Question 1

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)________.
A)holder
B)holder in due course
C)unqualified indorser
D)assignee

Accepted Answer

A holder in due course is a person or entity that takes possession of a negotiable instrument, such as a check or promissory note, for value, in good faith, and without notice that it is defective or overdue. This status provides certain legal protections and benefits for the holder, including the ability to enforce the instrument against the original issuer or other parties involved in the transaction.

Question 2

Which of the following qualification renders a person as a holder in due course of a negotiable instrument?
A)if he takes the negotiable instrument for value
B)if he is subject to claims and defenses against the transferor
C)if he is in possession of an instrument issued in his name
D)if he is in possession of an instrument issued in another's name

Accepted Answer

A person becomes a holder in due course of a negotiable instrument if they take the instrument for value, in good faith, and without notice that there are any claims or defenses against it. Choices B, C and D are incorrect as they do not fulfill all the requirements for becoming a holder in due course.

Question 3

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.
A)exclusionary rule
B)acceleration clause
C)shelter principle
D)good faith principle

Accepted Answer

The shelter principle, also known as the shelter rule or shelter doctrine, is a legal principle in negotiable instrument law that allows a holder of an instrument to acquire the rights and privileges of a holder in due course, even if the holder does not qualify as a holder in due course in their own right, if they acquired the instrument from a holder in due course.

Question 4

Which of the following requirements has to be met for a holder to qualify as an HDC under the shelter principle?
A)The holder must not be in possession of a prior negotiable instrument.
B)The holder must have notice of a defense or claim against the payment of the instrument.
C)The holder must have been a party to a fraud or an illegality affecting the instrument.
D)The holder must have acquired the instrument from an HDC.

Accepted Answer

Under the shelter principle, a holder who acquires a negotiable instrument from an HDC (holder in due course) will also qualify as an HDC, even if the holder does not meet all the other requirements. Therefore, if the holder acquired the instrument from an HDC, they meet this requirement and qualify as an HDC. Option A is incorrect because a holder can be in possession of a prior negotiable instrument and still qualify as an HDC. Option B is incorrect because an HDC is protected from defenses or claims against payment of the instrument by the shelter principle. Option C is incorrect because if the holder was a party to fraud or an illegality affecting the instrument, they would not qualify as an HDC at all.

Question 5

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)________.
A)holder
B)holder in due course
C)assignor
D)assignee

Accepted Answer

A holder is a person in possession of a negotiable instrument that is drawn, issued, or endorsed to him or to his order, or to bearer, or in blank. A holder in due course (B) is a special type of holder who meets certain requirements related to the timing and manner of acquiring the instrument, and who has additional rights and protections. An assignor (C) is a person who transfers ownership of a non-negotiable instrument or other property to another person. An assignee (D) is a person who receives ownership of a non-negotiable instrument or other property from an assignor.

Question 6

An instrument that is refused payment when presented for payment is called a(n)________.
A)blank instrument
B)restrictive instrument
C)demand instrument
D)dishonored instrument

Accepted Answer

A dishonored instrument is an instrument that has been refused payment when presented for payment.

Question 7

What happens if the name of the indorsee or payee is misspelled in an indorsement?
A)The instrument becomes nonnegotiable.
B)The instrument can be indorsed with the misspelled name.
C)The instrument has to be remade to be valid.
D)The instrument cannot be subsequently indorsed.

Accepted Answer

The instrument can be indorsed with the misspelled name. The misspelling does not affect the negotiability of the instrument as long as it is still possible to determine who the intended payee or indorsee is.

Question 8

A(n)________ is an indorsement that has no instructions or conditions attached to the payment of the funds.
A)indorsement in trust
B)indorsement for deposit
C)nonrestrictive indorsement
D)restrictive indorsement

Accepted Answer

A nonrestrictive endorsement is when the endorser simply signs the back of the check and does not add any instructions or conditions for payment. This type of endorsement allows the check to be cashed or deposited by any party in possession of the check, making it more easily transferable.

Question 9

Which of the following indorsements would be considered a nonrestrictive indorsement?
A)pay to the order of Jane Doe
B)pay to Jane Doe only
C)for deposit only
D)pay to Jane Doe, trustee

Accepted Answer

A nonrestrictive indorsement does not limit the further negotiation of the instrument. Option A, "pay to the order of Jane Doe," is a standard blank indorsement that does not contain any restrictions or limitations on the negotiation of the instrument. Option B, "pay to Jane Doe only," is a restrictive indorsement because it limits negotiation to only Jane Doe. Option C, "for deposit only," is also a restrictive indorsement because it limits negotiation to deposit only. Option D, "pay to Jane Doe, trustee," is a restrictive indorsement because it limits negotiation to Jane Doe acting in her capacity as a trustee.

Question 10

What are qualified indorsements?

Accepted Answer

The answer of What are qualified indorsements?...

Question 11

Which of the following is true of an indorsement to multiple persons using the virgule?
A)it can only be indorsed further with the signature of the drawer
B)neither person can individually negotiate the instrument
C)either person can individually negotiate the instrument
D)such an instrument cannot be subsequently negotiated

Accepted Answer

When an instrument is endorsed to multiple persons using the virgule (e.g. "Pay to the order of John/Jane Doe"), either person can individually negotiate the instrument. This means that either John or Jane can further endorse the instrument and negotiate it to another party without the other person's signature.

Question 12

An indorsement that contains some sort of instruction from the indorser is known as a(n)________.
A)nonrestrictive indorsement
B)restrictive indorsement
C)qualified indorsement
D)special indorsement

Accepted Answer

A restrictive indorsement contains some sort of instruction from the indorser, such as "for deposit only," limiting the use of the check. Nonrestrictive (A) and special (D) indorsements do not contain instructions, and a qualified indorsement (C) is one that limits the indorser's liability.

Question 13

Lisa buys a used car from Kelly.She pays 10 percent down of the cost 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 materially misrepresented the mileage of the automobile.Later, Kelly negotiates the note to Frances, who has no notice of the misrepresentation.Frances, an HDC, negotiates the note to Zoe, who is not an HDC.Which of the following is Zoe in regards to the indorsement?
A)a holder in due course
B)a holder
C)an assignee
D)an assignor

Accepted Answer

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

Question 14

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.Then Tilda discovers that the car has actually had three previous owners and has been driven 250, 000 miles.If Patricia is an HDC, which of the following is the legal outcome?
A)Tilda must pay Patty; find recourse with Ronston.
B)Patty must pay Tilda; find recourse with Ronston.
C)Patty pays no one; indorsement is considered void.
D)Tilda can rescind the note; refuse to pay Patty.

Accepted Answer

If Patty is a holder in due course (HDC), she has the right to enforce the promissory note because she obtained it in good faith, for value, and without notice of any defenses or claims against it. Tilda's claim against Ronston for fraudulent misrepresentation does not relieve her from paying Patty because the note is a negotiable instrument that can be transferred to a holder in due course who is not affected by the underlying transaction between Tilda and Ronston. Tilda may have recourse against Ronston for damages or rescission, but she is still obligated to pay Patty.

Question 15

A(n)________ is an indorsement that states that it is for the benefit or use of the indorser or another person.
A)indorsement in trust
B)indorsement for deposit
C)indorsement prohibiting further indorsement
D)indorsement for collection

Accepted Answer

An indorsement in trust is an endorsement that states that it is for the benefit or use of the indorser or another person. It allows the indorser to transfer ownership of the check to a trustee who will hold the funds in trust for the benefit of the beneficiary named in the endorsement.

Question 16

Give an account of how an indorsement is made.

Accepted Answer

The answer of Give an account of how an indorsement...

Question 17

If an instrument is payable to multiple persons using the word "and, " then the instrument ________.
A)cannot be negotiated any further
B)cannot be negotiated by either party individually
C)can only be further negotiated jointly
D)can only be further negotiated with the signature of the drawer

Accepted Answer

When an instrument is payable to multiple persons using the word "and," it means that all the payees must endorse the instrument for it to be further negotiated. This makes it a joint ownership instrument, and all payees have to act together in endorsing the instrument to the next party. Therefore, option C, which states that the instrument can only be further negotiated jointly, is the correct choice.

Question 18

Under which of the following UCC requirements is a holder considered a "holder in due process, " given that the holder performs the agreed-upon promise in a negotiable instrument?
A)taking in good faith requirement
B)taking for value requirement
C)taking without notice of defect requirement
D)no evidence of forgery, alteration, or irregularity requirement

Accepted Answer

According to the UCC, a holder who takes a negotiable instrument for value is considered a "holder in due course" and has certain legal rights and protections. This requirement is outlined in UCC 3-302. However, it's worth noting that the term "holder in due process" is not used in the UCC, so be careful of similar-sounding terms when studying for the exam.

Question 19

Under the UCC's ________ requirement, a person cannot qualify as an HDC if he or she has noticed that the instrument is overdue.
A)no evidence of forgery, alteration, or irregularity
B)taking in good faith
C)taking without notice of defect
D)taking for value

Accepted Answer

The requirement mentioned in the question is that the person taking the instrument must take it without notice of defect. This is the requirement for a holder in due course (HDC) under the UCC. If the person notices that the instrument is overdue, they would be considered to have notice of a defect, and thus would not qualify as an HDC.

Question 20

Give an account of the transfer of nonnegotiable contracts by assignment.

Accepted Answer

The answer of Give an account of the transfer of...

Quiz 23: Holder in Due Course and Transferability

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) ________.

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

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.

Which of the following requirements has to be met for a holder to qualify as an HDC under the shelter principle?

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) ________.

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

What happens if the name of the indorsee or payee is misspelled in an indorsement?

A(n) ________ is an indorsement that has no instructions or conditions attached to the payment of the funds.

Which of the following indorsements would be considered a nonrestrictive indorsement?

What are qualified indorsements?

Which of the following is true of an indorsement to multiple persons using the virgule?

An indorsement that contains some sort of instruction from the indorser is known as a(n) ________.

A(n) ________ is an indorsement that states that it is for the benefit or use of the indorser or another person.

Give an account of how an indorsement is made.

If an instrument is payable to multiple persons using the word "and, " then the instrument ________.

Under which of the following UCC requirements is a holder considered a "holder in due process, " given that the holder performs the agreed-upon promise in a negotiable instrument?

Under the UCC's ________ requirement, a person cannot qualify as an HDC if he or she has noticed that the instrument is overdue.

Give an account of the transfer of nonnegotiable contracts by assignment.