Question 1

The subjective component of good faith measures good faith by what the purchaser knows or believes.

Accepted Answer

A) True 
 B)False

Question 2

Fraud in the inducement is a real defense.

Accepted Answer

A) True 
 B)False

Question 3

To be a "holder," one must actually have the instrument in his possession.

Accepted Answer

A) True 
 B)False

Question 4

A holder does not include a person who is in possession of a negotiable instrument that is payable to bearer.

Accepted Answer

A) True 
 B)False

Question 5

The rules pertaining to "holder in due course" were instituted in order to encourage easy negotiability of commercial paper.

Accepted Answer

A) True 
 B)False

Question 6

D has owed C a debt of $500 for two years.If D now signs a promissory note payable to C, the antecedent debt meets the requirement of "value" in determining C's status as a holder in due course.

Accepted Answer

A) True 
 B)False

Question 7

Under the shelter rule, a person who is not a holder in due course can obtain the rights of a holder in due course.

Accepted Answer

A) True 
 B)False

Question 8

Alice Jones receives a bonus of $500 from her boss.She needs cash for her vacation, so she indorses the check to Charlie who gives her $300 cash and an IOU for $200.When Charlie presents the check to Alice's company for payment, her boss says the check was meant for Alex Jones instead of Alice; it was all a big mistake.What will Charlie be able to collect from the company?

Accepted Answer

A) $500. 
B) $300. 
C) $420. 
D) Nothing. 
A) $500. 
B) $300. 
C) $420. 
D) Nothing.

Question 9

To become a holder in due course the transferee must first be a holder.

Accepted Answer

A) True 
 B)False

Question 10

Clint induces David, by fraud in the inducement, to make an instrument payable to the order of Clint.Clint then negotiates the instrument to Erin, a holder in due course.If Clint later reacquires the instrument from Erin:

Accepted Answer

A) Clint is a holder in due course. 
B) Clint is not a holder in due course, but he succeeds to the rights of one, because of the shelter rule. 
C) Clint does not succeed to Erin's rights as a holder in due course and remains subject to the defense of fraud. 
D) because fraud in the inducement is a real defense, it can be used against both Clint and Erin. 
A) Clint is a holder in due course. 
B) Clint is not a holder in due course, but he succeeds to the rights of one, because of the shelter rule. 
C) Clint does not succeed to Erin's rights as a holder in due course and remains subject to the defense of fraud. 
D) because fraud in the inducement is a real defense, it can be used against both Clint and Erin.

Question 11

In the Federal Deposit Insurance Corporation v.Meyer case, the court held:

Accepted Answer

A) the Federal Deposit Insurance Act bars both personal and real defenses. 
B) duress of any type is a real defense under the UCC. 
C) the partners' defense of economic duress was not valid against the FDIC. 
D) duress by threat or physical compulsion renders a contract void. 
A) the Federal Deposit Insurance Act bars both personal and real defenses. 
B) duress of any type is a real defense under the UCC. 
C) the partners' defense of economic duress was not valid against the FDIC. 
D) duress by threat or physical compulsion renders a contract void.

Question 12

To acquire the preferential rights of a holder in due course, a person must either meet the requirements of the Code or must "inherit" these rights under the shelter rule.

Accepted Answer

A) True 
 B)False

Question 13

Personal defenses include all but which of the following?

Accepted Answer

A) Breach of contract. 
B) Fraud in the execution. 
C) Misrepresentation. 
D) Failure of consideration. 
A) Breach of contract. 
B) Fraud in the execution. 
C) Misrepresentation. 
D) Failure of consideration.

Question 14

Kenneth deposits three checks for $275, $150, and $100 and asks for $120 in cash.In tracing the deposit to determine if value was given, the Code would follow the "LIFO" or "last-in, first-out" method of accounting.

Accepted Answer

A) True 
 B)False

Question 15

Constructive notice through public filing or recording is sufficient notice to prevent a person from being a holder in due course.

Accepted Answer

A) True 
 B)False

Question 16

A check is made payable "to the order of Sam Johnson." If this check is indorsed by Sam Johnson and given to Alex, Alex becomes the holder of the instrument.

Accepted Answer

A) True 
 B)False

Question 17

A transferee who has been a party to fraud affecting the instrument can still acquire the rights of a holder in due course because of the shelter rule.

Accepted Answer

A) True 
 B)False

Question 18

Only a holder in due course may collect on a negotiable instrument.

Accepted Answer

A) True 
 B)False

Question 19

Define notice according to the Code, and explain how notice relates to the concept of holder in due course.

Accepted Answer

According to the Code, a person has noti

Question 20

Erin left her checkbook and wallet on her desk during lunch hour.Carl Cryer wrote out a check payable to himself and signed Erin's name.He then indorsed the check "Carl Cryer" and cashed it at First Federal Bank.Can Erin get the money back?

Accepted Answer

A) Yes, since her name was forged. 
B) Yes, because the bank is estopped from asserting a defense. 
C) No, because her name is on the check. 
D) No, Erin is precluded from asserting the defense of forgery because her negligence substantially contributed to the making of the unauthorized signature. 
A) Yes, since her name was forged. 
B) Yes, because the bank is estopped from asserting a defense. 
C) No, because her name is on the check. 
D) No, Erin is precluded from asserting the defense of forgery because her negligence substantially contributed to the making of the unauthorized signature.

Exam 26: Holder in Due Course

The subjective component of good faith measures good faith by what the purchaser knows or believes.

Fraud in the inducement is a real defense.

To be a "holder," one must actually have the instrument in his possession.

A holder does not include a person who is in possession of a negotiable instrument that is payable to bearer.

The rules pertaining to "holder in due course" were instituted in order to encourage easy negotiability of commercial paper.

D has owed C a debt of $500 for two years.If D now signs a promissory note payable to C, the antecedent debt meets the requirement of "value" in determining C's status as a holder in due course.

Under the shelter rule, a person who is not a holder in due course can obtain the rights of a holder in due course.

To become a holder in due course the transferee must first be a holder.

Clint induces David, by fraud in the inducement, to make an instrument payable to the order of Clint.Clint then negotiates the instrument to Erin, a holder in due course.If Clint later reacquires the instrument from Erin:

In the Federal Deposit Insurance Corporation v.Meyer case, the court held:

To acquire the preferential rights of a holder in due course, a person must either meet the requirements of the Code or must "inherit" these rights under the shelter rule.

Personal defenses include all but which of the following?

Kenneth deposits three checks for $275, $150, and $100 and asks for $120 in cash.In tracing the deposit to determine if value was given, the Code would follow the "LIFO" or "last-in, first-out" method of accounting.

Constructive notice through public filing or recording is sufficient notice to prevent a person from being a holder in due course.

A check is made payable "to the order of Sam Johnson." If this check is indorsed by Sam Johnson and given to Alex, Alex becomes the holder of the instrument.

A transferee who has been a party to fraud affecting the instrument can still acquire the rights of a holder in due course because of the shelter rule.

Only a holder in due course may collect on a negotiable instrument.

Define notice according to the Code, and explain how notice relates to the concept of holder in due course.

Erin left her checkbook and wallet on her desk during lunch hour.Carl Cryer wrote out a check payable to himself and signed Erin's name.He then indorsed the check "Carl Cryer" and cashed it at First Federal Bank.Can Erin get the money back?

Introduction to Law

Business Ethics

Civil Dispute Resolution

Constitutional Law

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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

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Transfer of Title and Risk of Loss

Product Liability: Warranties and Strict Liability

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Form and Content

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Relationship of Principal and Agent

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Formation and Internal Relations of General Partnerships

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Secured Transactions and Suretyship

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