Question 1

Revised Article 3 defines __________ as "honesty in fact and the observance of reasonable commercial standards of fair dealing."

Accepted Answer

A) executory promise 
B) good faith 
C) value 
D) None of the above. 
A) executory promise 
B) good faith 
C) value 
D) None of the above. B

Question 2

Phyllrox Co., a large manufacturer, purchased a forklift from Brown's Equipment Co.Phyllrox made a $14,500 down payment and signed a promissory note for $3,500.Brown's sold the note to Corporate Bank and received $3,400.After Phyllrox used the forklift for two weeks, it broke down and could not be repaired.Phyllrox refuses to make any more payments to Corporate Bank.In this case:

Accepted Answer

A) Phyllrox can assert the failure of the forklift as a defense to making payments to Corporate Bank. 
B) Corporate Bank is a holder in due course. 
C) Both (a) and (b) are correct. 
D) Neither (a) nor (b) is correct. 
A) Phyllrox can assert the failure of the forklift as a defense to making payments to Corporate Bank. 
B) Corporate Bank is a holder in due course. 
C) Both (a) and (b) are correct. 
D) Neither (a) nor (b) is correct. B

Question 3

Joanne had a paycheck for $74 made out to her.She indorsed it with her name and gave it to Larry, who in return agreed to paint her living room next Saturday.In this situation:

Accepted Answer

A) the check is not negotiable. 
B) Larry is not a "holder." 
C) Larry is not a "holder in due course." 
D) Larry has given value for the check. 
A) the check is not negotiable. 
B) Larry is not a "holder." 
C) Larry is not a "holder in due course." 
D) Larry has given value for the check. C

Question 4

Which of the following would meet the requirement of a holder in due course's having given value?

Accepted Answer

A) A third party receives an instrument as a gift from the holder. 
B) An executory promise is given in receipt of an instrument. 
C) A holder takes an instrument in payment of an antecedent debt. 
D) A holder promises to perform several major household tasks in exchange for an instrument. 
A) A third party receives an instrument as a gift from the holder. 
B) An executory promise is given in receipt of an instrument. 
C) A holder takes an instrument in payment of an antecedent debt. 
D) A holder promises to perform several major household tasks in exchange for an instrument.

Question 5

In the Triffin v.Cigna Insurance Co.case, the court:

Accepted Answer

A) dealt with the issue of whether a payee could be a holder in due course. 
B) ruled on a case involving the shelter provision of the UCC. 
C) stated that negotiation is only one of three ways for a holder to claim the status of holder in due course. 
D) found that the party seeking holder in due course status did not take the instrument for value. 
A) dealt with the issue of whether a payee could be a holder in due course. 
B) ruled on a case involving the shelter provision of the UCC. 
C) stated that negotiation is only one of three ways for a holder to claim the status of holder in due course. 
D) found that the party seeking holder in due course status did not take the instrument for value.

Question 6

A payee cannot be a holder in due course under the Code.

Accepted Answer

A) True 
 B)False

Question 7

Real defenses include all but which of the following?

Accepted Answer

A) Forgery of instrument. 
B) Minority of the maker. 
C) Fraudulent alteration. 
D) Theft of a bearer instrument. 
A) Forgery of instrument. 
B) Minority of the maker. 
C) Fraudulent alteration. 
D) Theft of a bearer instrument.

Question 8

The Code provides an exception to the executory promise rule in which of the following situations?

Accepted Answer

A) The giving of a negotiable instrument. 
B) The making of an irrevocable obligation to a third party. 
C) Lack of notice. 
D) Both (a) and (b) are correct. 
E) None of the above. 
A) The giving of a negotiable instrument. 
B) The making of an irrevocable obligation to a third party. 
C) Lack of notice. 
D) Both (a) and (b) are correct. 
E) None of the above.

Question 9

On January 30, Karen writes out a check for her groceries and dates it February 2, the day she gets paid.That same day, the grocer negotiates the check to the Tip Top Bakery delivery man for hot dog buns.If he notices the date, is he a "holder"?

Accepted Answer

A) Yes, since he has no notice of a defense. 
B) No, because he has not given value for the check. 
C) No, since it is not negotiable. 
D) Yes, he has possession of an instrument with the necessary indorsements. 
A) Yes, since he has no notice of a defense. 
B) No, because he has not given value for the check. 
C) No, since it is not negotiable. 
D) Yes, he has possession of an instrument with the necessary indorsements.

Question 10

In a nonconsumer transaction, a holder in due course takes the instrument free from:

Accepted Answer

A) all claims on the part of any person. 
B) all defenses of any party with whom he has not dealt, except for a limited number of defenses that are available against anyone, including a holder in due course. 
C) the defense of incapacity, duress or illegality that renders the obligation void. 
D) Both (a) and (b) are correct. 
A) all claims on the part of any person. 
B) all defenses of any party with whom he has not dealt, except for a limited number of defenses that are available against anyone, including a holder in due course. 
C) the defense of incapacity, duress or illegality that renders the obligation void. 
D) Both (a) and (b) are correct.

Question 11

It is not necessary that one own the instrument to be a "holder."

Accepted Answer

A) True 
 B)False

Question 12

Buying an instrument at a discounted price demonstrates a lack of good faith.

Accepted Answer

A) True 
 B)False

Question 13

Scott buys a television set from Joe's TV Store, giving Joe a check for $450.Joe uses a special indorsement and negotiates the check to Tom.Tom carefully changes the amount to read $1450 and loses the check on the way to the bank.Harry picks it up and tries to cash it.What will he get?

Accepted Answer

A) Scott will have to pay him $450. 
B) Joe will have to pay him $450. 
C) Tom will have to pay him $1450. 
D) No one will have to pay Harry. 
A) Scott will have to pay him $450. 
B) Joe will have to pay him $450. 
C) Tom will have to pay him $1450. 
D) No one will have to pay Harry.

Question 14

Michael issues a check to Paula.She negotiates the check to Harold as payment for a used television set.Harold has no notice of any claims or defenses and takes the check in good faith.Harold indorses the check and gives it to his son as a birthday present.
a.Is Harold's son a holder in due course? Explain.
b.What rights does Harold's son have with respect to the check? Why? Explain.
c.Assume that Michael has a defense of fraud in the inducement against Paula.Can he use that defense against Harold? Can he use that defense against Harold's son? Explain.

Accepted Answer

a.Real defenses are used to avoid paymen

Question 15

Which one of the following is not a personal defense?

Accepted Answer

A) Infancy, to the extent that it is a defense to a simple contract. 
B) Breach of contract. 
C) Non-delivery of an instrument. 
D) Failure of consideration. 
A) Infancy, to the extent that it is a defense to a simple contract. 
B) Breach of contract. 
C) Non-delivery of an instrument. 
D) Failure of consideration.

Question 16

Sue makes a note payable to the order of Eric.Eric indorses it and delivers it to Henry, who gives Eric his indorsed paycheck in return.Henry is a "holder" of the note.

Accepted Answer

A) True 
 B)False

Question 17

Under general contract law, an antecedent debt (a preexisting obligation) is consideration.

Accepted Answer

A) True 
 B)False

Question 18

If a person knows that an instrument is overdue or has been dishonored, he cannot become a holder in due course.

Accepted Answer

A) True 
 B)False

Question 19

A person who is not the owner of an instrument or a person in wrongful possession of an instrument may be entitled to enforce it.

Accepted Answer

A) True 
 B)False

Question 20

The refusal to pay or accept an instrument when it becomes due is known as:

Accepted Answer

A) the shelter rule. 
B) dishonor. 
C) being overdue. 
D) subject to claim or defense. 
A) the shelter rule. 
B) dishonor. 
C) being overdue. 
D) subject to claim or defense.

Exam 26: Holder in Due Course

Revised Article 3 defines __________ as "honesty in fact and the observance of reasonable commercial standards of fair dealing."

Joanne had a paycheck for $74 made out to her.She indorsed it with her name and gave it to Larry, who in return agreed to paint her living room next Saturday.In this situation:

Which of the following would meet the requirement of a holder in due course's having given value?

In the Triffin v.Cigna Insurance Co.case, the court:

A payee cannot be a holder in due course under the Code.

Real defenses include all but which of the following?

The Code provides an exception to the executory promise rule in which of the following situations?

On January 30, Karen writes out a check for her groceries and dates it February 2, the day she gets paid.That same day, the grocer negotiates the check to the Tip Top Bakery delivery man for hot dog buns.If he notices the date, is he a "holder"?

In a nonconsumer transaction, a holder in due course takes the instrument free from:

It is not necessary that one own the instrument to be a "holder."

Buying an instrument at a discounted price demonstrates a lack of good faith.

Scott buys a television set from Joe's TV Store, giving Joe a check for $450.Joe uses a special indorsement and negotiates the check to Tom.Tom carefully changes the amount to read $1450 and loses the check on the way to the bank.Harry picks it up and tries to cash it.What will he get?

Which one of the following is not a personal defense?

Sue makes a note payable to the order of Eric.Eric indorses it and delivers it to Henry, who gives Eric his indorsed paycheck in return.Henry is a "holder" of the note.

Under general contract law, an antecedent debt (a preexisting obligation) is consideration.

If a person knows that an instrument is overdue or has been dishonored, he cannot become a holder in due course.

A person who is not the owner of an instrument or a person in wrongful possession of an instrument may be entitled to enforce it.

The refusal to pay or accept an instrument when it becomes due is known as:

Introduction to Law

Business Ethics

Civil Dispute Resolution

Constitutional Law

Administrative Law

Criminal Law

Intentional Torts

Negligence and Strict Liability

Introduction to Contracts

Mutual Assent

Conduct Invalidating Assent

Consideration

Illegal Bargains

Contractual Capacity

Contracts in Writing

Third Parties to Contracts

Performance, Breach, and Discharge

Contract Remedies

Introduction to Sales and Leases

Performance

Transfer of Title and Risk of Loss

Product Liability: Warranties and Strict Liability

Sales Remedies

Form and Content

Transfer

Liability of Parties

Bank Deposits, Collections, and Funds Transfers

Relationship of Principal and Agent

Relationship With Third Parties

Formation and Internal Relations of General Partnerships

Operation and Dissolution of General Partnerships

Limited Partnerships and Limited Liability Companies

Nature and Formation of Corporations

Financial Structure of Corporations

Management Structure of Corporations

Fundamental Changes of Corporations

Secured Transactions and Suretyship

Bankruptcy

Securities Regulation

Intellectual Property

Employment Law

Antitrust

Accountants Legal Liability

Consumer Protection

Environmental Law

International Business Law

Introduction to Property, Property Insurance, Bailments, and Documents of Title

Interests in Real Property

Transfer and Control of Real Property

Trusts and Wills

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