Question 1

Tyrone transfers a note by signing it and delivering it to Uri.Tyrone is
A)an indorser.
B)a notary.
C)a note passer.
D)a promisor.

Accepted Answer

Tyrone is an indorser because he signed the note, thereby transferring ownership rights to Uri.

Question 2

Fact Pattern 25-1B 
Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse."
-Refer to Fact Pattern 25-1B.After Belle signs the back and adds the notation "without recourse," she adds "Pay to Desiree." This constitutes
A)a blank qualified indorsement.
B)a special qualified indorsement.
C)a restrictive indorsement.
D)none of the choices.

Accepted Answer

Belle's addition of "Pay to Desiree" after her "without recourse" notation makes this a special qualified indorsement. It is special because it specifies the person to whom the check should be paid, and it is qualified because of the addition of the "without recourse" notation.

Question 3

Owen is a holder of a promissory note obtained from Purchase Money,Inc.Regarding the defenses against payment of the note to which Purchase Money is subject,Owen,as an ordinary holder,is subject to
A)more defenses.
B)no defenses.
C)some defenses,but not as many.
D)the same defenses.

Accepted Answer

As an ordinary holder, Owen is subject to the same defenses that could be raised against the original payee of the promissory note.

Question 4

Fact Pattern 25-1B 
Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse."
-Refer to Fact Pattern 25-1B.After Belle signs the back and adds the notation "without recourse," further negotiation of the check
A)requires Belle's re-indorsement and delivery.
B)requires delivery alone.
C)requires Charmayne's indorsement and delivery.
D)is not possible.

Accepted Answer

By signing the back of the check and adding the notation "without recourse," Belle has effectively disclaimed any liability for the check, meaning that she cannot be held responsible if the check is dishonored. However, this does not affect the negotiability of the check. Accordingly, further negotiation of the check can occur through delivery alone, without the need for Belle's re-indorsement or Charmayne's indorsement and delivery.

Question 5

Rayette transfers a draft by signing it and delivering it to Suki.Suki is
A)a delivery person.
B)a draftee.
C)an indorsee.
D)a promisee.

Accepted Answer

Suki is an indorsee because she is the recipient of the draft after it has been signed and transferred by Rayette.

Question 6

Todd indorses a check,"Pay to Interstate Trucking if they deliver the lumber by May 1,2012." This is
A)a blank indorsement.
B)a qualified indorsement.
C)a restrictive indorsement.
D)a special indorsement.

Accepted Answer

This is a restrictive indorsement because it limits the payment to Interstate Trucking only if they deliver the lumber by a certain date.

Question 7

Finest Office Company employs General Construction,Inc.(GCI),to reno?vate an office and signs a note for $10,000 payable to GCI.GCI breaches the contract,but sells the note for $5,000 to Happy Collection Agency,which knows that GCI has not performed.Happy is an HDC of the note in the amount of
A)$0.
B)$5,000.
C)$10,000.
D)$15,000.

Accepted Answer

Happy Collection Agency is not a holder in due course (HDC) because it had notice of the breach of contract by GCI. Therefore, it cannot claim any amount on the note.

Question 8

Pola wants to transfer a check to Quin.The check is defective if it
A)has been previously dishonored.
B)has no irregularities on its face.
C)is not overdue.
D)is so complete that no element of negotiability is lacking.

Accepted Answer

A check that has been previously dishonored is considered defective and cannot be transferred as it indicates that there were issues with the account or transaction.

Question 9

Lexy obtains a check payable to her order from Maven.To negotiate this order instrument to Nicole requires
A)Lexy's indorsement and delivery.
B)Maven's indorsement and delivery.
C)Nicole's indorsement and delivery.
D)delivery without anyone's indorsement.

Accepted Answer

To negotiate a check, the person who is the payee (in this case, Lexy) must endorse (sign) the back of the check and deliver it to the person they want to receive the money (in this case, Nicole). This is known as a "blank endorsement" because Lexy is not specifying who the check should be paid to, which allows Nicole to then endorse it and deposit or cash it herself. Option B is not applicable because Maven, the person who issued the check, has already fulfilled their obligation by creating a check in favor of Lexy. Option C is not applicable because Nicole is not the original payee and therefore cannot simply endorse the check to herself. Option D is not applicable because an endorsement is required for negotiation.

Question 10

Fact Pattern 25-1B 
Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse."
-Refer to Fact Pattern 25-1B.Belle's signature and the notation "without recourse" constitute
A)a blank indorsement.
B)a qualified indorsement.
C)a special indorsement.
D)a restrictive indorsement.

Accepted Answer

Belle's signature with the notation "without recourse" is a qualified indorsement, which limits her liability on the check.

Question 11

Vladimir negotiates a bearer instrument to Wendy by
A)assignment.
B)delivery.
C)presenting it in response to a demand by Wendy.
D)promising to pay.

Accepted Answer

Negotiation by delivery is the transfer of possession of the bearer instrument from one person to another. Therefore, Vladimir can negotiate the bearer instrument to Wendy by delivery.

Question 12

Kris transfers a note,on which Liu is the maker,to Mia,who takes it for value and in good faith.Mia knows that Kris breached the contract underlying the note,giving Liu a defense against payment.With respect to this note,Mia is
A)a knowledgeable holder in due course.
B)an ordinary holder.
C)an ordinary holder in due course.
D)an ordinary note taker.

Accepted Answer

The answer of Kris transfers a note,on which Liu is...

Question 13

Edie is the payee of a bearer instrument-a promissory note in the amount of $1,000.Frank offers to irrigate Edie's ranch next week in ex?change for the note.Edie agrees and delivers the note to Frank.Frank is
A)an HDC,because he promised to perform services at a future date.
B)not an HDC,because he did not take the instrument without notice.
C)not an HDC,because he did not acquire the instrument in good faith.
D)not an HDC,because he did not yet give value for the instrument.

Accepted Answer

In order to be considered a holder in due course (HDC), Frank would need to meet certain requirements, including acquiring the instrument for value and in good faith. While he did offer to provide services in exchange for the note, he has not yet performed those services and therefore has not given value for the instrument. Therefore, he cannot be considered an HDC.

Question 14

Yves negotiates an instrument to Zachary.Negotiation is the transfer of an instrument
A)for valuable consideration under a contract.
B)in a form and by a means that makes the transferee a holder.
C)pursuant to preliminary contract discussions.
D)without the payment of a recognized medium of exchange.

Accepted Answer

Negotiation is the process of transferring an instrument in a form and by a means that makes the transferee a holder. This means that the transferee is now in possession of the instrument and has the right to enforce it. In order for negotiation to take place, consideration (something of value) must be given and there must be a contract between the parties. The option of choice A is also partially correct, as consideration must be given for negotiation to take place, but it does not fully explain the process of negotiation. Choices C and D are incorrect, as negotiation does not necessarily involve preliminary contract discussions and does require the transfer of valuable consideration.

Question 15

Fact Pattern 25-1B 
Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse."
-Refer to Fact Pattern 25-1B.By writing "without recourse" with her signature,Belle
A)avoids the risk of loss from theft of the instrument.
B)relieves herself from liability on the instrument.
C)converts the check into a nonnegotiable instrument.
D)locks the instrument into the bank collection process.

Accepted Answer

By adding the notation "without recourse" with her signature, Belle is relieving herself from liability on the instrument. This means that if the check bounces or is contested in any way, Belle cannot be held responsible for payment. However, this does not prevent Belle from the risk of loss from theft of the instrument or affect the negotiability of the check.

Question 16

Fact Pattern 25-1B 
Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse."
-Refer to Fact Pattern 25-1B.When Belle signs the back and adds the notation "without recourse," the check becomes
A)a bearer instrument.
B)an order instrument.
C)a promissory note.
D)a nonnegotiable instrument.

Accepted Answer

Adding the notation "without recourse" does not change the nature of the instrument from an order instrument. This simply means that Belle, as the endorser of the check, is not assuming any liability for nonpayment by the drawer, Charmayne.

Question 17

Reel CGI Animé Company issues a promissory note as a demand instrument with a due date of October 5.Syncopated Loan Company accepts the note.Syncopated has notice that the note is overdue if the firm takes the note
A)after October 5.
B)before October 5.
C)on October 5.
D)at any time.

Accepted Answer

The due date on the promissory note is October 5, so if Syncopated Loan Company takes the note before that date, it would not be considered overdue yet. However, if they take it on or after October 5, the note is considered overdue. Therefore, option A is the correct answer.

Question 18

Parkdale Roofing Company receives a check from Quik Mart for fixing its roof,and indorses the check to Repair Supplies,Inc.(RSI).Stef,RSI's owner,gives the check to Tiny as a gift.In this situation,the party who is not an HDC of the check but who acquires HDC rights under the shelter principle is
A)no one.
B)Parkdale Roofing.
C)Stef.
D)Tiny.

Accepted Answer

Tiny is the party who is not an HDC but acquires HDC rights under the shelter principle. When Parkdale Roofing indorsed the check to RSI, RSI became the HDC (holder in due course). When RSI indorsed the check to Stef, Stef received HDC rights. Stef then gave the check to Tiny as a gift, and under the shelter principle, Tiny acquires the same HDC rights that Stef had.

Question 19

Dru signs a check payable to Excel Services,Inc. ,and gives it to Excel,leaving the amount blank but authorizing Excel to fill it in for $1,000.Excel fills in $1,500 and negotiates the check to Friendly Credit Corporation,an HDC.Friendly Credit can enforce the check for
A)$0.
B)$500.
C)$1,000.
D)$1,500.

Accepted Answer

The check is enforceable for $1,000, the amount Dru authorized Excel to fill in.

Question 20

Demi possesses a check that is "payable to bearer." Esther steals the check and delivers it to Fern.All rights to the check are
A)Demi's.
B)Esther's.
C)Fern's.
D)no one's.

Accepted Answer

Since the check is "payable to bearer," anyone who possesses it can cash it. Esther's theft of the check does not affect Fern's right to cash it, so Fern has the legal rights to the check.

Quiz 25: A: Transferability and Holder in Due Course

Tyrone transfers a note by signing it and delivering it to Uri.Tyrone is

Fact Pattern 25-1B Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse." -Refer to Fact Pattern 25-1B.After Belle signs the back and adds the notation "without recourse," she adds "Pay to Desiree." This constitutes

Owen is a holder of a promissory note obtained from Purchase Money,Inc.Regarding the defenses against payment of the note to which Purchase Money is subject,Owen,as an ordinary holder,is subject to

Fact Pattern 25-1B Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse." -Refer to Fact Pattern 25-1B.After Belle signs the back and adds the notation "without recourse," further negotiation of the check

Rayette transfers a draft by signing it and delivering it to Suki.Suki is

Todd indorses a check,"Pay to Interstate Trucking if they deliver the lumber by May 1,2012." This is

Finest Office Company employs General Construction,Inc.(GCI) ,to reno?vate an office and signs a note for $10,000 payable to GCI.GCI breaches the contract,but sells the note for $5,000 to Happy Collection Agency,which knows that GCI has not performed.Happy is an HDC of the note in the amount of

Pola wants to transfer a check to Quin.The check is defective if it

Lexy obtains a check payable to her order from Maven.To negotiate this order instrument to Nicole requires

Fact Pattern 25-1B Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse." -Refer to Fact Pattern 25-1B.Belle's signature and the notation "without recourse" constitute

Vladimir negotiates a bearer instrument to Wendy by

Kris transfers a note,on which Liu is the maker,to Mia,who takes it for value and in good faith.Mia knows that Kris breached the contract underlying the note,giving Liu a defense against payment.With respect to this note,Mia is

Edie is the payee of a bearer instrument-a promissory note in the amount of $1,000.Frank offers to irrigate Edie's ranch next week in ex?change for the note.Edie agrees and delivers the note to Frank.Frank is

Yves negotiates an instrument to Zachary.Negotiation is the transfer of an instrument

Fact Pattern 25-1B Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse." -Refer to Fact Pattern 25-1B.By writing "without recourse" with her signature,Belle

Fact Pattern 25-1B Belle obtains a check payable to her order from Charmayne.Belle signs the back and adds the notation "without recourse." -Refer to Fact Pattern 25-1B.When Belle signs the back and adds the notation "without recourse," the check becomes

Reel CGI Animé Company issues a promissory note as a demand instrument with a due date of October 5.Syncopated Loan Company accepts the note.Syncopated has notice that the note is overdue if the firm takes the note

Parkdale Roofing Company receives a check from Quik Mart for fixing its roof,and indorses the check to Repair Supplies,Inc.(RSI) .Stef,RSI's owner,gives the check to Tiny as a gift.In this situation,the party who is not an HDC of the check but who acquires HDC rights under the shelter principle is

Dru signs a check payable to Excel Services,Inc. ,and gives it to Excel,leaving the amount blank but authorizing Excel to fill it in for $1,000.Excel fills in $1,500 and negotiates the check to Friendly Credit Corporation,an HDC.Friendly Credit can enforce the check for

Demi possesses a check that is "payable to bearer." Esther steals the check and delivers it to Fern.All rights to the check are