Favors v. Yaffe

• Decision Date: 06 August 1980
• Docket Number: No. A2440,A2440
• Citation: 605 S.W.2d 342
• Parties: 31 UCC Rep.Serv. 154 James E. FAVORS et al., Appellants, v. Paul E. YAFFE, Appellee. (14th Dist.)
• Court: Texas Court of Appeals

Page 342

605 S.W.2d 342

31 UCC Rep.Serv. 154

James E. FAVORS et al., Appellants, v. Paul E. YAFFE, Appellee.

No. A2440.

Court of Civil Appeals of Texas, Houston (14th Dist.).

Aug. 6, 1980.

Rehearing Denied Sept. 10, 1980.

Kenneth W. Lewis, Mehaffy, Lewis & Garcia, Beaumont, for appellants.

William A. Petersen, Jr., Lapin, Totz & Mayer, Houston, for appellee.

Before BROWN, C. J., and PAUL PRESSLER and JUNELL, JJ.

JUNELL, Justice.

Appellee Paul E. Yaffe, plaintiff in the court below, sued James E. Favors and his wife, Zoe W. Favors, on a promissory note. The note had been sold and assigned to Yaffe by the original payee, against whom the Favors alleged the defense of fraud in the inducement. Yaffe claimed the status of holder in due course of the note. A jury trial resulted in a verdict favorable to defendants. The trial court granted Yaffe's motion for judgment notwithstanding the verdict and rendered judgment for Yaffe in the amount due on the note. Favors and wife appeal contending that the alleged fraud perpetrated upon them by the original payee, as shown by the evidence and found by the jury, precludes Yaffe from becoming a holder in due course and, thus, the judgment n. o. v. was improper. We affirm.

In October, 1971, the Favors were in New Orleans, Louisiana, when they were approached by a person promoting the sale of land in Arizona. The salesman represented to the Favors that the land could be purchased with a money back guarantee whereby the vendor, Cochise College Park, Inc., would refund the total purchase price to the Favors if, upon their on-site inspection of the property in Arizona, they wished to back out. Mr. Favors testified that upon that representation he and his wife purchased the property. On October 27, 1971, they executed a deed of trust to Cochise College Park, Inc., and a promissory note in the face amount of $4,844.28 payable in 84 monthly installments. On the same date the Cochise representative, James Martin, executed and delivered to the Favors the "Money Back Guarantee And Exchange Privilege" which was good for six months as long as the mortgage was not in default. Favors testified that in January or February of 1972 he and his wife traveled to Arizona to inspect the property in order to exercise the refund provision and get their money back. Favors testified that the representative then offered to extend the "Money Back Guarantee" for another year and to try to sell their tract and share the profit with the Favors, to which they agreed and continued making the monthly payments.

Unknown to the Favors Cochise had sold and assigned their promissory note to Paul Yaffe on November 8, 1971, twelve days after the purchase. Yaffe testified that he had purchased two notes from Cochise at a discount for an investment through an investment broker in his hometown, Cleveland, Ohio. He stated that at the time of purchase he had seen no documents other than the note and the mortgage, had no knowledge of any money back guarantee and would not have purchased the notes had he been aware of it. He testified that he had no knowledge of any default, dishonor, claim or defense against the note, and that he had purchased it for value and in good faith. The Favors were informed that Cochise was in bankruptcy and made a refund demand on the bankruptcy court in January, 1973. They continued making payments on the note until April, 1973. In March, 1974, Yaffe began his collection efforts from which this suit resulted.

Every note holder is presumed to be a holder in due course of the instrument absent evidence to the contrary. Couch v. Babb, 423 S.W.2d 464 (Tex.Civ.App.-Beaumont 1968, writ ref'd n. r. e.). A holder in due course of a negotiable instrument is a holder who takes the instrument for value, in good faith and without notice of any dishonor, default, defense or claim to it on the part of any person. Tex.Bus. & Com.Code Ann. § 3.302 (Tex. UCC 1968). A holder in due course takes the instrument free from all claims and all defenses of any party to the instrument with whom he has not dealt except, among other exceptions here not relevant, such misrepresentation as has induced the maker to sign the instrument without knowledge of, or opportunity to discover, its character or its essential terms. Tex.Bus. & Com.Code Ann. § 3.305 (Tex. UCC 1968). When the signatures on an instrument are...