Deck 32: Negotiation and Holder in Due Course

Question 1

If an individual holds a note that is labeled consumer paper then that individual cannot be a holder in due course.

Answer 1

True
Explanation: UCC section 3-106(d)states that an individual holding a note with consumer paper on it is not eligible to become a holder in due course.

Question 2

A person cannot be a holder in due course of a negotiable instrument if,when she takes it,the instrument is irregular or some important or material term is blank.

Answer 2

True
Explanation: A person cannot be a holder in due course of a negotiable instrument if,when she takes it,the instrument is irregular or some important or material term is blank.If the negotiable instrument contains a facial irregularity,such as an obvious alteration in the amount,then it is considered to be irregular paper.

Question 3

Generally,real defenses arise out of the transaction in which the negotiable instrument was issued and are based on negotiable instruments law or contract law.

Answer 3

False
Explanation: Generally,personal defenses arise out of the transaction in which the negotiable instrument was issued and are based on negotiable instruments law or contract law.

Question 4

Sonia,through fraudulent representations,induced Gracie to execute a negotiable note payable to Sonia.Sonia is a holder in due course.

Question 5

Negotiation,as defined by the UCC in section 3-201,is the transfer of a negotiable instrument by one person to another person.

Question 6

The new Article 3 recognizes and enforces indorsements that prohibit further negotiation of the instrument.

Question 7

Indorsements that state a condition to the right of the indorsee to receive payment do not affect the right of the indorsee to enforce the instrument.

Question 8

Under the most modern revision to Article 3,a depositary bank cannot become a holder of a check that is deposited by a customer without an indorsement.

Question 9

A person who makes an executory promise in return for a negotiable instrument has given value for it.

Question 10

A qualified indorsement is one where the indorser accepts the liability to make the instrument good if the maker or drawer defaults on it.

Question 11

An instrument that is payable "to cash" can be negotiated simply by giving it to the person to whom you wish to transfer it.

Question 12

Order paper that is indorsed in blank becomes bearer paper.

Question 13

On June 1,Mike writes a check payable to Pete.Without ever being paid,the check is eventually negotiated to Hal,who receives it on September 15 with notice of the date on its face.Hal is not a holder in due course of the check.

Question 14

A holder in due course of a negotiable instrument always has the same rights as the individual that transferred the negotiable instrument to the holder.

Question 15

A claim in recoupment is a claim of the person obligated on the instrument against the original payee of the instrument.

Question 16

In some circumstances, Revised Article 3 allows a person to become a holder by negotiation even though the transfer of possession is involuntary.

Question 17

Anyone other than a bank,who purchases a check indorsed "for deposit only," has converted it;unless the indorser received the amount paid for the check or the bank deposited the check in the indorser's account.

Question 18

An individual must be acting in good faith in order to become a holder in due course of a negotiable instrument.

Question 19

Value is identical to simple consideration.

Question 20

An indorsement is a signature of the holder typically on the back of a check.

Question 21

Which of the following is order paper?

A)A check made out "to the order of cash."
B)A note payable to the order of X and indorsed in blank by X.
C)A note made out to Y's order and indorsed "Pay to Z,Y."
D)A receipt for a payment made by Z.

Question 22

John received a check from his employer marked "pay to the order of John Jones." John used this check to pay for groceries from ABC Foods.He wrote on the back of the check: "pay to ABC Foods,for groceries." Was this check properly negotiated?

A)No,because the statement that the check was for payment to ABC Foods defeats this negotiation.
B)No,because John did not indorse the check.
C)Yes,because John transferred possession of the check and ABC Foods acted in good faith.
D)Yes,because a holder's signature is not always needed in order to negotiate a check.

Question 23

What section of the UCC defines negotiation of a negotiable instrument and who is a holder?

A)3-201
B)2-221
C)1-105
D)3-401

Question 24

If the holder's name on an instrument is misspelled or wrong,then the indorsement:

A)can be made only in his name.
B)can be made only in the name that is on the instrument.
C)can be made either in his name or in the name that is on the instrument.
D)can never be made by putting his name as well as the name that is on the instrument.

Question 25

________ is defined to mean "a signature (other than that of a maker,drawer or acceptor)that alone or accompanied by other words,is made on an instrument for purpose of (i)negotiating the instrument,(ii)restricting payment of the instrument,or (iii)incurring indorser's liability on the instrument."

A)Indemnification
B)Recoupment
C)Indorsement
D)Ratification

Question 26

Which of the following indorsements is a special indorsement?

A)"For collection only"
B)"Mel Gibbs"
C)"Pay to Jack Black in Trust for Mel Gibbs"
D)"Pay to the Order of Jack Black,Mel Gibbs"

Question 27

Jackie Collins is issued a check payable to the order of Jacky Collens.She takes the check to the bank.In order to cash the check the bank will likely require her to:

A)sign either Jackie Collins or Jacky Collens.
B)sign only Jackie Collins.
C)sign only Jacky Collens.
D)sign both Jackie Collins and Jacky Collens.

Question 28

When a customer deposits a check to her account without an indorsement,the bank:

A)puts the sign of the manager under the typed name of the customer.
B)signs the customer's name.
C)stamps the name of the bank on the check to cover for the customer's signature.
D)stamps on it that it was deposited by the customer.

Question 29

Under Revised Article 3,a person is a(n)________ if she is in possession of an instrument that is payable to bearer or made payable to an identified person and she is that identified person.

A)payor
B)issuer
C)bailor
D)holder

Question 30

An instrument that is indorsed with a ________ indorsement remains "order paper."

A)special
B)blank
C)restrictive
D)conditional

Question 31

Ahmed Cohen received a check for $5,000 for a used car he sold.The check did not specify to whom the check was payable.On the back of this check Ahmed wrote,in his handwriting,"Ahmed Cohen." This has the legal effect of:

A)making this instrument nonnegotiable.
B)making this instrument void.
C)making this instrument order paper.
D)making this instrument bearer paper.

Question 32

If a check is drawn "Pay to the order of Maria" and Maria indorses it "pay to the order of Jay,Maria." This falls under:

A)blank indorsement.
B)restrictive indorsement.
C)special indorsement.
D)simple indorsement.

Question 33

Which of the following is bearer paper?

A)A check payable to the order of X and specially indorsed to Y.
B)A check payable to the order of X.
C)A check payable to the order of cash and specially indorsed by the person who received it.
D)A check payable to the order of cash and delivered to Y.

Question 34

Rachel's father gave her a check drawn on his checking account marked "payable to the order of Rachel Stern." This instrument is order paper,because:

A)the instrument uses the word "order."
B)the instrument names a specific payee.
C)the instrument was properly negotiated to Rachel.
D)the instrument was an order to pay cash.

Question 35

When a holder makes a blank indorsement of a negotiable instrument that is bearer paper,what legal effect does this have?

A)There is no effect-bearer paper does not need to be indorsed.
B)The bearer negotiates it by transfer alone and no further indorsement is necessary for negotiation.
C)The instrument is no longer negotiable,as it has been altered.
D)The instrument is converted into order paper.

Question 36

Which of the following indorsements is a blank indorsement?

A)"For Deposit Only"
B)"Mel Gibbs"
C)"Pay to Jack Black in Trust for Mel Gibbs"
D)"Pay to the Order of Jack Black,Mel Gibbs"

Question 37

Which of the following is an example of restrictive endorsements recognized under Article 3?

A)"Pay to Bruce Zucker in Trust for Jay Zucker."
B)"Pay to Bruce Zucker Only."
C)"Pay to Jay Zucker on the condition that he completes construction on my house by November 1,2012."
D)"Pay to the order of my account."

Question 38

Svetlana Mills gives a check "payable to the order of Svetlana Mills," to a shopkeeper for some groceries.Here,the check would be considered as negotiated only upon the fulfillment of which of the following conditions?

A)The check should be indorsed by the shopkeeper.
B)The check should bear the name of the shopkeeper.
C)Svetlana should indorse the check in the name of the shopkeeper.
D)Svetlana should indorse the check in her own name.

Question 39

If an order instrument is transferred without indorsement,then the instrument:

A)is deemed to have been negotiated and the bank can qualify as a holder.
B)has not been negotiated and the transferee cannot qualify as a holder.
C)is deemed to have been negotiated and the transferee can qualify as a holder.
D)has been transferred and the bank and the transferee can qualify as a holder.

Question 40

The transfer of an instrument:

A)vests in the transferee any right of the transferor,to enforce the instrument.
B)bars the transferee from attaining the rights of the transferor.
C)vests in the payor any right of the transferor,to enforce the instrument.
D)bars the transferor to pass on his rights to the transferee.

Question 41

Which of the following indorsements is a restrictive indorsement?

A)"Pay to Jack Black,Mel Gibbs"
B)"Mel Gibbs"
C)"Pay to Jack Black in Trust for Mel Gibbs"
D)"Pay to the Order of Jack Black,Mel Gibbs"

Question 42

A holder in due course does not take free of the ________,which go to the validity of the instrument or of claims that develop after he becomes a holder.

A)personal defenses
B)relative defenses
C)procedural defenses
D)real defenses

Question 43

In the context of overdue instruments,if a due date for the principal has been accelerated:

A)the instrument is overdue when the court passes a judgment to that effect.
B)the instrument is overdue on the day after the grace period of seven days from the accelerated due date.
C)the instrument is overdue on the day after the accelerated due date.
D)the instrument is overdue on the day of the due date.

Question 44

Which of the following is a "real" defense that is good against a holder in due course of a note?

A)The maker of the note is 15 years old.
B)The note was procured by the payee's threat to prosecute the maker for drug dealing.
C)No consideration was given for the note.
D)The maker was in a seriously delusional state when he completed the note (but had not been declared insane or institutionalizeD).

Question 45

A person who takes an instrument containing a restrictive indorsement,"Pay to Jack Black in Trust for Mel Gibbs,":

A)may not pay the proceeds to the indorsee without the due approval of the indorser.
B)may pay the proceeds to the indorsee paying due regard to whether the indorsee violates a fiduciary duty to the indorser.
C)may pay the proceeds to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser.
D)may pay the proceeds to the indorser only with the approval and concurrence of the indorsee.

Question 46

A ________ indorsement is one where the indorser disclaims her liability to make the instrument good if the maker or drawer defaults on it.

A)special
B)conditional
C)qualified
D)blank

Question 47

A check becomes overdue:

A)30 days after its date.
B)60 days after its date.
C)90 days after its date.
D)after a "reasonable" period of time,in the light of trade practice.

Question 48

A ________ is a claim of the person obligated on the instrument against the original payee of the instrument.

A)real defense
B)personal defense
C)claim in recoupment
D)claim to an instrument

Question 49

In which of the following situations is an instrument termed as overdue?

A)Where a check was made out 60 days ago.
B)Where there is a default in payment of interest on a note,but not in the payment of the principal.
C)Where the principal on a note is due in installments and an installment has not been paid.
D)Where a note dated January 1 is payable "30 days after date" and is paid on January 31.

Question 50

In which of the following situations has the holder of a negotiable instrument not given value for it?

A)Where the holder takes the instrument as security for an antecedent claim.
B)Where the holder gives a negotiable instrument in return for the one received.
C)Where the holder receives the instrument as a gift.
D)Where the holder acquires a security interest in the instrument.

Question 51

________ are legal reasons for avoiding or reducing liability of an individual who is liable on a negotiable instrument.

A)Personal defenses
B)Procedural defenses
C)Real defenses
D)Excuse defenses

Question 52

The negotiation of an instrument made in breach of duty is subject to ________ before the instrument has been negotiated to a transferee who can qualify as a holder in due course.

A)rescission
B)remission
C)restitution
D)reformation

Question 53

UCC section 2-302(a)(1)states that in order for an individual to become a holder in due course the instrument must on its face:

A)appear not to be forged.
B)be written in a language other than English.
C)have the signature of a foreign corporation.
D)be on any other color paper than white.

Question 54

________ indorsements indicate that they are effective only if the payee satisfies a certain situation.

A)Special
B)Conditional
C)Qualified
D)Blank

Question 55

Which of the following is NOT a defense specified in Revised Article 3?

A)Claims for damages
B)Real defenses
C)Claims to an instrument
D)Claims in recoupment

Question 56

The new revision of Article 3 no longer considers ________ as restrictive indorsements.

A)indorsements for deposit
B)conditional indorsements
C)indorsements directing the indorsee to act for someone else's benefit
D)indorsements for collection

Question 57

Duress that causes the transfer of a negotiable instrument:

A)prevents its negotiation.
B)is a good defense against a holder in due course of the instrument.
C)is subject to rescission before the instrument is transferred to a holder in due course.
D)is a good defense against the maker of a note.

Question 58

If a negotiable instrument is payable on demand,it is overdue:

A)the day before the demand for payment has been made.
B)30 days after the demand for payment has been made.
C)the day after demand for the payment has been made in a proper manner and form.
D)the week after payment has been demanded.

Question 59

In general,the alteration of a completed negotiable instrument:

A)is a complete defense against a holder in due course.
B)is no defense whatsoever against a holder in due course.
C)means that a holder in due course can enforce the instrument against the maker,but only according to its original tenor.
D)means that a holder in due course can enforce the instrument as modified.

Question 60

A ________ indorsement can be used with either a blank indorsement or a special indorsement.

A)rebuttal
B)conditional
C)qualified
D)restrictive

Question 61

With limited exceptions,a ________ indorsement is not an effective indorsement and prevents a person from becoming a holder.

A)qualified
B)special
C)restrictive
D)forged

Question 62

________ indorsements are those when an indorser merely signs his name and does not specify to whom the instrument is payable.

A)Qualified
B)Blank
C)Special
D)Conditional

Question 63

In case in the text Bank of America,N.A.v.Inda,why did the court hold that the bank was the holder of the note despite the fact that it transferred the beneficial interest to another entity and was only acting as the servicer of the loan?

A)The bank showed that it was a holder in due course.
B)The bank showed that its successor had transferred the note back to it.
C)The bank showed the chain of indorsements.
D)The bank showed that the note was payable to it or in blank and that it remained in possession of the note.

Question 64

The City mails Joe Marsh a refund check for overpayment of a parking ticket.Harold Finch steals the check from Marsh's mailbox,signs "Joe Marsh" on the back of the check,and cashes it at a grocery store.Is the grocery store a holder of the check?

A)Yes,because Finch indorsed the check.
B)Yes,because it is a holder in due course.
C)No,because Finch was not a holder and the check was not signed by Marsh.
D)No,because the check contained no indorsements.

Question 65

A ________ indorsement contains the signature of the indorser along with words indicating to whom,or to whose order,the instrument is payable.

A)qualified
B)conditional
C)special
D)blank

Question 66

A(n)________ takes a negotiable instrument free of all personal defenses,claims to the instrument,and claims in recoupment either of the obligor or of a third party.

A)holder in due course
B)holder
C)indorsee
D)transferee

Question 67

A ________ indorsement is one that specifies the purpose of the indorsement or specifies the use to be made of the instrument.

A)conditional
B)qualified
C)restrictive
D)special

Question 68

A bank or person who ________ an instrument in the regular course of trade has given value for it.

A)indorses
B)transfers
C)discounts
D)holds

Question 69

Which of the following means that the person obtained a negotiable instrument honestly and in the observance of reasonable commercial standards of fair dealing?

A)Holder in due course
B)Value
C)Good faith
D)Without notice

Question 70

Jack Roberts indorsed his paycheck "For Deposit to My Account No.4976463 at National Bank." In the meantime,he loses the check and Mary Green finds it.If Green tries to cash the check at a check-cashing service and it gives her the money,what is the result?

A)Roberts does not have any legal remedies.
B)National Bank will be liable to Roberts for converting his check.
C)Green will be liable to Roberts for converting his check.
D)The check-cashing service will be liable to Roberts for converting his check.

Question 71

A promissory note cannot be scanned into an electronic note and have the electronic version qualify as a negotiable instrument under:

A)the Uniform Electronic Transactions Act.
B)the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.
C)the Uniform Commercial Code.
D)the Uniform Commercial Code and the Electronic Signatures in Global and National Commerce Act.

Question 72

In the case in the text Town of Freeport v.Ring,why did the court conclude that Ring did not indorse the check?

A)He failed to sign use his last name when he signed the back of the check.
B)He signed "The Town of Freeport" on the back of the check.
C)His signature only appeared on a separate,unattached piece of paper.
D)His signature on the back of the check was illegible.

Question 73

Which of the following is generally true about the Federal Trade Commission's (FTC)regulations of the holder in due course rule?

A)Some states have eliminated the holder in due course rule by repealing the previous version of Article 3 and refusing to adopt the new version.
B)The FTC has seriously limited the rule's impact in consumer credit situations in which the consumer signs a note or an installment sales contract,or gets financing from a third party.
C)These changes in the holder in due course rule reflect the economic power and political influence of business interests,especially banks.
D)Overall,the FTC's changes in the holder in due course rule are insignificant,especially in consumer cases.

Question 74

Which of the following is a personal defense against a holder in due course?

A)Fraud in the essence
B)Forgery
C)Breach of contract
D)Minority or infancy

Question 75

In the case in the text Lehigh Presbytery v.Merchants Bancorp,why did the court find in favor of Lehigh Presbytery?

A)Because the bank's employee was part of Hunsberger's scheme to steal money from the church.
B)Because the evidence demonstrated the bank knew the checks contained a restrictive indorsement and disregarded it anyway.
C)Because the check contained a restrictive indorsement and the bank had an unwaivable obligation to follow it.
D)Because the bank employees removed the restrictive indorsements from the checks.

Question 76

If a person who takes a negotiable instrument does not meet the requirements to be a holder in due course,he is in the same position as:

A)an assignee of a contract.
B)the transferor.
C)a beneficiary of a contract.
D)a bearer.

Question 77

To be a holder,a person must have a complete chain of ________ indorsements.

A)special
B)restrictive
C)authorized
D)qualified

Question 78

What is the term for when law renders an obligation to pay an instrument void.

A)Forgery
B)Comity
C)Illegality
D)Duress

Question 79

Which of the following is not a requirement to be a holder in due course?

A)The holder must take the instrument for value.
B)The holder must take the instrument in good faith.
C)The holder must ensure through all reasonable means that the instrument has not been altered.
D)The holder must take the instrument without notice of any claim of a property or possessory interest in it.

Question 80

Tom contracts with Susan to build her a shed for $6,000,payable on July 1 when he expects to complete the shed.Tom has assigned his right to payment to National Bank in order to obtain building materials.On July 1,National Bank tries to collect the money from Susan,but she refuses because Tom has not completed the shed.What is the result?

A)Susan must pay Tom on July 1.
B)Susan must pay National Bank on July 1.
C)Tom must pay National Bank on July 1.
D)Susan does not need to pay National Bank until the shed is complete.