Deck 25: B: Transferability and Holder in Due Course

Question 1

Any irregularity on the face of an instrument that calls into question its validity will bar HDC status.

Answer 1

True

Question 2

Negotiation is a transfer in such form that the transferee becomes a holder.

Answer 2

True

Question 3

An instrument is not defective simply because it is overdue.

Answer 3

False

Question 4

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

Question 5

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

Question 6

A negotiable instrument can only be transferred by negotiation.

Question 7

A person who receives an instrument as a gift normally becomes an ordinary holder.

Question 8

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

Question 9

An indorser who does not wish to be liable on an instrument can use a qualified indorsement.

Question 10

A person who accepts an instrument that has been completed without knowing that it was incomplete when issued can take it as an HDC.

Question 11

For an ordinary holder to become an HDC,the holder must have acted honestly in the process of acquiring the instrument.

Question 12

The effect of a conditional indorsement on the back of an instrument is the same as the effect of conditional language that appears on its face.

Question 13

Knowledge of one defense precludes a holder from asserting HDC status in regard to all other defenses.

Question 14

A special indorsement does not specify a particular indorsee.

Question 15

Indorsement can convert an order instrument into a bearer instrument

Question 16

A holder does not take an instrument for value if he or she gives a negotiable instrument as pay?ment.

Question 17

The shelter principle allows persons who formerly held instruments to improve their positions by later reacquiring the instruments from HDCs.

Question 18

An executory promise does not constitute sufficient value to make the promisor a holder.

Question 19

An order instrument is negotiated by delivery with any necessary indorsements.

Question 20

If a person purchasing an instrument does not know and has no reason to know that it has been dishonored,the person cannot become an HDC.

Question 21

Clem gets a $100 check as a gift from Daria.Clem crudely increases the amount of the check to $1,00-the alteration is obvious-and transfers it to eReady Sets,Inc. ,in exchange for a 3D HD TV.eReady deposits the check in its bank account at First Town Bank.HDCs of this check include

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

Question 22

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 23

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 24

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

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

Question 25

Fact Pattern 25-A1
Rollo obtains a check payable to his order from Simone.Rollo signs the back and gives the check to Trey.Trey writes "Pay to Trey" above Rollo's signature.
Refer to Fact Pattern 25-A1.By writing "Pay to Trey" above Rollo's signature,Trey

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

Question 26

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 27

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 28

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 29

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 30

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 31

Florencia,who is not a GigaBank customer,attempts to cash a check drawn on the bank.The check is considered dishonored if GigaBank

A)refuses to pay it.
B)charges a fee to cash it.
C)asks Florencia for reasonable identification.
D)asks Florencia to sign a receipt for the payment on the check.

Question 32

Fact Pattern 25-A1
Rollo obtains a check payable to his order from Simone.Rollo signs the back and gives the check to Trey.Trey writes "Pay to Trey" above Rollo's signature.
Refer to Fact Pattern 25-A1.When Trey writes "Pay to Trey" above Rollo's signature,the check becomes

A)a bearer instrument.
B)an order instrument.
C)a promissory note.
D)a nonnegotiable instrument.

Question 33

Fact Pattern 25-A1
Rollo obtains a check payable to his order from Simone.Rollo signs the back and gives the check to Trey.Trey writes "Pay to Trey" above Rollo's signature.
Refer to Fact Pattern 25-A1.When Trey writes "Pay to Trey" above Rollo's signature,Rollo's signature becomes

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

Question 34

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 35

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 36

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 37

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 38

Ivy signs a check payable to Jon and gives it to him.Jon in?dorses the back,and transfers the check to Ked.To negotiate the check to Luis,Ked must

A)write "Ked" on the back.
B)write "pay to the order of Luis [signed] Ked" on the back.
C)deliver the check to Luis.
D)obtain Luis's signature on the back.

Question 39

Bob receives a check from Chris.Without Bob's knowledge,Dan indorses it in his own name and deposits it in his account at Elm City Bank.In Bob's subsequent suit against the 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 Elm City Bank is not a holder in due course.
C)Elm City Bank,because Dan's signature is not authorized.
D)Elm City Bank,because it is a holder in due course.

Question 40

Fact Pattern 25-A1
Rollo obtains a check payable to his order from Simone.Rollo signs the back and gives the check to Trey.Trey writes "Pay to Trey" above Rollo's signature.
Refer to Fact Pattern 25-A1.After Trey writes "Pay to Trey" above Rollo's signature,further negotiation of the check

A)requires Rollo's re-indorsement and delivery.
B)requires delivery alone.
C)requires Trey's indorsement and delivery.
D)is not possible.

Question 41

Colby fraudulently induces Dian to sign a note.Colby sells the note to Elen,who does not know of the fraud and takes the note for value and in good faith,and thus becomes an HDC.Elen sells the note to Fred,who sells the note back to Colby.Does Colby acquire Elen's HDC rights in the note?

Question 42

Eppie gives a check to Fund Investments to buy 100 shares of stock in GR8 Tech Corporation for Eppie.The price of the shares is constantly fluctuating.Fund Investments asks Eppie to leave the amount of the check blank and allow it to fill in the price when making the purchase.Eppie agrees.Fund Investments buys the stock when the price is $4,000,but fills in the check for $5,000.The check is negotiated as payment for a $5,000 debt to Hasty Accounting Services,which takes the check in good faith and without no?tice of Fund Investments's act.Hasty later learns that Fund Investments was not author?ized to fill in the check for $1,000 over the price.Is Hasty an HDC? If so,for how much?