Question 1

Nina wants to transfer a check to Opie. The check is not defective if it

Accepted Answer

A check that has been previously honored is not considered defective and can be transferred to Opie. Options A, C, and D all indicate issues with the check, making it defective and ineligible for transfer.

Question 2

Gina writes and signs a check payable to "Happy Market." Ira, Happy's manager, indorses the check "For deposit only." This is

Accepted Answer

This is a restrictive indorsement because it limits the use of the check to only being deposited into Happy Market's account.

Question 3

Jill, in good faith and for value, gets from Kit a check "payable to the order of bearer." Jill does not know that Kit stole the check. Jill is

Accepted Answer

The answer of Jill, in good faith and for value,...

Question 4

To pay for investment advice from financial consultants Smith and Jones, Tony signs a check payable to "Smith or Jones." A proper in?dorsement of the check is

Accepted Answer

Since the check is payable to "Smith or Jones," either Smith or Jones can endorse the check. Therefore, the proper endorsement options include "Smith" only, "Jones" only, or "Smith and Jones." Choice D encompasses all three of these options.

Question 5

Jen makes a gift of a check to Kilroy who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Kilroy is

Accepted Answer

The answer of Jen makes a gift of a check...

Question 6

Bruce acquires a series of notes with successive maturity dates that Cody issued on May 15 for a loan from Delta Credit, Inc. At the time of Bruce's acquisition, he learns that Cody defaulted on one of the notes. Bruce is

Accepted Answer

Bruce is not a holder in due course (HDC) because he is aware of Cody's default on one of the notes at the time of acquisition, which disqualifies him from HDC status.

Question 7

Fact Pattern 25-1B 
First Bank's account agreement states that deposited items will be given pro?vi?sional credit only until collection is final, but the bank's practice is to extend immediate credit.
-Refer to Fact Pattern 25-1B. Suppose First Bank has no rea?son to suspect there would be a problem if immediate credit is extended on an item on which, in fact, there is an outstanding stop-payment order. According to the court's decision in Case 25.3, Mid Wisconsin Bank v. Forsgard Trading, Inc., with respect to this item, First Bank would be

Accepted Answer

According to the court's decision in Mid Wisconsin Bank v. Forsgard Trading, Inc., a bank that extends immediate credit without suspicion of issues, despite a provisional credit policy, can be considered a holder in due course (HDC) if it meets the requirements of good faith and lack of notice of any problems.

Question 8

Fact Pattern 25-A1 
Quiky Delivery Company contracts to provide services to Regal Bakeries, Inc. At Quiky's request, Regal makes checks for the services payable to "Quiky Delivery Co. and Secure Credit Corp." One check, however, is pay?able to "Quiky Delivery Co. Secure Credit Corp." .
-Refer to Fact Pattern 25-A1. Under the ruling in Case 25.1, Hyatt Corp. v. Palm Beach National Bank, this check is

Accepted Answer

The check is payable to "Quiky Delivery Co. Secure Credit Corp." which means it may be payable to either Quiky Delivery Co. or Secure Credit Corp. This is in accordance with the ruling in Hyatt Corp. v. Palm Beach National Bank that checks payable to two parties connected by "and" are typically payable to both parties, while checks payable to two parties connected by "or" are typically payable to either party.

Question 9

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

Accepted Answer

Tiny acquires HDC rights under the shelter principle because RSI, the original payee, is an HDC and indorsed the check to Tiny. The fact that RSI received the check through an indorsement from Parkdale Roofing, who may not be an HDC, does not affect RSI's HDC status or the validity of RSI's indorsement to Tiny.

Question 10

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

Accepted Answer

A check that has been previously dishonored is considered defective and cannot be transferred as it indicates that the account holder does not have sufficient funds to cover the amount.

Question 11

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

Accepted Answer

To be an HDC, Frank must meet four requirements: he must take the instrument for value, in good faith, without notice of defects in the instrument or claims to it, and he must take the instrument either as a holder or as a remote party who complies with specific requirements. In this case, Frank has only given a promise to perform services in exchange for the instrument, so he has not yet given value for it. Therefore, he is not an HDC.

Question 12

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

Accepted Answer

The answer of Owen is a holder of a promissory...

Question 13

Fact Pattern 25-1B 
First Bank's account agreement states that deposited items will be given pro?vi?sional credit only until collection is final, but the bank's practice is to extend immediate credit.
-Refer to Fact Pattern 25-1B. According to the reasoning of the court in Case 25.3, Mid Wisconsin Bank v. Forsgard Trading, Inc., First Bank's prac?tice is consistent with "reasonable commercial standards of fair dealing"

Accepted Answer

The court in Mid Wisconsin Bank v. Forsgard Trading, Inc. likely reasoned that a bank's practice is consistent with "reasonable commercial standards of fair dealing" if it aligns with reasonable banking standards.

Question 14

Fact Pattern 25-A1 
Quiky Delivery Company contracts to provide services to Regal Bakeries, Inc. At Quiky's request, Regal makes checks for the services payable to "Quiky Delivery Co. and Secure Credit Corp." One check, however, is pay?able to "Quiky Delivery Co. Secure Credit Corp." .
-Refer to Fact Pattern 25-A1. Suppose the check payable to "Quiky Delivery Co. Secure Credit Corp" is indorsed and negotiated only by Secure. Quiky files a suit to recover the amount. According to the decision in Case 25.1, Hyatt Corp. v. Palm Beach National Bank, the court will most likely rule that

Accepted Answer

In Hyatt Corp. v. Palm Beach National Bank, the court held that when a check is made payable to two or more payees joined by "and," both payees must endorse in order to negotiate the check. However, when the word "or" is used instead of "and," the check may be negotiated by either payee. In this case, the check was payable to "Quiky Delivery Co. Secure Credit Corp," which implies that either payee could negotiate the check. Since only Secure Credit Corp. negotiated the check, Regal and its bank are alternatively liable for the amount.

Question 15

Clem gets a $100 check as a gift from Daria. Clem crudely increases the amount of the check to $1,000 and transfers it to eReady Computers, Inc., in exchange for a computer. eReady deposits the check in its bank account at First City Bank. HDCs of this check include

Accepted Answer

The answer of Clem gets a $100 check as a...

Question 16

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

Accepted Answer

The answer of Finest Office Company employs General Construction, Inc....

Question 17

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

Accepted Answer

Mia is an ordinary holder because she took possession of the note and gave value for it, but she is not a holder in due course because she had knowledge of the breach of contract underlying the note which gives Liu a defense against payment.

Question 18

Blythe, an accountant for Credits & Debits, acquires a negotiable instru?ment from Eton by promis?ing to pay its face value in thirty days. Blythe ac?quires the status of an HDC when she

Accepted Answer

The answer of Blythe, an accountant for Credits & Debits,...

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

Accepted Answer

The answer of Dru signs a check payable to Excel...

Question 20

Bob receives a check from Chris. Without Bob's knowledge, Dan indorses it in his own name and deposits it in his account at East Bank. In Bob's subsequent suit against East Bank for the money, the court will most likely rule in favor of

Accepted Answer

Dan's signature was unauthorized, making the endorsement invalid. Therefore, East Bank cannot claim the check was properly negotiated, and Bob retains the right to the funds.

Quiz 25: Transferability and Holder in Due Course