Deck 20: Negotiation, Endorsements, and Holder in Due Course

Question 1

Negotiation includes various steps that determine the roles and rights of the parties.

Answer 1

True

Question 2

If the instrument is in bearer form, one needs only to be in physical possession to be considered a holder.

Answer 2

True

Question 3

A holder gains a sort of super status if she meets the Article 3 requirements as a holder in due course (HDC).

Answer 3

True

Question 4

Being a holder in due course is a risky proposition in that a holder is subject to an array of defenses by other parties that might render the instrument worthless.

Question 5

The holder of a negotiable instrument is holder in due course if the holder has taken the instrument for value; in good faith; and without notice of it being overdue, fraudulent, or subject to claim by another party.

Question 6

While HDC status provides immunity from personal defenses or claims in recoupment, it does protect an HDC from being subjected to any real defenses.

Question 7

Holders in due course have immunity from claims in recoupment.

Question 8

The Holder Rule preserves a consumer's rights against a Holder In Due Course when the consumer is entering credit contracts realted to goods and services.

Question 9

The Holder Rule applies to merchant-consumer transactions only.

Question 10

The most important part of understanding the role of negotiable instruments is realizing that they move from party to party through a legally defined process called:

A) negotiation
B) litigation
C) arbitration
D) All of the choices are correct.

Question 11

Each negotiable instrument is made up of a series of events beginning with the issuance of the instrument by the party promising to make a payment and ending with __________ of the instrument by the party seeking to receive payment.

A) litigation
B) liability
C) presentment
D) All of the choices are correct.

Question 12

The __________ plays a central role in the story of a negotiable instrument:

A) holder
B) offeror
C) presenter
D) None of the choices are correct.

Question 13

If the instrument is in bearer form, one needs only to be in __________ possession to be considered a holder.

A) theoretical
B) physical
C) at will
D) None of the choices are correct.

Question 14

If the instrument is in __________ form, this requires both physical possession and an indorsement.

A) express
B) value
C) order
D) substitute

Question 15

A negotiable instrument may only be transferred to the party the __________ intended as a holder.

A) lendor
B) investor
C) offeror
D) transferor

Question 16

Legislatures and courts have recognized __________ transfers as meeting the delivery requirement.

A) electronic
B) promise
C) common law
D) gift

Question 17

Article 3 admits __________ to prove an individual did not sign personally in all instances where the holder is not a holder in due course.

A) true evidence
B) express evidence
C) personal evidence
D) parol evidence

Question 18

__________ sets out a series of conditions required to obtain Holder in Due Course (HDC) status.

A) Article 1 of the Uniform Commercial Code
B) Article 2 of the Uniform Commercial Code
C) Article 3 of the Uniform Commercial Code
D) Article 4 of the Uniform Commercial Code

Question 19

The holder of a negotiable instrument is a holder in due course (HDC) if the holder has taken the instrument __________; in good faith; and without notice of it being overdue, fraudulent, or subject to claim by another party.

A) for free
B) for value
C) for no charge
D) All of the choices are correct.

Question 20

If the instrument is __________, the holder cannot meet the requirements for Holder in Due Course status.

A) an implication
B) a gift
C) free
D) None of the choices are correct.

Question 21

One who __________ a negotiable instrument has not taken it for value and cannot meet the UCC's value criterion.

A) pays for
B) removes
C) finds
D) All of the choices are correct.

Question 22

Article 3 of the UCC sets a higher bar in its __________ by requiring that a negotiable instrument be taken for value by the holder for a promise that has already been performed.

A) value exchange rule
B) demand rule
C) equal opportunity rule
D) gift promise rule

Question 23

Article 3 of the UCC provides a two-part definition that describes good faith as meaning:

A) honesty in law and the observance of reasonable standards
B) honesty in fact and the observance of specific commercial standards
C) honesty in fact and the observance of reasonable commercial standards
D) All of the choices are correct.

Question 24

Article 3 uses the word reasonable to indicate that we should use __________ standard when determining whether the holder was factually honest and acting in accordance with commercial standards:

A) an objective
B) a subjective
C) a fair
D) None of the choices are correct.

Question 25

In Banco Bilbao Vizcaya Argentaria v. Easy Luck Co., 208 So. 3d 1241 (Fla. Dist. Ct. App. 2017), the court held that a holder may be accorded HDC status it acts pursuant to:

A) good faith and reasonable commercial standards of fair dealing
B) good faith and specific commercial standards of fair dealing
C) fair faith and reasonable standards of best efforts dealing
D) fair faith and specific commercial standards of fair dealing

Question 26

The __________ requirement is particularly important to obtaining HDC status because it separates innocent holders from those who know or should know that the negotiable instrument is defective or fraudulent in some way.

A) with notice
B) without notice
C) promise
D) future promise

Question 27

__________ notice is not sufficient notice to the holder under Article 3.

A) Constructive
B) Simple
C) Future
D) All of the choices are correct.

Question 28

In Triffin v. Pomerantz Staffing Services, 851 A.2d 100 (N.J. Super. 2004), the court held that Friendly's (and Triffin's as its assignee):

A) met the "with notice" requirement
B) met the "without notice" requirement
C) failed to meet the "without notice" requirement
D) failed to meet the "with notice" requirement

Question 29

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

A) parol evidence
B) shelter
C) maker
D) holder

Question 30

The UCC does not confer a __________ bar for parties asserting a defense against an HDC.

A) complete
B) partial
C) mediated
D) None of the choices are correct.

Question 31

Article 3 of the UCC contains the following defense/(s):

A) real
B) personal
C) claims in recoupment
D) All of the choices are correct.

Question 32

Article 3 provides for real defenses that may be asserted by a third party. Which of the following is not a real defense?

A) fraud in essence
B) forgery
C) bankruptcy
D) lack of capacity

Question 33

Article 3 provides for personal defenses that may be asserted by a third party. Which of the following is not a personal defense?

A) bankruptcy
B) infancy
C) lack or failure of consideration
D) All of the choices are correct.

Question 34

__________ is both a real defense and a personal defense.

A) A special indorsement
B) Fraud
C) Infancy
D) None of the choices are correct.

Question 35

__________ is an example of a claim in recoupment.

A) Restitution
B) Jail/prison time
C) Offset for breach of warranty
D) None of the choices are correct.

Question 36

Although not classified as a real or personal defense, HDCs also have immunity from __________.

A) non-restrictive indorsements
B) litigious parties
C) claims in fact
D) claims in recoupment

Question 37

State courts and state legislatures began to create __________ protections based on common law and state law that outlined exceptions to the HDC rules.

A) non-restrictive
B) reasonable
C) consumer
D) restrictive

Question 38

The __________ promoted a regulation that preserves a consumer's rights against an HDC when the transaction involves the consumer entering into credit contracts related to the sale of goods and services.

A) Department of Labor
B) Federal Trade Commission
C) Ministry of Contracts
D) None of the choices are correct.

Question 39

The Holder Rule __________ a consumer's rights against an HDC when the transaction involves the consumer entering into credit contracts related to the sale of goods and services.

A) frees
B) perpetuates
C) limits
D) preserves

Question 40

Only transactions between a consumer and a __________ who is regularly engaged in the sale/lease of the products or service at issue are covered by the Holder Rule.

A) financier
B) merchant
C) seller
D) All of the choices are correct.

Question 41

FTC regulations make it an "unfair or deceptive act or practice" under the Federal Trade Commission Act for any __________ to use a consumer note unless it contains a notice statement that is specified in the regulations.

A) seller
B) buyer
C) financing company
D) warranty buyer

Question 42

Most courts have held that the Holder Rule only comes into play to allow a consumer's claim/defense against the __________ to be asserted against the creditor that is demanding payment under the consumer creditor contract.

A) guarantor
B) seller
C) buyer
D) None of the choices are correct.

Question 43

In Hemmings v. Camping Time RV Centers and Bank of America, No. 1:17-CV-1331-TWT (D. Ct. N.D. Georgia 2017), the court held that was not covered under the rule because it was not a

A) holder of a consumer credit contract
B) warrantor of a consumer credit contract
C) purchaser of a consumer credit contract
D) None of the choices are correct.

Question 44

Name and describe the process of negotiating a negotiable instrument.

Question 45

Planter is a consultant for Succulent Co. and they issue him a $5,000 check payable to cash as payment. Before leaving for the bus, the Planter, in hast, stuffs the check in his briefcase without indorsement. Later that day, the briefcase is stolen, and the thief then signs his own name and indorses it with "Pay to the Order of Kane's Furniture." The thief delivers the check to the furniture store to satisfy an outstanding debt on a recent purchase. Your common sense may tell you that the thief would not prevail in this case, but what is the legal reasoning? Classify the roles of Planter, Succulent Co., and the thief classified in this transaction? Explain.

Question 46

Suppose that Ansley gives a check to Brian as a birthday gift. Brian negotiates the check to Christy in exchange for Christy's promise to buy Brian's car next week. What is the status of the parties in this transaction? Do Brian and/or Christy qualify to be HDCs?

Question 47

Barton Beers sells 5,000 of a variety microbrewed beers to Bars Inc for $50,000 for delivery by October 1 for the OctoberFest Celebration. Barton Beers receives a promissory note signed by Bars Inc for $10,000 due on November 1. The microbrewed beers arrive on time, but Bars Inc determines 20 percent of the beers are not microbrewed beers. They were made by traditional breweries. Because October 15^th is the deadline for the regional OctoberFest Celebrations as set by Bars Inc, Bars Inc opts to purchase the remaining microbrewed beers from a more expensive brewer. Bars Inc's efforts to secure the new microbrewed beers cost an extra $14,000. Must Bars Inc pay the $50,000 note on November 1? Why or why not?

Question 48

Phillip purchases a brand-new, expensive oven from Restaurant Supplier, a restaurant supply store in Phillip's neighborhood and finances his purchase via a consumer loan in which Phillip issues a promissory note payable to Restaurant Supplier for $5,000 payable over three years at the prime interest rate. Restaurant Supplier then transfers Phillip's note to Biggie Smalls Bank for value. Soon after, the oven stops heating and working properly. It turns out that the oven was not new, as Restaurant Supplier advertised, but rather reconditioned with used parts. Must Phillip make the monthly payments due to Biggie Smalls Bank? Why or why not?