At that time, Eldon’s asked Merrill Lynch about the whereabouts of the stock certificate and asserted a claim to its ownership. Does Merrill Lynch qualify as a holder in due course? Why or why not?

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At that time, Eldon’s asked Merrill Lynch about the whereabouts of the stock certificate and asserted a claim to its ownership. Does Merrill Lynch qualify as a holder in due course? Why or why not?

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Eldon’s Super Fresh Stores, Inc., is a corporation engaged in the retail grocery business. William Drexler was the attorney for and the corporate secretary of Eldon’s and was also the personal attorney of Eldon Prinzing, the corporation’s president and sole shareholder. From January 2017 through January 2018, Drexler maintained an active stock trading account in his name with Merrill Lynch. Eldon’s had no such account. On August 12, 2017, Drexler purchased one hundred shares of Clark Oil & Refining Company stock through his Merrill Lynch stockbroker. He paid for the stock with a check drawn by Eldon’s, made payable to Merrill Lynch, and signed by Prinzing. On August 15, 2017, Merrill Lynch accepted the check as payment for Drexler’s stock purchase. There was no communication between Eldon’s and Merrill Lynch until November 2018, fifteen months after the issuance of the check. At that time, Eldon’s asked Merrill Lynch about the whereabouts of the stock certificate and asserted a claim to its ownership. Does Merrill Lynch qualify as a holder in due course? Why or why not?

Explanation & AnswerSolution by a verified expert

Explanation

Individual D was the attorney of Organization E and it was assumed that Individual D had some level of authority when it comes to the same. As the instrument was delivered to Individual MS by a respected agent of Organization E, the issue of the check from Organization E's account did not generate any suspicion in Individual MS. Individual MS acted in complete faith and became a holder in due course. If Individual MS was able to understand the defenses of Organization E and still accepted the instrument, the case would have been against Individual MS, which is not the case here.

Verified Answer

Yes, Individual ML qualifies as a holder in due course. Individual ML accepted the check for value, in good faith and had no idea about the defenses of Organization E. If Individual ML was aware of the defenses against the instrument, then the status of holder in due course could not have been possible.

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