Question 1

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

An indorsement should be within the designated area on the back of a check, but if it's outside, it doesn't destroy negotiability; it may just cause processing delays.

Question 2

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 3

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

When a check is endorsed by the payee, it becomes a bearer instrument and can be transferred to any person by delivery. Therefore, if Sam Johnson endorses the check and gives it to Alex, Alex becomes the holder of the instrument.

Question 4

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

Accepted Answer

An executory promise is a promise to do something in the future, it is not a giving of value to support holder in due course status. A holder in due course is someone who has legally acquired a negotiable instrument, such as a check or promissory note, for value and without notice of any defects in the instrument.

Question 5

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

Accepted Answer

According to the Doctrine of Privity, a mere holder or an assignee takes a negotiable instrument subject to all claims and defenses to it. This means that the holder or assignee cannot claim to be a holder in due course and is subject to any defects or controversies that existed in the instrument when it was transferred to them.

Question 6

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 7

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

Accepted Answer

When a depositor deposits an item such as a check, the bank gives value by allowing the depositor to withdraw funds against that item. This is the basis of the banking system and how banks earn revenue from the interest they charge on loans made with deposited funds.

Question 8

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 is a legal concept that was developed to encourage the free transferability of negotiable instruments. A holder in due course is someone who acquires a negotiable instrument for value, in good faith, and without notice of any claims or defenses against it. This status provides the holder with certain legal protections and rights, including the ability to enforce the instrument against the original issuer or any subsequent holders.

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 (UCC) adopts a definition of good faith that includes both a subjective and objective component. This means that a party must honestly believe their actions are fair and reasonable (subjective) while also meeting the reasonable standards of commercial practice (objective).

Question 10

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

Accepted Answer

To be a holder of an instrument, one does not necessarily need to own the instrument. A holder is someone who is in possession of a negotiable instrument, such as a check or promissory note, and has the right to enforce it. Ownership of the instrument may belong to someone else, such as the issuer or a previous holder who has transferred the instrument to the current holder.

Question 11

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

A holder in due course can still exist if the convenience store took the check in good faith, for value, and without notice of any defect or claim, even if the check was stolen and indorsed with a false name.

Question 12

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 of the original maker, meaning they can still collect even if the maker had a valid defense. However, there are some limited defenses that can still be asserted against a holder in due course, such as fraud in the inducement or forgery.

Question 13

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 14

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 15

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 several rights including the ability to transfer it, negotiate it, enforce payment, and discharge it under certain conditions. However, these rights may be subject to valid claims and defenses.

Question 16

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 17

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 18

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 19

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 20

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

Accepted Answer

Buying a negotiable instrument at a discounted price is a common practice in the financial market and does not necessarily demonstrate lack of good faith. It is a legitimate way for investors to make a profit by purchasing the instrument for less than its face value and receiving the full value when it matures. As long as the transaction is done openly and transparently, it is considered lawful and ethical.

Quiz 27: Transfer and Holder in Due Course