Deck 26: Transferability and Holder in Due Course

Question 1

Usually, indorsements are qualified indorsements.

Answer 1

False

Question 2

Negotiating order instruments requires indorsement.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

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

Question 6

A restrictive indorsement does not destroy negotiability.

Question 7

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

Question 8

The effect of a conditional indorsement on the back of an instrument differs from the effect of conditional language that appears on its face.

Question 9

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

Question 10

A bearer instrument can be converted into an order instrument through indorsement.

Question 11

A special indorsement does not specify a particular indorsee.

Question 12

When an instrument is transferred by negotiation, the transferee becomes a holder.

Question 13

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 14

A blank indorsement can consist of a mere signature.

Question 15

An instrument can only be transferred by negotiation.

Question 16

Negotiating order instruments requires neither delivery nor indorsement.

Question 17

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

Question 18

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

Question 19

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

Question 20

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

Question 21

A person who receives an instrument as a gift automatically possesses the rights of a holder in due course.

Question 22

An instrument is defective if it is overdue.

Question 23

Ryan negotiates an order instrument to Selina by​

A) ​delivery with an assignment of his rights under a contract.
B) ​delivery with any necessary indorsement.
C) ​delivery alone.
D) ​presenting it in response to a demand by Selina.

Question 24

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

Question 25

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

Question 26

An instrument is defective if it has been previously dishonored.

Question 27

The good faith requirement applies to both the holder and the transferor.

Question 28

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

Question 29

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

Question 30

Allie signs a check payable to Bess, who indorses the back, gives it to County Credit Union (CCU), and receives cash. The transfer of the check from Bess to CCU is​

A) ​an assignment.
B) ​a negotiation.
C) ​none of the choices.
D) ​a sale.

Question 31

It is possible for a person who does not qualify as an HDC to acquire the rights and privileges of an HDC.

Question 32

A holder takes an instrument for value if the holder has performed the promise for which the instrument was issued.​

Question 33

There are some limitations on the shelter principle.

Question 34

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

Question 35

A holder cannot become an HDC if he or she has notice of any claim to the instrument or defense against it.

Question 36

Noah transfers an instrument to Olivia in a form and by a means that makes Olivia a "holder." This is​

A) ​none of the choices.
B) ​an assignment.
C) ​a negotiation.
D) ​a sale.

Question 37

Mort 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 38

Visible evidence that a signature on a check was forged will disqualify a purchaser from HDC status.

Question 39

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

Question 40

Dan signs a check payable to Ed, who indorses the back, gives it to Foodway Market, and receives cash. The transfer of the check from Dan to Ed is​

A) ​an assignment.
B) ​a negotiation.
C) ​none of the choices.
D) ​a sale.

Question 41

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

A) ​none of the choices.
B) ​an assignee.
C) ​an ordinary holder.
D) ​an ordinary holder in due course.

Question 42

Edna is the payee of a bearer instrument-a promissory note in the amount of $10,000. Flem offers to irrigate Edna's ranch next week in exchange for the note. She agrees and delivers the note to Flem. Flem 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 43

Gwen signs a check payable to Hart and gives it to him. Hart indorses the back, and transfers the check to Ingrid. To negotiate the check to Jaime, Ingrid must​

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

Question 44

Berton transfers a draft by signing it and delivering it to Cormac. Berton is​

A) ​an indorser.
B) ​an indorsee.
C) ​a drafter.
D) ​a promisor.

Question 45

Fact Pattern 26-1
Nina obtains a check payable to her order from Oran. Nina signs the back and gives the check to Patricia. Patricia writes "Pay to Patricia" above Nina's signature.
Refer to Fact Pattern 26-1. By writing "Pay to Patricia" above Nina's signature, Patricia​

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

Question 46

Talia, who is not a Urban Bank customer, attempts to cash a check drawn on the bank. The check is considered dishonored if Urban Bank​

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

Question 47

Avril receives a payroll check from Business Solutions, Inc., and indorses it by signing her 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 48

To pay for investment advice from Buffet & Carraldo P.A., Doris signs a check payable to "Buffet or Carraldo." A proper indorsement of the check is​

A) ​not possible.
B) ​"Buffet" and "Carraldo" only.
C) ​"Buffet" only, or "Carraldo" only, but not "Buffet" and "Carraldo."
D) ​"Buffet" only, or "Carraldo" only, or "Buffet" and "Carraldo."

Question 49

Fact Pattern 26-1
Nina obtains a check payable to her order from Oran. Nina signs the back and gives the check to Patricia. Patricia writes "Pay to Patricia" above Nina's signature.
Refer to Fact Pattern 26-A1. When Patricia writes "Pay to Patricia" above Nina's signature, the check becomes​

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

Question 50

Estes receives a check from Fleet Trucking Corporation. On the back of the check, Estes writes "pay to Garden Valley Bank only" and signs his name. This is​

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

Question 51

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

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

Question 52

Emily writes and signs a check payable to "Five Star Cinema." George, Five Star'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 53

Lindsey, an accountant for Madison & Monroe, acquires a negotiable instrument from Norma by promising to pay its face value in thirty days. Lindsey acquires the status of an HDC when she​

A) ​acquires possession of the negotiable instrument.
B) ​promises to pay the face value due on the instrument.
C) ​pays the face value due on the instrument.
D) ​transfers the instrument to another party.

Question 54

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 55

Fact Pattern 26-1
Nina obtains a check payable to her order from Oran. Nina signs the back and gives the check to Patricia. Patricia writes "Pay to Patricia" above Nina's signature.
Refer to Fact Pattern 26-1. After Patricia writes "Pay to Patricia" above Nina's signature, further negotiation of the check​

A) ​requires Nina's re-indorsement and delivery.
B) ​requires delivery alone.
C) ​requires Patricia's indorsement and delivery.
D) ​is not possible.

Question 56

Entrepreneur LLC owes Sole Saver Auto Dealership $2,000. 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 57

Rod negotiates a bearer instrument to Shauna by​

A) ​delivery with an assignment of its rights under a contract.
B) ​delivery with any necessary indorsement.
C) ​delivery alone.
D) ​presenting it in response to a demand by Shauna.

Question 58

Fact Pattern 26-1
Nina obtains a check payable to her order from Oran. Nina signs the back and gives the check to Patricia. Patricia writes "Pay to Patricia" above Nina's signature.
Refer to Fact Pattern 26-1. When Patricia writes "Pay to Patricia" above Nina's signature, Nina's signature becomes​

A) ​a blank indorsement.
B) ​a qualified indorsement.
C) a special indorsement.​
D) ​a forgery.

Question 59

At 1a.m., on the sidewalk in front of EZ Credit Corporation, which is closed, Frank buys a $500 promissory note for $50 from Greg. When presented with Frank's demand for payment, Diane, the maker of the note, could successfully claim that Frank​

A) ​acquired the note with notice that it was overdue.
B) ​did not acquire the instrument in good faith.
C) ​did not give value for the instrument.
D) ​none of the choices.

Question 60

Connie transfers a note by signing it and delivering it to Dana. Dana is​

A) ​an indorser.
B) ​an indorsee.
C) ​a drafter.
D) ​a promisor.

Question 61

Beth, an accountant for Credits & Debits, acquires a negotiable instrument from Ellen by promising to pay its face value in thirty days. Beth acquires the status of an HDC when she​

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

Question 62

Plumbing & Pipes Supply Company issues a promissory note as a demand instrument with a due date of October 5. QuikPay Loan Company accepts the note. QuikPay 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 63

Doyle gives a check to eMarket Finance to buy 100 shares of stock in FabNu Corporation for Doyle. The price of the shares is constantly fluctuating. eMarket asks Doyle to leave the amount of the check blank and allow it to fill in the price when making the purchase. Doyle agrees. eMarket 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 Guido & Hollis Accountants (G&H), which takes the check in good faith and without notice of eMarket's act. G&H later learns that eMarket was not authorized to fill in the check for $1,000 over the price. Is G&H an HDC? If so, for how much?

Question 64

Jill, in good faith and for value, gets from Kiley a negotiable bearer instrument. Jill does not know that Kiley stole the instrument. Jill is​

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

Question 65

Raul wants to transfer a check to Schmidt. The check is defective if it​

A) ​has been previously dishonored.
B) ​contains handwritten terms.
C) ​is undated, antedated, or postdated.
D) ​all of the choices.

Question 66

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

Question 67

Len makes a gift of a check to Millie who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Millie 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 68

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 69

Jess receives a check from Kelly. Without Jess's knowledge, Leo indorses it in his own name and deposits it in his account at Metro Bank. In Jess's subsequent suit against the bank for the money, the court will most likely rule in favor of​

A) ​Jess, because Leo's signature is not authorized.
B) ​Jess, because Metro Bank is not a holder in due course.
C) ​Metro Bank, because Leo's signature is not authorized.
D) ​Metro Bank, because it is a holder in due course.

Question 70

Calvert buys a promissory note from Darin. The note is due on December 5. December 5 is a Sunday. The note is​

A) ​payable anytime the week of December 6.
B) ​payable December 6.
C) ​payable on December 5 only.
D) ​considered defective.

Question 71

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 72

Idina wants to buy a promissory note from Jo. The note is due on April 1. To become an HDC, Idina must buy the note​ a.m. on April 1

A) ​before midnight on April 1.
B) ​before noon on April 1.
C) ​before 8:00
D) ​within thirty days of April 1.