Mabel issues a negotiable promissory note to the order of Rachel. Rachel endorses the note to Batton, who takes it as a holder in due course. Batton gives the note to his brother, Albert, as a gift. In this situation:

Question

Quizplus · Accepted Answer

When Batton gave the note to Albert as a gift, he transferred his ownership rights to the note to Albert. However, Albert does not become a holder in due course because he did not give value for the note, nor did he take the note in good faith without notice of any defects or defenses. Therefore, Albert can only acquire the rights that Batton had to the note, and if there were any defects or defenses against Batton's ownership or the note itself, they would also apply to Albert.

Mabel Issues a Negotiable Promissory Note to the Order of Rachel