Commercial Finance Corporation v. Willis H. Gale

• Decision Date: 28 October 1932
• Parties: COMMERCIAL FINANCE CORPORATION v. WILLIS H. GALE
• Court: Vermont Supreme Court

162 A. 899

105 Vt. 3

COMMERCIAL FINANCE CORPORATION v. WILLIS H. GALE

Supreme Court of Vermont

October 28, 1932

May Term, 1932.

Bills and Notes---G. L. 2933---Liability of Accommodation Indorser---Pleading---Use of Money Counts in Assumpsit against Accommodation Indorser Who Has Waived Demand and Notice---Burden on Plaintiff When Prima Facie Case Has Been Met by Evidence Tending To Show That Indorsement Was Procured by Fraud---Necessity of Showing Prejudicial Error To Secure Reversal---Harmless Error---Implied Ruling of Court on Question of Remoteness by Admission of Evidence---Exception to Exclusion of Evidence Not Lost by Failure To Except to Charge---Sufficiency of Pleadings To Raise Issue That Plaintiff Was Holder in Due Course---Waiver of Defect in Pleadings by Conduct of Parties at Trial---Proof by Corporation That It Is Holder in Due Course---Instructions To Jury---Fraudulent Representations---Uncalled for Instruction Held Harmless by Reason of Other Instructions Given---Interest---Usury.

1. Under G. L. 2933, accommodation indorser of note having waived demand and notice, and note being overdue and unpaid, other defenses aside, is liable thereon absolutely and unconditionally.

2. Undertaking of accommodation indorser who has waived demand and notice is like that of maker, and note being overdue and unpaid, he may be sued as maker by use of money counts.

3. In action by holder of note against accommodation indorser, when evidence was introduced tending to show that defendant's indorsement had been procured by fraud, prima facie case made by introducing note regular on its face was sufficiently met to make it plaintiff's duty to show by preponderance of evidence that it was bona fide holder, for value, and without notice of fraud.

4. In order to work reversal for exclusion of offered testimony prejudice to excepting party must appear.

5. In action by holder of note against accommodation indorser, who defended on ground that indorsement was procured by fraudulent representations of maker as to value of corporate stock, it was proper to show that apparent balance in bank to corporation's credit was not real, but fictitious credit allowed for worthless note which would be charged back, but exclusion of such evidence held not to be prejudicial, where it was not shown that worthless note was carried into any balance that appeared on day defendant indorsed note.

6. Court, by admitting bank account in evidence to show financial standing of corporation, ruled by implication that credit appearing thereon was not too remote.

7. Defendant held not to lose benefit of his exception to exclusion of evidence by failure to except to charge.

8. In action by holder of note against accommodation indorser issue as to whether plaintiff was holder in due course held sufficiently raised by pleadings.

9. Where parties throughout taking of evidence indicated satisfaction with pleadings to raise issue whether plaintiff was holder of note in due course, held that any defects in pleadings were waived.

10. Where president of plaintiff corporation, who evidence tended to show was one having to do with acceptance of note testified that corporation was holder of note in due course, it was not necessary, as matter of law, to call other officers as witnesses in relation thereto, failure to do so being for consideration of jury, but not precluding finding of essential facts.

11. Refusal of court to instruct jury that, if maker of negotiable note made false representations as to stock offered as collateral, though believing them to be true, defendant should recover, unless plaintiff had shown that it was holder in due course, held without error, under evidence in case.

12. Generally, no representation is fraudulent unless made with knowledge of its falsity.

13. Representations as to surplus of company, whose stock was offered as collateral, at its last inventory, amount since added to surplus, and that its stock was "as good as gold," made to secure accommodation indorsement, held not mere "sales talk" or "puffing," but statements of fact.

14. Court's instruction on subject of "sales talk" and "puffing," that these, though false, were not basis of actionable fraud or basis of defense to action, although instructions thereon should have been omitted, held harmless, where jury in connection with such instructions were instructed that if defendant had made statements claimed as to surplus and worth of stock offered as collateral which were false and known by him to be false, fraud was made out.

15. Contract for payment of interest payable semi-annually at statutory rate is not usurious.

ACTION OF CONTRACT, with general counts as complaint. Pleas, that defendant signed note as surety only, that note was without consideration, and that defendant's signature to note was obtained by fraud of maker, all of which was known to plaintiff when it accepted note. Replication denying allegations of answer. Trial by jury at the September Term, 1931, Washington County, Sturtevant, J., presiding. Verdict and judgment for the plaintiff. The defendant excepted. The opinion states the case.

Judgment affirmed.

H. C. Shurtleff for the defendant.

Albert A. Sargent and George L. Hunt for the plaintiff.

Present: POWERS, C. J., SLACK, MOULTON, THOMPSON, and GRAHAM, JJ.

OPINION

POWERS

This an action of contract with the general counts as a complaint. A specification was filed showing a promissory note for $ 6,000 signed by one Littlefield and payable to the plaintiff, on the back of which the defendant had signed his name waiving demand and notice. On the face of the note was a memorandum indicating that it was secured by the pledge of fifty shares of the Littlefield Piano Co. stock. The defendant filed an answer to the complaint asserting that he signed the note as a mere surety, that so far as he was concerned it was without consideration, that his signature was procured by fraud--all of which was known to the plaintiff when it accepted the note. The court ruled that a replication was required, and one was filed which denied the allegation of the answer. The plaintiff secured a verdict below, judgment was rendered thereon, and the defendant excepted.

The defendant seasonably moved for a verdict on the ground that an action of general assumpsit would not support a recovery against a surety or such an indorser as the evidence disclosed the defendant to be. This ruling is the basis of the exception first briefed. The statute makes the defendant an irregular indorser, and charges him with all the responsibilities of a general indorser. G. L. 2933. The evidence makes him an accommodation indorser, entitled to all the advantages of one so situated. But, having waived demand and notice, and the note being overdue and unpaid, he is liable thereon--other defenses aside--absolutely and unconditionally. 3 R. C. L. 1148; 8 C. J. 715. This proposition seems to be supported by the better reasoning and the decided weight of authority, though some courts say that there exists a further condition in the indorser's undertaking, namely, that the maker fails to pay. See McPherson v. Evart State Bank, 239 Mich. 670, 214 N.W. 971; Corley v. French, 154 Tenn. 672, 294 S.W. 513. Under this view, an allegation in a special count might be required. But we hold that the defendant's undertaking was like that of a maker. So he can be sued as a maker, and by the use of the money counts. Woodrow v. O'Conner, 28 Vt. 776, 778. The motion for a verdict was properly overruled.

The evidence tended to show that the defendant's indorsement was procured by the fraud of Littlefield. When this evidence came in, the prima facie case made by the plaintiff by introducing the note, regular on its face, was sufficiently met to make it the plaintiff's duty to show by a preponderance of evidence that it was a "holder in due course," that is, that it was a bona fide holder, for value, and without notice of the fraud. G. L. 2921; Howard Natl. Bank v. Wilson, 96 Vt. 438, 449, 120 A. 889; Land Finance Corp. v. Sherwin Elec. Co., 101 Vt. 114, 122, 141 A. 598.

The fraudulent representations relied upon by the defendant pertained to the value of the collateral offered by Littlefield, the Littlefield Piano Co., stock. In order to show the utter insolvency of that company at the time of his indorsement, the defendant introduced the bank account of that concern. From this it appeared that, while it was usually largely overdrawn, on January 5, 1929, it showed a credit balance of $ 2,050.85. Mr. Clark, the treasurer of the bank that carried the account, was asked if this balance was created by the deposit of $ 2,000. Objection being made, the defendant offered to show that this balance was caused by the deposit of a worthless note for $ 2,000. The offer was excluded and the defendant excepted.

The evidence was admissible. In the determination of the financial standing of the Piano Company, it was proper to show that the apparent balance in the bank was not real, but a fictitious credit allowed for a worthless note, which in due time would be charged back to the account reducing it just so much. In this respect, the balance stands no better than the note itself would. If it had appeared as an asset of the Piano Company, its true value would have been open to inquiry. But it is to be remembered that the factum probandum was the condition of the Piano Company on May 27, 1929, the day the defendant indorsed the note, and that in order to work a reversal, prejudice to the excepting party must appear. Nothing is pointed out to show that the worthless note was carried into any credit balance that appeared on the day specified, or to indicate that it cut any figure in establishing the financial...