Case Brief: Fred And Ralph V Retiree Home Owners
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CASE BRIEF – QUESTION 1
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From:
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Fred and Ralph v Retiree Home Owners
Facts:
Fred has sold 100 lots in a development in Arizona, fraudulently informing the purchasers that the property has water rights. The retirees bought these lots with promissory notes, which Fred used to pay his brother, Ralph, before fleeing to Mexico. Ralph, whose firm did the construction on these lots, knew that there was no water on the project but still accepted the notes and attempted to collect on them.
Type of Action:
The retirees refused to pay on the promissory notes due to the false promises, so Ralph discontinued construction and filed suit against them for failure to pay. Ralph stated that he was a holder in due course, but the retirees claimed defenses to payment of the notes.
Issues:
Court Holding:
Taking all factors into account, I think that the courts would have found for the defendants on the basis of “fraud in the factum.”
Legal analysis:
Fraud in the Factum is where misrepresentation induces one to enter into a transaction without understanding the risks. This occurred when Fred gave false information regarding water rights. And this transferred on to Ralph when he accepted the transfer of the notes with full knowledge of the misrepresentation. This knowledge negates the fact of him being a holder in due course, as fraud is a real defense for the retirees.
Ralphs attempted defense was that he qualified as a holder in due course. A holder is due course is a person who has good title to a negotiable