Ella induces Tammy, by fraud in the inducement, to make an instrument payable to the order of Ella. She subsequently negotiates the instrument to Adam, a holder in due course. If Ella later reacquires the instrument from Adam, Ella will succeed to Adam's rights as a holder in due course under the shelter rule.

Question

Quizplus · Accepted Answer

Fraudulent inducement vitiates the entire transaction, meaning that Ella has no rights to the instrument, therefore cannot pass on holder in due course status to Adam, and cannot receive it back under the shelter rule.

Ella Induces Tammy, by Fraud in the Inducement, to Make