Question 1

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

Accepted Answer

Universal defenses can be asserted against a holder in due course, as they are valid against all holders, including those in due course.

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.

Accepted Answer

Under the Uniform Commercial Code, value is considered to have been given if the holder acquires a security interest in or lien on the instrument.

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.

Accepted Answer

"Good faith" in the context of becoming a holder in due course means that the individual must act honestly in the relevant transaction, and this is typically interpreted as requiring honesty in fact.

Question 4

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

Accepted Answer

"Honesty in fact" is a subjective test, meaning it depends on the individual's actual belief and intention regarding the transaction. The objective test for the "good faith" requirement is "observance of reasonable commercial standards of fair dealing."

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.

Accepted Answer

A holder in due course is defined as someone who meets the criteria of taking an instrument (such as a check or promissory note) for value, in good faith, and without notice of any defects, such as being overdue or subject to any claims or defenses by third parties. Holders in due course have certain legal advantages, including the ability to enforce the instrument against the original issuer or debtor, and may not be subject to certain defenses or claims that could be raised against other holders.

Question 6

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

Accepted Answer

According to the Uniform Commercial Code (UCC), if there is apparent evidence of an irregularity in the instrument, one cannot become a holder in due course. Such irregularities may include alteration, forgery, or fraud.

Question 7

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

Accepted Answer

To be a holder in due course, you must take the check for value, in good faith, and without notice of any defects. A gift does not constitute taking for value.

Question 8

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

Accepted Answer

Commercial paper is a short-term, unsecured promissory note issued by corporations to finance short-term obligations or to meet cash needs. It is often used as a source of funds for working capital, not as a substitute for money.

Question 9

Accommodation parties are guarantors of negotiable instruments.

Accepted Answer

Accommodation parties, also known as sureties, are individuals who provide a guarantee or promise to pay the debt of the primary borrower if they default. They are often required for the acceptance of a negotiable instrument, such as a promissory note or check. As such, they are responsible for ensuring that the instrument is paid in full and on time, making them guarantors of the negotiable instrument.

Question 10

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

Accepted Answer

Under the Uniform Commercial Code, giving a negotiable instrument as payment does constitute giving value.

Question 11

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

Accepted Answer

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.

Accepted Answer

This is because commercial paper held by a holder in due course is a negotiable instrument that carries certain legal rights and protections, making it highly marketable and easily convertible into cash.

Question 13

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

Accepted Answer

The holder of a negotiable instrument has more rights than an assignee of an ordinary, nonnegotiable contract. This is because negotiable instruments are transferable by endorsement or delivery, and the transferee becomes the holder with all the rights of the original holder, including the right to enforce the instrument. In contrast, an assignee of a nonnegotiable contract only acquires the rights that the assignor had under the contract and may not have the right to enforce the contract against the other party.

Question 14

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

Accepted Answer

The answer of A holder is any person in possession...

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.

Accepted Answer

This is the basic principle of negotiable instruments law. The holder can sue the party responsible for payment in court to enforce payment of the instrument.

Question 16

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

Accepted Answer

Under the Uniform Commercial Code, value is given if the holder performs the agreed-upon promise. This is the basis for consideration in contracts governed by the UCC.

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.

Accepted Answer

A holder in due course takes the negotiable instrument free of all claims and most defenses that can be asserted against the transferor of the instrument, as per the Uniform Commercial Code (UCC). However, there are still some limited defenses that can be asserted against a holder in due course, such as fraud in the execution, minority of the obligor, and discharge in bankruptcy.

Question 18

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

Accepted Answer

A holder in due course must have taken the instrument in good faith, for value, and without notice of any defects or dishonor. If the holder has notice of dishonor, they 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.

Accepted Answer

This is known as a "value given for antecedent debt" and is recognized as a valid consideration under the UCC.

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.

Accepted Answer

An unperformed promise is not a valuable consideration because it does not provide any present or future benefit to the promisor.

Quiz 21: Holder in Due Course and Liability of Parties