Ch.32 Negotiation And Holder In Due Course Test Bank Docx

Business Law, 17e (Langvardt)

Chapter 32 Negotiation and Holder in Due Course

1) In some circumstances, Revised Article 3 allows a person to become a holder by negotiation even though the transfer of possession is involuntary.

2) Negotiation, as defined by the UCC in section 3-201, is the transfer of a negotiable instrument by one person to another person.

3) An instrument that is payable "to cash" can be negotiated simply by giving it to the person to whom you wish to transfer it.

4) Under the most modern revision to Article 3, a depositary bank cannot become a holder of a check that is deposited by a customer without an indorsement.

5) An indorsement is a signature of the holder typically on the back of a check.

6) Order paper that is indorsed in blank becomes bearer paper.

7) Anyone other than a bank, who purchases a check indorsed "for deposit only," has converted it; unless the indorser received the amount paid for the check or the bank deposited the check in the indorser's account.

8) The new Article 3 recognizes and enforces indorsements that prohibit further negotiation of the instrument.

9) A qualified indorsement is one where the indorser accepts the liability to make the instrument good if the maker or drawer defaults on it.

10) Indorsements that state a condition to the right of the indorsee to receive payment do not affect the right of the indorsee to enforce the instrument.

11) A holder in due course of a negotiable instrument always has the same rights as the individual that transferred the negotiable instrument to the holder.

12) An individual must be acting in good faith in order to become a holder in due course of a negotiable instrument.

13) Value is identical to simple consideration.

14) A person who makes an executory promise in return for a negotiable instrument has given value for it.

15) On June 1, Mike writes a check payable to Pete. Without ever being paid, the check is eventually negotiated to Hal, who receives it on September 15 with notice of the date on its face. Hal is not a holder in due course of the check.

16) Sonia, through fraudulent representations, induced Gracie to execute a negotiable note payable to Sonia. Sonia is a holder in due course.

17) A claim in recoupment is a claim of the person obligated on the instrument against the original payee of the instrument.

18) A person cannot be a holder in due course of a negotiable instrument if, when she takes it, the instrument is irregular or some important or material term is blank.

19) Generally, real defenses arise out of the transaction in which the negotiable instrument was issued and are based on negotiable instruments law or contract law.

20) If an individual holds a note that is labeled consumer paper then that individual cannot be a holder in due course.

21) Svetlana Mills gives a check "payable to the order of Svetlana Mills," to a shopkeeper for some groceries. Here, the check would be considered as negotiated only upon the fulfillment of which of the following conditions?

A) The check should be indorsed by the shopkeeper.

B) The check should bear the name of the shopkeeper.

C) Svetlana should indorse the check in the name of the shopkeeper.

D) Svetlana should indorse the check in her own name.

22) Under Revised Article 3, a person is a(n) ________ if she is in possession of an instrument that is payable to bearer or made payable to an identified person and she is that identified person.

A) payor

B) issuer

C) bailor

D) holder

23) What section of the UCC defines negotiation of a negotiable instrument and who is a holder?

A) 3-201

B) 2-221

C) 1-105

D) 3-401

24) Which of the following is order paper?

A) A check made out "to the order of cash."

B) A note payable to the order of X and indorsed in blank by X.

C) A note made out to Y's order and indorsed "Pay to Z, Y."

D) A receipt for a payment made by Z.

25) Which of the following is bearer paper?

A) A check payable to the order of X and specially indorsed to Y.

B) A check payable to the order of X.

C) A check payable to the order of cash and specially indorsed by the person who received it.

D) A check payable to the order of cash and delivered to Y.

26) Rachel's father gave her a check drawn on his checking account marked "payable to the order of Rachel Stern." This instrument is order paper, because:

A) the instrument uses the word "order."

B) the instrument names a specific payee.

C) the instrument was properly negotiated to Rachel.

D) the instrument was an order to pay cash.

27) John received a check from his employer marked "pay to the order of John Jones." John used this check to pay for groceries from ABC Foods. He wrote on the back of the check: "pay to ABC Foods, for groceries." Was this check properly negotiated?

A) No, because the statement that the check was for payment to ABC Foods defeats this negotiation.

B) No, because John did not indorse the check.

C) Yes, because John transferred possession of the check and ABC Foods acted in good faith.

D) Yes, because a holder's signature is not always needed in order to negotiate a check.

28) ________ is defined to mean "a signature (other than that of a maker, drawer or acceptor) that alone or accompanied by other words, is made on an instrument for purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring indorser's liability on the instrument."

A) Indemnification

B) Recoupment

C) Indorsement

D) Ratification

29) If the holder's name on an instrument is misspelled or wrong, then the indorsement:

A) can be made only in his name.

B) can be made only in the name that is on the instrument.

C) can be made either in his name or in the name that is on the instrument.

D) can never be made by putting his name as well as the name that is on the instrument.

30) Jackie Collins is issued a check payable to the order of Jacky Collens. She takes the check to the bank. In order to cash the check the bank will likely require her to:

A) sign either Jackie Collins or Jacky Collens.

B) sign only Jackie Collins.

C) sign only Jacky Collens.

D) sign both Jackie Collins and Jacky Collens.

31) When a customer deposits a check to her account without an indorsement, the bank:

A) puts the sign of the manager under the typed name of the customer.

B) signs the customer's name.

C) stamps the name of the bank on the check to cover for the customer's signature.

D) stamps on it that it was deposited by the customer.

32) If an order instrument is transferred without indorsement, then the instrument:

A) is deemed to have been negotiated and the bank can qualify as a holder.

B) has not been negotiated and the transferee cannot qualify as a holder.

C) is deemed to have been negotiated and the transferee can qualify as a holder.

D) has been transferred and the bank and the transferee can qualify as a holder.

33) The transfer of an instrument:

A) vests in the transferee any right of the transferor, to enforce the instrument.

B) bars the transferee from attaining the rights of the transferor.

C) vests in the payor any right of the transferor, to enforce the instrument.

D) bars the transferor to pass on his rights to the transferee.

34) Ahmed Cohen received a check for $5,000 for a used car he sold. The check did not specify to whom the check was payable. On the back of this check Ahmed wrote, in his handwriting, "Ahmed Cohen." This has the legal effect of:

A) making this instrument nonnegotiable.

B) making this instrument void.

C) making this instrument order paper.

D) making this instrument bearer paper.

35) If a check is drawn "Pay to the order of Maria" and Maria indorses it "pay to the order of Jay, Maria." This falls under:

A) blank indorsement.

B) restrictive indorsement.

C) special indorsement.

D) simple indorsement.

36) Which of the following is an example of restrictive endorsements recognized under Article 3?

A) "Pay to Bruce Zucker in Trust for Jay Zucker."

B) "Pay to Bruce Zucker Only."

C) "Pay to Jay Zucker on the condition that he completes construction on my house by November 1, 2012."

D) "Pay to the order of my account."

37) When a holder makes a blank indorsement of a negotiable instrument that is bearer paper, what legal effect does this have?

A) There is no effect—bearer paper does not need to be indorsed.

B) The bearer negotiates it by transfer alone and no further indorsement is necessary for negotiation.

C) The instrument is no longer negotiable, as it has been altered.

D) The instrument is converted into order paper.

38) An instrument that is indorsed with a ________ indorsement remains "order paper."

A) special

B) blank

C) restrictive

D) conditional

39) Which of the following indorsements is a special indorsement?

A) "For collection only"

B) "Mel Gibbs"

C) "Pay to Jack Black in Trust for Mel Gibbs"

D) "Pay to the Order of Jack Black, Mel Gibbs"

40) Which of the following indorsements is a blank indorsement?

A) "For Deposit Only"

B) "Mel Gibbs"

C) "Pay to Jack Black in Trust for Mel Gibbs"

D) "Pay to the Order of Jack Black, Mel Gibbs"

41) Which of the following indorsements is a restrictive indorsement?

A) "Pay to Jack Black, Mel Gibbs"

B) "Mel Gibbs"

C) "Pay to Jack Black in Trust for Mel Gibbs"

D) "Pay to the Order of Jack Black, Mel Gibbs"

42) A person who takes an instrument containing a restrictive indorsement, "Pay to Jack Black in Trust for Mel Gibbs,":

A) may not pay the proceeds to the indorsee without the due approval of the indorser.

B) may pay the proceeds to the indorsee paying due regard to whether the indorsee violates a fiduciary duty to the indorser.

C) may pay the proceeds to the indorsee without regard to whether the indorsee violates a fiduciary duty to the indorser.

D) may pay the proceeds to the indorser only with the approval and concurrence of the indorsee.

43) The new revision of Article 3 no longer considers ________ as restrictive indorsements.

A) indorsements for deposit

B) conditional indorsements

C) indorsements directing the indorsee to act for someone else's benefit

D) indorsements for collection

44) Duress that causes the transfer of a negotiable instrument:

A) prevents its negotiation.

B) is a good defense against a holder in due course of the instrument.

C) is subject to rescission before the instrument is transferred to a holder in due course.

D) is a good defense against the maker of a note.

45) A ________ indorsement is one where the indorser disclaims her liability to make the instrument good if the maker or drawer defaults on it.

A) special

B) conditional

C) qualified

D) blank

46) ________ indorsements indicate that they are effective only if the payee satisfies a certain situation.

A) Special

B) Conditional

C) Qualified

D) Blank

47) A ________ indorsement can be used with either a blank indorsement or a special indorsement.

A) rebuttal

B) conditional

C) qualified

D) restrictive

48) The negotiation of an instrument made in breach of duty is subject to ________ before the instrument has been negotiated to a transferee who can qualify as a holder in due course.

A) rescission

B) remission

C) restitution

D) reformation

49) A holder in due course does not take free of the ________, which go to the validity of the instrument or of claims that develop after he becomes a holder.

A) personal defenses

B) relative defenses

C) procedural defenses

D) real defenses

50) UCC section 2-302(a)(1) states that in order for an individual to become a holder in due course the instrument must on its face:

A) appear not to be forged.

B) be written in a language other than English.

C) have the signature of a foreign corporation.

D) be on any other color paper than white.

51) In which of the following situations has the holder of a negotiable instrument not given value for it?

A) Where the holder takes the instrument as security for an antecedent claim.

B) Where the holder gives a negotiable instrument in return for the one received.

C) Where the holder receives the instrument as a gift.

D) Where the holder acquires a security interest in the instrument.

52) A check becomes overdue:

A) 30 days after its date.

B) 60 days after its date.

C) 90 days after its date.

D) after a "reasonable" period of time, in the light of trade practice.

53) If a negotiable instrument is payable on demand, it is overdue:

A) the day before the demand for payment has been made.

B) 30 days after the demand for payment has been made.

C) the day after demand for the payment has been made in a proper manner and form.

D) the week after payment has been demanded.

54) A ________ is a claim of the person obligated on the instrument against the original payee of the instrument.

A) real defense

B) personal defense

C) claim in recoupment

D) claim to an instrument

55) In which of the following situations is an instrument termed as overdue?

A) Where a check was made out 60 days ago.

B) Where there is a default in payment of interest on a note, but not in the payment of the principal.

C) Where the principal on a note is due in installments and an installment has not been paid.

D) Where a note dated January 1 is payable "30 days after date" and is paid on January 31.

56) In the context of overdue instruments, if a due date for the principal has been accelerated:

A) the instrument is overdue when the court passes a judgment to that effect.

B) the instrument is overdue on the day after the grace period of seven days from the accelerated due date.

C) the instrument is overdue on the day after the accelerated due date.

D) the instrument is overdue on the day of the due date.

57) Which of the following is NOT a defense specified in Revised Article 3?

A) Claims for damages

B) Real defenses

C) Claims to an instrument

D) Claims in recoupment

58) Which of the following is a "real" defense that is good against a holder in due course of a note?

A) The maker of the note is 15 years old.

B) The note was procured by the payee's threat to prosecute the maker for drug dealing.

C) No consideration was given for the note.

D) The maker was in a seriously delusional state when he completed the note (but had not been declared insane or institutionalized).

59) In general, the alteration of a completed negotiable instrument:

A) is a complete defense against a holder in due course.

B) is no defense whatsoever against a holder in due course.

C) means that a holder in due course can enforce the instrument against the maker, but only according to its original tenor.

D) means that a holder in due course can enforce the instrument as modified.

60) ________ are legal reasons for avoiding or reducing liability of an individual who is liable on a negotiable instrument.

A) Personal defenses

B) Procedural defenses

C) Real defenses

D) Excuse defenses

61) Which of the following is a personal defense against a holder in due course?

A) Fraud in the essence

B) Forgery

C) Breach of contract

D) Minority or infancy

62) What is the term for when law renders an obligation to pay an instrument void.

A) Forgery

B) Comity

C) Illegality

D) Duress

63) Which of the following is generally true about the Federal Trade Commission's (FTC) regulations of the holder in due course rule?

A) Some states have eliminated the holder in due course rule by repealing the previous version of Article 3 and refusing to adopt the new version.

B) The FTC has seriously limited the rule's impact in consumer credit situations in which the consumer signs a note or an installment sales contract, or gets financing from a third party.

C) These changes in the holder in due course rule reflect the economic power and political influence of business interests, especially banks.

D) Overall, the FTC's changes in the holder in due course rule are insignificant, especially in consumer cases.

64) In the case in the text Town of Freeport v. Ring, why did the court conclude that Ring did not indorse the check?

A) He failed to sign use his last name when he signed the back of the check.

B) He signed "The Town of Freeport" on the back of the check.

C) His signature only appeared on a separate, unattached piece of paper.

D) His signature on the back of the check was illegible.

65) A ________ indorsement contains the signature of the indorser along with words indicating to whom, or to whose order, the instrument is payable.

A) qualified

B) conditional

C) special

D) blank

66) ________ indorsements are those when an indorser merely signs his name and does not specify to whom the instrument is payable.

A) Qualified

B) Blank

C) Special

D) Conditional

67) A ________ indorsement is one that specifies the purpose of the indorsement or specifies the use to be made of the instrument.

A) conditional

B) qualified

C) restrictive

D) special

68) Jack Roberts indorsed his paycheck "For Deposit to My Account No. 4976463 at National Bank." In the meantime, he loses the check and Mary Green finds it. If Green tries to cash the check at a check-cashing service and it gives her the money, what is the result?

A) Roberts does not have any legal remedies.

B) National Bank will be liable to Roberts for converting his check.

C) Green will be liable to Roberts for converting his check.

D) The check-cashing service will be liable to Roberts for converting his check.

69) In the case in the text Lehigh Presbytery v. Merchants Bancorp, why did the court find in favor of Lehigh Presbytery?

A) Because the bank's employee was part of Hunsberger's scheme to steal money from the church.

B) Because the evidence demonstrated the bank knew the checks contained a restrictive indorsement and disregarded it anyway.

C) Because the check contained a restrictive indorsement and the bank had an unwaivable obligation to follow it.

D) Because the bank employees removed the restrictive indorsements from the checks.

70) A(n) ________ takes a negotiable instrument free of all personal defenses, claims to the instrument, and claims in recoupment either of the obligor or of a third party.

A) holder in due course

B) holder

C) indorsee

D) transferee

71) Tom contracts with Susan to build her a shed for $6,000, payable on July 1 when he expects to complete the shed. Tom has assigned his right to payment to National Bank in order to obtain building materials. On July 1, National Bank tries to collect the money from Susan, but she refuses because Tom has not completed the shed. What is the result?

A) Susan must pay Tom on July 1.

B) Susan must pay National Bank on July 1.

C) Tom must pay National Bank on July 1.

D) Susan does not need to pay National Bank until the shed is complete.

72) If a person who takes a negotiable instrument does not meet the requirements to be a holder in due course, he is in the same position as:

A) an assignee of a contract.

B) the transferor.

C) a beneficiary of a contract.

D) a bearer.

73) Which of the following is not a requirement to be a holder in due course?

A) The holder must take the instrument for value.

B) The holder must take the instrument in good faith.

C) The holder must ensure through all reasonable means that the instrument has not been altered.

D) The holder must take the instrument without notice of any claim of a property or possessory interest in it.

74) With limited exceptions, a ________ indorsement is not an effective indorsement and prevents a person from becoming a holder.

A) qualified

B) special

C) restrictive

D) forged

75) To be a holder, a person must have a complete chain of ________ indorsements.

A) special

B) restrictive

C) authorized

D) qualified

76) The City mails Joe Marsh a refund check for overpayment of a parking ticket. Harold Finch steals the check from Marsh's mailbox, signs "Joe Marsh" on the back of the check, and cashes it at a grocery store. Is the grocery store a holder of the check?

A) Yes, because Finch indorsed the check.

B) Yes, because it is a holder in due course.

C) No, because Finch was not a holder and the check was not signed by Marsh.

D) No, because the check contained no indorsements.

77) In case in the text Bank of America, N.A. v. Inda, why did the court hold that the bank was the holder of the note despite the fact that it transferred the beneficial interest to another entity and was only acting as the servicer of the loan?

A) The bank showed that it was a holder in due course.

B) The bank showed that its successor had transferred the note back to it.

C) The bank showed the chain of indorsements.

D) The bank showed that the note was payable to it or in blank and that it remained in possession of the note.

78) A promissory note cannot be scanned into an electronic note and have the electronic version qualify as a negotiable instrument under:

A) the Uniform Electronic Transactions Act.

B) the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.

C) the Uniform Commercial Code.

D) the Uniform Commercial Code and the Electronic Signatures in Global and National Commerce Act.

79) A bank or person who ________ an instrument in the regular course of trade has given value for it.

A) indorses

B) transfers

C) discounts

D) holds

80) Which of the following means that the person obtained a negotiable instrument honestly and in the observance of reasonable commercial standards of fair dealing?

A) Holder in due course

B) Value

C) Good faith

D) Without notice

81) In the case in the text RR Maloan Investment v, New HGE, what affect did post-dating the check have on the negotiability of the check at issue?

A) The negotiability of the check was not affected by post-dating.

B) The check was no longer negotiable because it was post-dated over a month.

C) The check was no longer negotiable because it was post-dated at the holder's discretion.

D) The check was no longer negotiable because it was post-dated "until the watch is authenticated."

82) In the case in the text New Randolph Halsted Currency Exchange v. Regent Title Insurance Company, what was the court's holding when it determined that New Randolph could qualify as a holder in due course?

A) It took the check without notice that any party had a claim in recoupment to it.

B) It acted in good faith.

C) It took the check for value.

D) It acted in a commercially reasonable manner in seeking to determine the authenticity of the check.

83) Which of the following was the court's holding in the case in the text E & G Food Corp. v. Cumberland Farms?

A) The defense of forgery could be asserted against a holder in due course.

B) The defense of forgery could not be asserted against a holder in due course.

C) The defense of forgery could not be asserted against a holder.

D) The defense of forgery could be asserted against a holder.

84) In the case in the text General Credit Corp. v. New York Linen Co., which of the following was the result?

A) A holder in due course of a check was not subject to the personal defense of failure of consideration that the drawer of the check had against the payee of the check.

B) A holder in due course of a check was not subject to the personal defense of duress that the drawer of the check had against the payee of the check.

C) A holder in due course of a check was not subject to the personal defense of modification of the obligation by a separate agreement that the drawer of the check had against the payee of the check.

D) A holder in due course of a check was not subject to the personal defense of breach of contract that the drawer of the check had against the payee of the check.

85) Which of the following was the court's holding in the case in the text Music Acceptance Corp. v. Lofing?

A) The FTC rule was inapplicable because the transaction did not exceed $25,000.

B) The plaintiff was in the same position whether the court applied the FTC rule or the language of the contract.

C) The FTC rule was inapplicable because the plaintiff did not use credit to make the purchase.

D) The Music Acceptance Corp. was a holder in due course.

86) What are the three significant effects resulting from the indorsement of a negotiable instrument?

87) Pete Payee specially indorses a note payable to his order and also uses the words "without recourse." What is the effect of the words "without recourse" here?

88) What are the general requirements to become a holder in due course?

89) What is the shelter rule in Article 3?

90) What are the four categories of claims listed in Revised Article 3?