[Ninja20]

NINJA Question –

Can someone please explain this ? Looks like some error in Ninja ..Appreciate explaining the logic to this answer.

Hall forged Crandall’s signature on a promissory note dated April 1, Year 3. The note was for $5,000 and was payable to bearer on demand. Hall offered to sell the note to Corn for $4,000. Corn knew that Crandall had been out of the country since Year 1. In addition, Corn knew that Crandall’s name and signature were misspelled, and that Hall had a questionable reputation. Despite this, Corn purchased the note for $4,000. Under the Negotiable Instruments Article of the UCC, what are Corn’s rights under the note?

A.

Corn is a holder in due course and may enforce the note against Hall and Crandall.

B.

Corn is a holder in due course under the shelter rule and may enforce the note only against Hall.

C.

Corn is a holder and may enforce the note against Hall.

Incorrect D.

Corn is a holder and may enforce the note against Crandall.

You answered D. The correct answer is C.

Corn is a holder. Since there appears to be fraud in the transfer, Corn must enforce the note against Crandall.

§ 3-203. TRANSFER OF INSTRUMENT; RIGHTS ACQUIRED BY TRANSFER.

(a) An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument.

(b) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course, but the transferee cannot acquire rights of a holder in due course by a transfer, directly or indirectly, from a holder in due course if the transferee engaged in fraud or illegality affecting the instrument.

Corn is not a holder in due course since Corn was aware of apparent evidence of forgery or alteration.

§ 3-302. HOLDER IN DUE COURSE.

(a) Subject to subsection (c) and Section 3-106(d), “holder in due course” means the holder of an instrument if: (1) the instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and

[mabancroft]

We can eliminate A & B because we know he is not an HDC. When someone forges a signature it is as if that person signed the note themselves. you can sign with an X, Bob Barker, Ninja20, whatever you want. Whatever you write is deemed your signature. As such, the holder can require payment from the maker of the note. In this case Hall is the maker since he signed (fraudulently or not) the note.

C is correct, though that explanation is terrible.

REG: 90
FAR: 76
AUD: 88
BEC: 89

[Ninja20]

Hi Thank you.. Lol the explanation is def bad.. but since he is a holder, he is subject to personal and real excuses right ? which means he cant require the maker – Hall to pay ?

So Isn't it D ?

[mabancroft]

He is subject to the personal and real defenses, but Hall has neither. Crandall is the one with defenses (his name was fraudulently signed). The person committing fraud can't claim fraud as a defense.

REG: 90
FAR: 76
AUD: 88
BEC: 89

[Ninja20]

Oh boy! I switched their names.. silly.. Thanks a lot!

[Author]

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