Future Business Leaders of America (FBLA) Business Law Practice Exam

Who is defined as a holder in relation to a negotiable instrument?

1. A person who has a claim to the instrument

2. A person who possesses the negotiable instrument payable to them or a bearer

3. A person who creates the negotiable instrument

4. A person who provides value for the instrument

The correct answer is: A person who possesses the negotiable instrument payable to them or a bearer

A holder is defined as a person who possesses a negotiable instrument that is either made payable to them specifically or to a bearer. This definition is central to the concept of negotiable instruments in commercial law, particularly under the Uniform Commercial Code (UCC). When a person has possession of the instrument and it names them as a payee or is payable to whoever holds it (bearer), they are granted certain rights, such as the ability to enforce payment. This concept of holdership is important because it impacts the legal rights and protections afforded to the holder in transactions. For instance, a holder can generally sue for payment if the instrument is dishonored. The clarity of this definition also distinguishes the holder from other parties involved, such as those who may have claims related to or have created the instrument. While the other options touch on aspects of negotiable instruments, they do not encapsulate the complete concept of who qualifies as a holder under the law. For example, a person who claims to have a right to the instrument does not necessarily possess it, and a person who creates the instrument is not automatically a holder unless they also possess it in a manner that meets the definition. A person who provides value may have an interest in the instrument but does