Deck 23: Holder in Due Course and Transferability

Question 1

Which of the following is true of an assignment?

A)It is considered as a negotiation under Article 3 of the Uniform Commercial Code (UCC).
B)The transferee is known as a holder in due course.
C)Defenses to the enforcement of the contract against the assignor can be raised against the assignee.
D)Only negotiable instruments can become assignments.

Answer 1

C

Question 2

The transfer of rights under a nonnegotiable contract is known as an assignment.

Answer 2

True

Question 3

Explain the transfer of nonnegotiable contracts by assignment.

Answer 3

An assignment is the transfer of rights under a contract.It transfers the rights of the transferor to the transferee.Because normal contract principles apply,the assignee acquires only the rights that the assignor possessed.Thus,any defenses to the enforcement of the contract that could have been raised against the assignor can also be raised against the assignee.A nonnegotiable contract is a contract that lacks one or more of the requirements to be a negotiable instrument.An assignment occurs when a nonnegotiable contract is transferred.In the case of a negotiable instrument,assignment occurs when the instrument is transferred but the transfer fails to qualify as a negotiation under Article 3 of the Uniform Commercial Code (UCC).In this case,the transferee is an assignee rather than a holder.

Question 4

Which of the following would be a legitimate method to convert an order paper to a bearer paper?

A)indorsement
B)adding the term "pay to the order of"
C)delivering the order paper
D)specifying a payee

Question 5

Which of the following is a similarity between bearer paper and order paper?

A)both require a specific payee to be named
B)both require indorsements to be considered negotiable
C)both require delivery to be considered negotiable
D)both can be claimed by whoever presents the instrument for payment

Question 6

________ are required to negotiate order paper,but they are not required to negotiate bearer paper.

A)Securities
B)Collaterals
C)Indorsements
D)Warranties

Question 7

If a transferred negotiable instrument fails to qualify under Article 3 of the Uniform Commercial Code (UCC),it is known as a(n)________.

A)assignment
B)nonnegotiable contract
C)indorsement
D)restrictive indorsement

Question 8

The transfer of rights under a nonnegotiable contract is known as a(n)________.

A)assignment
B)negotiation
C)indorsement
D)dishonored instrument

Question 9

A separate piece of paper attached to an instrument on which an indorsement is written is known as a(n)________.

A)bill of exchange
B)allonge
C)supplement
D)appendage

Question 10

The transfer of a negotiable instrument by a person other than the issuer to a person who thereby becomes a holder is referred to as a(n)________.

A)negotiation
B)assignment
C)indorsement
D)insurance

Question 11

Nonnegotiable instruments are negotiated by holders in due course.

Question 12

Only a holder in due course can legally negotiate commercial paper.

Question 13

A(n)________ is a signature and other directions written by or on behalf of the holder somewhere on an instrument.

A)recommendation
B)assignment
C)indorsement
D)reference

Question 14

Which of the following is true of a bearer paper?

A)both indorsement and delivery are required for it to be negotiable
B)only indorsement is necessary for it to be negotiable
C)only delivery is necessary for it to be negotiable
D)a payee must be specified in the paper

Question 15

Negotiable instruments are used as a substitute for money.

Question 16

A(n)________ is an instrument that is payable to a specific payee or indorsed to a specific indorsee.

A)bearer bond
B)bearer paper
C)allonge
D)order paper

Question 17

Which of the following makes negotiable instruments transferable to a third party?

A)an insurance
B)an indorsement
C)a bill of exchange
D)a trade acceptance

Question 18

Which of the following would constitute the creation of an assignment?

A)the transfer is of nonnegotiable instruments
B)a transfer qualifies as a negotiation under Article 3
C)a transferee qualifies as a holder in due course
D)the indorsement falls under the shelter principle

Question 19

Which of the following can be exchanged for cash by merely having possession of the instrument?

A)a certificate of deposit
B)an allonge
C)an order instrument
D)a bearer instrument

Question 20

An instrument that is not payable to a specific payee or indorsee is known as a(n)________.

A)order paper
B)bearer paper
C)allonge
D)draft

Question 21

Which of the following is true of an allonge?

A)It must contain the name of the payee to be valid.
B)It must be accepted by the payee to be valid.
C)It must be affixed to the indorsement.
D)It must be provided only on demand.

Question 22

Which of the following is true of a special indorsement?

A)It is only considered valid if it includes words of negotiation.
B)It requires the signature of the indorser to be valid.
C)It can be negotiated just on delivery.
D)It is considered a bearer instrument.

Question 23

An instrument that is payable to a specific payee or indorsed to a specific indorsee is called a bearer paper.

Question 24

Which of the following is true of a qualified indorsement?

A)An instrument containing a qualified indorsement can only be negotiated once.
B)An indorsement once qualified will protect all subsequent indorsers.
C)A qualified indorsement protects only the indorser who wrote the indorsement.
D)A qualified indorsement obligates the indorser to pay in case the maker defaults.

Question 25

The allonge must be affixed to an instrument to be valid.

Question 26

Which of the following is true of an unqualified indorsement?

A)It does not limit or disclaim liability.
B)It obligates the indorser to pay for the instrument.
C)It guarantees payment of the instrument if the maker defaults.
D)It protects subsequent indorsees from liability.

Question 27

For an order paper to be negotiated there must be delivery and indorsement.

Question 28

Which order paper when indorsed becomes a bearer paper?

A)unqualified indorsement
B)blank indorsement
C)special indorsement
D)special qualified indorsement

Question 29

An instrument that is not payable to a specific payee or indorsee is called an order paper.

Question 30

An indorsement whereby the indorser promises to pay the holder or any subsequent indorser the amount of the instrument if the maker,drawer,or acceptor defaults is referred to as a(n)________.

A)competent indorsement
B)promissory indorsement
C)unqualified indorsement
D)qualified indorsement

Question 31

An indorsement that does not specify a particular indorsee is known as a ________.

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

Question 32

An indorsement that contains the signature of the indorser and specifies the person to whom the indorser intends the instrument to be payable is known as a(n)________.

A)qualified indorsement
B)unqualified indorsement
C)blank indorsement
D)special indorsement

Question 33

A(n)________ indorsement includes the notation "without recourse" or similar language that disclaims liability of the indorser.

A)qualified
B)unqualified
C)promissory
D)competent

Question 34

Explain,in as much detail as possible,how an indorsement is made.

Question 35

If there is no space for an indorsement on the instrument,a new instrument has to be made to accommodate the indorsement.

Question 36

Which of the following indorsements can be negotiated just by delivery?

A)unqualified indorsement
B)special indorsement
C)special qualified indorsement
D)blank indorsement

Question 37

An indorsement that contains some sort of instruction from the indorser is known as a ________.

A)nonrestrictive indorsement
B)restrictive indorsement
C)qualified indorsement
D)special indorsement

Question 38

A(n)________ is an indorsement that states that it is for the benefit or use of the indorser or another person.

A)indorsement in trust
B)indorsement for deposit
C)indorsement prohibiting further indorsement
D)indorsement for collection

Question 39

Indorsements are required to negotiate bearer papers.

Question 40

A(n)________ is an indorsement that has no instructions or conditions attached to the payment of the funds.

A)indorsement in trust
B)indorsement for deposit
C)nonrestrictive indorsement
D)restrictive indorsement

Question 41

Where the name of the payee is misspelled,the indorsement becomes invalid.

Question 42

A special indorsement is negotiable by indorsement and delivery.

Question 43

An indorsement that purports to prohibit further negotiation of an instrument does not destroy the negotiability.

Question 44

A special indorsement does not specify to whom the indorser intends the instrument to be payable.

Question 45

If an instrument is payable jointly using the word "and," both persons' indorsements are necessary to negotiate the instrument.

Question 46

A specially qualified indorsement can only be negotiated by indorsement and delivery.

Question 47

Unqualified indorsements are considered negotiable instruments.

Question 48

A qualified indorsement puts limited liability on the indorser.

Question 49

What happens if the name of the indorsee or payee is misspelled in an indorsement?

A)The instrument becomes nonnegotiable.
B)The instrument can be indorsed with the misspelled name.
C)The instrument has to be remade to be valid.
D)The instrument cannot be subsequently indorsed.

Question 50

An indorser is allowed to indorse an instrument so as to make the indorsee his collecting agent.

Question 51

An instrument containing a qualified indorsement can be further negotiated.

Question 52

Which of the following indorsements would be considered a nonrestrictive indorsement?

A)pay to the order of Jane Doe
B)pay to Jane Doe only
C)for deposit only
D)pay to Jane Doe, trustee

Question 53

An order paper that is indorsed in blank becomes bearer paper.

Question 54

Which of the following is true of an indorsement to multiple persons using the virgule?

A)it can only be indorsed further with the signature of the drawer
B)neither person can individually negotiate the instrument
C)either person can individually negotiate the instrument
D)such an instrument cannot be subsequently negotiated

Question 55

If an instrument is payable to multiple persons using the word "and," then the instrument ________.

A)cannot be negotiated any further
B)cannot be negotiated by either party individually
C)can only be further negotiated jointly
D)can only be further negotiated with the signature of the drawer

Question 56

An indorsement with just the indorsee's signature on it,and a specific payee,would be an example of a nonrestrictive indorsement.

Question 57

A qualified indorsement protects subsequent indorsers from liability.

Question 58

Nonrestrictive indorsements contain instructions from the indorser.

Question 59

A restrictive indorsement can also be a bearer instrument.

Question 60

A holder can convert a blank indorsement into a special indorsement by adding his or her signature on it.

Question 61

To qualify as an HDC,a person must be the holder of a negotiable instrument that was taken for value.

Question 62

An indorsee who accepts a defective instrument qualifies as a holder in due course.

Question 63

Under the Uniform Commercial Code's ________ requirement,a person cannot qualify as a holder in due course (HDC)if he or she has noticed that the instrument is overdue.

A)no evidence of forgery, alteration, or irregularity
B)taking in good faith
C)taking without notice of defect
D)taking for value

Question 64

A person who takes a negotiable instrument for value,in good faith,and without notice that it is defective or overdue is referred to as a(n)________.

A)holder
B)holder in due course
C)unqualified indorser
D)assignee

Question 65

Tilda purchases an automobile from Ronston.At the time of sale,Ronston tells Tilda that the car has had only one previous owner and has been driven only 25,000 miles.Tilda,relying on these statements,purchases the car.She pays 10 percent down and signs a promissory note to pay the remainder of the purchase price,with interest,in fifteen equal monthly installments.Ronston transfers the note to Patty.Tilda then discovers that the car has actually had three previous owners and has been driven 250,000 miles.Which of the following is the legal outcome if Patty is a holder in due course (HDC)?

A)Tilda must pay Patty; find recourse with Ronston.
B)Patty must pay Tilda; find recourse with Ronston.
C)Patty pays no one; indorsement is considered void.
D)Tilda can rescind the note; refuse to pay Patty.

Question 66

What are qualified indorsements?

Question 67

Which of the following requirements has to be met for a holder to qualify as a holder in due course (HDC)under the shelter principle?

A)The holder must not be in possession of a prior negotiable instrument.
B)The holder must have notice of a defense or claim against the payment of the instrument.
C)The holder must have been a party to a fraud or an illegality affecting the instrument.
D)The holder must have acquired the instrument from an HDC.

Question 68

Under which of the following Uniform Commercial Code (UCC)requirements is a holder considered a "holder in due course," given that the holder performs the agreed-upon promise in a negotiable instrument?

A)taking in good faith requirement
B)taking for value requirement
C)taking without notice of defect requirement
D)no evidence of forgery, alteration, or irregularity requirement

Question 69

The good faith test for an HDC applies to both transferor and transferee.

Question 70

The holder of a negotiable instrument has the same rights as the holder of an ordinary nonnegotiable contract.

Question 71

The ________ is a doctrine that says a holder who does not qualify as a holder in due course in his or her own right becomes a holder in due course if he or she acquires an instrument through a holder in due course.

A)exclusionary rule
B)acceleration clause
C)shelter principle
D)good faith principle

Question 72

Value has been given by the holder if he or she acquires a security interest in or lien on an instrument.

Question 73

A person who is in possession of a negotiable instrument that is drawn,issued,or indorsed to him or to his order,or to bearer,or in blank is referred to as a(n)________.

A)holder
B)holder in due course
C)assignor
D)assignee

Question 74

If a virgule is used,both parties are necessary to negotiate the instrument.

Question 75

Lisa buys a used car from Kelly.She pays 10 percent of the cost down and signs a negotiable promissory note promising to pay Kelly the remainder of the purchase price,with interest,in 12 equal monthly installments.At the time of sale,Kelly lied about the mileage of the automobile.Later,Kelly negotiated the note to Frances,who has no notice of the lie.Frances,a holder in due course (HDC),negotiated the note to Zoe,who is not an HDC.Which of the following is Zoe in regards to the promissory note?

A)a holder in due course
B)a holder
C)an assignee
D)an assignor

Question 76

A holder who takes an instrument with notice of its dishonor cannot qualify as a holder in due course (HD
C).

Question 77

Which of the following qualifications renders a person a holder in due course of a negotiable instrument?

A)he takes the negotiable instrument for value
B)he is subject to claims and defenses against the transferor
C)he is in possession of an instrument issued in his name
D)he is in possession of an instrument issued in another's name

Question 78

A holder in due course is subject to all the claims and defenses that can be asserted against the transferor.

Question 79

An instrument that is refused payment when presented for payment is called a ________.

A)blank instrument
B)restrictive instrument
C)demand instrument
D)dishonored instrument

Question 80

What is the difference between a holder and holder in due course?