Ace Breach Of Warranty Case

1. ` Ace can recover $8,000 from Elmer . To understand why we first need to understand if Ace is a is a holder in due course, A Holder becomes a holder in due course if when the instrument was issued there was no sign of forgery or fraud on the face of the instrument. In this case there is nothing on the note that would cause a reasonable person to believe that something is out of the orndinary about the note. The note in this case was issued by Elmer in order to pay for electrical equipment . There is nothing on the face of the note showing that there was any fraud or anything out of the ordinary. The note mus be a neogtioabel instrument.. Int this case the facts tell us it is a negotioabel instrument. In order for Ace as the
In this Case Ace took the note for value for value because they promised to pay $15,000 in exchange for the note. However , Ace had only given 7,500 half of what they promised for the note. Therefore the extent of the value given for the note is 7,500 . To be a Holder in due course the holder must not have notice that instrument contains any fraud or forgery or is subject to any claim or defense. The note was not forged however it was subject to a defense. This defense was a breach of warranty, Due to this breach of warranty Elmer sufferd $10,000 in damages. This gives Elmer the right of claim and recoupment. Claim and recouoment allows the maker of the note to reduce the amount owed by to the holder.the amount of damages in a claim rising from the underlying contract. This amount however cannot be more then the amount owed. This means that a holder in due courseis never obligate to pay the maker of the note damges, Ordinarly this means that Elmer would be able to subtract the $10,000 in damages from the $16,000 dollars owed to the holder meaning Elmer would ohave to pay the
However in this case Ace the holder of the note is a holder in due course of half of the note. This is because at the time he took he took it without notice of any clame or defense on the note. However when they took note the only performed half of the promised performance. Meaning that Ace is a holder in due course only to the extent of the value given which in this was half of the amount promised. However Before Ace paid the second half of the promised amount they were notified by Elmer of the claim of the breach of warranty, Therefore, when ace paid the second half off the note they had notice of the claim of recupoment and were not holders in due course as to the second half of the note. Therforem Ace is a holder in due course for only half of the note. Because Ace is a holder in due course of half of the note only half of the note is subject to Elmer’s claim of recupment. Ace can therefore collect $8000 from Elmer which is half of the value of the note. The second $8,000 owed is subject to the claim of recoupment. This 8,000 is offset by the 10,000 in damages . Because the second half on the note is subject to a claim of recoupment that is more then the note is worth Ace cannot collect the second half