Question

An instrument is indorsed as follows: "Pay to A, for B (sgd) C. Then A indorsed the instrument to D in payment of his personal loan obtained from the latter. Was D in good faith as holder thereof?

A. Yes, because he is a holder in due course
B. Yes, because the instrument was negotiable when indorsed to him
C. No, because of the absence of B's consent to the negotiation to D
D. No, because of the knowledge of D that A was only a trustee in favor of B without right to negotiate the instrument for his personal benefit

Answer 1

D would not be considered a holder in good faith because A did not have the right to negotiate the instrument for his personal benefit.

Step-by-step explanation:

In this case, D would not be considered a holder in good faith. The instrument was indorsed to A specifically for B's benefit, meaning A did not have the right to negotiate the instrument for his own personal benefit. Therefore, D should have been aware that A was only a trustee in favor of B and did not have the authority to transfer the instrument to D. As a result, D would not be considered a holder in due course.