Elmore purchases goods from Grady, and Elmore executes and delivers a negotiable note to Grady for $1,200, payable to Grady's order in 30 days.Two weeks later, Grady negotiates the note to McDaniel.Which of the following is true?
A) McDaniel can acquire no greater rights than Grady had in the note.
B) If the goods are defective, Elmore's defense will necessarily be available against McDaniel.
C) McDaniel is required to notify Elmore that he acquired the note.
D) Whether Elmore's defense is available against McDaniel will depend on whether McDaniel acquired the note in good faith and for value, had no knowledge of the defense, and took the note without reason to question its authenticity.

Question

Quizplus · Accepted Answer

McDaniel's rights as a holder in due course (which requires good faith, for value, without knowledge of defenses, and without reason to question authenticity) determine whether Elmore's defenses against Grady can be asserted against McDaniel. If McDaniel meets these criteria, Elmore's personal defenses related to the transaction with Grady (such as the goods being defective) may not be effective against McDaniel.

Elmore Purchases Goods from Grady, and Elmore Executes and Delivers