Question 1

Flossie signs a check payable to Glenn and gives it to him, leaving the amount blank but authorizing him to fill it in for $1,000. Glenn fills in $1,500 and negotiates the check to Home Federal Bank, an HDC. Home Federal can enforce the check for

Accepted Answer

Since Glenn was authorized to fill in the blank for up to $1,000, filling it in for $1,500 is within the scope of his authority. Therefore, Home Federal can enforce the check for the full amount of $1,500. As an HDC, Home Federal is protected from any claims that Flossie may have against Glenn or anyone else involved in the negotiation of the check.

Question 2

Baxter obtains a check payable to his order from Chanel. For Baxter to negotiate this order instrument to Darlene requires

Accepted Answer

In order for Baxter to negotiate the order instrument to Darlene, he must indorse the check and deliver it to her. This is because the check is payable to Baxter's order, meaning it can only be negotiated by his indorsement and delivery to another person. Assignment and promise to pay are not relevant in negotiable instruments, and presentment and dishonor are only necessary in certain circumstances such as when a check is not honored by the bank. Good faith and value are important concepts in negotiable instruments, but they are not necessary for Baxter to negotiate the check to Darlene.

Question 3

Edgar possesses a check that is "payable to cash." Fawn steals the check and delivers it to Godfrey, an innocent third person. All rights to the check are

Accepted Answer

Godfrey, as an innocent third party who received the check, holds the rights to it because a check "payable to cash" is a bearer instrument, meaning whoever possesses it has the right to cash it.

Question 4

Erin indorses a check, "Pay to Farmers Cooperative, Inc., if they deliver the grain by May 1, 2015." This is

Accepted Answer

A restrictive indorsement specifies a condition or instruction that must be fulfilled for the indorsement to be valid, such as the delivery of grain by a certain date.

Question 5

Entrepreneur Auto Rentals owes Sole Saver Auto Dealership $20,000. Entrepreneur executes a note to Sole Saver as security for the debt. This security

Accepted Answer

According to the Uniform Commercial Code, a negotiable instrument must have value to be considered valid, which means it must represent a legal obligation or property right. The note executed by Entrepreneur as security for the debt satisfies the value requirement for an HDC (Holder in Due Course) status because it represents an obligation to pay the $20,000 debt owed to Sole Saver. Therefore, the correct answer is (D) - this security satisfies the value requirement for HDC status.

Question 6

Roderick negotiates a bearer instrument to Shauna by

Accepted Answer

Bearer instruments are negotiated by delivery alone, without the need for indorsement.

Question 7

Dirk transfers a note by signing it and delivering it to Edwina. Dirk is

Accepted Answer

Dirk is transferring the note by signing it, which makes him an indorser.

Question 8

Bowie is a holder of a promissory note obtained from Credit Lenders, Inc. Regarding the defenses against payment of the note to which Credit Lenders is subject, Bowie, as an ordinary holder, is subject to

Accepted Answer

As an ordinary holder, Bowie is subject to the same defenses that Credit Lenders, Inc. would have been subject to if they were the ones holding the promissory note. This means that Bowie cannot claim superior rights to the note and is not exempt from any of the defenses that could be raised against Credit Lenders.

Question 9

Dane transfers a draft by signing it and delivering it to Ebony. Ebony is

Accepted Answer

Ebony is the indorsee, as she received the draft from Dane through his signature and delivery.

Question 10

Plumbing & Pipes Supply Company issues a promissory note as a demand instrument with a due date of October 5. Quantum Loan Company accepts the note. Quantum Loan has notice that the note is overdue if the firm takes the note

Accepted Answer

Since the due date is October 5, the note will become overdue after October 5. Therefore, Quantum Loan Company can only have notice of the note being overdue if they take the note after October 5.

Question 11

Giuseppe writes a check "payable to bearer" and hands it to Hamilton. Imogene steals the check and delivers it to Jocelyn, an innocent third person. Hamilton can recover the proceeds of the check from

Accepted Answer

Hamilton can recover the proceeds from Imogene because she wrongfully took the check. Jocelyn, as an innocent third party, is not liable, and Giuseppe is not liable once the check is made payable to bearer.

Question 12

Mortimer negotiates an instrument to Nadia. Negotiation is the transfer of an instrument

Accepted Answer

Negotiation is the process of transferring an instrument in such a way that the transferee becomes a holder, with all the rights and liabilities of a holder. It requires valuable consideration as part of a contract, but the payment can be in any recognized medium of exchange, which may or may not include money. Preliminary contract discussions are not part of the negotiation process.

Question 13

Muni Investment Company signs a check payable to Enterprise Lenders, Inc., to buy a promissory note executed by Fallow Corporation. This check

Accepted Answer

The check from Muni Investment Company constitutes sufficient value for HDC status because it represents the purchase price of the promissory note executed by Fallow Corporation. The consideration requirement for HDC status is satisfied when there is a promise to pay, a transfer of value, or an exchange of promises to pay.

Question 14

Secure Loan Company has notice that a promissory note is overdue if the note is a demand instrument and Secure Loan takes it

Accepted Answer

According to the question, the promissory note is a demand instrument, which means it is payable on demand or whenever the holder of the note requests payment. Therefore, there is no fixed due date for the promissory note. However, if the note is overdue, it is because Secure Loan has taken an unreasonable time after its demand for payment. Option B is incorrect as it refers to a fixed due date, which is not applicable in this scenario. Option C is also incorrect as there is no fixed due date, and Option D is invalid since Secure Loan is aware that the note is overdue.

Question 15

Fact Pattern 26-1B (Questions B8-B10 apply)
Destiny obtains a check payable to her order from Eugenia. Destiny signs the back and adds the notation "without recourse."
-Refer to Fact Pattern 26-1B. By writing "without recourse" with her signature, Destiny

Accepted Answer

By adding the notation "without recourse" with her signature, Destiny relieves herself of liability on the instrument. This means that if the check bounces, but there is no fault of Destiny, she will not be held liable for it. However, it does not prevent the risk of loss from theft, nor does it convert the check into a nonnegotiable instrument or lock it into the bank collection process.

Question 16

At 1 A.m., on the sidewalk in front of Ace Credit Corporation, which is closed, Ben buys a $500 promissory note for $50 from Curt. When pre?sented with Ben's demand for payment, Diane, the maker of the note, could successfully claim that Ben

Accepted Answer

Ben bought the promissory note for a significantly lower price than its face value, which may indicate that he did not acquire the instrument in good faith. Additionally, the fact that he bought it at 1 a.m. on a sidewalk in front of a closed business may suggest that he was aware of some irregularity surrounding the transaction. Diane could therefore argue that Ben did not have a lawful claim to payment under the promissory note.

Question 17

Fact Pattern 26-1B (Questions B8-B10 apply)
Destiny obtains a check payable to her order from Eugenia. Destiny signs the back and adds the notation "without recourse."
-Refer to Fact Pattern 26-1B. Destiny's signature and the notation "without recourse" constitute

Accepted Answer

Destiny's signature and the notation "without recourse" constitute a qualified indorsement because it limits her liability on the check.

Question 18

Diego is the payee of a bearer instrument-a promissory note in the amount of $1,000. Emil offers to harvest Diego's field of alfalfa in October in ex?change for the note. Diego agrees and delivers the note to Emil. Emil is not an HDC of the note because he

Accepted Answer

Emil did not give value for the note because the exchange of services (harvesting the field) is not considered giving value in the context of becoming a holder in due course (HDC).

Question 19

Elinor performs ten hours of house cleaning for Floyd in exchange for a promissory note for $400. At the time that Elinor accepts the note, she is aware that bankruptcy proceedings are being filed against Floyd. Elinor can

Accepted Answer

The answer of Elinor performs ten hours of house cleaning...

Question 20

Fact Pattern 26-1B (Questions B8-B10 apply)
Destiny obtains a check payable to her order from Eugenia. Destiny signs the back and adds the notation "without recourse."
-Refer to Fact Pattern 26-1B. After Destiny signs the back and adds the notation "without recourse," she adds, "Pay to Florence." This constitutes

Accepted Answer

This constitutes a special qualified indorsement because it is a specific indorsement with additional qualifications, indicated by the "without recourse" notation and the instruction to pay to Florence.

Quiz 26: Transferability and Holder in Due Course