[Vanessachy]

During an audit of Trent Realty Corp.’s financial statements, Clark, CPA, reviewed the following instrument:

$300,000 Belle, MD

September 15, 20X1

For value received, ten years after date, I promise to pay to the

order of Dart Finance Co. Three Hundred Thousand and 00/100 dollars

with interest at 9% per annum compounded annually until fully paid.

This instrument arises out of the sale of land located in MD.

It is further agreed that:

1. Maker will pay all costs of collection including reasonable

attorney fees.

2. Maker may prepay the amount outstanding on any anniversary date

of this instrument.

(SIGNED) G. Evans

On March 15, 20X2, Dart indorsed the instrument in blank and sold it to Morton for $275,000. On July 10, 20X2, Evans informed Morton that Dart had fraudulently induced Evans into signing the instrument. On August 15, 20X2, Trent, which knew of Evans’ claim against Dart, purchased the instrument from Morton for $50,000. Trent could recover on the instrument from:

Incorrect A. Evans only.

B. Dart only.

C. Morton only.

D. Evans, Morton, and Dart.

I don’t understand why Trent is the HDC? He knows the claim against Dart, it should be HDC

Since Trent has all of the rights of a holder in due course (because he acquired the instrument from a holder in due course), Trent can collect on the instrument from the maker (Evans). He would not be subject to the defense of fraud in the inducement, since this is only a personal defense and cannot be used against anyone with the rights of a holder in due course. Trent can also recover from Dart and Morton on contract warranty liability on the instrument: Any person selling a negotiable instrument (i.e., all indorsers) guarantees (i.e., serves as a guarantor) that all signatures are genuine, that the instrument has not been altered, and that no defense of any party is good against him or her. The indorsers are liable to each other in the order of their indorsements.

Far, 64 82
Reg, 60 86
Aud, 74 82
Bec, 70 81
Done done done! I did it!!!
Licensed CPA in MA, issued October 2016

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[EuroAddict]

I *think* that even tho he knows the claims against the person, he still purchased it from a HDC so he would have the rights as Morton.

-----------------------------
BEC - 77, 03/2015 (first try)
FAR - 79, 05/2015 (second try)
REG - 83, 12/2015 (first try)
AUD - 84, 03/2015 (first try)

I got 99 problems but the CPA ain't one.

[Vanessachy]

so it wouldn't matter if he knows the fraud? I am not clear with this section

Far, 64 82
Reg, 60 86
Aud, 74 82
Bec, 70 81
Done done done! I did it!!!
Licensed CPA in MA, issued October 2016

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Anonymous]

According to my review book, it;s OK to know of the defects to but not to actually participate in the faurd

[nib]

1) When acquired the instrument from a holder in due course and therefore is considered to be a “holder through a holder in due course.”

2) This gives reciver the same rights as a holder in due course under the “Shelter Provision” of the Uniform Commercial Code (U.C.C.).

3) “holder through a holder in due course” need not have given value for the instrument or taken in good faith without notice. Thus, the fact that Trent knew of Evans' claim at the time he acquired the instrument does not affect his holder through a holder in due course status.

4) HDC takes instrument free of personal defense including fraud in inducement ..=voidable contract and HDC wins .
the same right goes to holder through holder in due course .

[Vanessachy]

thank you, @cannotstopwontstop, I don't have a good understanding of this section.

Far, 64 82
Reg, 60 86
Aud, 74 82
Bec, 70 81
Done done done! I did it!!!
Licensed CPA in MA, issued October 2016

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Vanessachy]

I think it is because DART is HDC, he gets from him, so now he is HDC

Far, 64 82
Reg, 60 86
Aud, 74 82
Bec, 70 81
Done done done! I did it!!!
Licensed CPA in MA, issued October 2016

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Author]

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