Question 1

An indorsement "Pay Alice Adams" is an assignment rather than a negotiation since it lacks words of negotiability.

Accepted Answer

An indorsement "Pay Alice Adams" is considered a negotiation rather than an assignment because it transfers the right to payment under the negotiable instrument directly to Alice Adams, maintaining the instrument's negotiability.

Question 2

The shelter rule did not exist at common law.

Accepted Answer

False

Question 3

A qualified indorsement destroys negotiability.

Accepted Answer

A qualified indorsement does not destroy negotiability, but it does limit the indorser's liability compared to an unqualified indorsement.

Question 4

The FTC upholds the preferential position enjoyed by a holder in due course of instruments concerning debts arising out of consumer credit contracts.

Accepted Answer

The FTC (Federal Trade Commission) does not uphold a preferential position for a holder in due course concerning debts arising out of consumer credit contracts. Instead, the FTC enforces the FTC Holder Rule, which allows consumers to assert against any subsequent holder of the debt all claims and defenses they could assert against the seller of the goods or services. This rule effectively limits the "holder in due course" doctrine in consumer credit transactions, ensuring protections for consumers.

Question 5

Jerry takes a $400 check to Primary Bank, where he asks for $75 in cash and he deposits the remaining balance.Primary Bank has "given value" as far as the requirements of holder in due course status to the extent of $75.

Accepted Answer

Primary Bank has "given value" to the extent of $75 because it provided Jerry with $75 in cash in exchange for the check, fulfilling one of the requirements for holder in due course status for that portion of the transaction.

Question 6

Sadie is the bookkeeper for the Binkly Construction Company.She makes out the payroll; prepares all of the payroll checks and reconciles the bank statements for the firm.She decides to increase her income by padding the payroll; accordingly, she makes out a check in the name of someone who does not exist.She then indorses the check with the payee's name and her name and cashes the check herself at First Bank where the company has its account.Under the fictitious payee rule, Binkly and not the bank will be liable for this check.

Accepted Answer

The fictitious payee rule holds the drawer (in this case, Binkly Construction Company) liable for checks made to non-existent or fraudulent payees. The bank may be found liable if they were negligent in accepting the check, but ultimately, the responsibility falls on the drawer. In this case, Sadie (the bookkeeper) committed fraud by padding the payroll and forging the payee's name, but Binkly Construction Company will still be held liable for the fraudulent check.

Question 7

If a person paying an instrument subject to the impostor rule fails to exercise ordinary care, the issuer may recover from the payor to the extent the payor's negligence contributed to the loss.

Accepted Answer

This statement is true according to the impostor rule in the Uniform Commercial Code (UCC). The UCC imposes a duty of ordinary care on the person paying an instrument subject to the impostor rule, and if this duty is not met, the issuer (i.e. the person who accepted the instrument) may be able to recover from the payor to the extent their negligence contributed to the loss.

Question 8

A holder must actually have the instrument in his possession.

Accepted Answer

A holder must have physical possession of the instrument to enforce or negotiate it, as per the Uniform Commercial Code (UCC) requirements for negotiable instruments.

Question 9

Arnie deposits a check from his sister in First City Bank, but forgot to indorse it.First City cannot become a holder until Arnie completes the indorsement.

Accepted Answer

The answer of Arnie deposits a check from his sister...

Question 10

The principal advantage of negotiable instruments is their legitimacy.

Accepted Answer

The principal advantage of negotiable instruments is their transferability and the ability to substitute for cash or act as a credit instrument, not merely their legitimacy.

Question 11

Horst, a holder in due course, buys a note made out by Arthur to Superior Motors.Even though Arthur's debt was discharged through bankruptcy, Horst can collect on the note.

Accepted Answer

The answer of Horst, a holder in due course, buys...

Question 12

An indorsement "for deposit" is a collection indorsement.

Accepted Answer

An indorsement "for deposit" is a type of restrictive indorsement that is used to ensure that the check is only deposited into the account of the named payee. It is also considered a collection indorsement because it is often used when the payee wants to deposit the check into their account at a different bank than the one where the check was originally issued.

Question 13

"Order paper" is negotiated by delivery only.

Accepted Answer

"Order paper" is negotiated by endorsement and delivery, not by delivery only.

Question 14

The courts will never presume a negotiation of order paper was intended; the parties must clearly indicate a negotiation or else the courts will presume an assignment was intended.

Accepted Answer

Courts can presume that a negotiation was intended if the manner of transfer follows the requirements for negotiation under the Uniform Commercial Code (UCC) or relevant law, especially for negotiable instruments. The presumption between negotiation and assignment depends on the nature of the instrument and the manner of its endorsement and delivery.

Question 15

If the issuer and the person paying an instrument subject to the impostor rule are both negligent, comparative negligence would apply.

Accepted Answer

Comparative negligence applies when both parties are found to be negligent.

Question 16

The transfer of a nonnegotiable promise or order operates as an assignment.

Accepted Answer

According to the Uniform Commercial Code (UCC), the transfer of a nonnegotiable instrument operates as an assignment. This means that the assignee (or new owner) of the instrument steps into the shoes of the assignor (or original owner), and acquires all of the assignor's rights and obligations relating to the instrument.

Question 17

An indorsement must be written on the instrument itself.

Accepted Answer

An indorsement can be on the instrument itself or on a paper attached to it (allonge), as long as it is intended to be part of the instrument.

Question 18

The impostor rule is an exception to the general rule that negotiation of any order instrument requires a valid indorsement by the person to whose order the instrument is payable.

Accepted Answer

The impostor rule states that a person who is not the named payee of the instrument but who has been entrusted with the instrument by the payee and who then endorses it to a third party without sufficient authorization is considered an impostor. In such cases, negotiation of the instrument to the third party does not require a valid endorsement by the named payee.

Question 19

Whether a transfer is by assignment or by negotiation, the transferee does not acquire the rights the transferor had.

Accepted Answer

In both assignment and negotiation, the transferee generally acquires the rights the transferor had, subject to the terms of the transfer and the nature of the rights transferred.

Question 20

A "without recourse" indorsement eliminates all of an indorser's liability.

Accepted Answer

A "without recourse" indorsement only limits the liability of an indorser to subsequent indorsers, not to the original parties involved in the transaction. The original parties can still hold the indorser liable for any issues with the check or instrument.

Quiz 25: Transfer and Holder in Due Course