Deck 39: Negotiation and Holder in Due Course

Question 1

An order paper can be negotiated by the bearer by transfer alone.

Answer 1

False

Question 2

Terry has a check indorsed "Pay to the order of Terry." Terry gives the check to Jane without indorsing it.Is Jane a holder?

A)No,because Jane failed to indorse the check.
B)No,because Terry failed to indorse the check.
C)Yes,because only delivery was necessary to negotiate the check.
D)Yes,because Jane may supply the missing indorsement herself.

Answer 2

B
Explanation: If an instrument is payable to the order of a specific payee,it is called order paper and it can be negotiated by transfer of possession of the instrument after indorsement by the person specified.Here,Terry can only negotiate the check by indorsing his name on the back of the check and giving it to the person to whom he wants to transfer it.

Question 3

A holder in due course takes the instrument free of the all personal and real defences.

Answer 3

False

Question 4

The transfer of possession (whether voluntary or involuntary)of a negotiable instrument by a person (other than the issuer)to another person who becomes its holder is known as __.

A)recoupment
B)negotiation
C)indorsement
D)ratification

Question 5

Claims and defenses to payment of an instrument that go to the validity of an instrument are known as real defenses.

Question 6

In case of an indorsement for collection,any person other than a bank who purchases the check is considered to have converted the check unless the indorser received the amount paid for it.

Question 7

If a person receives a check that has been signed but the space where the amount of the check is to be written is blank,then he/she cannot be a holder in due course of that check.

Question 8

Indorsing an instrument,"Pay to Sara Garcia," limits payment to Sara Garcia and further negotiation becomes void.

Question 9

A bearer instrument can be validly negotiated and transferred without indorsement.

Question 10

The FTC rule doesn't apply to persons who sell to consumers on credit.

Question 11

The involuntary transfer of possession of a bearer instrument doesn't result in a negotiation.

Question 12

By indorsing an instrument,a person incurs an obligation to pay it if the person primarily liable on it fails to pay it.

Question 13

The use of a qualified indorsement eliminates the contractual liability of the indorser.

Question 14

A forged indorsement will not prevent a person from becoming a holder in due course.

Question 15

An instrument payable to cash:

A)can be negotiated only after indorsement by the person specified.
B)is known as an order paper.
C)may be negotiated by transfer of possession alone.
D)cannot be negotiated by transfer of possession alone.

Question 16

When indorsing an instrument,the holder must spell her name in the same way as it appears on the instrument.

Question 17

To negotiate an instrument:

A)it must not be transferred involuntarily.
B)it must be transferred voluntarily.
C)it must be transferred by a person other than the issuer.
D)it must be transferred by the issuer.

Question 18

If an instrument is payable to the order of a specific payee,it is called a(n):

A)order paper.
B)bearer paper.
C)cashier's check.
D)teller's check.

Question 19

An indorsement cannot incur the indorser's liability on the instrument.

Question 20

If an instrument is made payable to cash,it is called bearer paper.

Question 21

Under the Revised Article 3,a check deposited in a depositary bank without indorsement:

A)makes the bank a holder of an item delivered to it only if the customer indorses it.
B)makes the bank a holder of an item delivered to it for collection whether or not the customer indorses it.
C)makes the customer the holder only if the bank indorses it at the time of delivery.
D)makes the customer the holder only if the bank at the time of delivery qualified as a holder.

Question 22

Which of the following statements is true for a restrictive indorsement?

A)A person who purchases a check indorsed "for collection",automatically converts it even if the indorser received the amount paid for it.
B)If an indorser merely signs his name and does not specify to whom the instrument is payable,he has indorsed the instrument in restriction.
C)The person who takes an instrument with a restrictive indorsement need not pay for the instrument consistently with the indorsement.
D)Indorsements for collection or deposit are restrictive indorsements.

Question 23

When the holder of an instrument has presented it for payment or acceptance and it has then been refused,the negotiable instrument:

A)is considered overdue.
B)has been dishonored.
C)is considered unauthorized.
D)is held to be irregular.

Question 24

With instruments payable at a definite time,Revised Article 3 requires that if:

A)the principal is not payable in installments and the due date has not been accelerated,the instrument is overdue on the day after the due date.
B)the principal is due in installments and a due date has not been accelerated,the instrument is overdue on the day after the due date.
C)a due date for the principal has been accelerated,the instrument is overdue upon default.
D)there is a default in payment of the interest but no default in the payment of principal,the instrument becomes overdue.

Question 25

In order to become a holder in due course,a person who takes a negotiable instrument must be a holder,and take the instrument:

A)without notice that the instrument contains an authorized signature.
B)with notice that it is overdue or has been dishonoured.
C)with notice of any claim of a property or possessory interest in it.
D)without notice that any party has any defense against it or claim in recoupment to it.

Question 26

A "claim in recoupment":

A)is a claim of the original payee against the obligor of the instrument.
B)must arise from the transaction that gave rise to the instrument.
C)is actually a defense to an instrument,but not an offset to liability.
D)can make a person a holder in due course even if he knows about it before the negotiation.

Question 27

A holder in due course takes a negotiable instrument free of all:

A)negotiable defenses.
B)real defenses.
C)claims to the instrument.
D)claims to the bearer.

Question 28

If a check drawn "Pay to the Order of Wayne Joshua" is indorsed "Wayne Joshua" by Wayne,the type of indorsement is:

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

Question 29

An indorsement that contains the signature of the indorser along with the words indicating to whom,or to whose order,the instrument is payable is a __.

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

Question 30

An instrument which reads,"For deposit only" is an example of a:

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

Question 31

A qualified indorsement:

A)changes the negotiable nature of the instrument.
B)can only be used with a blank indorsement.
C)can only be used with a special indorsement.
D)eliminates the contractual liability of the indorser.

Question 32

If an order instrument is transferred without indorsement:

A)the instrument has not been negotiated.
B)the transferee can qualify as a holder.
C)the transferee has the right to the qualified indorsement of the transferor.
D)the transferee has none of the rights of the transferor to enforce the instrument.

Question 33

Mike indorsed a check from his employer by signing his name and the words "without recourse." This indorsement is an example of a:

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

Question 34

Carol signs a 30-day note payable to Chrome Appliances for $500 and gives it to Chrome as payment for a stereo set.When Chrome asks Carol for payment,she refuses to pay because the stereo does not work properly.Chrome then negotiates the note to a bank informing it of Carol's refusal to pay.Under this scenario,which of the following statements is true?

A)The bank is not a holder in due course of the note.
B)The bank is a holder in due course of the note.
C)Dishonoured instruments always make the indorser the holder.
D)Chrome is the holder in due course.

Question 35

Big Oil indorses a check "Pay St.Joseph Coal Co.only if it delivers 1000 tons of coal by 30^th September." Under Revised Article 3,what type of indorsement is this?

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

Question 36

Which of the following statements is true of an indorsement?

A)It is a necessary component of the negotiation of an instrument and applies only to payments made to a depository bank.
B)It does not affect future attempts to negotiate the instrument.
C)It generally does not make a person liable on the instrument even if he/she is engaged in any illegality affecting the instrument.
D)It makes a person liable on an instrument indorsed by him/her only if the person primarily liable on it does not pay it.

Question 37

If Jamie indorses an instrument in blank and gives it to Clare Hill:

A)Clare must indorse it before it can be negotiated further.
B)Clare may negotiate it without indorsing it.
C)Clare cannot convert the blank indorsement to a special one.
D)Clare is not liable even if she indorses it as it was given to her by Jamie.

Question 38

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

A)the day after demand for payment has been made in a proper manner and form.
B)30 days after its date if it is a check.
C)three days after demand for payment has been made in a proper manner and form.
D)60 days after its date if it is a check.

Question 39

An indorsement that specifies the purpose of the indorsement or specifies the use to be made of the instrument is a:

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

Question 40

Monica contracted with Joe's Furnishing's to complete the work on her house by 1^st November.She gave Joe's a negotiable promissory note in the amount of $20,000,payable to the order of Joe's on November 1.Joe's then negotiated the note to the bank.He however,could not complete the work by 1^st of November.If the bank is able to qualify as a holder in due course,which of the following statements is true?

A)Monica is not liable to the bank because Joe's breached the contract,not her.
B)The bank can collect the amount from Joe's because he negotiated the note to the bank.
C)Monica can assert personal defense against the bank and avoid payment as Joe's did not complete the work on time.
D)Monica cannot assert personal defense against the bank and avoid payment as it was a negotiation,and not a simple contract.

Question 41

The claims and defenses to payment of an instrument that go to the validity of the instrument are called:

A)real defenses.
B)personal defenses.
C)claims in recoupment.
D)claims to an instrument.

Question 42

Explain personal defenses against the payment of negotiable instruments.Give suitable examples.

Question 43

The Federal Trade Commission (FTC)regulation:

A)cannot fine a seller who fails to include the FTC notice in the note or contract.
B)doesn't apply to persons who sell to consumers on credit.
C)is designed to protect consumers against operation of the holder in due course rule.
D)is designed to make the consumer subject to all claims and defenses of a potential holder.

Question 44

An art dealer sells a painting to Cheryl,telling her that it is an original Van Gogh and takes Cheryl's check for $500 in payment.Before making the sale,the art dealer was aware that the painting is not a genuine one but a forgery.Can Cheryl claim any defenses against the payment made to the art dealer?

Question 45

How does one become a "holder in due course"?

Question 46

List the claims and defenses available to a holder in due course under the Revised Article 3.

Question 47

Which of the following is a real defense that can be used to avoid or reduce liability on a negotiable instrument?

A)Fraud in the inducement
B)Discharge in bankruptcy
C)Breach of contract
D)Conditional issuance

Question 48

Explain the nature and meaning of an indorsement.

Question 49

This is a partial defense against a holder in due course (or a person having the rights of a holder in due course),and a complete defense against a non-holder in due course.

A)Illegality that makes a contract voidable.
B)Fraud in the inducement.
C)Alteration of the completed instrument.
D)Lack or failure of consideration.

Question 50

Any person who can trace his title to an instrument back to a holder in due course receives rights similar to a holder in due course even if he cannot meet the requirements himself.This is known as the _______.

A)shelter rule
B)blue law
C)FTC rule
D)irregular paper law