Deck 24: Holder in Due Course and Defenses

Question 1

A holder in due course is subject to the obligor's personal defenses.

Answer 1

False

Question 2

Unauthorized completion of an incomplete instrument is subject to personal defenses.

Answer 2

True

Question 3

According to the Federal Trade Commission, the holder-in-due-course doctrine is virtually dead in consumer credit contracts.

Answer 3

True

Question 4

Drawers, makers, and subsequent indorsers are liable to a holder in due course if they have been discharged in bankruptcy.

Question 5

A consumer transaction is defined as a purchase of goods or services by natural person, not a corporation or partnership, for personal, family, or household use from a seller in the ordinary course of business.

Question 6

Raul makes a check payable to "Cash," thinking to get cash at his bank. But Raul drops the check and loses it. Carlene finds it. She becomes a holder and can cash the check.

Question 7

Dishonor means that instrument is not paid when it is presented to the party who should pay it.

Question 8

If blanks are filled or an incomplete instrument is otherwise completed, subsection (c) places the loss upon the party who altered it by unauthorized completion.

Question 9

Real defenses are good against a holder in due course.

Question 10

The imposter rule provides that the transferee of an instrument acquires the same rights as the transferor had.

Question 11

Prior payment is a real defense.

Question 12

An instrument is payable to an identified person if she is the named payee, or if it is indorsed to her.

Question 13

Notice is limited to the receipt of an explicit statement.

Question 14

If the holder knows that the paper has already been paid, she cannot enforce it.

Question 15

Article 3 adopts a definition of "good faith" that has subjective and objective components.

Question 16

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

Question 17

The rules about holders in due course are meant to constrain inappropriate negotiation of commercial paper.

Question 18

A purchaser with prior knowledge of a defective instrument can become a holder in due course.

Question 19

If a person to whom an instrument was negotiated became nothing more than a holder, the law of commercial paper would not be very significant.

Question 20

Only a holder in due course can collect on a negotiable instrument.

Question 21

Of the following, _____ is a real defense.

A) failure of consideration
B) prior payment
C) breach of warranty
D) fraudulent alteration
E) duress

Question 22

A note is due October 12, 20XX. On October 21, 20XX Able takes rightful possession of the note. He cannot be a holder in due course.

Question 23

Of the following, _____ is a personal defense.

A) forgery
B) prior payment
C) alteration
D) bankruptcy
E) infancy

Question 24

If drawers, makers, and subsequent indorsers were liable to a holder in due course, which of the following would not hold true?

A) Infancy
B) Forgery
C) Bankruptcy
D) Fraudulent alteration
E) Fraud in the execution

Question 25

Fraudulent alteration of an instrument is a defense even against a holder in due course.

Question 26

The Federal Trade Commission (FTC) in 1976 promulgated a trade regulation rule that applied only to:

A) credit card transactions.
B) purchases of interests in real property.
C) purchases of goods or services for commercial purposes.
D) consumer credit transactions.
E) purchases of commodities, or securities.

Question 27

Which of the following must a transferee fulfill in order to be a holder in due course?

A) Have a valid reason to question the instrument's authenticity
B) Be able to issue an enquiry into the face value of a negotiable instrument
C) Should not hold a negotiable instrument
D) Should accept that the instrument contains an unauthorized signature or has been altered
E) Should be able to question whether the instrument has been dishonored or not

Question 28

For the "value" requirement to be a holder in due course, an executory promise suffices.

Question 29

In the case of Carter & Grimsley v. Omni Trading, Inc., Carter argues that its motion for summary judgment should have been granted because:

A) as a holder in due course, it has the right to recover on the checks from the drawer, Omni.
B) it was a "promise of performance," not yet performed.
C) this retainer was a contract for future legal services.
D) when the attorney-client relationship is created by payment of a fee or retainer, the contract is executory.
E) contract for future legal services should be treated the same as other executory contracts.

Question 30

The _____ provides that the transferee of an instrument acquires the same rights as the transferor had.

A) general rule on forged indorsements
B) dishonest employee rule
C) imposter rule
D) fictitious payee rule
E) shelter rule

Question 31

The Triffin v. Somerset Valley Bank case is based on the _____.

A) shelter rule
B) imposter rule
C) dishonest employee rule
D) fictitious payee rule
E) general rule on forged indorsements

Question 32

Explain how 'forgery' is a real defense to an action by a holder in due course.

Question 33

Uniform Commercial Code 3-103(4) defines _____ as "honesty in fact and the observance of reasonable commercial standards of fair dealing."

A) negotiation
B) good faith
C) dishonor
D) real defense
E) a promise

Question 34

On which of the following requirements to be a holder in due course is The Buckeye Check Cashing, Inc. v. Camp case based?

A) Prior holder of a negotiable instrument
B) Holding instrument without notice
C) Valid claim or defense by any party
D) Uncured default with respect to payment of another instrument
E) Good faith and reasonable commercial standards

Question 35

According to the Uniform Commercial Code, _____ means an unauthorized addition of words or numbers or other change to an incomplete instrument relating to the obligation of a party.

A) bankruptcy
B) fraudulent alteration
C) fraud in the execution
D) forgery
E) infancy

Question 36

Jane holds out a piece of paper for her boss and points to the signature line, saying, "This is a receipt for goods we received a little while ago." The boss signs it. If it is not a receipt; but a signature line on a promissory note, Jane has committed _____.

A) fraud in the execution
B) fraud in the inducement
C) perjury
D) forgery
E) fraudulent alteration

Question 37

A person who is not a holder in due course can not obtain the rights of a holder in due course.

Question 38

What are personal defenses?

Question 39

One that lends money to another taking back a negotiable instrument as security is a(n) _____.

A) obligee
B) factor
C) carrier
D) consumer
E) merchant

Question 40

A holder in due course takes free of all defenses of the underlying obligor.

Question 41

Will SecondFactor be able to collect from DUC, Inc.? Explain.

Question 42

If SecondFactor could collect on the note in general, could it collect from Dubious personally? What should he have done to avoid this problem?