California Real Estate Practice Exam

A holder in due course would likely not be able to enforce a note if the defense was?

1. Lack of consideration

2. Non-delivery of the note

3. Forgery

4. Fraud in the inducement

The correct answer is: Forgery

A holder in due course is someone who has acquired a negotiable instrument, such as a promissory note, in good faith and for value. This status offers certain protections, allowing the holder to enforce the note against the maker, even if there are certain defenses that the maker might raise. Forgery is a particularly significant issue when it comes to the enforceability of a note. If a note is forged, it is considered invalid from the beginning. Therefore, a holder in due course cannot enforce a note that has been forged because the person who is purported to have signed the note did not actually do so. This makes the note unenforceable, as there is no valid obligation to pay. In contrast, other defenses such as lack of consideration, non-delivery of the note, and fraud in the inducement may be raised against a holder who is not a holder in due course. A holder in due course typically has greater protection against these defenses. For instance, lack of consideration can be a personal defense that does not affect a holder in due course, while fraud in the inducement could be argued against a non-holder in due course as well. Thus, forgery is a fundamental issue that undermines the validity of the instrument itself, leading