Topping refused upon the ground that McLaughlin had not painted or reshingled her barn. What are Adler’s rights, if any, against Topping on the note?
McLaughlin borrowed $10,000 from Adler, who, apprehensive about McLaughlin’s ability to pay, demanded security. McLaughlin indorsed and delivered to Adler a negotiable promissory note executed by Topping for $12,000 payable to McLaughlin’s order in twelve equal monthly installments. The note did not contain an acceleration clause, but it recited that the consideration for the note was McLaughlin’s promise to paint and shingle Topping’s barn. At the time McLaughlin transferred the note to Adler, the first installment was overdue and unpaid. Adler was unaware that the installment had not been paid. Topping did not pay any of the installments on the note. When the last installment became due, Adler presented the note to Topping for payment. Topping refused upon the ground that McLaughlin had not painted or reshingled her barn. What are Adler’s rights, if any, against Topping on the note?
Individual A accepted the instrument of Individual T as a security against the payment given to Individual M. It makes Individual A to become a holder in due course. Individual A had no knowledge of the fact that the instrument was overdue. Even though Individual T is not liable to Individual M, Individual T is liable to Individual A. The defenses Individual T has are personal in nature, rendering them ineffective against Individual A. Individual A can hence recover $10,000 from Individual T. However, Individual A cannot recover the amount of $12,000 as Individual T has defenses against Individual M, making it impossible to recover the total amount. If Individual A was not a holder in due course, Individual T would not have been liable to Individual A.
Individual A is a holder in due course and can recover the amount of $10,000 given as security by Individual M from Individual T.
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