Mary Johnson signed a contract with Mayflower to perform repair work on her home for a fee of $25,900. Mayflower arranged for Johnson to pay for this work by borrowing money from Sterling Resources. The note she signed with Sterling had an unconscionably high price of $50,108.60 and an interest rate of 17.98%. 

Johnson alleges that Mayflower was running a scam, hiring unlicensed salespeople to target minority neighborhoods for home repairs. Its contracts contained deceptive or incomplete specifications and payment terms. The actual work was shoddy or incomplete, using poor quality materials. Sterling routinely loaned money to Mayflower customers. Sterling then sold the loans to banks and other financial institutions.

Johnson failed to make the payments due on the note and the Lender sued, moving for summary judgment against Johnson on the grounds that, as a holder in due course, it was entitled to enforce the note regardless of her claims against Mayflower or Sterling. She responded that, under the FTC consumer exception rule, the Lender was not a holder in due course and therefore subject to whatever defenses she had against Sterling or Mayflower.

Questions:

1. Was the Lender a holder in due course?

2. What was going on in this case?

3. Why didn’t Mayflower keep the note that Mary Johnson signed?

4. Was the Lender, in the end, a holder in due course?

5. Why did Mayflower and the Lender think they could enforce a note that contained this language?