Question 1

Value has been given by the holder if he or she acquires a security interest in or lien on an instrument.

Accepted Answer

If a holder acquires a security interest in or lien on an instrument, it means that they have given value for it, as they have invested in the security or used it as collateral for a loan.

Question 2

What is the difference between a holder and holder in due course?

Accepted Answer

The answer of What is the difference between a holder...

Question 3

Which of the following qualifications renders a person a holder in due course of a negotiable instrument?

Accepted Answer

To qualify as a holder in due course of a negotiable instrument, the person must take the instrument for value, meaning they have given something of value in exchange for the instrument. They must also acquire the instrument in good faith and without notice of any claims or defenses against it. Possession of an instrument issued in one's name or in another's name does not determine whether one is a holder in due course.

Question 4

An indorsee who accepts a defective instrument qualifies as a holder in due course.

Accepted Answer

An indorsee who accepts a defective instrument does not qualify as a holder in due course as they would be aware of the defect and thus cannot claim the rights of a holder in due course.

Question 5

A holder in due course is subject to all the claims and defenses that can be asserted against the transferor.

Accepted Answer

A holder in due course is not subject to all claims and defenses that can be asserted against the transferor, but rather has certain defenses under the UCC.

Question 6

The holder of a negotiable instrument has the same rights as the holder of an ordinary nonnegotiable contract.

Accepted Answer

The holder of a negotiable instrument has the same rights as the holder of an ordinary nonnegotiable contract. This is because negotiable instruments are legally enforceable documents that can be transferred from one person to another, making them easily exchangeable for value. Therefore, the holder of a negotiable instrument has the same rights as the original holder.

Question 7

Under the Uniform Commercial Code's ________ requirement, a person cannot qualify as a holder in due course (HDC) if he or she has noticed that the instrument is overdue.

Accepted Answer

The requirement that a person must take an instrument without notice of any default, defect, or wrongdoing in connection with the instrument is known as the "without notice of defect" requirement. If a person has notice that an instrument is overdue, then that person cannot be considered a holder in due course, even if all other requirements are met. Therefore, choice C is the best option. Choices A, B, and D refer to other requirements of being a holder in due course but are not relevant to this particular issue.

Question 8

A person who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order, or to bearer, or in blank is referred to as a(n) ________.

Accepted Answer

A person who possesses a negotiable instrument (such as a check) that is made payable to them or made payable to bearer (meaning whoever has possession of the instrument) is known as a holder. A holder can negotiate the instrument (i.e. transfer ownership of the instrument) to someone else by either endorsing it or delivering it to the new holder. However, the holder may not necessarily be considered a holder in due course unless they meet certain criteria specified by law.

Question 9

A person who takes a negotiable instrument for value, in good faith, and without notice that it is defective or overdue is referred to as a(n) ________.

Accepted Answer

A holder in due course is someone who takes a negotiable instrument (such as a check or promissory note) for value, in good faith, and without notice of any defects or overdue status. This status provides the holder with additional legal protections and rights, including being able to enforce the instrument against the maker or other parties, regardless of any potential claims or defenses against the original payee. The other choices do not necessarily require the same level of criteria to be met to apply.

Question 10

The ________ is a doctrine that says a holder who does not qualify as a holder in due course in his or her own right becomes a holder in due course if he or she acquires an instrument through a holder in due course.

Accepted Answer

The shelter principle is a legal principle in commercial law that allows a person who did not originally qualify as a holder in due course to acquire this status by receiving the negotiable instrument from a holder in due course. Essentially, the holder "takes shelter" under the rights and protections afforded to the original holder in due course. The other choices are not relevant to this concept.

Question 11

Which of the following requirements has to be met for a holder to qualify as a holder in due course (HDC) under the shelter principle?

Accepted Answer

The shelter principle states that a holder who acquires a negotiable instrument from an HDC can also qualify as an HDC, even if they themselves do not meet all of the requirements. Therefore, choice (D) is the correct answer. Choice (A) is incorrect because prior possession is not a requirement for HDC status. Choice (B) is incorrect because an HDC is not affected by claims or defenses that could be raised against previous holders. Choice (C) is incorrect because participation in fraud or illegality would disqualify a holder from HDC status, regardless of the shelter principle.

Question 12

What are qualified indorsements?

Accepted Answer

The answer of What are qualified indorsements?...

Question 13

An instrument that is refused payment when presented for payment is called a ________.

Accepted Answer

A dishonored instrument is one that is refused payment when presented for payment.

Question 14

A holder of a defective instrument cannot qualify as a holder in due course (HDC) if he or she has notice that the instrument is defective (HDC).

Accepted Answer

This statement is true. In order to be considered a holder in due course, the holder of an instrument must meet certain criteria, one of which is that they must not have notice of any defects or claims against the instrument. If the holder has knowledge of defects or claims, they cannot qualify as a HDC.

Question 15

The good faith test for an HDC applies to both transferor and transferee.

Accepted Answer

The good faith test for a Holder in Due Course (HDC) primarily applies to the transferee, assessing whether they took the instrument in good faith, without notice of any defects or claims against it. The transferor's good faith is not directly relevant to the HDC status of the transferee.

Question 16

Under which of the following Uniform Commercial Code (UCC) requirements is a holder considered a "holder in due course," given that the holder performs the agreed-upon promise in a negotiable instrument?

Accepted Answer

According to the UCC, to be considered a "holder in due course," the holder must have taken the negotiable instrument for value, in good faith, and without notice of any defects (UCC § 3-302). Therefore, the correct requirement under which a holder can be considered a "holder in due course" is the taking for value requirement.

Question 17

If a virgule is used, both parties are necessary to negotiate the instrument.

Accepted Answer

A virgule (/) is simply a slash used in writing and does not imply that both parties are necessary to negotiate an instrument; it often separates alternatives or options.

Question 18

To qualify as an HDC, a person must be the holder of a negotiable instrument that was taken for value.

Accepted Answer

According to the Uniform Commercial Code (UCC), to qualify as a holder in due course (HDC), a person must meet certain criteria, which includes being the holder of a negotiable instrument that was taken for value, among other requirements. Therefore, the statement is true.

Question 19

Tilda purchases an automobile from Ronston. At the time of sale, Ronston tells Tilda that the car has had only one previous owner and has been driven only 25,000 miles. Tilda, relying on these statements, purchases the car. She pays 10 percent down and signs a promissory note to pay the remainder of the purchase price, with interest, in fifteen equal monthly installments. Ronston transfers the note to Patty. Tilda then discovers that the car has actually had three previous owners and has been driven 250,000 miles. Which of the following is the legal outcome if Patty is a holder in due course (HDC)?

Accepted Answer

If Patty is a holder in due course, she has the right to collect on the promissory note, despite Tilda's claims of fraud. Tilda can seek recourse from Ronston for his misrepresentations, but she must still pay the remaining balance to Patty according to the terms of the note.

Question 20

Lisa buys a used car from Kelly. She pays 10 percent of the cost down and signs a negotiable promissory note promising to pay Kelly the remainder of the purchase price, with interest, in 12 equal monthly installments. At the time of sale, Kelly lied about the mileage of the automobile. Later, Kelly negotiated the note to Frances, who has no notice of the lie. Frances, a holder in due course (HDC), negotiated the note to Zoe, who is not an HDC. Which of the following is Zoe in regards to the promissory note?

Accepted Answer

The answer of Lisa buys a used car from Kelly....

Quiz 23: Holder in Due Course and Transferability