to the credit union is

A) an assignment.
B) a negotiation.
C) a payment.
D) a sale.

Question 51

Mona wants to negotiate a bearer instrument in her possession to Nat for an order instrument in Nat's possession. Indorsements are required to negotiate

A) bearer instruments and order instruments.
B) bearer instruments only.
C) neither bearer instruments nor order instruments.
D) order instruments only.

Question 52

Dona transfers an instrument to First National Bank. This transfer is not a negotiation unless

A) Donna is an HDC.
B) First National Bank is an HDC.
C) the instrument is a negotiable instrument.
D) the instrument is an order instrument.

Question 53

Yves negotiates an instrument to Zack. Negotiation is the transfer of an instrument

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

Question 54

Vladimir negotiates a bearer instrument to Wendy by

A) assignment.
B) delivery.
C) presenting it in response to a demand by Wendy.
D) promising to pay.

Question 55

Todd indorses a check, "Pay to Interstate Trucking if they deliver the lumber by May 1, 2010." This is

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

Question 56

Rayette transfers a draft by signing it and delivering it to Suki. Suki is

A) a delivery person.
B) a draftee.
C) an indorsee.
D) a promisee.

Question 57

Dora receives a check from Eagle Corporation. Dora in?dorses the check to First National Bank by writing "pay to First Nat'l Bank only" and signing her name. This is

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

Question 58

Mike receives a payroll check from National Computer Systems, Inc., and indorses it by signing his name on the back of the check. This is

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

Question 59

To pay property taxes, Retail Store Corporation signs a check payable to "Tyra, County Tax Collector." Before Tyra negotiates the check, Vince replaces her in office. The check can be negotiated by

A) no one.
B) Retail Store only.
C) Tyra only.
D) Tyra, Vince, or whoever holds the office of county tax collector.

Question 60

Ralph wants to transfer an instrument to Sigrid that requires Ralph's indorsement, but there is no room on the instrument. Ralph

A) can attest in writing that he would sign the instrument if possible.
B) cannot transfer the instrument to Sigrid.
C) can sign an allonge and affix it to the instrument.
D) can sign a separate piece of paper and file it for later reference.

Question 61

Nina wants to transfer a check to Opie. The check is not defective if it

A) has an obvious irregularity on its face.
B) has been previously honored.
C) is incomplete so that an element of negotiability is lacking.
D) is overdue.

Question 62

Gina writes and signs a check payable to "Happy Market." Ira, Happy's manager, indorses the check "For deposit only." This is

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

Question 63

Jill, in good faith and for value, gets from Kit a check "payable to the order of bearer." Jill does not know that Kit stole the check. Jill is

A) an HDC.
B) not an HDC, because Kit did not acquire the check for value.
C) not an HDC, because Kit did not acquire the check in good faith.
D) not an HDC, because the check is a bearer instrument.

Question 64

To pay for investment advice from financial consultants Smith and Jones, Tony signs a check payable to "Smith or Jones." A proper in?dorsement of the check is

A) not possible.
B) "Smith" and "Jones" only.
C) "Smith" only, or "Jones" only, but not "Smith" and "Jones."
D) "Smith" only, or "Jones" only, or "Smith" and "Jones."

Question 65

Jen makes a gift of a check to Kilroy who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Kilroy is

A) an extraordinary holder in due course.
B) an ordinary check passer.
C) an ordinary holder.
D) an ordinary holder in due course.

Question 66

Bruce acquires a series of notes with successive maturity dates that Cody issued on May 15 for a loan from Delta Credit, Inc. At the time of Bruce's acquisition, he learns that Cody defaulted on one of the notes. Bruce is

A) an HDC if he reacquires the notes after their negotiation to any un?suspecting third party.
B) an HDC only with respect to the notes on which Cody has not defaulted.
C) an HDC with respect to all of notes.
D) not an HDC.

Question 67

Fact Pattern 25-1B
First Bank's account agreement states that deposited items will be given pro?vi?sional credit only until collection is final, but the bank's practice is to extend immediate credit.
Refer to Fact Pattern 25-1B. Suppose First Bank has no rea?son to suspect there would be a problem if immediate credit is extended on an item on which, in fact, there is an outstanding stop-payment order. According to the court's decision in Case 25.3, Mid Wisconsin Bank v. Forsgard Trading, Inc., with respect to this item, First Bank would be

A) a holder, but not an HDC.
B) an HDC.
C) an HDC as against all parties except the item's depositor.
D) an HDC as against all parties except the item's drawer.

Question 68

Fact Pattern 25-A1
Quiky Delivery Company contracts to provide services to Regal Bakeries, Inc. At Quiky's request, Regal makes checks for the services payable to "Quiky Delivery Co. and Secure Credit Corp." One check, however, is pay?able to "Quiky Delivery Co. Secure Credit Corp." .
Refer to Fact Pattern 25-A1. Under the ruling in Case 25.1, Hyatt Corp. v. Palm Beach National Bank, this check is

A) not payable.
B) payable alternatively or jointly, depending on Regal's bank's policy.
C) payable to Quiky and Secure only.
D) payable to Quiky or Secure.

Question 69

Parkdale Roofing Company receives a check from Quik Mart for fixing its roof, and indorses the check to Repair Supplies, Inc. (RSI). Stef, RSI's owner, gives the check to Tiny as a gift. In this situation, the party who is not an HDC of the check but who acquires HDC rights under the shelter principle is

A) no one.
B) Parkdale Roofing.
C) Stef.
D) Tiny.

Question 70

Pola wants to transfer a check to Quin. The check is defective if it

A) has been previously dishonored.
B) has no irregularities on its face.
C) is not overdue.
D) is so complete that no element of negotiability is lacking.

Question 71

Edie is the payee of a bearer instrument-a promissory note in the amount of $1,000. Frank offers to irrigate Edie's ranch next week in ex?change for the note. Edie agrees and delivers the note to Frank. Frank is

A) an HDC, because he promised to perform services at a future date.
B) an HDC, because the transferor was the original payee on the note.
C) not an HDC, because he did not acquire the instrument in good faith.
D) not an HDC, because he did not yet give value for the instrument.

Question 72

Owen is a holder of a promissory note obtained from Purchase Money, Inc. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, 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 73

Fact Pattern 25-1B
First Bank's account agreement states that deposited items will be given pro?vi?sional credit only until collection is final, but the bank's practice is to extend immediate credit.
Refer to Fact Pattern 25-1B. According to the reasoning of the court in Case 25.3, Mid Wisconsin Bank v. Forsgard Trading, Inc., First Bank's prac?tice is consistent with "reasonable commercial standards of fair dealing"

A) if it is consistent with reasonable banking standards.
B) if First Bank's customers have notice, give value, and agree to it in good faith.
C) if First Bank has notice, gives value, and agrees to accept items in good faith.
D) under no circumstances.

Question 74

Fact Pattern 25-A1
Quiky Delivery Company contracts to provide services to Regal Bakeries, Inc. At Quiky's request, Regal makes checks for the services payable to "Quiky Delivery Co. and Secure Credit Corp." One check, however, is pay?able to "Quiky Delivery Co. Secure Credit Corp." .
Refer to Fact Pattern 25-A1. Suppose the check payable to "Quiky Delivery Co. Secure Credit Corp" is indorsed and negotiated only by Secure. Quiky files a suit to recover the amount. According to the decision in Case 25.1, Hyatt Corp. v. Palm Beach National Bank, the court will most likely rule that

A) neither Regal nor its bank are liable.
B) only Regal is liable.
C) Regal and its bank are alternatively liable.
D) Regal and its bank are jointly liable.

Question 75

Clem gets a $100 check as a gift from Daria. Clem crudely increases the amount of the check to $1,000 and transfers it to eReady Computers, Inc., in exchange for a computer. eReady deposits the check in its bank account at First City Bank. HDCs of this check include

A) Clem, eReady, and First City.
B) Clem only.
C) eReady and First City only.
D) none of these parties.

Question 76

Finest Office Company employs General Construction, Inc. (GCI), to reno?vate an office and signs a note for $10,000 payable to GCI. GCI breaches the contract, but sells the note for $5,000 to Happy Collection Agency, which knows that GCI has not performed. Happy is an HDC of the note in the amount of

A) $0.
B) $5,000.
C) $10,000.
D) $15,000.

Question 77

Kris transfers a note, on which Liu is the maker, to Mia, who takes it for value and in good faith. Mia knows that Kris breached the contract underlying the note, giving Liu a defense against payment. With respect to this note, Mia is

A) a knowledgeable holder in due course.
B) an ordinary holder.
C) an ordinary holder in due course.
D) an ordinary note taker.

Question 78

Blythe, an accountant for Credits & Debits, acquires a negotiable instru?ment from Eton by promis?ing to pay its face value in thirty days. Blythe ac?quires the status of an HDC when she

A) acquires possession of the negotiable instrument.
B) agrees with Eton to buy the negotiable instrument.
C) pays the face value due on the instrument.
D) transfers the instrument to another party.

Question 79

Dru signs a check payable to Excel Services, Inc., and gives it to Excel, leaving the amount blank but authorizing Excel to fill it in for $1,000. Excel fills in $1,500 and negotiates the check to Friendly Credit Corporation, an HDC. Friendly Credit can enforce the check for

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

Question 80

Bob receives a check from Chris. Without Bob's knowledge, Dan indorses it in his own name and deposits it in his account at East Bank. In Bob's subsequent suit against East Bank for the money, the court will most likely rule in favor of

A) Bob, because Dan's signature is not authorized.
B) Bob, because East Bank is not a holder in due course.
C) East Bank, because Dan's signature is not authorized.
D) East Bank, because it is a holder in due course.