Mann_BLRB 9_TB_Ch26

Business Law and the Regulation of Business

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Chapter 26—Holder in Due Course TRUE/FALSE 1. The shelter rule applies even if the transferee was a party to fraud or illegality. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 2. The rules pertaining to "holder in due course" were instituted in order to encourage easy negotiability of commercial paper. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 3. To be a "holder," one must actually have the instrument in his possession. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 4. Kenneth deposits three checks for $275, $150, and $100 and asks for $120 in cash. In tracing the de- posit to determine if value was given, the Code would follow the “LIFO” or “last-in, first-out” method of accounting. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 5. It is not necessary that one own the instrument to be a "holder." ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 6. 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. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 7. To become a holder in due course the transferee must first be a holder. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 8. Whether a holder has notice is determined by a wholly objective standard under the Code. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 9. A forged indorsement is valid. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 10. Under general contract law, an antecedent debt (a preexisting obligation) is consideration. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 11. The "value" requirement of a holder in due course is the same as "consideration" for a contract. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic
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12. 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. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 13. Constructive notice through public filing or recording is sufficient notice to prevent a person from be- ing a holder in due course. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 14. Bill issues a negotiable promissory note to Paula, who indorses it in blank and delivers it to Allen. If Allen knows that the promissory note was given to Paula in exchange for worthless securities, Allen may still be a holder in due course. ANS: F TOP: AICPA BB-Legal MSC: AACSB Analytic 15. 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. ANS: T TOP: AICPA BB-Legal MSC: AACSB Analytic 16. A holder does not include a person who is in possession of a negotiable instrument that is payable to bearer. ANS: F
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Mann_BLRB 9_TB_Ch26 - Chapter 26-Holder in Due Course...

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