Question 1

A bearer instrument is negotiated by delivery with any necessary indorsements.

Accepted Answer

False

Question 2

A loss that results from a well-crafted forgery usually falls on the party whose signature was forged.

Accepted Answer

In cases of forgery, the loss typically falls on the party that accepted the forged document, as they are responsible for verifying the authenticity of the signature.

Question 3

A holder takes an instrument for value if he or she accepts the instru?ment as payment for an antecedent debt.

Accepted Answer

This statement is true. A holder can take an instrument for value by accepting it as payment for a debt they already owed.

Question 4

An HDC takes a negotiable instrument free of most defenses and claims that could be asserted against its transferor.

Accepted Answer

An HDC (holder in due course) is allowed to take a negotiable instrument without being subject to certain defenses that could be asserted against the transferor of the instrument, such as a claim of fraud, duress, or illegality. However, there are still some defenses that can be asserted against an HDC, such as forgery or lack of consideration.

Question 5

A transfer of a negotiable instrument can give a holder more rights than its prior possessor.

Accepted Answer

A transfer of a negotiable instrument, such as a check or promissory note, can give the new holder more rights than the previous possessor, as the new holder becomes the legal owner of the instrument and can enforce its terms against the issuer or other parties involved. This is one of the key features of negotiable instruments and a reason why they are widely used in commercial transactions.

Question 6

A holder takes an instrument for value by performing the promise for which the instrument was issued.

Accepted Answer

According to the Uniform Commercial Code (UCC), a holder in due course takes an instrument for value by performing the promise for which the instrument was issued, among other requirements. The UCC defines a holder in due course as a person who takes a negotiable instrument for value, in good faith, and without notice of any claims or defenses against it.

Question 7

An unqualified indorsement does not guarantee payment of an instrument.

Accepted Answer

The answer of An unqualified indorsement does not guarantee payment...

Question 8

A blank indorsement does not specify a particular indorsee.

Accepted Answer

A blank indorsement simply consists of the indorser's signature without specifying a particular indorsee. This allows the instrument to be transferred to the bearer or anyone else who possesses it.

Question 9

A purchaser cannot become an HDC of an instrument so incomplete that an element of negotiability is lacking.

Accepted Answer

This is because one of the requirements of being a holder in due course (HDC) is that they must have taken the instrument for value, in good faith, and without notice of any defects in the instrument or claims against it. If the instrument is incomplete or lacks an element of negotiability, it may not meet the requirement of being a negotiable instrument and therefore cannot be transferred to an HDC.

Question 10

If an instrument is acquired as part of a corporate purchase of assets,the holder will have the rights of an HDC.

Accepted Answer

Instruments acquired as part of a corporate purchase of assets do not automatically grant the holder the rights of a Holder in Due Course (HDC). The holder must meet specific criteria, such as acquiring the instrument in good faith and without notice of any defects, to qualify as an HDC.

Question 11

A negotiable instrument cannot be transferred by assignment.

Accepted Answer

A negotiable instrument can be transferred by assignment as long as it is endorsed and delivered properly to the assignee.

Question 12

A person who does not qualify as an HDC but who derives his or her title through an HDC can acquire the rights and privileges of an HDC.

Accepted Answer

This is known as the doctrine of shelter. It allows a person who acquires title from an HDC (such as through a sale or gift) to also have the same rights and privileges as an HDC, even if they do not themselves qualify as an HDC.

Question 13

A person who takes a negotiable instrument from a thief may become an HDC.

Accepted Answer

A person can become a Holder in Due Course (HDC) if they meet the requirements, even if the instrument was initially stolen, as long as they were unaware of the theft and took the instrument in good faith, for value, and without notice of any defect.

Question 14

A demand instrument is overdue on the day after its date.

Accepted Answer

A demand instrument is payable on demand and is not considered overdue until a demand for payment is made and not honored.

Question 15

A restrictive indorsement prohibits further negotiation of an instrument.

Accepted Answer

The answer of A restrictive indorsement prohibits further negotiation of...

Question 16

An instrument is not defective because it has been dis?honored.

Accepted Answer

An instrument being dishonored typically means it has not been accepted or paid when due, which does not necessarily indicate it is defective.

Question 17

Any irregularity on the face of an instrument that creates an ambiguity as to the party to pay will bar HDC status.

Accepted Answer

This statement is correct. According to the Uniform Commercial Code (UCC), any irregularity on the face of an instrument that creates an ambiguity as to the party to pay will prevent a holder in due course (HDC) from obtaining that status. This is because HDCs are only protected if they take a negotiable instrument in good faith and without notice of any defects or claims to it. An ambiguity on the face of the instrument can put the HDC on notice of potential problems and therefore prevent them from claiming HDC status.

Question 18

A payee whose name is misspelled on an instrument cannot indorse the instrument.

Accepted Answer

A payee whose name is misspelled on an instrument can still indorse the instrument as long as the misspelling does not materially alter the name.

Question 19

A bearer instrument can be converted into an order instrument through indorsement.

Accepted Answer

A bearer instrument does not have a specified payee and can be transferred to anyone who holds it, whereas an order instrument is payable to a specific payee. By endorsing a bearer instrument, the holder can convert it into an order instrument by designating a specific payee.

Question 20

A holder cannot become an HDC unless hr or she has no?tice of any claim to the instrument or defense against it.

Accepted Answer

The answer of A holder cannot become an HDC unless...

Quiz 25: A: Transferability and Holder in Due Course