What are McGowan’s rights, if any, against Young, Selby, Tillman, and Armstrong?
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In payment of the purchase price of a used motorboat that had been fraudulently misrepresented, Young signed and delivered to Armstrong his negotiable note in the amount of $2,000 due October 1, with Selby as an accommodation co-maker. Young intended to use the boat for his fishing business. Armstrong indorsed the note in blank preparatory to discounting it. Tillman stole the note from Armstrong and delivered it to McGowan on July 1 in payment of a past-due debt in the amount of $600 that he owed to McGowan, with McGowan making up the difference by giving Tillman his check for $800 and an oral promise to pay Tillman an additional $600 on October 1. When McGowan demanded payment of the note on December 1, both Young and Selby refused to pay because the note had not been presented for payment on its due date and because Armstrong had fraudulently misrepresented the motorboat for which the note had been executed. What are McGowan’s rights, if any, against Young, Selby, Tillman, and Armstrong? |
Explanation
Individual M's rights against:
Individual Y:Individual M has become the holder in due course for the amount of $1,400, which can be claimed from Individual Y; but for the rest of the instrument's amount, $600, Individual Y may argue that the instrument is a result of a fraud by Individual A and can get away with the liability of $600 only.
Individual S:Individual S, being the accommodation party, is liable to pay against the instrument in the same way as Individual Y. Individual M can recover only $1,400 from Individual S, for which Individual M is the holder in due course.
Individual T:Individual T has no legal entitlement to the note and no right to enforce the instrument. So, on the breach of warranty, Individual T is going to be liable to pay against the instrument.
Individual A: The instrument is not presented properly to Individual A. So, Individual A is not liable to pay against the instrument.
Verified Answer
Individual M can recover only the amount, from Individual Y and Individual S, for which Individual M is the holder in due course. Individual M can recover the amount of the instrument from Individual T since there is a breach of warranty by Individual T. Individual A has no obligation toward Individual M.
