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Exam 26: Transferability and Holder in Due Course

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Question 21

Multiple Choice

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Lamont and Marcel collaborate to defraud Nina, who is induced to give Marcel a note payable to Marcel's order. Marcel indorses the note for value to Orson, an HDC. Later, Orson sells the note to Lamont. Under the shelter principle,

A) Orson's right to repurchase the note from Lamont is limited.
B) Lamont cannot acquire HDC rights in the note.
C) Lamont attains HDC status by acquiring the note.
D) the principal amount of the note is sheltered without recourse.

E) B) and D)
F) C) and D)

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Question 22

Multiple Choice

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An instrument payable to two or more persons without an "and" or an "or" between the parties' names, such as a check "payable to the order of Gerhard Hans,"

A) requires the indorsement of only of the parties to be negotiated.
B) requires the indorsement of both of the parties to be negotiated.
C) must be converted to a bearer instrument to be negotiated.
D) is nonnegotiable.

E) A) and B)
F) B) and C)

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Question 23

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To obtain HDC status, a holder must take an instrument in good faith from a transferor who likewise acts in good faith.

If Dora delivers a check payable to her order to Equity Bank without signing it and receives cash, the transfer is an assignment, not a negotiation.

A check "payable to Orit" followed by the signature of Petr, the indorser, sufficiently identifies the indorsee.

On the back of a check "payable to Demos," Demos signs her name and negotiates the item to Ethos. To most effectively avoid a risk of loss from a theft of the check, Ethos should

In terms of the requirements for HDC status, first a party must be a holder of a negotiable instrument.

A promise to perform or give value in the future is sufficient value to make the promisor an HDC.

Vel indorses in blank a check payable to her order, and then loses it. Wang finds the check and, without indorsing it, sells it to Xhi. This is

A holder who takes a negotiable instrument from a thief cannot become an HDC even if the item was acquired in good faith and there was no reason to be suspicious of the transaction.

Only the payee's bank can acquire the rights of a holder and negotiate a check indorsed by the payee "For deposit only."

On the back of a check "payable to Huan," Huan signs her name and negotiates the item to Ito. To avoid liability on the item if it is later dishonored, Ito should

A conditional indorsement on the back of an instrument

Doyle gives a check to eMarket Finance to buy 100 shares of stock in FabNu Corporation for Doyle. The price of the shares is constantly fluctuating. eMarket asks Doyle to leave the amount of the check blank and allow it to fill in the price when making the purchase. Doyle agrees. eMarket buys the stock when the price is $4,000, but fills in the check for $5,000. The check is negotiated as payment for a $5,000 debt to Guido & Hollis Accountants (G&H), which takes the check in good faith and without notice of eMarket's act. G&H later learns that eMarket was not authorized to fill in the check for $1,000 over the price. Is G&H an HDC? If so, for how much?

If an instrument is acquired as part of a corporate purchase of assets, the holder will have only the rights of an ordinary holder.

Factory Inc. issues a check payable to Gila, who gives it to Hometown Bank without signing it, and receives cash. The transfer of the check from Gila to Hometown is

An instrument, such as a check, drawn payable to an organization

The shelter principle permits a holder with notice of a claim or defense to attain HDC status by reacquiring the instrument from a later HDC.

Negotiating bearer instruments requires both indorsement and delivery because the use of bearer instruments involves more risk through loss or theft.

A loss from a well-crafted forgery usually falls on the party to whom the forger transferred the instrument.