Commercial Inv. Corp. v. Cornelius

• Decision Date: 10 December 1963
• Docket Number: No. 51138,51138
• Parties: COMMERCIAL INVESTMENT CORP., a Corporation, Appellee, v. Ted CORNELIUS, d/b/a Ted's Champlin Service, Appellant.
• Court: Iowa Supreme Court

Page 257

125 N.W.2d 257

255 Iowa 1012

COMMERCIAL INVESTMENT CORP., a Corporation, Appellee, v. Ted CORNELIUS, d/b/a Ted's Champlin Service, Appellant.

No. 51138.

Supreme Court of Iowa.

Dec. 10, 1963.

Lee J. Farnsworth, Denison, for appellant.

Norelius & Norelius, Denison, for appellee.

PETERSON, Justice.

This is an action at law to recover upon three trade acceptances totaling $737.07 which were executed and delivered by defendant to Aluma-Glo Corporation of America and later sold, for valuable consideration, before maturity, to plaintiff. When presented for payment by plaintiff, defendant refused payment. Plaintiff commenced this suit. The case was submitted by the trial court to the jury and a verdict was rendered in favor of plaintiff for the amount sued upon. Defendant has appealed.

The errors relied upon for reversal by defendant were: 1st--the trial court erred in overruling defendant's motion for directed verdict made when plaintiff rested its case. 2nd--the trial court erred in overruling defendant's motion for directed verdict, renewed at the close of all of the evidence. 3rd--the court erred in overruling defendant's motion for new trial and for judgment notwithstanding the verdict.

I. Defendant operates a gasoline station in Denison, d/b/a as Ted's Champlin Service. April 27, 1960, a man by the name of W. O. Stuart from Sioux City called on defendant and sold him 126 cans of paint manufactured and placed on the market by Aluma-Glo Corporation. In payment for such paint defendant signed three trade acceptances, payable $245.69 each on June 27, 1960, July 27, 1960 and August 27, 1960.

On May 19, 1960, plaintiff purchased the trade acceptances from said corporation and paid therefore, $692.85 cash.

When defendant refused payment plaintiff brought suit on the trade acceptances, claiming to be a holder in due course, for value. Defendant admitted signing the acceptances and admitted delivery of same to Aluma-Glo Corporation, but denied plaintiff was a holder in due course, and further alleged in his answer that his signature had been secured upon the trade acceptances by fraud, misrepresentation, deceit and imposition. Defendant alleged plaintiff had knowledge of such fraud.

After the jury had been duly impaneled plaintiff introduced the three trade acceptances in evidence. They were admitted without objection. Plaintiff then rested.

Defendant moved for a directed verdict on the theory that plaintiff had not introduced adequate evidence to properly prove its case, and had failed to meet what defendant denominated as plaintiff's burden of proof. The motion was overruled.

Defendant testified concerning the purchase of the paint and the execution and delivery of the trade acceptances. He testified about certain representations made by Mr. Stuart, the salesman as to the paint. He said he had tried the paint on the building in which he had his place of business and it was completely contrary to Mr. Stuart's representations and to the written guarantee made by the advertising of the Aluma-Glo Corporation. He testified the color as shown on the cans was not the same as the color when the paint was placed upon the building, and instead of lasting a long time as represented, it faded quickly.

Defendant then introduced the deposition of one Edward L. Forer who was the Vice-President and secretary of plaintiff. He testified that plaintiff's principal business was factoring receivables and that plaintiff had purchased the three trade acceptances on May 19, 1960, and paid therefore the sum of $692.85. He also testified plaintiff had purchased many other trade acceptances of the same type from Aluma-Glo Corporation. He said neither he nor plaintiff corporation had knowledge of any defect or infirmity in the three trade acceptances.

In support of his claim that plaintiff had knowledge of fraud of Aluma-Glo Corporation defendant offered in evidence two certificates from the Secretary of State of Florida as to the matter of the incorporation of Aluma-Glo Corporation of America and of Commercial Investment Corporation. The certificates disclosed the fact that a man by the name of Ben Salter was one of the incorporators of both corporations and that they were incorporated at approximately the same time, in May and June of 1959. The certificate concerning plaintiff disclosed that Salter was now the president of plaintiff company.

At the close of defendant's testimony, defendant renewed his motion for a directed verdict. The court overruled the motion and under proper instructions submitted the case to the jury. No exceptions were taken by defendant to the instructions. The jury returned a verdict for plaintiff.

II. Even if the trade acceptances were given by defendant as a part of a fraudulent transaction between defendant and Aluma-Glo Corporation, such fraud would not affect plaintiff's ownership of, and recovery upon, the trade acceptances, if holder in due course.

Section 541.52 of the Negotiable Instruments Law provides as follows: 'What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions:

'1. That the instrument is complete and regular upon its face.

'2. The he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact.

'3. That he took it in good faith and for value.

'4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.'

We have considered and approved the provisions of said section in many cases. We cite a few: Federal Land Bank of Omaha v. Sherburne, 213 Iowa 612, 239 N.W. 778; State Savings Bank v. Behm, 202 Iowa 192, 209 N.W. 523; Midwest Nat. Bank & Trust Company v. Niles, 190 Iowa 752, 180 N.W. 880; Sword v. Spry, 205 Iowa 266, 215 N.W. 737.

Even if there was fraud or misrepresentation in connection with the transaction in accordance with which defendant gave the trade acceptances to Aluma-Glo Corporation, and plaintiff was the holder in due course the trade acceptances would not be vitiated.

In Sword v. Spry, supra, this court held: The claim was here asserted that Burkey the endorser (like defendant in case at bar) had obtained the defendant Spry's note (like Aluma-Glo Corporation) by fraud, and that Burkey had negotiated the note in breach of a conditional delivery agreement with the maker. The fraud alleged was that Burkey had induced the maker to execute the note by making fraudulent representations as to the value and nature of subsoil in Wisconsin, the note being part of the consideration for the purchase of real estate. * * * Finding of the court is that appellant knew nothing of the misrepresentations and false pretenses, and received the negotiable instrument without knowledge of any infirmity therein or prior equities claimed by its maker. * * * Consequently, appellee possessed all the rights of and was entitled to litigate as a holder in due course.

If it appears, as found by the jury in this case, that there was no such knowledge on the part of plaintiff, the fact of fraud and deception in the inception of the transaction between defendant and Aluma-Glo Corporation is immaterial.

III. The trial court properly overruled the motion for directed verdict made by defendant at the close of plaintiff's testimony.

Plaintiff offered all the evidence necessary under the negotiable instrument law and under many decisions to justify submission to the jury. The statutory provisions are:

'541.57 Rights of holder in due course. A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to...