Question 1

Jill issues a negotiable promissory note to Cherice, who indorses it and delivers it to Lee. If Lee knows that the note was given to Cherice in exchange for worthless securities, Lee cannot be a holder in due course.

Accepted Answer

A holder in due course must take the instrument for value, in good faith, and without notice of any defect or claim against it. Since Lee knows about the worthless securities, he has notice of a defect, preventing him from being a holder in due course.

Question 2

Tina forges Vivian's indorsement on a promissory note and negotiates it to Ned. If Vivian subsequently ratifies Tina's act, both Tina and Vivian are liable to Ned on the note and Vivian's ratification relieves Tina from civil liability to Vivian.

Accepted Answer

The answer of Tina forges Vivian's indorsement on a promissory...

Question 3

Jerry takes a $400 check to Primary Bank, where he asks for $75 in cash and he deposits the remaining balance. Primary Bank has "given value" as far as the requirements of holder in due course status to the extent of $75.

Accepted Answer

Primary Bank has given value to the extent of $75 because it provided cash to Jerry, which is a form of consideration, thus meeting the requirement for holder in due course status for that amount.

Question 4

A negotiation may be valid to transfer the instrument even under which of the following condition(s)?

Accepted Answer

A negotiation can still be valid even if made by an infant, a person without capacity, or as part of an illegal transaction, as the focus is on the transferability of the instrument itself rather than the legality or capacity of the parties involved.

Question 5

Ella induces Tammy, by fraud in the inducement, to make an instrument payable to the order of Ella. She subsequently negotiates the instrument to Adam, a holder in due course. If Ella later reacquires the instrument from Adam, Ella will succeed to Adam's rights as a holder in due course under the shelter rule.

Accepted Answer

The answer of Ella induces Tammy, by fraud in the...

Question 6

The FTC upholds the preferential position enjoyed by a holder in due course of instruments concerning debts arising out of consumer credit contracts.

Accepted Answer

The FTC's Holder Rule limits the rights of a holder in due course in consumer credit contracts, ensuring consumers can assert claims and defenses against them.

Question 7

An indorsement in trust creates a trust for the benefit of the indorser or others.

Accepted Answer

An indorsement in trust is a type of indorsement that specifies that the indorsee holds the instrument for the benefit of the indorser or another party, creating a fiduciary relationship.

Question 8

A negotiation is void if the transaction in which it occurs is void.

Accepted Answer

The answer of A negotiation is void if the transaction...

Question 9

Revised Article 3 provides that the impostor rule does not include an impostor who impersonates an agent of a principal and who induces someone to create a negotiable instrument payable to the principal.

Accepted Answer

The answer of Revised Article 3 provides that the impostor...

Question 10

David makes and delivers a promissory note for $500 to the order of Kerry, who indorses the note and delivers it to Stan in payment of an outstanding debt Kerry owes him. Stan has given value as far as the Code requirements for a holder in due course.

Accepted Answer

Stan has given value for the promissory note by accepting it as payment for an outstanding debt, meeting the requirement for a holder in due course under the Uniform Commercial Code.

Question 11

Any transfer for value of an instrument is a negotiation.

Accepted Answer

A transfer for value of an instrument is not necessarily a negotiation. Negotiation specifically refers to the transfer of possession of an instrument in such a manner that the transferee becomes the holder.

Question 12

An indorsement must be written on the instrument itself.

Accepted Answer

The answer of An indorsement must be written on the...

Question 13

A person can be a holder if:

Accepted Answer

A person can be a holder if the instrument has been either issued to them or transferred to them by negotiation.

Question 14

An indorsement "Pay Alice Adams" is an assignment rather than a negotiation since it lacks words of negotiability.

Accepted Answer

The answer of An indorsement "Pay Alice Adams" is an...

Question 15

The shelter rule did not exist at common law.

Accepted Answer

The answer of The shelter rule did not exist at...

Question 16

Horst, a holder in due course, buys a note made out by Arthur to Superior Motors. Even though Arthur's debt was discharged through bankruptcy, Horst can collect on the note.

Accepted Answer

The answer of Horst, a holder in due course, buys...

Question 17

To acquire the preferential rights of a holder in due course, a person either must meet the requirements of the UCC or must inherit the rights under the shelter rule.

Accepted Answer

The Uniform Commercial Code (UCC) outlines the requirements for a holder in due course, and the shelter rule allows a person to inherit these rights from a previous holder in due course.

Question 18

An executory promise, which is valid consideration to support a contract, is also the giving of value to support holder in due course status.

Accepted Answer

An executory promise is a promise to perform an act in the future and is considered valid consideration for a contract, but it does not constitute the giving of value required for holder in due course status in negotiable instruments law.

Question 19

An indorsement "Pay to Jones Construction Company upon completion of the job at No. 10 Park Place" is ineffective under Revised Article 3; the indorsee can enforce the instrument.

Accepted Answer

Under Revised Article 3, a conditional indorsement like this is ineffective to limit the enforceability of the instrument by the indorsee. The indorsee can enforce the instrument regardless of the condition stated in the indorsement.

Question 20

A "without recourse" indorsement eliminates all of an indorser's liability.

Accepted Answer

The answer of A "without recourse" indorsement eliminates all of...

Quiz 25: Transfer and Holder in Due Course