[needhelpnow]

Robb, a minor, executed a promissory note payable to bearer and delivered it to Dodsen in payment for a stereo system. Dodsen negotiated the note for value to Mellon by delivery alone and without indorsement. Mellon indorsed the note in blank and negotiated it to Bloom for value. Bloom’s demand for payment was refused by Robb because the note was executed when Robb was a minor. Bloom gave prompt notice of Robb’s default to Dodsen and Mellon. None of the holders of the note were aware of Robb’s minority. Which of the following parties will be liable to Bloom?

A. Dodsen

B. Mellon

C. Both Dodsen and Mellon

D. Neither Dodsen nor Mellon

The correct answer is B.

Mellon will be liable to Bloom. The problem tells you that the instrument is a bearer instrument which was negotiated by delivery alone to Mellon. Mellon indorsed the note in blank. By signing his name to the instrument, Mellon set himself up for liability on the instrument.

Dodsen is not liable to Bloom because Mellon accepted the note, indorsed it, and negotiated it to Bloom for value.

~~~~

Is B the correct answer because Mellon didn’t “DELIVER” it to Bloom? Because leaving it blank would make it bearable, just like the rest of them. Please help me understand. Thank you!

[Tax lady]

Mellon turned it into order paper by delivery PLUS indorsement, whereas the others negotiated the instrument by delivery alone which leaves it bearer paper. As I understand it, this would make Mellon liable to further parties.

REG 8/15/14 (73); 11/13/14 (82)-expired 🙁
AUD 5/30/15 (80)
BEC 11/28/15 (75)
FAR 7/30/16

Studying with CPAexcel and Ninja notes/MCQ's/Flashcards

[Anonymous]

I had trouble with this same problem. According to CPAexcel's explanation and my understanding, Dodsen would be liable to Mellon because he's the immediate transferee, but nobody else because he didn't endorse it (so not liable to Bloom). Mellon is liable to Bloom and all subsequent transferees because he did endorse it, and even if he didn't endorse it he'd be liable to Bloom because Bloom was the immediate transferee.

[needhelpnow]

@Taxlady, Thank you for the response. I see your point that he made it in to an Order Paper by Indorsing it as well. While you are correct, isn't the below order the basic step for recovery?

Rob = Maker (Automatically OUT because Minor)

Dodson = Holder (Liable to the person after)

Mellon = HDC (Liable to the person after)

Bloom = HDC (Liable to the person after…in this case, N/A…THEREFORE, should be able to collect from Dodson & Mellon)

..Unless there is a rule that I missed stating that the person who is Indorsing in Blank along with Delivery is the only person liable to parties after.

Not sure

[Tax lady]

Bloom cannot collect from Dodson because Dodson did not indorse. Mellon can collect from Dodson as the immediate transferee and that's it. However, because Mellon indorsed, Bloom and any subsequent transferees can collect from Mellon. At least this is my understanding and if I am incorrect, then someone please correct me. Dragnets and I are both using CPAexcel and this is what they teach. Hope this helps. This stuff is crazy…who uses this in the real world? LOL

REG 8/15/14 (73); 11/13/14 (82)-expired 🙁
AUD 5/30/15 (80)
BEC 11/28/15 (75)
FAR 7/30/16

Studying with CPAexcel and Ninja notes/MCQ's/Flashcards

[Author]

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