Question

THIS IS A BUSINESS LAW QUESTION!

On June 1, 2013, John met the love of his life, Mary, and became engaged to be married. As evidence of his love John purchased a 2 ct. diamond ring from the Great Stone Jewelers for a price of $18,000. At the time of sale John signed the following promissory note:

“I John, promise to pay Great Stone Jewelers the sum of $18,000, United States currency at a rate of 15.6% interest in 36 equal monthly installments commencing August 1, 2013” Signed John

On August 30, 2013 the Great Stone Jewelers sold the above note to Sammy’s Loan Co for $20,000. On August 30, 2013, after having made several timely payment to Sammy’s John discovered the stone he had purchased was not a diamond but rather glass worth only $200. John thus stopped any further payments to Sammy’s and Sammy’s filed suite against John. Will John be liable to Sammy’s for the remaining unpaid dept? Why? Why not? Explain in detail.

Answer 1

In the first part there has been assignment of contract when Great Stone assigned the benefit of the contract to Sammy’s. This makes Great Stone the ‘assignor’ and Sammy’s the ‘assignee’. This also means that the assignee now takes over the obligations of the assignor. In other words, Sammy’s is responsible for the sale of the Jewelry to John.

Now, in the next part John realizes that the stone is not real and this means that there has been a fraud and as per the original contract (exchange of diamond against money) the conditions make the contract invalid. This means that John is not liable to pay Great Stone or Sammy’s (in this case).

Consider the above situation, John will not be liable to Sammy’s for the remaining unpaid debt.