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Exam 26: Transferability and Holder in Due Course

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Question 31

Multiple Choice

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Anya issues a check payable to Bo, who indorses the back, gives it to Credit Union, and receives cash. The transfer of the check from Bo to Credit Union is

A) an assignment.
B) a negotiation.
C) a payment.
D) a sale.

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

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Question 32

Multiple Choice

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Durable Goods Inc. negotiates an order instrument to Equity Finance by delivery

A) with an assignment of its rights under a contract.
B) with any necessary indorsement.
C) without more.
D) with formal presentment in response to a demand by the payee.

E) A) and D)
F) A) and C)

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Question 33

Multiple Choice

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An irregularity on the face of an instrument that calls into question its validity or ownership, thereby barring HDC status, occurs when

In good faith and for value, Joya gets from Kyle a negotiable bearer instrument. Joya does not know that Kyle stole the instrument. Joya is

When a drawer gives one alternative or joint payee a check, the drawer's obligation on the check to the other payees is suspended.

At 1 A.M., in front of EZ Credit Corporation, which is closed, Frey buys a $500 promissory note for $50 from Greco. When presented with Frey's demand for payment, Diaz, the maker of the note, could successfully claim that Frey

If the thief of a stolen bearer instrument delivers it to an innocent, third party, negotiation of the item is complete.

A difference between the handwriting in the body of a check and in the signature affects the validity of the item and will bar a holder from HDC status.

Leno makes a gift of a check to Millie who takes it in good faith and without notice of any claim, defense, or defect. With respect to this check, Millie is

Whenever a transfer fails to qualify as a negotiation because it fails to meet one of the requirements for a negotiable instrument, it is considered a breach.

A holder will be deemed to have notice of a defect in an instrument if he or she has reason to know that it exists, given all the facts and circumstances known at the time.

To avoid the risk of loss from theft, a holder can convert a blank indorsement to a special indorsement by writing, above the signature of the indorser, the name of the indorsee.

When an instrument is transferred, an ordinary holder obtains only those rights that the transferor had in the instrument but is free of most of the defenses and claims that could be asserted against the transferor.

The shelter principle promotes the marketability and free transferability of negotiable instruments by

A person who takes a demand instrument knowing that demand has been made has notice that the instrument is overdue.

Because a party's authenticating intent with respect to a note is shown by the name of the party written on the line that calls for the name of that party,

Rehab LLC owes $20,000 to Stonemason Inc. Rehab executes a note to Stonemason as security for the debt. This security

Coki receives a payroll check from Data Solutions Inc. and indorses it by signing her name on the back of the check. This is

In most instances, a payee on a note will qualify as an HDC by virtue of the fact that he or she has dealt directly with the maker.

The method of negotiating an instrument so that the receiver becomes a holder depends on whether an indorsement on the instrument is blank or special.