Question 1

Under the shelter rule, the transferee gets the rights of the transferor who is a holder in due course even if the transfer is not for value.

Accepted Answer

A) True 
 B)False

Question 2

A Federal Trade Commission rule limits the rights of a holder in due course of an instrument that evidences a debt arising out of a(n):

Accepted Answer

A) consumer credit contract. 
B) insurance contract. 
C) consumer purchase paid for with a check. 
D) construction contract.

Question 3

What is the difference between time paper and demand paper? When is each type overdue?

Accepted Answer

The answer of What is the difference between time paper...

Question 4

Real defenses include all but which of the following?

Accepted Answer

A) Forgery of instrument 
B) Minority of maker 
C) Material alteration 
D) Theft of bearer paper

Question 5

Which of the following are not types of restrictive indorsements?

Accepted Answer

A) Conditional indorsements 
B) Indorsements prohibiting further transfer 
C) Indorsements in trust 
D) Blank indorsements

Question 6

A person other than the owner of an instrument cannot be entitled to enforce it.

Accepted Answer

A) True 
 B)False

Question 7

An indorsement that is not in the chain of title is assumed to be a(n):

Accepted Answer

A) anomalous indorsement. 
B) blank indorsement. 
C) special indorsement. 
D) indorsement in trust.

Question 8

One who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order or that is indorsed in blank is a(n):

Accepted Answer

A) bearer. 
B) holder. 
C) transferor. 
D) assignee.

Question 9

Clint induces David, by fraud in the inducement, to make an instrument payable to the order of Clint.Clint then negotiates the instrument to Eric, a holder in due course, and later reacquires it from Eric.In this case:

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 Eric'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 Eric.

Question 10

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; 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

Question 11

An indorsement may be written on a paper other than the instrument itself as long as the paper with the indorsement is affixed to the instrument.

Accepted Answer

A) True 
 B)False

Question 12

Glenn indorsed his paycheck by signing just his name and cashed it at the grocery store.The check was stolen from the store, indorsed in a false name and transferred to a convenience store.The convenience store could not be a holder in due course since the check had been stolen and indorsed with a false name.

Accepted Answer

A) True 
 B)False

Question 13

A person who takes a check stamped "NSF" may still be a holder in due course.

Accepted Answer

A) True 
 B)False

Question 14

The status of holder in due course was created to encourage the free transferability of negotiable instruments.

Accepted Answer

A) True 
 B)False

Question 15

A negotiation obtained by duress, mistake, or fraud is ineffective to transfer the instrument.

Accepted Answer

A) True 
 B)False

Question 16

Subsequent indorsers are always bound by an indorsement in trust.

Accepted Answer

A) True 
 B)False

Question 17

An indorsement must be written within 1 1/2 inches of the trailing edge of the back of the check and must be written in ink or the check's negotiability is destroyed.

Accepted Answer

A) True 
 B)False

Question 18

The principal advantage of negotiable instruments is their safety.

Accepted Answer

A) True 
 B)False

Question 19

Ricardo is the holder of a check that contains the indorsement "Without Recourse, (signed) Mary Roberts." This indorsement:

Accepted Answer

A) makes further indorsement impossible. 
B) requires a special indorsement by the transferee. 
C) limits the liability of Mary Roberts. 
D) limits the liability of all subsequent holders including Ricardo.

Question 20

If Kathy indorses a check "without recourse":

Accepted Answer

A) Kathy is not contractually liable if the check is not paid. 
B) negotiability is destroyed. 
C) the check cannot be transferred. 
D) Kathy cannot transfer good title to the check.

Exam 27: Transfer and Holder in Due Course

Under the shelter rule, the transferee gets the rights of the transferor who is a holder in due course even if the transfer is not for value.

A Federal Trade Commission rule limits the rights of a holder in due course of an instrument that evidences a debt arising out of a(n) :

What is the difference between time paper and demand paper? When is each type overdue?

Real defenses include all but which of the following?

Which of the following are not types of restrictive indorsements?

A person other than the owner of an instrument cannot be entitled to enforce it.

An indorsement that is not in the chain of title is assumed to be a(n) :

One who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order or that is indorsed in blank is a(n) :

Clint induces David, by fraud in the inducement, to make an instrument payable to the order of Clint.Clint then negotiates the instrument to Eric, a holder in due course, and later reacquires it from Eric.In this case:

An indorsement may be written on a paper other than the instrument itself as long as the paper with the indorsement is affixed to the instrument.

A person who takes a check stamped "NSF" may still be a holder in due course.

The status of holder in due course was created to encourage the free transferability of negotiable instruments.

A negotiation obtained by duress, mistake, or fraud is ineffective to transfer the instrument.

Subsequent indorsers are always bound by an indorsement in trust.

An indorsement must be written within 1 1/2 inches of the trailing edge of the back of the check and must be written in ink or the check's negotiability is destroyed.

The principal advantage of negotiable instruments is their safety.

Ricardo is the holder of a check that contains the indorsement "Without Recourse, (signed) Mary Roberts." This indorsement:

If Kathy indorses a check "without recourse":