NCJ Number
43854
Journal
Case Western Reserve Law Review Volume: 27 Issue: 4 Dated: (SPRING 1977) Pages: 977-1009
Date Published
1977
Length
33 pages
Annotation
THE TENDENCY OF THE HOLDER IN DUE COURSE DOCTRINE TO DIMINISH THE BARGAINING POWER OF THE CONSUMER IS DISCUSSED, AND THE SHORTCOMINGS OF THE FTC'S RESPONSE TO THE PROBLEM ARE POINTED OUT.
Abstract
THE HOLDER IN DUE COURSE DOCTRINE IMMUNIZES THE SUBSEQUENT HOLDER OF A NEGOTIABLE INSTRUMENT FROM THE DEFENSES WHICH THE PURCHASER OF A DEFECTIVE PRODUCT COULD HAVE MAINTAINED AGAINST THE ORIGINAL HOLDER OF THE NOTE. FOR EXAMPLE, A CONSUMER WHO PURCHASES A DEFECTIVELY MANUFACTURED AUTOMOBILE FINDS THAT THE DEALER REFUSES TO REPAIR OF REPLACE THE AUTOMOBILE. THE CONSUMER TRIES TO WITHHOLD PAYMENT ONLY TO BE INFORMED THAT HIS INSTALLMENT CONTRACT HAS BEEN SOLD TO A THIRD PARTY. THE THIRD PARTY ASSERTS THAT THE HOLDER IN DUE COURSE DOCTRINE AFFORDS IT THE LEGAL RIGHT TO COLLECT PAYMENT REGARDLESS OF THE CONDITION OF THE MERCHANDISE, AND THE CONSUMER MUST CONTINUE TO PAY FOR A DEFECTIVE PRODUCT. IN RESPONSE TO THE CONSEQUENCES OF APPLYING THIS DOCTRINE TO CONSUMER CREDIT TRANSACTIONS, THE FTC PROMULGATED A RULE PROTECTING CONSUMERS BY MAKING MERCHANTS BEAR THE LOSS FOR DEFECTIVE MERCHANDISE, POOR SERVICES, AND MERCHANTS' MISREPRESENTATION. HOWEVER, THE FTC RULE HAS RESULTED IN SUBSTANTIVE AND PROCEDURAL PROBLEMS. A DETAILED ANALYSIS OF THE HISTORY AND PROVISIONS OF THE FTC RULE LEADS TO THE CONCLUSION THAT THE CONFUSION CREATED BY RULE'S VAGUE LANGUAGE, UNDEFINED TERMS, AND INCOMPLETE GUIDELINES CAN BE READILY RESOLVED. HOWEVER, THE PREEMPTION QUESTION -- I.E., THE ISSUE OF THE FTC'S AUTHORITY TO PREEMPT STATE STATUTES WHICH ARE INCOMPATIBLE WITH THE HOLDER IN DUE COURSE RULE -- WILL PROVE MORE DIFFICULT TO SETTLE. A PENDING (AS OF AUGUST 1976) HOUSE RESOLUTION TO SUSPEND THE FTC RULE UNTIL FURTHER STUDIES CAN BE MADE IS SAID TO OFFER AN ACCEPTABLE IMMEDIATE SOLUTION.