Daye, who defends on the ground of failure of consideration. Is Pennek subject to this defense? Explain.

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Daye, who defends on the ground of failure of consideration. Is Pennek subject to this defense? Explain.

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Thornton fraudulently represented to Daye that he would obtain for her a new car to be used in Daye’s business for $17,800 from Pennek Motor Company. Daye thereupon executed her personal check for $17,800 payable to the order of Pennek Motor Company and delivered the check to Thornton, who immediately delivered it to the motor company in payment of his own prior indebtedness. The motor company had no knowledge of the representations made by Thornton to Daye. Pennek Motor Company now brings an action on the check that was not paid against Daye, who defends on the ground of failure of consideration. Is Pennek subject to this defense? Explain.

Explanation & AnswerSolution by a verified expert

Explanation

Organization PMC accepted the check from Individual T for value in good faith and had no reason to doubt Individual D. This gives Organization PMC the status of holder in due course. Individual D has the defense of lack of consideration, which falls under a personal defense. All kinds of personal defenses are not subject to the holder in due course. If Organization PMC found the checks suspicious and did not accept them for value, then it would have lost the status of holder in due course, making it subject to the defenses of Individual D.

Sample Response

Organization PMC is not subject to this defense as it is a holder in due course. The defense of Individual D is a personal defense, which is useless against Organization PMC.

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