Arthur is the payee of a negotiable promissory note on which Brian is the maker. Arthur indorses the note in blank and delivers it to Clark, who then transfers it to David without indorsement. David presents it to Brian for payment when it becomes due, but Brian claims he signed the note based upon fraud in the inducement and refuses to pay
a. Who is primarily liable on the instrument? Who is secondarily liable on the instrument?
b. Who has warranty liability? Why? Explain.
c. From whom can David try to collect now that Brian refuses to pay?
a . Brian is primarily liable. Arthur is secondarily liable.
b. Arthur has warranty liability because he is an indorser. Clark has warranty liability to the immediate transferee (David) even though he did not indorse the note. David has presenter's warranties.
c. If David is a holder in due course, Brian must pay because fraud in the inducement is only a personal defense. Brian can then try to collect from Arthur. David could also collect from Arthur.
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