Chapter 13 - Transferability and Holder in Due Course Flashcards Preview

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Flashcards in Chapter 13 - Transferability and Holder in Due Course Deck (33):
1

antecedent claim

- a preexisting claim
- in negotiable instruments law, taking an instrument in satisfaction of an antecedent claim is taking the instrument for value - that is, for valid consideration

2

blank indorsement

- an indorsement that specifies no particular indorsee an can consist of a mere signature
- an order instrument that is indorsed in blank becomes a bearer instrument

3

holder in due course (HDC)

- a holder who acquires a negotiable instrument for value; in good faith; and without notice that the installment is overdue, that it has been dis honored, that any person has a defense against it or a claim to it, or that the instrument contains unauthorized signatures, alterations, or is so irregular or incomplete as to call into question its authenticity

4

indorsee

- a person to whom a negotiable instrument is transferred by indorsement

5

indorsement

- a signature placed on an instrument for the purpose of transferring one's ownership rights in the instrument

6

indorser

- a person who transfers an instrument by signing (indorsing) it and delivering it to another person

7

negotiation

-

8

qualified indorsement

- an indorsement on a negotiable instrument in which the indorser disclaims any contract liability on the instrument; the notation "without recourse" is commonly used to create a qualified indorsement

9

restrictive indorsement

- any indorsement on a negotiable instrument that requires the indorsee to comply with certain instructions regarding the funds involved
- a restructure indorsement does not prohibit the further negotiation of the instrument

10

shelter principle

- the principle that the holder if a negotiable instrument who cannot qualify as a holder in due course (HDC), but who derives his or her title through an HDC, acquires the rights of an HDC

11

special indorsement

- an indorsement on an instrument that indicates the specific person to whom the indorser intends to make the instrument payable; that is, it names the indorsee

12

trust indorsement

- an indorsement for the benefit of the indorser or a third person; also known as an agency indorsement
- the indorsement results in legal title vesting in the original indorsee

13

SAMPLE TEST QUESTIONS
1. Mortimer negotiates an instrument to Nadia. Negotiation is the transfer of an instrument :
a. for valuable consideration, under a contract
b. in such form that the transferee becomes a holder
c. pursuant to preliminary contract discussions
d. without the payment of a recognized medium of exchange

ANSWER :
(B)
CORRECT :
(B)

14

SAMPLE TEST QUESTIONS
2. Edgar possesses a check that is "payable to cash." Fawn steals the check and delivers it to Godfrey, an innocent third person. All rights to the check are :
a. Edgar's
b. Fawn's
c. Godfrey's
d. lost

ANSWER :
(C)
CORRECT :
(C)

15

SAMPLE TEST QUESTIONS
3. Giuseppe writes a check "payable to bearer" and hands it to Hamilton. Imogene steaks the check and delivers it to Jocekyn, an innocent third person. Hamilton can recover the proceeds of the check from :
a. Imogene
b. Jocelyn
c. Giuseppe
d. no one

ANSWER :
(D)
CORRECT :
(A)

16

SAMPLE TEST QUESTIONS
4. Roderick negotiates a bearer instrument to Shauna by :
a. assignment
b. delivery
c. indorsement
d. promising to pay it

ANSWER :
(C)
CORRECT :
(B)

17

SAMPLE TEST QUESTIONS
5. Baxter obtains a check payable to his order from Chanel. For Baxter to negotiate this order instrument to Darlene requires :
a. indorsement and delivery
b. assignment and a promise to pay
c. presentment and dishonor
d. good faith and value

ANSWER :
(D)
CORRECT :
(A)

18

SAMPLE TEST QUESTIONS
6. Dirk transfers a note by signing it and delivering it to Edwina. Dirk is :
a. an indorser
b. an indorsee
c. a promisee
d. a promisor

ANSWER :
(D)
CORRECT :
(A)

19

SAMPLE TEST QUESTIONS
7. Dane transfers a draft by signing it and delivering it to Ebony. Ebony is :
a. an indorser
b. an indorsee
c. a promisee
d. a promisor

ANSWER :
(B)
CORRECT :
(B)

20

FACT PATTERN 13-1B
Destiny obtains a check payable to her order from Eugenia. Destiny signs the back and adds the notation "without recourse."

--------

21

FACT PATTERN 13-1B
8.'Refer to Fact Pattern 13-1B. Destiny's signature and the notation "without recourse" constitute :
a. a blank indorsement
b. a qualified indorsement
c. a special indorsement
d. a restrictive indorsement

ANSWER :
(B)
CORRECT :
(B)

22

FACT PATTERN 13-1B
9. Refer to Fact Pattern 13-1B. By writing "without recourse" with her signature, Destiny :
a. avoids the risk of loss from theft of the instrument
b. relieves herself of liability on the instrument
c. converts the check into a nonnegotiable instrument
d. locks the instrument into the bank collection process

ANSWER :
(B)
CORRECT :
(B)

23

FACT PATTERN 13-1B
10. Refer to Fact Pattern 13-1B. After Destiny signs the back and adds the notation "without recourse," she adds, "Pay to Florence." This constitutes :
a. a blank qualified indorsement
b. a special qualified indorsement
c. a restrictive indorsement
d. none of the choices

ANSWER :
(A)
CORRECT :
(B)

24

SAMPLE TEST QUESTIONS
11. Erin indorses a check, "Pay to Farmers Cooperative, Inc., if they deliver the grain by May 1, 2015." This is :
a. a blank indorsement
b. a qualified indorsement
c. a restrictive indorsement
d. a special indorsement

ANSWER :
(D)
CORRECT :
(C)

25

SAMPLE TEST QUESTIONS
12. Bowie is a holder of a promissory note obtained from Credit Lenders, Inc. Regarding the defenses against payment of the note to which Credit Lenders is subject, Bowie, as an ordinary holder, is subject to :
a. more defenses
b. no defenses
c. some defenses, but not as many
d. the same defenses

ANSWER :
(B)
CORRECT :
(D)

26

SAMPLE TEST QUESTIONS
13. Diego is the payee of a bearer instrument - a promissory not in the amount of $1,000. Emil offers to harvest Diego's field of alfalfa in October in exchange for the note. Diego agrees and delivers the note to Emil. Emil is not an HDC of the note because he :
a. was not the original payee on the note
b. did not take the note without notice
c. did not acquire the note in good faith
d. did not give value for the note

ANSWER :
(A)
CORRECT :
(D)

27

SAMPLE TEST QUESTIONS
14. Entrepreneur Auto Rentals owes Sole Saver Auto Dealership $20,000. Entrepreneur executes a note to Sole Saver as security for the debt. This security :
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

ANSWER :
(D)
CORRECT :
(D)

28

SAMPLE TEST QUESTIONS
15. Muni Investment Company signs a check payable to Enterprise Kenders, Inc., to buy a promissory note executed by Fallow Corporation. This check :
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

ANSWER :
(A)
CORRECT :
(D)

29

SAMPLE TEST QUESTIONS
16. At 1 A.M., on the sidewalk in front of Ace Credit Corporation, which is closed, Ben buys a $500 promissory note for $50 from Curt. When presented with Ben's demand for payment, Diane, the maker of the note, could successfully claim that Ben :
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

ANSWER :
(B)
CORRECT :
(B)

30

SAMPLE TEST QUESTIONS
17. Plumbing & Pipes Supply Company issues a promissory note as a demand instrument with a due date of October 5. Quantum Loan Company accepts the note. Quantum Loan has notice that the note is overdue if the firm takes the note :
a. after October 5
b. before October 5
c. on October 5
d. at any time

ANSWER :
(A)
CORRECT :
(A)

31

SAMPLE TEST QUESTIONS
18. Elinor performs ten hours of house cleaning for Floyd in exchange for a promissory note for $400. At the time that Elinor accepts the note, she is aware that bankruptcy proceedings are being filed against Floyd. Elinor can :
a. obtain HDC status
b. not obtain HDC status, because she knows that their are bankruptcy proceedings against Floyd
c. not obtain HDC status, because she did not fulfill the value requirement
d. not obtain HDC status, because she did not fulfill the good faith requirement

ANSWER :
(A)
CORRECT :
(A)

32

SAMPLE TEST QUESTIONS
19. Secure Loan Company has notice that a promissory note is overdue if the note is a demand instrument and Secure Loan takes it :
a. an unreasonable time after its due date
b. before it's due date
c. on its due date
d. without noticing its due date

ANSWER :
(A)
CORRECT :
(A)

33

SAMPLE TEST QUESTIONS
20. Flossie signs a check payable to Glenn and gives it to him, leaving the amount blank but authorizing him to fill it in for $1,000. Glenn fills in $1,500 and negotiates the check to Home Federal Bank, and HDC. Home Federal can enforce the check for :
a. $0
b. $500
c. $1,000
d. $1,500

ANSWER :
(D)
CORRECT :
(D)