Question 1

Whenever a transfer fails to qualify as a negotiation because it fails to meet one of the requirements for a negotiable instrument, it is considered a breach.

Accepted Answer

A) True 
 B)False

Question 2

A person who takes a demand instrument knowing that demand has been made has notice that the instrument is overdue.

Accepted Answer

A) True 
 B)False

Question 3

To avoid the risk of loss from theft, a holder can convert a blank indorsement to a special indorsement by writing, above the signature of the indorser, the name of the indorsee.

Accepted Answer

A) True 
 B)False

Question 4

Rehab LLC owes $20,000 to Stonemason Inc. Rehab executes a note to Stonemason as security for the debt. This security

Accepted Answer

A)  does not constitute sufficient consideration for HDC status.
B)  does not satisfy the value requirement for HDC status.
C)  satisfies the consideration requirement for HDC status.
D)  satisfies the value requirement for HDC status.E) B) and C)
F) All of the above

Question 5

An irregularity on the face of an instrument that calls into question its validity or ownership, thereby barring HDC status, occurs when

Accepted Answer

A)  handwriting used in the body of a check and used in a signature differ.
B)  a forged maker's or drawer's signature is visibly evident.
C)  a check is antedated or postdated.
D)  the amount of the item is stated in digits but not written out in numbers.E) B) and D)
F) B) and C)

Question 6

When a drawer gives one alternative or joint payee a check, the drawer's obligation on the check to the other payees is suspended.

Accepted Answer

A) True 
 B)False

Question 7

In good faith and for value, Joya gets from Kyle a negotiable bearer instrument. Joya does not know that Kyle stole the instrument. Joya is

Accepted Answer

A)  an HDC.
B)  not an HDC, because Kyle did not acquire the instrument for value.
C)  not an HDC, because Kyle did not acquire the instrument in good faith.
D)  not an HDC, because Kyle transferred the instrument without notice.E) C) and D)
F) A) and B)

Question 8

When an instrument is transferred, an ordinary holder obtains only those rights that the transferor had in the instrument but is free of most of the defenses and claims that could be asserted against the transferor.

Accepted Answer

A) True 
 B)False

Question 9

The shelter principle promotes the marketability and free transferability of negotiable instruments by

Accepted Answer

A)  limiting the rights and privileges of an HDC.
B)  extending the benefits of HDC status.
C)  permitting any holder to attain HDC status by reacquiring an instrument.
D)  sheltering the principal amount of an instrument without recourse.E) B) and C)
F) A) and D)

Question 10

A difference between the handwriting in the body of a check and in the signature affects the validity of the item and will bar a holder from HDC status.

Accepted Answer

A) True 
 B)False

Question 11

In most instances, a payee on a note will qualify as an HDC by virtue of the fact that he or she has dealt directly with the maker.

Accepted Answer

A) True 
 B)False

Question 12

Coki receives a payroll check from Data Solutions Inc. and indorses it by signing her name on the back of the check. This is

Accepted Answer

A)  a blank indorsement.
B)  a qualified indorsement.
C)  a restrictive indorsement.
D)  a special indorsement.E) A) and D)
F) C) and D)

Question 13

Because a party's authenticating intent with respect to a note is shown by the name of the party written on the line that calls for the name of that party,

Accepted Answer

A)  the name must be handwritten to negotiate the note.
B)  a signature of the name must be witnessed to effect an assignment.
C)  a stamped imprint of the name can be sufficient to transfer the note.
D)  proof that an indorsement is legitimate is required to validate the note.E) C) and D)
F) None of the above

Question 14

Anya issues a check payable to Bo, who indorses the back, gives it to Credit Union, and receives cash. The transfer of the check from Bo to Credit Union is

Accepted Answer

A)  an assignment.
B)  a negotiation.
C)  a payment.
D)  a sale.E) B) and C)
F) C) and D)

Question 15

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

Accepted Answer

A)  an acceptor.
B)  a good faith purchaser.
C)  an ordinary holder.
D)  an ordinary holder in due course.E) B) and C)
F) A) and C)

Question 16

The method of negotiating an instrument so that the receiver becomes a holder depends on whether an indorsement on the instrument is blank or special.

Accepted Answer

A) True 
 B)False

Question 17

A holder will be deemed to have notice of a defect in an instrument if he or she has reason to know that it exists, given all the facts and circumstances known at the time.

Accepted Answer

A) True 
 B)False

Question 18

If the thief of a stolen bearer instrument delivers it to an innocent, third party, negotiation of the item is complete.

Accepted Answer

A) True 
 B)False

Question 19

Durable Goods Inc. negotiates an order instrument to Equity Finance by delivery

Accepted Answer

A)  with an assignment of its rights under a contract.
B)  with any necessary indorsement.
C)  without more.
D)  with formal presentment in response to a demand by the payee.E) B) and C)
F) A) and B)

Question 20

At 1 A.M., in front of EZ Credit Corporation, which is closed, Frey buys a $500 promissory note for $50 from Greco. When presented with Frey's demand for payment, Diaz, the maker of the note, could successfully claim that Frey

Accepted Answer

A)  acquired the note with notice that it was overdue.
B)  did not acquire the instrument in good faith.
C)  did not give value for the instrument.
D)  none of the choices.E) B) and C)
F) A) and D)

Exam 26: Transferability and Holder in Due Course

Anya issues a check payable to Bo, who indorses the back, gives it to Credit Union, and receives cash. The transfer of the check from Bo to Credit Union is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a drawer gives one alternative or joint payee a check, the drawer's obligation on the check to the other payees is suspended.

Correct AnswerverifiedShow Answer

Because a party's authenticating intent with respect to a note is shown by the name of the party written on the line that calls for the name of that party,

Correct AnswerverifiedShow Answer

Durable Goods Inc. negotiates an order instrument to Equity Finance by delivery

Correct AnswerverifiedShow Answer

In most instances, a payee on a note will qualify as an HDC by virtue of the fact that he or she has dealt directly with the maker.

Correct AnswerverifiedShow Answer

Coki receives a payroll check from Data Solutions Inc. and indorses it by signing her name on the back of the check. This is

Correct AnswerverifiedShow Answer

A difference between the handwriting in the body of a check and in the signature affects the validity of the item and will bar a holder from HDC status.

Correct AnswerverifiedShow Answer

Rehab LLC owes $20,000 to Stonemason Inc. Rehab executes a note to Stonemason as security for the debt. This security

Correct AnswerverifiedShow Answer

The shelter principle promotes the marketability and free transferability of negotiable instruments by

Correct AnswerverifiedShow Answer

In good faith and for value, Joya gets from Kyle a negotiable bearer instrument. Joya does not know that Kyle stole the instrument. Joya is

Correct AnswerverifiedShow Answer

At 1 A.M., in front of EZ Credit Corporation, which is closed, Frey buys a $500 promissory note for $50 from Greco. When presented with Frey's demand for payment, Diaz, the maker of the note, could successfully claim that Frey

Correct AnswerverifiedShow Answer

To avoid the risk of loss from theft, a holder can convert a blank indorsement to a special indorsement by writing, above the signature of the indorser, the name of the indorsee.

Correct AnswerverifiedShow Answer

The method of negotiating an instrument so that the receiver becomes a holder depends on whether an indorsement on the instrument is blank or special.

Correct AnswerverifiedShow Answer

A holder will be deemed to have notice of a defect in an instrument if he or she has reason to know that it exists, given all the facts and circumstances known at the time.

Correct AnswerverifiedShow Answer

An irregularity on the face of an instrument that calls into question its validity or ownership, thereby barring HDC status, occurs when

Correct AnswerverifiedShow Answer

A person who takes a demand instrument knowing that demand has been made has notice that the instrument is overdue.

Correct AnswerverifiedShow Answer

Whenever a transfer fails to qualify as a negotiation because it fails to meet one of the requirements for a negotiable instrument, it is considered a breach.

Correct AnswerverifiedShow Answer

When an instrument is transferred, an ordinary holder obtains only those rights that the transferor had in the instrument but is free of most of the defenses and claims that could be asserted against the transferor.

Correct AnswerverifiedShow Answer

If the thief of a stolen bearer instrument delivers it to an innocent, third party, negotiation of the item is complete.

Correct AnswerverifiedShow Answer

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