through 43 are based on the following:

On February 15, 1993, P.D. Stone obtained the following instrument from Astor Co. for $1,000. Stone was aware that Helco, Inc. disputed liability under the instrument because of an alleged breach by Astor of the referenced computer purchase agreement. On March 1, 1993, Willard Bank obtained the instrument from Stone for $3,900.

Willard had no knowledge that Helco disputed liability under the instrument.

February 12, 1993

Helco, Inc. promises to pay to Astor Co. or bearer the sum of $4,900 (four thousand four hundred and 00/100 dollars) on March 12, 1993 (maker may elect to extend due date to March 31, 1993) with interest thereon at the rate of 12% per annum

HELCO, INC.

By:___A.J. Help_______________________

A.J. Help, President Reference: Computer purchase agreement dated February 12, 1993

The reverse side of the instrument is endorsed as follows:

Pay to the order of Willard Bank, without recourse

____P.D. Stone_________________

P.D. Stone 40. The instrument is a

a. Promissory note.

b. Sight draft.

c. Check.

d. Trade acceptance.

41. The instrument is

a. Nonnegotiable, because of the reference to the computer purchase agreement.

b. Nonnegotiable, because the numerical amount differs from the written amount.

c. Negotiable, even though the maker has the right to extend the time for payment.

d. Negotiable, when held by Astor, but nonnegotiable when held by Willard Bank.

42. Which of the following statements is correct?

a. Willard Bank cannot be a holder in due course because Stone's endorsement was without recourse.

b. Willard Bank must endorse the instrument to negotiate it.

c. Neither Willard Bank nor Stone are holders in due course.

d. Stone's endorsement was required for Willard Bank to be a holder in due course.

43. If Willard Bank demands payment from Helco and Helco refuses to pay the instrument because of Astor's breach of the computer purchase agreement, which of the following statements would be correct?

a. Willard Bank is not a holder in due course because Stone was not a holder in due course.

b. Helco will not be liable to Willard Bank because of Astor's breach.

c. Stone will be the only party liable to Willard Bank because he was aware of the dispute between Helco and Astor.

d. Helco will be liable to Willard Bank because Willard Bank is a holder in due course.

____________

4Q-12 44. A holder in due course will take free of which of the following defenses?

a. Infancy, to the extent that it is a defense to a simple contract.

b. Discharge of the maker in bankruptcy.

c. A wrongful filling-in of the amount payable that was omitted from the instrument.

d. Duress of a nature that renders the obligation of the party a nullity.

45. Industrial Factors, Inc., discounted a $4,000 promissory note, payable in two years, for $3,000. It paid $1,000 initially and promised to pay the balance ($2,000) within 30 days. Industrial paid the balance within the 30 days, but before doing so learned that the note had been obtained originally by fraudulent misrepresentation in connection with the sale of land which induced the maker to issue the note. For what amount will Industrial qualify as a holder in due course?

a. None because the 25% discount is presumptive or prima facie evidence that Industrial is not a holder in due course.

b. $1,000.

c. $3,000.

d. $4,000.

46. A $5,000 promissory note payable to the order of Neptune is discounted to Bane by blank endorsement for $4,000. King steals the note from Bane and sells it to Ott who promises to pay King $4,500. After paying King $3,000, Ott learns that King stole the note. Ott makes no further payment to King. Ott is a. A holder in due course to the extent of $5,000.

b. An ordinary holder to the extent of $4,500.

c. A holder in due course to the extent of $3,000.

d. An ordinary holder to the extent of $0.

47. Bond fraudulently induced Teal to make a note payable to Wilk, to whom Bond was indebted. Bond delivered the note to Wilk. Wilk negotiated the instrument to Monk, who purchased it with knowledge of the fraud and after it was overdue. If Wilk qualifies as a holder in due course, which of the following statements is correct?

a. Monk has the standing of a holder in due course through Wilk.

b. Teal can successfully assert the defense of fraud in the inducement against Monk.

c. Monk personally qualifies as a holder in due course.

d. Teal can successfully assert the defense of fraud in the inducement against Wilk.

48. Under the Negotiable Instrument Article of the UCC, which of the following parties will be a holder but not be entitled to the rights of a holder in due course?

a. A party who, knowing of a real defense to payment, received an instrument from a holder in due course.

b. A party who found an instrument payable to bearer.

c. A party who received, as a gift, an instrument from a holder in due course.

d. A party who, in good faith and without notice of any defect, gave value for an instrument.

49. Dodger fraudulently induced Tell to issue a check to his order for $900 in payment for some nearly worthless securities. Dodger took the check and artfully raised the amount from $900 to $1,900. He promptly negotiated the check to Bay who took it in good faith and for value. Tell, upon learning of the fraud, issued a stop order to its bank. Which of the following is correct?

a. Dodger has a real defense which will prevent any of the parties from collecting anything.

b. The stop order was ineffective against Bay since it was issued after the negotiation to Bay.

c. Bay as a holder in due course will prevail against Tell but only to the extent of $900.

d. Had there been no raising of the amount by Dodger, the bank would be obligated to pay Bay despite the stop order.

50. Cobb gave Garson a signed check with the amount payable left blank. Garson was to fill in, as the amount, the price of fuel oil Garson was to deliver to Cobb at a later date. Garson estimated the amount at $700, but told Cobb it would be no more than $900. Garson did not deliver the fuel oil, but filled in the amount of $1,000 on the check. Garson then negotiated the check to Josephs in satisfaction of a $500 debt with the $500 balance paid to Garson in cash. Cobb stopped payment and Josephs is seeking to collect $1,000 from Cobb. Cobb's maximum liability to Josephs will be

a. $0 b. $500 c. $900 d. $1,000

4Q-13 51. Hunt has in his possession a negotiable instrument which was originally payable to the order of Carr. It was transferred to Hunt by a mere delivery by Drake, who took it from Carr in good faith in satisfaction of an antecedent debt. The back of the instrument read as follows, "Pay to the order of Drake in satisfaction of my prior purchase of a new video calculator, signed Carr." Which of the following is correct?

a. Hunt has the right to assert Drake's rights, including his standing as a holder in due course and also has the right to obtain Drake's signature.

b. Drake's taking the instrument for an antecedent debt prevents him from qualifying as a holder in due course.

c. Carr's endorsement was a special endorsement;

thus Drake's signature was not required in order to negotiate it.

d. Hunt is a holder in due course.

52. Robb, a minor, executed a promissory note payable to bearer and delivered it to Dodsen in payment for a stereo system. Dodsen negotiated the note for value to Mellon by delivery alone and without endorsement. Mellon endorsed the note in blank and negotiated it to Bloom for value. Bloom's demand for payment was refused by Robb because the note was executed when Robb was a minor.

Bloom gave prompt notice of Robb's default to Dodsen and Mellon. None of the holders of the note were aware of Robb's minority. Which of the following parties will be liable to Bloom?

Dodsen Mellon

a. Yes Yes

b. Yes No

c. No No

d. No Yes

53.

Pay to Ann Tyler Paul Tyler

Ann Tyler

Mary Thomas Betty Ash Pay George Green Only

Susan Town

Susan Town, on receiving the above instrument, struck Betty Ash's endorsement. Under the Commercial Paper Article of the UCC, which of the endorsers of the above instrument will be completely discharged from secondary liability to later endorsers of the instrument?

a. Ann Tyler b. Mary Thomas c. Betty Ash d. Susan Town

54. Which of the following actions does not discharge a prior party to a commercial instrument?

a. Good faith payment or satisfaction of the instrument.

b. Cancellation of that prior party's endorsement.

c. The holder's oral renunciation of that party's liability.

d. The holder's intentional destruction of the instrument.

4Q-14

Chapter Four: Negotiable Instruments