Question

Assume the following facts:

Caterpillar is a manufacturer of forklifts. Joe owns a retailer forklift dealership called Forklifts R Us. Caterpillar sells Joe150 forklifts on credit and retains a security interest in the forklifts and their proceeds (and perfects its interest). Joe then sells forklift #1 to Smith, a consumer purchaser. Instead of paying Joe cash for the forklift however, Smith gives Joe a promissory note (chattel paper) to make annual installment payments over 5 years to pay for the forklift. Joe needs more money, so he contacts Big Bank, who agrees to pay Joe for an assignment of his chattel paper. Big Bank pays Joe cash and takes possession of the chattel paper (i.e., Smith’s promised payments). Forklifts R Us defaults on all its loans and goes broke. Joe leaves in the middle of the night for Mexico, never to be seen again. Caterpillar and Big Bank both claim they are entitled to Smith’s payments. What is Caterpillar’s claim to the payments – explain what interest they would have in the payments (chattel paper)? Who is entitled to Smith’s payments (chattel paper) and why? Explain. Who is entitled to forklift #1, why?

Answer 1

In this case, there is clearly mentioned that chattal paper was assigned in favour of Bank. Legal provisions are crystal clear in this regards that if the negotiable instruments are assigned properly than the assignee will be the title holder in whose possession the documents are lying legally. Smiths will pay only to Bank, being the legal assignee of his debts. Forklift has no locus standi in this case.

Smith is entitled to the forklift on payment of chattal paper. In case of non payment, bank shall have the legal right to claim the Assets of Smith against the payment of chattal paper.