Reference no: EM13224560

Case

Mr. Red bought a powerboat from Black's Boat Sales under a conditional sale agreement, paying $5,000 down with the remainder of $20,000 to be paid over the next five years. Mr. Red registered his ownership under the Canada Shipping Act and Black registered the conditional sales agreement under the provincial Personal Property Security Act but in the process recorded the wrong number of the boat. Black sold the conditional sales agreement to the Blue Finance Company. Red, with the approval of Black, but without the knowledge of the Blue Finance Company, resold the powerboat to Scarlet for $15,000. He continued paying his debt to Black each month.

Scarlet searched the title to the powerboat in the registry under the Canada Shipping Act so did not detect the conditional sales agreement. After Red was given notice he continued making the payments to the Blue Finance Company. The powerboat had a fundamental flaw in its design which rendered it unseaworthy in anything but the calmest weather and Scarlet refused to pay Red. Red then refused to pay the Blue Finance Company. The Blue Finance Company found out that Scarlet had the powerboat and repossessed it and auctioned it off to a business acquaintance for a price of $2,500 which was substantially below the fair market value. There was now a deficit of $7,500 since $5,000 had been paid off by Red and the auction price of $2,500 made up the difference.

Scarlet sued both the Blue Finance Company and Red. Red, in turn, sued Black. The Blue Finance Company sued Red. As part of the original deal between Red and Black, Black had insisted that, in addition to the conditional sale agreement, Red provide a guarantor to the loan, so Red had his friend Yellow guarantee the loan. The boat had been resold to Scarlet without the permission of Yellow; Black sued Yellow and Yellow, in turn, sued Red. Explain the rights and obligations ofall the parties.