. Fore presented the note at maturity to Adams, who refused to pay. What are Fore’s rights, if any, against Adams?
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Adams, who reads with difficulty, arranged to borrow $2,000 from Bell. Bell prepared a note, which Adams read laboriously. As Adams was about to sign it, Bell diverted Adams’s attention and substituted the following paper, which was identical to the note Adams had read except that the amounts were different: “On June 1, 2017, I promise to pay Ben Bell or order Twelve Thousand Dollars with interest from date at 16 percent. This note is secured by certificate No. 13 for one hundred shares of stock of Brookside Mills, Inc.” Adams did not detect the substitution, signed as maker, handed the note and stock certificate to Bell, and received from Bell $2,000. Bell indorsed and sold the paper to Fore, a holder in due course, who paid him $11,000. Fore presented the note at maturity to Adams, who refused to pay. What are Fore’s rights, if any, against Adams? |
Explanation
Individual A was duped into signing the wrong document. There was no negligence from the side of Individual A here. It serves as fraud in execution as Individual B tricked Individual A into signing the document, taking advantage of the poor eyesight of Individual A. It serves as a real defense to which Individual F, the holder in due course, is subject to. If the fault happened because of the negligence from the side of Individual A, it would only have been a personal defense, which is ineffective against Individual F.Thisis not the case here. Because of holding the status of the holder in due course, Individual F can recover the amount only from Individual B.
Sample Response
Even though Individual F is a holder in due course, Individual F can recover the amount only from Individual B and not from Individual A. This is because Individual A has a real defense against the instrument, which is fraud in execution. If Individual A only had a personal defense, Individual F could have recovered the amount from Individual A.
