Question 1

To qualify as an HDC,a person must be the holder of a negotiable instrument that was taken for value.

Accepted Answer

To qualify as a holder in due course (HDC), a person must hold a negotiable instrument that was taken for value, in good faith, without notice of any defects or issues with the instrument, and without being subject to any defenses or claims against the instrument by others.

Question 2

An indorsee who accepts a defective instrument qualifies as a holder in due course.

Accepted Answer

An indorsee who accepts a defective instrument does not qualify as a holder in due course, as a holder in due course must take the instrument for value, in good faith, without notice of any defects or claims against the instrument.

Question 3

Under the Uniform Commercial Code's ________ requirement,a person cannot qualify as a holder in due course (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

According to the Uniform Commercial Code's requirement, a person cannot qualify as a holder in due course (HDC) if he or she has noticed that the instrument is overdue. However, the other options (no evidence of forgery, alteration, or irregularity; taking in good faith; taking for value) are part of the requirements to qualify as an HDC.

Question 4

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 who takes a negotiable instrument for value, in good faith, and without notice of any defects or problems with the instrument. This status provides the holder with certain legal protections and advantages, such as being able to enforce the instrument against the original issuer or other parties liable for payment. The other choices do not meet all of the requirements for being a holder in due course.

Question 5

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.Tilda then discovers that the car has actually had three previous owners and has been driven 250,000 miles.Which of the following is the legal outcome if Patty is a holder in due course (HDC)?
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 is protected by the shelter rule and can enforce the promissory note against Tilda. Tilda's claims against Ronston for fraud or misrepresentation do not affect Patty's rights as a HDC. Therefore, Tilda must pay Patty and seek recourse with Ronston.

Question 6

What are qualified indorsements?

Accepted Answer

The answer of What are qualified indorsements?...

Question 7

Which of the following requirements has to be met for a holder to qualify as a holder in due course (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

To qualify as an HDC under the shelter principle, the holder must have acquired the instrument from an HDC. This means that if the person who originally obtained the instrument was an HDC, subsequent holders who receive the instrument from them also qualify as HDCs, even if they themselves do not meet all the requirements to be considered an HDC (such as having notice of a defense or claim against payment).

Question 8

Under which of the following Uniform Commercial Code (UCC)requirements is a holder considered a "holder in due course," 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 in due course must meet three requirements: taking the instrument for value, taking it in good faith, and taking it without notice of any defects or problems. Of these requirements, the taking for value requirement is the most essential. This means that the holder must have given something of value in exchange for the instrument, such as money or a promise to perform some service. As long as the holder meets this requirement, and the other two requirements (taking in good faith and without notice of any problems) are also satisfied, the holder will be considered a holder in due course.

Question 9

The good faith test for an HDC applies to both transferor and transferee.

Accepted Answer

The good faith test for a Holder in Due Course (HDC) primarily applies to the transferee, assessing whether they took the instrument in good faith, without notice of any defects or claims against it. The transferor's good faith is not directly relevant to the HDC status of the transferee.

Question 10

The holder of a negotiable instrument has the same rights as the holder of an ordinary nonnegotiable contract.

Accepted Answer

According to the principles of negotiability, a holder of a negotiable instrument is entitled to the same rights as the original holder of the instrument, regardless of any underlying disputes or issues that might have arisen between the parties involved in the transaction. This is because the negotiable instrument is considered a legally binding contract that can be transferred from one person to another through endorsement and delivery, without affecting the underlying obligations or liabilities of the parties involved. In contrast, a non-negotiable contract is generally subject to more restrictions and limitations, and may require the consent or approval of all parties involved before any changes or transfers can be made.

Question 11

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 principle described in the question is the "shelter principle." It states that a holder who acquires an instrument through a holder in due course becomes a holder in due course themselves, even if they would not have qualified on their own. This provides protection to subsequent holders who acquire the instrument in good faith.

Question 12

Value has been given by the holder if he or she acquires a security interest in or lien on an instrument.

Accepted Answer

This statement is true. If a holder acquires a security interest or lien on an instrument, they are giving something of value in return for that interest or lien.

Question 13

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 who holds a negotiable instrument that is drawn, issued, or endorsed to him or to his order, or to bearer, or in blank. A holder may negotiate the instrument by transferring it to another person or may present it for payment or acceptance. A holder has the right to enforce payment of the instrument against the person who issued it or any prior party who has not paid it.

Question 14

If a virgule is used,both parties are necessary to negotiate the instrument.

Accepted Answer

A virgule (/) is simply a slash used in writing and does not imply that both parties are necessary to negotiate an instrument; it often separates alternatives or options.

Question 15

Lisa buys a used car from Kelly.She pays 10 percent of the cost down 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 lied about the mileage of the automobile.Later,Kelly negotiated the note to Frances,who has no notice of the lie.Frances,a holder in due course (HDC),negotiated the note to Zoe,who is not an HDC.Which of the following is Zoe in regards to the promissory note?
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 16

A holder who takes an instrument with notice of its dishonor cannot qualify as a holder in due course (HD
C).

Accepted Answer

According to the Uniform Commercial Code (UCC), a holder who takes an instrument with notice of its dishonor or any other claim or defense cannot qualify as a holder in due course. Therefore, this statement is true.

Question 17

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

Accepted Answer

A holder in due course must meet four requirements: take the instrument for value, in good faith, without notice of any claims or defenses against it, and without being subject to any claims or defenses against the transferor. Option A satisfies the first requirement.

Question 18

A holder in due course is subject to all the claims and defenses that can be asserted against the transferor.

Accepted Answer

A holder in due course takes the negotiable instrument free from many defenses that could have been raised against the original parties, but there are still certain types of defenses that can be raised against them, such as fraud in the execution, duress, and illegality of the underlying transaction.

Question 19

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

Accepted Answer

A dishonored instrument is a check or other type of negotiable instrument that has been presented for payment but has been refused by the financial institution on which it is drawn. It may be due to various reasons such as insufficient funds, a stop-payment order, or an irregular signature.

Question 20

What is the difference between a holder and holder in due course?

Accepted Answer

The answer of What is the difference between a holder...

Quiz 23: Holder in Due Course and Transferability

To qualify as an HDC,a person must be the holder of a negotiable instrument that was taken for value.

An indorsee who accepts a defective instrument qualifies as a holder in due course.

Under the Uniform Commercial Code's ________ requirement,a person cannot qualify as a holder in due course (HDC) if he or she has noticed that the instrument is overdue.

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) ________.

What are qualified indorsements?

Which of the following requirements has to be met for a holder to qualify as a holder in due course (HDC) under the shelter principle?

Under which of the following Uniform Commercial Code (UCC) requirements is a holder considered a "holder in due course," given that the holder performs the agreed-upon promise in a negotiable instrument?

The good faith test for an HDC applies to both transferor and transferee.

The holder of a negotiable instrument has the same rights as the holder of an ordinary nonnegotiable contract.

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.

Value has been given by the holder if he or she acquires a security interest in or lien on an instrument.

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) ________.

If a virgule is used,both parties are necessary to negotiate the instrument.

A holder who takes an instrument with notice of its dishonor cannot qualify as a holder in due course (HD C).

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

A holder in due course is subject to all the claims and defenses that can be asserted against the transferor.

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

What is the difference between a holder and holder in due course?