Question 1

If an individual holds a note that is labeled consumer paper then that individual cannot be a holder in due course.

Accepted Answer

UCC section 3-106(d)states that an individual holding a note with consumer paper on it is not eligible to become a holder in due course.

Question 2

A person cannot be a holder in due course of a negotiable instrument if,when she takes it,the instrument is irregular or some important or material term is blank.

Accepted Answer

A person cannot be a holder in due course of a negotiable instrument if,when she takes it,the instrument is irregular or some important or material term is blank.If the negotiable instrument contains a facial irregularity,such as an obvious alteration in the amount,then it is considered to be irregular paper.

Question 3

Generally,real defenses arise out of the transaction in which the negotiable instrument was issued and are based on negotiable instruments law or contract law.

Accepted Answer

Generally,personal defenses arise out of the transaction in which the negotiable instrument was issued and are based on negotiable instruments law or contract law.

Question 4

Sonia,through fraudulent representations,induced Gracie to execute a negotiable note payable to Sonia.Sonia is a holder in due course.

Accepted Answer

If a person obtains a check by trickery or with knowledge that it has been stolen,the person has not obtained the check in good faith and cannot be a holder in due course.

Question 5

Negotiation,as defined by the UCC in section 3-201,is the transfer of a negotiable instrument by one person to another person.

Accepted Answer

UCC section 3-201 defines negotiation as the transfer of possession of a negotiable instrument by a person to another person who becomes the holder.

Question 6

The new Article 3 recognizes and enforces indorsements that prohibit further negotiation of the instrument.

Accepted Answer

There are two other kinds of indorsements that the original UCC Article 3 treated as restrictive indorsements but that the revised UCC Article 3 no longer considers as restrictive indorsements.They are: (1)Indorsements purporting to prohibit further negotiation and (2)conditional indorsements,which indicate that they are effective only if the payee satisfies a certain condition.

Question 7

Indorsements that state a condition to the right of the indorsee to receive payment do not affect the right of the indorsee to enforce the instrument.

Accepted Answer

Indorsements that state a condition to the right of the indorsee to receive payment do not affect the right of the indorsee to enforce the instrument.Any person who pays the instrument or takes it for value or for collection may disregard the condition.

Question 8

Under the most modern revision to Article 3,a depositary bank cannot become a holder of a check that is deposited by a customer without an indorsement.

Accepted Answer

The revision to Article 3 and the conforming amendments to Articles 1 and 4 address the situation where a check is deposited in a depositary bank without indorsement differently.The depositary bank becomes a holder of an item delivered to it for collection,whether or not it is indorsed by the customer,if the customer at the time of delivery qualified as a holder.

Question 9

A person who makes an executory promise in return for a negotiable instrument has given value for it.

Accepted Answer

A person who gets a check as a gift or merely makes an executory promise in return for a check has not given value for it and cannot qualify as a holder in due course.

Question 10

A qualified indorsement is one where the indorser accepts the liability to make the instrument good if the maker or drawer defaults on it.

Accepted Answer

A qualified indorsement is one where the indorser disclaims her liability to make the instrument good if the maker or drawer defaults on it.

Question 11

An instrument that is payable "to cash" can be negotiated simply by giving it to the person to whom you wish to transfer it.

Accepted Answer

If someone gives you a check that is made payable "to the order of cash," you can negotiate it simply by giving it to the person to whom you wish to transfer it.No indorsement is necessary to negotiate an instrument payable to bearer.

Question 12

Order paper that is indorsed in blank becomes bearer paper.

Accepted Answer

An instrument indorsed in blank is payable to the bearer (person in possession of it)and from that act is "bearer paper."

Question 13

On June 1,Mike writes a check payable to Pete.Without ever being paid,the check is eventually negotiated to Hal,who receives it on September 15 with notice of the date on its face.Hal is not a holder in due course of the check.

Accepted Answer

In order to qualify as a holder in due course,a person must take a negotiable instrument before he has notice that it either is overdue or has been dishonored.If a negotiable instrument is payable on demand,it is overdue 90 days after its date if it is a check.

Question 14

A holder in due course of a negotiable instrument always has the same rights as the individual that transferred the negotiable instrument to the holder.

Accepted Answer

A holder in due course gets better rights than the individual that transfer the instrument to the holder.

Question 15

A claim in recoupment is a claim of the person obligated on the instrument against the original payee of the instrument.

Accepted Answer

A claim in recoupment is a claim of the person obligated on the instrument against the original payee of the instrument.The claim must arise from the transaction that gave rise to the instrument.

Question 16

In some circumstances, Revised Article 3 allows a person to become a holder by negotiation even though the transfer of possession is involuntary.

Accepted Answer

In certain circumstances,Revised Article 3 allows a person to become a holder by negotiation even though the transfer of possession is involuntary.For example,if a negotiable instrument is payable to bearer and is stolen by Tom Thief or found by Fred Finder,Thief or Finder becomes the holder when he obtains possession.The involuntary transfer of possession of a bearer instrument results in a negotiation to Thief or Finder.

Question 17

Anyone other than a bank,who purchases a check indorsed "for deposit only," has converted it;unless the indorser received the amount paid for the check or the bank deposited the check in the indorser's account.

Accepted Answer

In the case of a check indorsed "for deposit" or "for collection," any person other than a bank who purchases the check is considered to have converted the check unless (1)the indorser received the amount paid for it or (2)the bank applied the amount of the check consistently with the indorsement.

Question 18

An individual must be acting in good faith in order to become a holder in due course of a negotiable instrument.

Accepted Answer

A holder in due course is a person who takes a negotiable instrument and is a holder and takes the instrument in good faith.

Question 19

Value is identical to simple consideration.

Accepted Answer

To qualify as a holder in due course of a negotiable instrument,a person must give value for it.Value is not identical to simple consideration. Under the UCC,value is defined as generally any consideration sufficient to support a simple contract.

Question 20

An indorsement is a signature of the holder typically on the back of a check.

Accepted Answer

An indorsement is made by adding the signature of the holder of the instrument to the instrument,usually on the back of it.

Quiz 32: Negotiation and Holder in Due Course