Elmore purchases goods from Grady, and Elmore executes and delivers a negotiable note to Grady for $1,200, payable to Grady's order in 30 days. Two weeks later, Grady negotiates the note to McDaniel. Which of the following is true?
A) McDaniel is required to notify Elmore that he acquired the note.
B) If the goods are defective, Elmore's defense will necessarily be available against McDaniel.
C) Whether Elmore's defense is available against McDaniel will depend on whether McDaniel acquired the note in good faith and for value, had no knowledge of the defense, and took the note without reason to question its authenticity.
D) McDaniel can acquire no greater rights than Grady had in the note.

Question

Quizplus · Accepted Answer

C) Whether Elmore's defense is available against McDaniel will depend on whether McDaniel acquired the note in good faith and for value, had no knowledge of the defense, and took the note without reason to question its authenticity. This is because the rights of a holder in due course (which McDaniel may be if he meets the criteria) can be superior to those of the original parties, allowing the holder to enforce the note despite defenses that could have been raised against the original payee.

Elmore Purchases Goods from Grady, and Elmore Executes and Delivers