Ch. 25: Transfer And Holder in Due Course

Question 1

Holder

Answer 1

Possessor of negotiable instrument that is payable either to bearer or to an identified person that is the person in possession.

Question 2

Negotiation

Answer 2

Transfer such that transferee becomes a holder.

Question 3

Assignment

Answer 3

Voluntary transfer to a third-party of the rights arising from a contract.

Question 4

Shelter rule

Answer 4

Transferee gets rights of transferor.

Question 5

Negotiation of bearer paper

Answer 5

Transferred by mere possession.

Question 6

Negotiation of order paper

Answer 6

Transferred by possession and endorsement by all appropriate parties.

Question 7

Imposter rule

Answer 7

An endorsement of an imposter or of any other person in the name of the payee is effective if the imposter has induced the maker or drawer to issue the instrument to him using the name of the payee.

Question 8

Fictitious payee rule

Answer 8

An endorsement by any person in the name of the payee is effective if an agent of the maker or drawer has supplied her with the name of the payee for fraudulent purposes.

Question 9

Negotiations subject to rescission

Answer 9

Negotiation is valid even though a transaction is void or avoidable.

Question 10

Endorsement

Answer 10

Signature ( on the instrument) of a payee, drawee, accommodation party, or holder.

Question 11

Blank endorsement

Answer 11

One specifying no indorsee and making the instrument bearer paper.

Question 12

Special endorsement

Answer 12

One identifying an indorsee to be paid and making the instrument order paper.

Question 13

Restrictive endorsement

Answer 13

One attempting to limit the rights of the indorsee.

Question 14

On restrictive endorsement

Answer 14

One that does not attempt to restrict the rights of the indorsee.

Question 15

Endorsements in trust

Answer 15

Effectively require the indorsee to pay or apply all funds in accordance with the endorsement.

Question 16

Endorsements with ineffective restrictions

Answer 16

Include conditional endorsements and endorsements attempting to prohibit further negotiation.

Question 17

Unqualified endorsement

Answer 17

One that imposes liability on the indorser.

Question 18

Qualified endorsement without recourse.

Answer 18

One that limits the endorser’s liability.

Question 19

Allonge

Answer 19

Piece of paper affixed to the instrument.

Question 20

Value

Answer 20

Differs from contractual consideration and consists of (1) the timely performance of legal consideration (excluding executory promises), (2) the acquisition of a security interest in or a lein on the instrument, (3) taking the instrument in payment of or as security for an antecedent debt, (4) The giving of a negotiable instrument, (5) The giving of an irrevocable commitment to a third-party.

Question 21

Antecedent debt

Answer 21

Preexisting obligation.

Question 22

Good faith

Answer 22

Honesty in fact and the observance of reasonable commercial standards of fair dealing.

Question 23

Notice an instrument is overdue

Answer 23

Time paper is over due after it’s stated date; demand paper is overdue after demand has been made or after it has been outstanding for an unreasonable period of time.

Question 24

Dishonor

Answer 24

Refusal to pay or accept an instrument when it becomes due.

Question 25

Defense

Answer 25

Protects a person from liability.

Question 26

Claim

Answer 26

An assertion of ownership.

Question 27

Without reason to question its authenticity

Answer 27

Instrument cannot bear such a parent evidence of forgery or alteration or otherwise be so irregular or incomplete as to call into question its authenticity.

Question 28

Payee may be a hold her in due course

Answer 28

The payee’s right as a holder in due course or limited to defenses of persons with whom he has not dealt.

Question 29

Shelter rule

Answer 29

The transferee of an instrument acquires the same rights as a transferor had in the instrument.

Question 30

Real defenses

Answer 30

Real defenses are available against all holders, including holders in due course.

Question 31

Personal (contractual) defenses

Answer 31

All other defenses that might be asserted in the case of any action for breach of contract.

Question 32

Limitations upon holder in due course rights

Answer 32

The preferential position of a holder in due course has been severely limited by a Federal Trade Commission rule that applies to consumer credit contracts, under which a transferee of consumer credit contracts cannot take as a holder in due course.