Clint induces David, by fraud in the inducement, to make an instrument payable to the order of Clint.Clint then negotiates the instrument to Erin, a holder in due course.If Clint later reacquires the instrument from Erin:
A)Clint is a holder in due course.
B)Clint is not a holder in due course, but he succeeds to the rights of one, because of the shelter rule.
C)Clint does not succeed to Erin's rights as a holder in due course and remains subject to the defense of fraud.
D)because fraud in the inducement is a real defense, it can be used against both Clint and Erin.

Question

Quizplus · Accepted Answer

Clint does not succeed to Erin's rights as a holder in due course and remains subject to the defense of fraud. Even though Erin is a holder in due course, because Clint originally obtained the instrument by fraud in the inducement, he cannot take advantage of Erin's status as a holder in due course and is still subject to the defense of fraud. The shelter rule does not apply in cases of fraud, so even if Clint reacquires the instrument, he will not become a holder in due course.

Clint Induces David, by Fraud in the Inducement, to Make