Bancredit, Inc. v. Bethea

• Decision Date: 17 February 1961
• Docket Number: No. A--575,A--575
• Citation: Bancredit, Inc. v. Bethea, 65 N.J.Super. 538, 168 A.2d 250 (N.J. Super. App. Div. 1961)
• Parties: BANCREDIT, INC., a corporation of New Jersey, Plaintiff-Respondent, v. Lynn BETHEA and Tony Bethea, Defendants-Appellants.
• Court: New Jersey Superior Court — Appellate Division

Page 538

65 N.J.Super. 538

168 A.2d 250

BANCREDIT, INC., a corporation of New Jersey, Plaintiff-Respondent, v. Lynn BETHEA and Tony Bethea, Defendants-Appellants.

No. A--575.

Superior Court of New Jersey Appellate Division.

Argued Dec. 14, 1960.

Decided Feb. 17, 1961.

Joseph Butt, Elizabeth, for defendants-appellants.

John M. Blume, Newark, for plaintiff-respondent (Blume & Blume, attorneys).

Before Judges CONFORD, FREUND and KILKENNY.

The opinion of the court was delivered by

FREUND, J.A.D.

This is an appeal by the co-makers of an alleged promissory note from a judgment in favor of the asserted holder in due course. The Union County District Court, sitting with a jury, determined as a matter of law that the note was negotiable, that plaintiff was a holder in due course, and that defendants had not produced sufficient evidence to support their assigned defenses. Judgment was thereupon entered in favor of plaintiff in the amount of $448.99, plus costs. As no stenographic record was made in the trial court, the present appeal is before us on the trial judge's settled state of case. R.R. 1:6--3.

Plaintiff claims that the note, in the amount of $1,110.24, was executed by defendants on November 18, 1958, in conjunction with the purchase of an automobile under a conditional sales contract. Its evidence indicates that plaintiff purchased the note and the contract for $650 from the seller of the automobile, Chippy's Auto Mart, Inc.; that defendants expressly consented, in an addendum to the contract of sale, to the assignment of Chippy's rights to plaintiff; that the note and contract called for payment in 24 equal installments of $46.26 each, and that defendants were given a coupon book with a schedule of payments; that defendants made three payments--in December 1958 and in January and February 1959--and thereafter defaulted, causing plaintiff to repossess the vehicle and dispose of it at a public sale which yielded proceeds of $350; and that after credits had been made for amounts already paid, the sum of $448.99, including attorney's fee, was due and owing on the note.

Defendants asserted that the instrument had been procured by fraud. They claimed that material misrepresentations were made as to the nature and character of the instrument they signed, and that the condition of the subject automobile was falsely represented. It was also alleged that defendant Lynn Bethea was an infant at the time of the agreement and that the note is therefore unenforceable as to him. The testimony of the defendants, who are father and son, was that they had gone to Chippy's Auto Mart, Inc., for the purpose of purchasing a used car for Lynn. Upon expressing interest in a 1955 Chevrolet, they were informed that the price of the automobile was $1,195, including a trade-in allowance of $250, and that an application for a loan in the sum of $500 would have to be made to cover the down-payment on the car. Accordingly, a printed note form, with the amount blank, was signed by both defendants, in addition to the sales contract and the attached consent to assignment.

Defendants contend that a jury question was presented as to their defenses of fraud and the claim of infancy raised by Lynn Bethea. They also argue that plaintiff has not shown itself to be a holder in due course and is therefore subject to all defenses, real and personal, which defendants may have with respect to the instrument.

In regard to the latter contention, we note that defendants have not produced any evidence to rebut the Prima facie presumption that every holder is a holder in due course. R.S. 7:2--59, N.J.S.A. Having failed to offer proof that any of the statutory conditions of a holder in due course, R.S. 7:2--52, N.J.S.A., did not exist at the time plaintiff received the instrument, they cannot successfully contest Bancredit's status in this respect. Crown Capital Corporation v. Broderick, 130 N.J.L. 198, 32 A.2d 289 (Sup.Ct.1943). Even if defendants could ultimately show that the payee's title was defective, thereby shifting the burden of proof to plaintiff, Fifth Ward Savings Bank v. First National Bank, 48 N.J.L. 513, 517, 7 A. 318 (E. & A. 1886); Budget Corp. of America v. De Felice, 46 N.J.Super. 489, 492, 135 A.2d 31 (App.Div.1957); see New Jersey, Study of the Uniform Commercial Code (Nov. 1960), § 3--307(2), especially comment (1), the latter's uncontradicted evidence of the regularity of its acceptance of an instrument complete in all material respects constituted an adequate discharge of that burden. See West Side Trust Co. v. Krug, 117 N.J.L. 102, 187 A. 154 (E. & A. 1936); B.A.C. Corp. v. Cirucci, 131 N.J.L. 93, 35 A.2d 36 (Sup.Ct.1944).

I

As a holder in due course plaintiff is, of course, immune to all personal defenses of the maker against the payee, including that of fraud in the inducement. Davis v. Clark, 85 N.J.L. 696, 698--699, 90 A. 303 (E. & A. 1914). Therefore, to the extent that defendants' assertion of fraud is grounded in the alleged misrepresentations of the payee's agent with respect to the quality and condition of the automobile, it cannot successfully be raised against plaintiff.

Defendants, however, relying on New Jersey Mortgage and Investment Co. v. Dorsey, 60 N.J.Super. 299, 158 A.2d 712 (App.Div.1960), affirmed 33 N.J. 448, 165 A.2d 297 (1960), urge the real defense of fraud in the Factum and insist that the evidence is sufficient to warrant a jury finding that they were unaware that the instrument they were signing was a negotiable note. We consider the contrary inference to be the compelling one. The proofs leave no doubt that defendants knew they were signing a negotiable instrument and that their misconception, if any, was as to the amount of their obligation. The testimony of Tony Bethea is illustrative:

'Q. What agreement did you enter into? A. My son went down to buy a car. Chippy asked me to sign papers to borrow $500. He needed $500. to pay down on the car. That afternoon I went down there and he said * * *

'Q. (Mr. Gehrie interrupting) How do you know Chippy? A. I have been doing business with him for 15 years. He said 'Will you sign the papers so your son will get $500?' I signed a paper to get $500 from Beneficial Loan. It was for Lynn to get a car.

'Q. When you signed this paper you thought you were signing for a loan? A. I know I signed it for one loan but not this one here.'

The younger Bethea was presumably present at the time his father signed the note, and undoubtedly signed with a similar understanding; at least there is no contrary testimony. While the record is bare of any testimony as to his precise comprehension of what he was signing (he admitted having signed both the note and the contract, but denied that the instruments were filled in when he signed them) the circumstances surrounding the execution of the note and contract, the receipt of a coupon book, and the transfer of the automobile strongly suggest that, at best, he should have known that he was entering into a promissory monetary arrangement. Young Bethea conceded his ability to read and write, but we need not determine whether his literacy is in itself sufficient to estop him from asserting this defense. See Zier v. Eastern Acceptance Corp., 61 A.2d 106, 108 (Mun.Ct.App.D.C.1948); United States v. Castillo, 120 F.Supp. 522, 523--524 (D.C.D.N.M.1954). The maker's freedom from negligence is an integral part of the defense of fraud in the Factum, and our Supreme Court has held, in New Jersey Mortgage and Investment Co. v. Dorsey, supra, 33 N.J., at p. 451, 165 A.2d, at p. 298, that the burden of establishing lack of negligence is upon the maker. The proofs indicate an utter failure on the part of young Bethea to meet that burden. See Joseph Heimberg, Inc. v. Lincoln National Bank, 113 N.J.L. 76, 172 A. 528 (Sup.Ct.1934).

The defense of fraud in the Factum is not available to a maker who knowingly creates a negotiable instrument but leaves the amount blank on the understanding that a lesser sum will be inserted than subsequently appears on the note in the hands of a holder in due course. The maker has not, in this situation, been misled as to the character of the instrument he is creating, but only as to the extent of his obligation. His defensive assertions are grounded in deception as to the terms of his commitment, not in ignorance of its quality. New Jersey Mortgage and Investment Co. v. Dorsey, supra, 60 N.J.Super., at p. 302, 158 A.2d, at p. 714. His defense is one of fraud in the inducement, effective only against the misleading payee and those successors to his interest who do not occupy the protective status of holder in due course. Cf. Howard v. Trusco Finance Co., 87 Ga.App. 509, 74 S.E.2d 379 (Ct.App.1953); Maloney v. Central Finance Co., 18 La.App. 108, 137 So. 353 (Ct.App.1931); see Annotation 44 A.L.R.2d 8, 39 (1955).

The condition of the proofs was such as not to present a jury issue on either the nature of the fraud, or the negligence of the maker of the note. The defense of fraud in the Factum was properly rejected by the trial judge as a matter of law.

The aforementioned conclusions are grounded in our Negotiable Instruments Law, under which unauthorized completion of a partially blank instrument which is delivered to the payee or holder is only a personal defense. R.S. 7:2--14, N.J.S.A.; Cinema Circuit Corp. v. Merrill Amusement Corp., 121 N.J.L. 216, 2 A.2d 43 (Sup.Ct.1938). The anomalous rule that non-delivery of an incomplete instrument constitutes a real defense, R.S. 7:2--15, N.J.S.A.; see Budget Corp. of America v. De Felice, supra, 46 N.J.Super., at p. 493, 135 A.2d, at p. 33; also see criticism of this rule and proposed change in New Jersey, Study of Uniform Commercial Code, supra, § 3--305, comment (1), § 3--115, especially comments (2) and (3), § 3--407(3), is not here applicable, as the note and contract were undoubtedly delivered by defendants to the payee, Chippy's. Defendants'...