Tilda purchases an automobile from Ronston.At the time of sale, Ronston tells Tilda that the car has had only one previous owner and has been driven only 25, 000 miles.Tilda, relying on these statements, purchases the car.She pays 10 percent down and signs a promissory note to pay the remainder of the purchase price, with interest, in fifteen equal monthly installments.Ronston transfers the note to Patty.Then Tilda discovers that the car has actually had three previous owners and has been driven 250, 000 miles.If Patricia is an HDC, which of the following is the legal outcome?
A)Tilda must pay Patty; find recourse with Ronston.
B)Patty must pay Tilda; find recourse with Ronston.
C)Patty pays no one; indorsement is considered void.
D)Tilda can rescind the note; refuse to pay Patty.

Question

Quizplus · Accepted Answer

If Patty is a holder in due course (HDC), she has the right to enforce the promissory note because she obtained it in good faith, for value, and without notice of any defenses or claims against it. Tilda's claim against Ronston for fraudulent misrepresentation does not relieve her from paying Patty because the note is a negotiable instrument that can be transferred to a holder in due course who is not affected by the underlying transaction between Tilda and Ronston. Tilda may have recourse against Ronston for damages or rescission, but she is still obligated to pay Patty.

Tilda Purchases an Automobile from Ronston