Davis v. Watson Brothers Plumbing, Inc.

FACTS Arnett Lee presented a $152.38 check for cashing to the plaintiff, liquor store operator Troy Davis. After Davis gave Lee the cash, Lee requested a bottle of scotch and a six-pack of beer. As Davis turned to fill the order, a thief stole $110.00 of the $152.38. Lee immediately contacted the defendant-drawer of the check, Watson Brothers Plumbing, Inc., and notified them of the loss. The defendant (Watson) then issued another check for $152.38 and stopped payment on the first check held by Davis. Davis brought this action against Watson for the full amount of the check.

DECISION Judgment for Davis for $152.38.

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OPINION Davis was the holder of the check, and Watson failed to raise any valid defense to enforcement of the check against it. Any party “who is in possession of … an instrument … indorsed to him … in blank” is a “holder.” Since Lee indorsed the check in blank to Davis, Davis is a holder. The holder of a draft is entitled to receive its full amount from the drawer upon dishonor of the check, unless the drawer has a valid defense to the holder’s enforcement of the check against it. Watson argues that it may raise the defense of insufficiency or failure of consideration in the transaction between Davis and Lee. But the transfer of the check by Lee to Davis has no effect upon Watson’s obligation to pay the check according to its tenor. “Consideration” is concerned with Lee’s transaction with Watson, not with whether Davis gave anything in consideration for the check to Lee. Since Watson has no defense to enforcement of the check against Lee, it has no defense against Davis, regardless of whether Davis gave full consideration for the check.

INTERPRETATION The drawer’s liability is contingent upon dishonor of the instrument.

CRITICAL THINKING QUESTION Should the drawer be permitted to raise defenses of other parties to the instrument? Explain.

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