Question 1

A holder in due course would have the right to collect from the original maker of an instrument even if the maker had a valid personal defense.

Accepted Answer

A holder in due course takes the instrument free from most personal defenses, including those of the original maker. Therefore, even if the original maker had a valid personal defense, the holder in due course would still have the right to collect from them.

Question 2

A check is made payable "to the order of Sam Johnson." If this check is indorsed by Sam Johnson and given to Alex, Alex becomes the holder of the instrument.

Accepted Answer

If Sam Johnson indorses the check, it becomes payable to Alex as the new holder of the instrument.

Question 3

A holder in due course has the same rights under a consumer credit contract as under the UCC as long as a special notice requirement has been met.

Accepted Answer

A holder in due course in a consumer credit contract does not have the same rights as under the Uniform Commercial Code (UCC) because consumer protection laws provide additional rights to consumers that are not present under the UCC, regardless of any special notice requirement.

Question 4

A "holder" may transfer the instrument, negotiate it, enforce payment of it subject to valid claims and defenses, and with some exceptions discharge it.

Accepted Answer

A holder of a negotiable instrument has various rights, including the right to transfer, negotiate, enforce payment (subject to valid claims and defenses), and discharge the instrument (with some exceptions).

Question 5

The "value" requirement of a holder in due course is the same as "consideration" for a contract.

Accepted Answer

The answer of The "value" requirement of a holder in...

Question 6

Maria gives Joe $250 cash in return for Joe's indorsed check for $300. If Maria subsequently finds out that the check she took was given to Joe in return for a stolen car, Maria is no longer a holder in due course.

Accepted Answer

The answer of Maria gives Joe $250 cash in return...

Question 7

A person is never entitled to enforce an instrument if that person is not the owner of the instrument or if that person is in wrongful possession of the instrument.

Accepted Answer

Under certain circumstances, a person not in rightful possession or not the owner of the instrument may still enforce it if they qualify as a holder in due course, which requires meeting specific criteria under the Uniform Commercial Code (UCC) or equivalent laws, such as acquiring the instrument in good faith and without knowledge of its theft or fraud.

Question 8

A mere holder or an assignee takes a negotiable instrument subject to all claims and defenses to it.

Accepted Answer

According to the principle of "holder in due course," only a holder who has taken a negotiable instrument for value, in good faith, and without notice of any claims or defenses to it, is protected against such claims or defenses. A mere holder or an assignee is not a holder in due course and takes the instrument subject to all claims and defenses to it.

Question 9

Revised Article 3 adopts a definition of good faith that has both a subjective and an objective component.

Accepted Answer

Revised Article 3 of the Uniform Commercial Code adopts a definition of good faith that includes both a subjective element (the person's honesty in fact) and an objective element (whether a reasonable person in the same situation would have acted similarly).

Question 10

An indorsement must be written within 1 1/2 inches of the trailing edge of the back of the check and must be written in ink or the check's negotiability is destroyed.

Accepted Answer

The answer of An indorsement must be written within 1...

Question 11

A bank "gives value" when it allows a depositor to withdraw funds against a deposited item.

Accepted Answer

When a bank allows a depositor to withdraw funds against a deposited item, it is considered as giving value because it provides liquidity to the depositor and fulfills the bank's obligation to honor the deposit.

Question 12

A person who takes a check stamped "NSF" may still be a holder in due course.

Accepted Answer

The answer of A person who takes a check stamped...

Question 13

Buying a negotiable instrument at a discounted price demonstrates lack of good faith.

Accepted Answer

Buying a negotiable instrument at a discounted price does not necessarily demonstrate lack of good faith. In fact, it is a common practice in many financial transactions, such as factoring, where a business sells its accounts receivables at a discount to a third party. As long as the parties involved are aware of the terms of the transaction and act in good faith, buying a negotiable instrument at a discounted price is not inherently unethical or illegal.

Question 14

A person other than the owner of an instrument cannot be entitled to enforce it.

Accepted Answer

Under the principles of negotiability, a person who is in possession of a negotiable instrument and has obtained it through proper means can enforce the instrument even if they are not the original owner. This is often referred to as being a "holder in due course."

Question 15

An executory promise is the giving of value to support holder in due course status.

Accepted Answer

The definition of an executory promise refers to a promise that has not yet been fulfilled or completed. The concept of holder in due course status relates to the rights of a holder of a negotiable instrument, such as a check or promissory note, who has received the instrument in good faith and for value. While there may be a connection between executory promises and the giving of value, the statement in the question is not an accurate or complete definition of either concept.

Question 16

The shelter rule applies even if the transferee was a party to fraud or illegality affecting the instrument.

Accepted Answer

The shelter rule generally allows a person who acquires a negotiable instrument to obtain the rights of a holder in due course, but it does not apply if the transferee engaged in fraud or illegality affecting the instrument.

Question 17

It is necessary that one own the instrument to be a "holder."

Accepted Answer

One does not need to own the instrument to be a holder. A holder can be someone who legally possesses or has control over the instrument, such as a borrower or a recipient of a gift.

Question 18

The Code provides that for checks, a reasonable time for demand for payment is sixty days, after which a purchaser should be on notice the paper is overdue for the purpose of becoming a holder in due course.

Accepted Answer

Under the Uniform Commercial Code (UCC), a check must be presented for payment within a reasonable time after its issue to qualify as a holder in due course, but the UCC specifically considers a reasonable time for a check to be 30 days, not 60 days.

Question 19

Glenn indorsed his paycheck by signing just his name and cashed it at the grocery store. The check was stolen from the store, indorsed in a false name and transferred to a convenience store. The convenience store could not be a holder in due course since the check had been stolen and indorsed with a false name.

Accepted Answer

The answer of Glenn indorsed his paycheck by signing just...

Question 20

The status of holder in due course was created to encourage the free transferability of negotiable instruments.

Accepted Answer

The status of holder in due course was indeed created to promote and facilitate the free transferability of negotiable instruments, such as promissory notes or checks. It provides legal protection and special rights to a holder who acquires a negotiable instrument in good faith, for value, and without notice of any defects or defenses that could be raised against it. This encourages people to accept negotiable instruments as payment or collateral, and thus contributes to the efficiency and liquidity of commercial transactions.

Quiz 27: Transfer and Holder in Due Course