Deck 21: Holder in Due Course and Liability of Parties

Question 1

Only personal defenses,and not universal defenses,may be asserted against a holder in due course.

Answer 1

False

Question 2

Under the Uniform Commercial Code,value has not been given if the holder acquires a security interest in or lien on the instrument.

Answer 2

False

Question 3

In terms of the requirements for becoming a holder in due course,"good faith" means honesty in fact in the conduct or transaction concerned.

Answer 3

True

Question 4

In terms of the "good faith" requirement for becoming a holder in due course,"honesty in fact" is an objective test.

Question 5

A holder in due course is a holder who takes an instrument for value,in good faith,and without notice that it is defective or overdue.

Question 6

One cannot become a holder in due course of an instrument if there is apparent evidence of an irregularity in the instrument.

Question 7

Denise endorses a check to you as a birthday present.You are now a holder in due course of that check.

Question 8

The primary purpose of commercial paper is to act as a substitute for money.

Question 9

Accommodation parties are guarantors of negotiable instruments.

Question 10

Under the Uniform Commercial Code,value has not been given if the holder gives a negotiable instrument as payment.

Question 11

Under the Uniform Commercial Code,value has been given if the holder gives an irrevocable obligation as payment.

Question 12

Commercial paper held by a holder in due course is virtually as good as money.

Question 13

The holder of a negotiable instrument has fewer rights than an assignee of an ordinary,nonnegotiable contract.

Question 14

A holder is any person in possession of a negotiable instrument.

Question 15

If payment is not made on a negotiable instrument when it is due,the holder can use the court system to enforce the instrument.

Question 16

Under the Uniform Commercial Code,value has been given if the holder performs the agreed-upon promise.

Question 17

A holder in due course takes a negotiable instrument free of all claims and most defenses that can be asserted against the transferor of the instrument.

Question 18

One with notice of dishonor of an instrument cannot qualify as a holder in due course.

Question 19

Under the Uniform Commercial Code,value has been given if the holder takes the instrument in payment of or as security for an antecedent claim.

Question 20

Even though an unperformed promise qualifies as consideration,an unperformed promise does not meet the value requirement for qualifying as a holder in due course.

Question 21

Payees generally do not meet the requirements for being a holder in due course,because they know about any claims or defenses against the instrument.

Question 22

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

Question 23

If an unauthorized agent signs a note on behalf of a principal,then only the agent is liable on the note.

Question 24

To qualify as a holder in due course under the shelter principle,the holder must qualify as a holder in due course in his or her own right.

Question 25

In terms of the requirements for becoming a holder in due course,notice of a defect is given when the holder has actual knowledge of the defect,has received a notice or notification of the defect,or has reason to know from the facts and circumstances that the defect exists.

Question 26

In terms of signature liability on a negotiable instrument,if it is unclear who the signer is,the parol evidence rule would prohibit consideration of outside evidence to identify the signer.

Question 27

A purchaser cannot be a holder in due course if an instrument is acquired either after demand or at an unreasonable length of time after its issue.

Question 28

To qualify as a holder in due course under the shelter principle,the holder must acquire the instrument from a holder in due course,or be able to trace his or her title back to a holder in due course.

Question 29

The signature of the drawee named in a draft on the face of the draft or another location on the draft indicates that the signer is an acceptor of the draft.

Question 30

The signature on a negotiable instrument can be any name,word,or mark used in lieu of a written signature.

Question 31

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 the instrument through a holder in due course.This is called the "transference" principle.

Question 32

To qualify as a holder in due course under the shelter principle,the holder must not have been a party to a fraud or an illegality affecting the instrument.

Question 33

A holder qualifies as a holder in due course even if at the time the instrument was issued or negotiated to the holder,the instrument bore apparent evidence of forgery or alteration or was otherwise so irregular or incomplete as to call into question its authenticity.

Question 34

In terms of the "good faith" requirement for becoming a holder in due course,the good faith test applies to the transferor of the instrument,as well as the holder.

Question 35

A signature in the upper-right corner of a promissory note indicates that the signer is the drawer of the note.

Question 36

Indorsers can have secondary liability but cannot have primary liability.

Question 37

Contract liability is another term used to refer to signature liability.

Question 38

With respect to negotiable instruments,the "red light doctrine" prevents a holder from being a holder in due course if the holder has knowledge of a defense to the payment of the instrument.

Question 39

To qualify as a holder in due course under the shelter principle,the holder can have notice of a defense or claim against the payment of the instrument.

Question 40

A person cannot be held contractually liable on a negotiable instrument unless his or her signature appears on it.

Question 41

Warranties are made when the negotiable instrument is originally issued.

Question 42

The imposter rule applies when you write a check to someone who does not exist.

Question 43

Prior payment is a real defense.

Question 44

An accommodation party may sign an instrument guaranteeing collection rather than payment of an instrument.In this situation,the accommodation indorser is primarily liable on the instrument.

Question 45

A holder in due course takes negotiable instrument free form personal defenses but not real defenses.

Question 46

Warranty liability is not dependent on one's signature.

Question 47

Personal defenses are effective against all holders,whether or not the holder is a holder in due course.

Question 48

Where an indorsement on an instrument has been forged or is unauthorized,the general rule is that the loss falls on the party who first takes the forged instrument after the forgery.

Question 49

An accommodation party who signs an instrument guaranteeing payment is secondarily liable on the instrument.

Question 50

Fraud in the inception occurs when a party is tricked into signing a negotiable instrument while thinking he/she is signing something else.

Question 51

There are two (2)types of implied warranties: transfer warranties and accommodation warranties.

Question 52

Duress could be a personal or a real defense depending on the type or level of duress.

Question 53

Cancellation of a negotiable instrument may be accomplished by the holder's destruction or mutilation of the instrument with the intent of eliminating the obligation.

Question 54

Transfer warranties cannot be disclaimed with respect to checks,but they can be disclaimed with respect to other instruments.

Question 55

The last holder of a forged instrument bears the loss caused by the forged signature.

Question 56

Transfer warranties and presentment warranties are both implied warranties.

Question 57

A drawer or maker is generally liable for payment on a forged indorsement of a fictitious payee.

Question 58

With few exceptions,an unauthorized indorsement is wholly inoperative as the indorsement of the person whose name is signed.

Question 59

A maker's discharge in bankruptcy is considered to be a real defense.

Question 60

Generally,all parties to a negotiable instrument are discharged from liability if (1)the party primarily liable on the instrument pays it in full to the holder of the instrument,or (2)a drawee in good faith pays an unaccepted draft or check in full to the holder.

Question 61

Makers of promissory notes and certificates of deposit have ________ liability for the instruments.

A) conditional
B) stipulated
C) primary
D) secondary
E) tertiary

Question 62

The advantage of a holder in due course over a simple holder of an instrument is that the holder in due course can:

A) indorse the instrument "without recourse," thus limiting his liability.
B) transfer the instrument to others, thus using it as a substitute for money.
C) collect on the instrument, even if it has been forged.
D) collect on the instrument if the maker or drawer asserts a personal defense.
E) collect punitive damages from a party who wrongly does not pay a negotiable instrument.

Question 63

A holder who either (1)releases an obligor form liability or (2)surrenders the collateral without the consent of the parties who would benefit thereby does not discharge those parties from their obligation on the instrument.

Question 64

A holder in due course takes an instrument free of which defenses?

A) personal only
B) real only
C) free of all defenses
D) free of no defenses
E) legal defenses

Question 65

If a ________ instrument is not paid on its expressed due date,it becomes overdue the next day.

A) demand
B) time
C) due-on-sale
D) sale-on-approval
E) condition precedent

Question 66

A holder in due course:

A) has greater obligations to pay an instrument than a mere holder.
B) must notify subsequent transferees of his holder in due course status.
C) can obtain greater rights to payment of an instrument than a holder.
D) can give greater rights to a transferee than he has as a holder in due course.
E) has less rights to payment of an instrument than a holder.

Question 67

________ means honesty in fact in the conduct or transaction concerned.

A) Due diligence
B) Ethics
C) Good faith
D) Equity
E) Transparency

Question 68

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 the instrument through a holder in due course.This is called the ________ principle.

A) shelter
B) habitation
C) domiciliary
D) residence
E) necessity

Question 69

A holder of a negotiable instrument is:

A) anyone who has possession of an instrument.
B) anyone who is rightfully in possession of an instrument.
C) anyone who is in possession of an instrument that is payable to bearer or an identified person who is in possession of an instrument payable to that person.
D) anyone who is in possession of an instrument payable to that person.
E) anyone who is in possession of an instrument payable to that person if the person has indorsed the instrument.

Question 70

Jon is a holder in due course of a negotiable instrument and gives the instrument to Sarah as a Valentine's Day gift.

A) Sarah is a holder in due course.
B) Sarah is not a holder in due course but has the rights of a holder in due course.
C) Personal defenses would be successful against Sarah.
D) Sarah has become the payee of the instrument.
E) Anyone Sarah transfers the instrument to becomes a holder in due course.

Question 71

In terms of the Uniform Commercial Code "good faith" requirement,honesty in fact is a(n)________ test

A) subjective
B) objective
C) neutral
D) irrelevant
E) secondary

Question 72

Signature liability on a negotiable instrument is also known as:

A) contract liability.
B) agent liability.
C) warranty liability.
D) secondary liability.
E) shelter liability.

Question 73

In order to become a holder in due course,one must take a negotiable instrument without notice of the following except:

A) that the instrument is overdue.
B) that the instrument has been dishonored.
C) that the instrument was signed by an agent.
D) that there was a claim to it by another person.
E) that there is a defense against it.

Question 74

A holder cannot qualify as a holder in due course if he or she has notice that the instrument contains an unauthorized signature or has been altered or that there is any adverse claim against or defense to its payment.This rule is commonly referred to as the ________ doctrine.

A) promissory estoppel
B) due diligence
C) blue light
D) red light
E) learned intermediary

Question 75

Which of the following is not required in order for someone to be a holder in due course of a negotiable instrument?

A) take the instrument directly from the maker or drawer
B) take the instrument in good faith
C) take the instrument without notice of any defenses
D) take the instrument for value
E) take the instrument without apparent evidence of forgery, alterations, or irregularity

Question 76

Which of the following is true about the requirement for a holder in due course to give value for an instrument?

A) It can be met in any way that the consideration requirement can be met in an ordinary contract.
B) It can be met only if the holder has paid cash for the instrument.
C) In order to meet the requirement to give value, the value given must be comparable to the value of the instrument received.
D) Acceptance of the instrument in payment of or as security for an antecedent claim meets the value requirement.
E) An unperformed promise meets the value given requirement, so long as the promise is performed prior to the actual collection of any amount on the instrument.

Question 77

When does a forgery prevent a holder from qualifying as a holder in due course?

A) never
B) if there was apparent evidence of the forgery
C) only if the forgery involved a signature
D) only if the forgery involved the price of goods
E) All forgeries prevent a holder from qualifying as a holder in due course.

Question 78

Can the payee of a negotiable instrument be a holder in due course?

A) yes, the payee is always a holder in due course
B) yes, for notes but not for drafts
C) no, not under any circumstances
D) usually not, because the payee is usually aware of defenses or irregularities
E) only if a check is involved

Question 79

Which of the following is true about the good faith requirement for becoming a holder in due course?

A) It applies to both the transferor and the transferee of a negotiable instrument.
B) The UCC provides no guidance regarding the meaning of good faith.
C) It is an objective test applied using the reasonable person standard.
D) It means honesty in fact in the conduct of the transaction in question.
E) It is an objective test based on a reasonable person.

Question 80

What is dishonor in connection with a negotiable instrument?

A) an instrument being created in connection with a fraudulent transaction
B) any potential transferee refusing to accept the instrument
C) the refusal of the maker or drawer to pay the instrument when it is presented for payment
D) the transfer of an order instrument without the proper indorsement
E) an instrument being created without evidence of value