Rachel Allen purchases a used Honda from Friendly Fred’s Used Cars, paying $1,500 down and signing a promissory note in which she promises to pay $3,000 to Fred or to his order 12 months from the date of the note with interest at 8.5 percent. Fred assures Rachel that the car is in good condition and has never been involved in an accident. Fred indorses (signs) his name on the back of the promissory note and discounts (assigns) the note to Factors Inc. Subsequently, Rachel discovers that, contrary to Fred’s assurance, the Honda had in fact been involved in an accident that caused a front-end alignment problem. When Factors notifies her of the assignment to it of the note and asks for payment on the due date, Rachel wants to assert a defense of failure of consideration or breach of contract (warranty) against full payment of the note.

Among the legal issues raised in this scenario are:

When Fred transferred the promissory note to Factors after signing his name to the back of it, what rights did Factors obtain?
Will Rachel be able to assert a defense of failure of consideration or breach of contract against full payment of the note to Factors?
If the promissory note contained the clause required by the Federal Trade Commission in consumer notes or installment sales contracts, would it change Rachel’s rights?

Answer rating: 100% (QA)

Legal Issues Raised 1 What rights did Factors Inc obtain when Fred transferred the promissory note to them after endorsing it 2 Can Rachel assert a de... View the full answer