Christensen v. Financial Service Co., 9649

• Decision Date: 25 January 1963
• Docket Number: No. 9649,9649
• Citation: 14 Utah 2d 101,377 P.2d 1010
• Parties: d 101 Josephine H. CHRISTENSEN, as guardian ad litem for an in behalf of Joseph Christensen, a/k/a Joseph Norman Christensen, Plaintiff and Respondent, v. FINANCIAL SERVICE CO., Inc., Defendant and Appellant.
• Court: Utah Supreme Court

Page 1010

377 P.2d 1010

14 Utah 2d 101

Josephine H. CHRISTENSEN, as guardian ad litem for an in behalf of Joseph Christensen, a/k/a Joseph Norman Christensen, Plaintiff and Respondent, v. FINANCIAL SERVICE CO., Inc., Defendant and Appellant.

No. 9649.

Supreme Court of Utah.

Jan. 25, 1963.

Lorin J. Broadbent, Salt Lake City, for appellant.

Preston & Preston, Logan, for respondent.

CROCKETT, Justice.

Plaintiff, Joseph Christensen, a minor, by guardian ad litem, recovered judgment against the defendant, Financial Service Co., Inc. for $7,133.42, the balance on a promissory note, plus attorney's fees. Defendant appeals.

The note, dated July 18, 1960, was made payable to the plaintiff and was given as a result of the dealings of Joseph's father, Norman Christensen, with the defendant corporation. It was signed by Richard Willets, president, and Elmer Erickson, vice-president, pursuant to a resolution of defendant's board of directors.

The defendant was organized in 1958 with Norman Christensen as principal stockholder, president and a director. He received 5,000 shares of $10.00 par stock in exchange for the assets of Associated Enterprises, Inc., of which he had been the main entrepreneur and claimed to be the beneficial owner. The corporate articles recite that this consideration had a fair cash value of $50,000. The same persons who are now defending this action as corporate officers were incorporators and signed the articles.

Prior to disassociating with defendant corporation in 1960, Norman Christensen sold the greater portion of his personal stock. Part of the proceeds was paid into the corporation and comingled with its operational funds. They were credited to a 'trust' accound for Norman Christensen, to which was also credited other amounts due him from the corporation, including such items as salary, brokerage and dividends; and this account was debited for any sums withdrawn for his personal use or other charges against him.

In June of 1960, it was decided that Norman Christensen should cease active management and step aside as president. On June 18 the board of directors, with Mr. Christensen still participating as an active member, voted to close out the 'trust fund,' which showed a balance of $12,025. In accordance with this resolution the trust fund was debited for its full amount and in exchange Mr. Christensen received: 1) a Chevrolet car valued at $2,000; 2) an electric typewriter valued at $320.00; 3) a note made payable to Norman Christensen in the amount of $2,205; and 4) a promissory note for the balance of $7,500, payable at $150 per month with interest at 6%, which is the subject of this suit. At the request of Norman Christensen it was made payable to his son, the plaintiff, Joseph Christensen.

The defendant made several monthly payments on the note totaling $453.47 and then attempted to repudiate it on the ground of failure of consideration, claiming:

a. That the assets of Norman Christensen's business, Associated Enterprises, Inc., had been greatly overvalued at the time that business was turned over to defendant corporation; and that since he had thus not given adequate consideration for his stock, the proceeds from its sale rightly belonged to the corporation; and

b. That the portion of the 'trust fund' which purportedly represented dividends was an invalid book entry because no such dividends were due and payable to him.

Defendant also arguest that even if the original consideration were determined to be sufficient, it nevertheless has provable offsets against Norman Christensen to more than equal the amount of the note.

We first direct attention to defendant's charge that the court erred in denying its motion for summary judgment. It claims entitlement thereto because its motion was supported by affidavits and exhibits, whereas, no counteraffidavits were filed by the plaintiff. This contention is not sound. Under Rule 56(c) U.R.C.P., 'The adverse party prior to the day of hearing may serve opposing affidavits,' (emphasis added) but is not required to do so. He may stand upon his pleadings providing his allegations, if proved, would establish a basis for recovery.

Summary judgment can properly be granted under Rule 56(c) only if 'the pleadings, depositions, and admission on file, together with the affidavits, if any,' which are offered, show without dispute that the party is entitled to prevail. This condition is obviously not met if the allegations of the plaintiff's complaint stand in opposition to the averments of the affidavits so that there are controverted issues of fact, the determination of which is necessary to settle the rights of the parties. The trial judge correctly ruled that there were such issues of fact here. The cases relied upon by the defendant are distinguishable, since an admittedly different situation exists where the averments in the affidavits or facts shown by depositions and/or exhibits would indisputably resolve the material facts. ¹

We need not concern ourselves with the imbroglio of the corporation over its dealings with Norman Christensen because, as will appear below, the trial court's judgment in favor of the plaintiff is sustained on other grounds. However, we observe in passing that upon his consideration of the overall picture of such corporate affairs the court determined that Norman Christensen had sufficient values therein to constitute consideration for the note in question.

Under the facts found by the trial court, which find support in the evidence, Joseph was a holder of the note in due course. Consequently, neither failure of consideration, ² nor any offset which the defendant may have against Norman Christensen is available as a defense against Joseph. ³ We so declare notwithstanding the authorities relied upon by the defendant in contending that Joseph as payee cannot be a holder in due course. Upon the basis of our examination of the authorities, we are persuaded that, although there is admittedly division on the question, the majority and better view is that a payee may be a holder in due course, at least where he is not a party to the transaction, if he otherwise qualifies. ⁴

A well-reasoned case supporting this view is Flores v. Woodspecialties. ⁵ The defendant Woodspecialties gave its check to the El Paso National Bank, as payee, to discharge a debt Woodspecialties owed to a third party, Exportadora Ponderosa, for wood moldings the latter had delivered to Woodspecialties. The bank turned the check over to the plaintiff Flores, who sued to collect because the maker, Woodspecialties, stopped payment on it. It was held that the bank was a holder in due course even though it was payee and the consideration it gave went to a third party; and as transferee from the bank, Flores could recover. The court said:

'There...