Question 1

"Pay to the order of Jones or Green," is an instrument that is payable to ________ payees.

Accepted Answer

A)   alternate
B)   consecutive
C)   concurrent
D)   alternative
E)   obscureF) B) and E)
G) C) and D)

Question 2

There are two kinds of unqualified endorsements: ________ and ________,

Accepted Answer

A)   partial, qualified.
B)   blank, qualified.
C)   special, qualified.
D)   special, blank.
E)   blank, partial.F) A) and E)
G) All of the above

Question 3

Shira purchased a refrigerator from ABC Appliance store for $800. She takes the refrigerator home and discovers that it is defective. She calls ABC Appliance store and tells them that she would like to return the refrigerator. ABC Appliance store tells her that they have assigned the promissory note she provided the store in order to purchase the refrigerator to a finance company and that the finance company, as a holder in due course, is not subject to defenses. Which of the following is true regarding the rights of parties?

Accepted Answer

A)   The finance company is subject to the defenses of Shira because of the Federal Trade Commission rule created to protect consumers.
B)   ABC Appliance store is correct in that Shira cannot assert her defenses against the finance company.
C)   Shira can assert her defenses against the finance company only if she can prove that the finance company had knowledge that ABC Appliance store sold defective equipment from time to time.
D)   Shira can assert her defenses against the finance company only because she gave notice of the problem within 5 days of the sale.
E)   Shira can assert her defenses against the finance company only if she agrees to arbitrate the dispute.F) B) and D)
G) All of the above

Question 4

[Check Issues] Kelsey owns and operates a currency exchange. A regular customer, Rafe, comes in and cashes a $2,000 check issued by ABC Trucking. The day after Kelsey cashed the check, she received a notice from ABC Trucking that some checks had been stolen. It was later discovered that the checks she cashed for Rafe had been stolen. At the time she took the check, Kelsey was very busy with several customers in line. She simply glanced at the check and cashed it. A reasonable examination would have revealed that the check had been materially altered and changed from the amount of $200 to $2,000. Kelsey decided that she needed to hire some people to help her because she also had a problem with another check. On the same day that she took Rafe's check, she took a check from another customer, Brett. It was later discovered that the check, which was four months old, was the subject of a dispute between Brett and the issuer of the check for whom Brett had done some work. The issuer claimed that the work was improperly done. Both ABC Trucking and the issuer of the check to Brett had stopped payment on the checks. Kelsey claimed that as a holder in due course, she was entitled to payment on both checks.
-What is the effect of Kelsey receiving notice the day after she cashed the check for Rafe that the check had been stolen?

Accepted Answer

A)   The notice has no effect on her status as holder in due course because it was provided after she cashed the check.
B)   The notice prevents her from being a holder in due course.
C)   The notice prevents her from being a holder in due course only if Rafe had been convicted of check cashing offenses in the past since she should have checked his criminal record.
D)   The notice prevents her from being a holder in due course only if she subjectively knew that Rafe had been charged criminally with check cashing violations in the past.
E)   The notice prevents her from being a holder in due course because it was presented to a business; only individuals can avoid the effect of notice of theft by cashing a check prior to receiving notice.F) A) and B)
G) A) and C)

Question 5

Julianne has received a check that she would like to cash, however there is no room for her to endorse the check herself. Julianne can attach a(n)  ________ which would allow her to endorse the check.

Accepted Answer

A)   acknowledgement
B)   bearer paper
C)   special endorsement
D)   allonge
E)   order paperF) B) and D)
G) A) and D)

Question 6

Which of the following did the court determine on appeal in Wawel Savings Bank v. Jersey Tractor Trailer Training Inc., the case in the text in which a lender who perfected an interest in a debtor's collateral claimed to have priority in bankruptcy over an entity who later entered into an agreement whereby it purchased rights to the debtor's accounts receivables?

Accepted Answer

A)   Under the "first in time" rule, the court ruled in favor of the lender who perfected the interest in the debtor's collateral.
B)   Under the "first to file" rule, the court ruled in favor of the lender who perfected the interest in the debtor's collateral.
C)   The court ruled in favor of the purchaser of receivables on the basis that the agreement the lender had with the debtor did not expressly prohibit the sale of receivables.
D)   The court ruled in favor of the purchaser of receivables on the basis that an immediate transaction for value was involved.
E)   The court remanded the case for a determination as to whether the purchaser of receivables was a holder in due course or a purchaser of instruments, in which case it would prevail.F) A) and D)
G) B) and E)

Question 7

Which of the following is true regarding how a holder may take an instrument for value, but not become a holder in due course?

Accepted Answer

A)   The UCC provides that the only method by which a holder may take an instrument for value but not become a holder in due course is when the holder purchases the instrument at judicial sale or under legal process.
B)   The UCC provides that the only method by which a holder may take an instrument for value but not become a holder in due course is when the holder acquires an instrument through taking over an estate.
C)   The UCC provides that a holder may take an instrument for value but not become a holder in due course under the following two circumstances: (1)  when the holder purchases the instrument at judicial sale or under legal process, and (2)  when the holder acquires an instrument through taking over an estate.
D)   The UCC provides that a holder may take an instrument for value but not become a holder in due course under the following three circumstances: (1)  when the holder purchases the instrument at judicial sale or under legal process, (2)  when the holder acquires an instrument through taking over an estate, and (3)  when the holder purchases the instrument as part of a bulk transaction not in the regular course of business of the transferor.
E)   The UCC does not recognize circumstances under which a holder may take an instrument for value but not become a holder in due course, although under common law, a person who acquired an instrument through taking over an estate was classified as a holder but not a holder in due course.F) A) and B)
G) A) and E)

Question 8

Once negotiable, an instrument remains negotiable but a restrictive endorsement can limit what is done.

Accepted Answer

A) True 
 B)False

Question 9

An endorsement that is the endorser's signature followed by a named endorsee, who then becomes the holder of the instrument, is what type of endorsement?

Accepted Answer

A)   Blank unqualified.
B)   Special unqualified.
C)   Blank qualified.
D)   Special qualified.
E)   Conditional.F) B) and E)
G) A) and D)

Question 10

The Japanese Commercial Code does not recognize ________ but recognizes the legal concept of ________.

Accepted Answer

A)   checks and bonds, shoken yuka
B)   negotiable instruments, yuka shoken
C)   commercial papers, securities equities
D)   negotiable instruments, equitable securities
E)   investment securities, yuka shokenF) None of the above
G) C) and D)

Question 11

A transaction involving a promissory note is an illegal transaction in Russia.

Accepted Answer

A) True 
 B)False

Question 12

________ is listed as a "real" defense that a holder in due course may be subjected to, even if unaware.

Accepted Answer

A)   Duress
B)   Fraud in the inducement
C)   Endorsee misconduct
D)   Undue influence
E)   ForgeryF) D) and E)
G) A) and E)

Question 13

A holder may still become a holder in due course if he or she is aware of which of the following defects?

Accepted Answer

A)   The instrument has been dishonored.
B)   The instrument is overdue.
C)   The instrument contains an unauthorized signature.
D)   The instrument contains a misspelled name.
E)   There is a claim to the instrument.F) C) and D)
G) A) and E)

Question 14

Which kind of endorsement places a condition on payment?

Accepted Answer

A)   Conditional endorsement.
B)   Trust endorsement.
C)   Endorsement to prohibit further endorsement.
D)   Bearer endorsement.
E)   Conditional bearer endorsement.F) A) and D)
G) A) and C)

Question 15

The purpose of the Shelter Principle and Holder-in-Due-Course doctrine is:

Accepted Answer

A)   To protect financial intermediaries by restricting the marketability of instruments.
B)   To encourage free-market capitalism through competition.
C)   To help people devise new ways to achieve financial success.
D)   To encourage the marketability of instruments and encourage financial intermediaries to engage in financial transactions.
E)   To remove as many restraints as possible from the marketability of instruments in order to facilitate commerce.F) B) and E)
G) A) and C)

Question 16

What happens when an instrument lists two payees but is silent as to whether they are joint or alternative?

Accepted Answer

A)   The instrument is non-negotiable and may not be endorsed by either payee.
B)   Courts interpret the instrument as containing joint payees, and the endorsements of both listed payees are required to negotiate it.
C)   Courts interpret the instrument as containing alternative payees, and the endorsement of only one listed payee is required to negotiate it.
D)   Only the endorsement of the first listed payee is required to negotiate it.
E)   The instrument may be endorsed by one or the other payee, but may not be endorsed by both payees.F) C) and E)
G) None of the above

Question 17

Which of the following does not prevent a holder from being a holder in due course?

Accepted Answer

A)   Notice that the instrument is overdue.
B)   Notice that the instrument has been dishonored.
C)   Notice that the instrument was issued as part of a series that is in default.
D)   Notice that the instrument has been altered or contains an unauthorized signature.
E)   Notice that an employee other than the treasurer of a company signed an instrument.F) C) and E)
G) B) and E)

Question 18

List the five conditions under which a holder may take an instrument for value.

Accepted Answer

A holder may take an instrument for valu...

Question 19

The words, "Pay to Allan Smith" followed by the endorser's signature create ________

Accepted Answer

A)   a blank endorsement
B)   a qualified endorsement
C)   a special endorsement
D)   a limited endorsement
E)   a specific endorsementF) A) and D)
G) A) and B)

Question 20

[House Painting] Graciela Reyes signed a check agreeing to pay, "Annie Greene, Marney Harris," $1,000. The payment was for painting her house. A problem with the note was that it spelled Annie's last name, "Greene," whereas Annie spells it simply, "Green." Annie and Marney were having a disagreement regarding how to split up the funds for painting the house. Annie proceeded to sign the check on the back, "Annie Green," and presented it to Hiro Murakami to satisfy a debt that she owed him. Hiro Murakami endorsed the check on the back, "Hiro Murakami, without recourse," and gave it to his nephew, Nate, who took it to the bank for payment. Meanwhile, Graciela has stopped payment on the check because, following a rainstorm, all the paint on the house looked spotted. Marney is unhappy because she did not obtain any of the funds and stated that Annie could not legally endorse the instrument because it misspelled her name and also because she, Marney, did not sign it.
-Which of the following is true regarding Nate's rights in relation to the check?

Accepted Answer

A)   As a holder, Nate may demand payment from either Graciela, Annie, or Marney.
B)   As a holder in due course, Nate may demand payment from either Graciela, Annie, or Marney.
C)   As a holder, Nate may demand payment from either Graciela or Annie, but not Marney.
D)   As a holder in due course, Nate may demand payment from either Graciela or Annie, but not Marney.
E)   Nate may not demand payment from either Graciela, Annie, or Marney.F) B) and C)
G) All of the above

Exam 27: Negotiation, Holder in Due Course, and Defenses

"Pay to the order of Jones or Green," is an instrument that is payable to ________ payees.

Correct Answer
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Which of the following does not prevent a holder from being a holder in due course?

Correct Answer
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Correct Answer
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List the five conditions under which a holder may take an instrument for value.

Correct Answer
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A holder may take an instrument for valu...
View Answer

Correct Answer
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There are two kinds of unqualified endorsements: and ,

Correct Answer
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What happens when an instrument lists two payees but is silent as to whether they are joint or alternative?

Correct Answer
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Which of the following is true regarding how a holder may take an instrument for value, but not become a holder in due course?

Correct Answer
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The purpose of the Shelter Principle and Holder-in-Due-Course doctrine is:

Correct Answer
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A transaction involving a promissory note is an illegal transaction in Russia.

Correct Answer
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Julianne has received a check that she would like to cash, however there is no room for her to endorse the check herself. Julianne can attach a(n) ________ which would allow her to endorse the check.

Correct Answer
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Once negotiable, an instrument remains negotiable but a restrictive endorsement can limit what is done.

Correct Answer
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Which kind of endorsement places a condition on payment?

Correct Answer
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A holder may still become a holder in due course if he or she is aware of which of the following defects?

Correct Answer
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The words, "Pay to Allan Smith" followed by the endorser's signature create ________

Correct Answer
verified

An endorsement that is the endorser's signature followed by a named endorsee, who then becomes the holder of the instrument, is what type of endorsement?

Correct Answer
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Correct Answer
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________ is listed as a "real" defense that a holder in due course may be subjected to, even if unaware.

Correct Answer
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Correct Answer
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The Japanese Commercial Code does not recognize but recognizes the legal concept of .

Correct Answer
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Exam 27: Negotiation, Holder in Due Course, and Defenses

"Pay to the order of Jones or Green," is an instrument that is payable to ________ payees.

Correct AnswerverifiedShow Answer

Which of the following does not prevent a holder from being a holder in due course?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

List the five conditions under which a holder may take an instrument for value.

Correct AnswerverifiedA holder may take an instrument for valu...View AnswerShow Answer

Correct AnswerverifiedShow Answer

There are two kinds of unqualified endorsements: ________ and ________,

Correct AnswerverifiedShow Answer

What happens when an instrument lists two payees but is silent as to whether they are joint or alternative?

Correct AnswerverifiedShow Answer

Which of the following is true regarding how a holder may take an instrument for value, but not become a holder in due course?

Correct AnswerverifiedShow Answer

The purpose of the Shelter Principle and Holder-in-Due-Course doctrine is:

Correct AnswerverifiedShow Answer

A transaction involving a promissory note is an illegal transaction in Russia.

Correct AnswerverifiedShow Answer

Julianne has received a check that she would like to cash, however there is no room for her to endorse the check herself. Julianne can attach a(n) ________ which would allow her to endorse the check.

Correct AnswerverifiedShow Answer

Once negotiable, an instrument remains negotiable but a restrictive endorsement can limit what is done.

Correct AnswerverifiedShow Answer

Which kind of endorsement places a condition on payment?

Correct AnswerverifiedShow Answer

A holder may still become a holder in due course if he or she is aware of which of the following defects?

Correct AnswerverifiedShow Answer

The words, "Pay to Allan Smith" followed by the endorser's signature create ________

Correct AnswerverifiedShow Answer

An endorsement that is the endorser's signature followed by a named endorsee, who then becomes the holder of the instrument, is what type of endorsement?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

________ is listed as a "real" defense that a holder in due course may be subjected to, even if unaware.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The Japanese Commercial Code does not recognize ________ but recognizes the legal concept of ________.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
A holder may take an instrument for valu...
View Answer

Correct Answer
verified

There are two kinds of unqualified endorsements: and ,

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The Japanese Commercial Code does not recognize but recognizes the legal concept of .

Correct Answer
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