Bill issues a negotiable promissory note to Paula, who indorses it in blank and delivers it to Allen.If Allen knows that the promissory note was given to Paula in exchange for worthless securities, Allen may still be a holder in due course.

Question

Quizplus · Accepted Answer

If Allen knows that the promissory note was given to Paula in exchange for worthless securities, then he cannot be considered a holder in due course. This is because a holder in due course must take the instrument for value and in good faith, without knowledge of any claims or defenses against it. Knowing that the note was given in exchange for worthless securities would taint Allen's good faith, and he would not qualify as a holder in due course.

Bill Issues a Negotiable Promissory Note to Paula, Who Indorses