Funding Consultants, Inc. v. Aetna Cas. and Sur. Co.

CourtSupreme Court of Connecticut
Writing for the CourtBefore SPEZIALE; PETERS
Citation187 Conn. 637,447 A.2d 1163
Parties, 34 UCC Rep.Serv. 591 FUNDING CONSULTANTS, INC. v. AETNA CASUALTY AND SURETY COMPANY et al.
Decision Date27 July 1982

Page 1163

447 A.2d 1163
187 Conn. 637, 34 UCC Rep.Serv. 591
FUNDING CONSULTANTS, INC.
v.
AETNA CASUALTY AND SURETY COMPANY et al.
Supreme Court of Connecticut.
Argued May 11, 1982.
Decided July 27, 1982.

David J. Heinlein, Hartford, with whom, on brief, was Robert L. Hirtle, Jr., Hartford, for appellant (defendant Benjamin C. Preisner).

Paul M. Sabetta, New Haven, for appellee (plaintiff).

Before SPEZIALE, C. J., and PETERS, HEALEY, GRILLO and COVELLO, JJ.

[187 Conn. 638] PETERS, Associate Justice.

In this suit on a promissory note, the dispositive issue is whether a maker of a note may introduce expert testimony to challenge the good faith of a person seeking to enforce the note as a holder in due course. The plaintiff, Funding Consultants, Inc., brought an action, initially only against the defendant Aetna Casualty and Surety Co., Inc., but ultimately also against the defendant Benjamin C. Preisner, 1 as co-makers of a promissory note in the amount of $68,000. Aetna Casualty, in the interim, had impleaded Preisner by a third party complaint alleging that Aetna Casualty as surety was entitled to indemnification from Preisner if Aetna Casualty were held liable to Funding Consultants. See General Statutes § 52-102a; Practice Book § 117.

Page 1164

After a trial to a jury, judgments were rendered in favor of the plaintiff against both defendants, and in favor of the third party plaintiff against the third party defendant. Only the appeal of Preisner as defendant and third party defendant is being pursued in this court. 2

[187 Conn. 639] The present action is a suit on a promissory note which was given to Paul King, Jr. in connection with the 1974 sale of the Paul King, Jr. Insurance Company to the defendant Preisner. On this note, hereinafter the Preisner note, Preisner and Aetna Casualty were co-makers, although Aetna Casualty's status was that of an accommodation party for Preisner. The Preisner note was a $68,000 noninterest bearing negotiable instrument calling for four equal instalments to be paid annually beginning on November 1, 1975, and ending on November 1, 1978.

King sold the Preisner note to the plaintiff Funding Consultants, Inc. on January 18, 1975, for $5000 cash and a promissory note. This note, hereinafter the Funding note, was a $35,000 noninterest bearing negotiable instrument calling for four equal instalments to be paid at bi-monthly intervals beginning on March 20, 1975, and ending on September 20, 1975.

The defendant Preisner, after formal demand, refused to make any payments on the Preisner note because, he alleged, the execution of the note had been induced by fraudulent misrepresentations about the financial condition of the Paul King, Jr. Insurance Company. The plaintiff Funding Consultants thereupon, on December 1, 1975, in reliance upon an acceleration clause contained in the [187 Conn. 640] Preisner note, declared the whole amount of that note to be then due and payable. This litigation ensued. 3

At the trial, the plaintiff sought to recover on the Preisner note as a holder in due course. Only a holder in due course may enforce a negotiable instrument without regard to the maker's assertion of a personal defense such as fraud in the inducement. General Statutes § 42a-3-305(2); cf. Land Finance Corporation v. Menzies, 114 Conn. 694, 699, 160 A. 168 (1932) (under pre-Uniform Commercial Code law); see E. Peters, A Negotiable Instruments Primer (2d Ed. 1974) § I, pp. 33-34; White & Summers, Uniform Commercial Code (2d Ed. 1980) § 14-9. Evidence of the existence of a personal defense does, however, shift to the holder of the instrument the burden of proving his due course status. General Statutes § 42a-3-307(3); cf. Hartford National Bank & Trust Co. v. Credenza, 119 Conn. 368, 370, 177 A. 132 (1935) (under pre-Uniform Commercial Code law); see Peters, op. cit., § J, p. 34. That burden requires the holder to prove his taking of the instrument "(a) for value; and (b) in good faith; and (c) without notice

Page 1165

that it is overdue[187 Conn. 641] or has been dishonored or of any defense against or claim to it on the part of any person." General Statutes § 42a-3-302; cf. Parsons v. Utica Cement Mfg. Co., 82 Conn. 333, 339, 73 A. 785 (1909) (under pre-Uniform Commercial Code law); see Peters, loc. cit.; White & Summers, op. cit., § 14-6.

In order to establish its due course status, the plaintiff relied on the testimony of its president, Richard R. Splain. When the good faith of the plaintiff's purchase was put into issue, Splain testified that he had little knowledge about or experience in the purchase of negotiable instruments. 4 The defendant sought to counter this testimony by offering, as an expert witness, Michael Schaeffer of the Connecticut Bank & Trust Company to testify that the plaintiff had given inadequate consideration for its purchase of the Preisner note. Such testimony would furnish some evidence, according to the defendant, that Splain had testified untruthfully about the good faith of the plaintiff's purchase. The plaintiff objected to admission of the testimony as irrelevant and prejudicial. After a hearing, the trial court sustained the plaintiff's objection on the ground of prejudice.

The case was submitted to the jury with one special interrogatory. In response to that interrogatory, the jury found the plaintiff to be a holder in [187 Conn. 642] due course with respect to the Preisner note. The defendant's appeal has assigned the exclusion of the expert testimony as error. 5

The disagreement of the parties on this appeal is a narrow one. On the one hand, the defendant concedes that the standard of good faith under the Uniform Commercial Code is, as it was under the prior Negotiable Instruments Law, a subjective standard. "Good faith," as used in General Statutes § 42a-3-302(1)(b), is defined in General Statutes § 42a-1-201(19) as "honesty in fact in the conduct or transaction concerned." Both the language of other sections of the Code 6 and the Code's drafting history 7 incontrovertibly demonstrate that this [187 Conn. 643] standard is one that imposes no duty of due care on the holder. The test is

Page 1166

honesty in fact rather than negligence. See, e.g., Industrial National Bank of Rhode Island v. Leo's Used Car Exchange, Inc., 362 Mass. 797, 801, 291 N.E.2d 603 (1973); Breslin v. New Jersey Investors, Inc., 70 N.J. 466, 471, 361 A.2d 1 (1976); Chemical Bank of Rochester v. Haskell, 51 N.Y.2d 85, 91-92, 411 N.E.2d...

To continue reading

Request your trial
21 practice notes
  • Federal Paper Bd. Co., Inc. v. Amata, Civ. No. H-86-1415 (MJB).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • February 10, 1988
    ...requires only a showing that a party was not "honest in fact." Funding Consultants, Inc. v. Aetna Casualty & Sur. Co., 187 Conn. 637, 643, 447 A.2d 1163, 1165-66 (1982). That is a much lighter burden than is required for establishing fraud. See Miller v. Appleby, 183 Conn. 51,......
  • Suarez v. Dickmont Plastics Corp., No. 14765
    • United States
    • Supreme Court of Connecticut
    • March 16, 1994
    ...A.2d 489 (1990); Puro v. Henry, 188 Conn. 301, 309, 449 A.2d 176 (1982); Funding Consultants, Inc. v. Aetna Casualty & Surety Co., 187 Conn. 637, 645, 447 A.2d 1163 (1982); I know of no civil case in which we have held that an expert--even a professional engineer, like Shanok--can opine......
  • Wadia Enterprises, Inc. v. Hirschfeld, No. 14540
    • United States
    • Supreme Court of Connecticut
    • December 22, 1992
    ...level of bad faith. Habetz v. Condon, supra, at 237, 618 A.2d 501; see also Funding Consultants, Inc. v. Aetna Casualty & Surety Co., 187 Conn. 637, 447 A.2d 1163 (1982); compare Grasso Paving & Landscaping, Inc. v. Five Twenty-one Corporation, Superior Court, judicial district of S......
  • PSE Consulting, Inc. v. Frank Mercede & Sons, Inc., (SC 16839).
    • United States
    • Supreme Court of Connecticut
    • January 13, 2004
    ...found to have acted in bad faith." (Internal quotation marks omitted.) Funding Consultants, Inc. v. Aetna Casualty & Surety Co., 187 Conn. 637, 644, 447 A.2d 1163 (1982). Accordingly, a surety's failure to conduct an adequate investigation of a claim upon a payment bond, when accom......
  • Request a trial to view additional results
21 cases
  • Federal Paper Bd. Co., Inc. v. Amata, Civ. No. H-86-1415 (MJB).
    • United States
    • United States District Courts. 2nd Circuit. United States District Court (Connecticut)
    • February 10, 1988
    ...requires only a showing that a party was not "honest in fact." Funding Consultants, Inc. v. Aetna Casualty & Sur. Co., 187 Conn. 637, 643, 447 A.2d 1163, 1165-66 (1982). That is a much lighter burden than is required for establishing fraud. See Miller v. Appleby, 183 Conn. 51,......
  • Suarez v. Dickmont Plastics Corp., No. 14765
    • United States
    • Supreme Court of Connecticut
    • March 16, 1994
    ...A.2d 489 (1990); Puro v. Henry, 188 Conn. 301, 309, 449 A.2d 176 (1982); Funding Consultants, Inc. v. Aetna Casualty & Surety Co., 187 Conn. 637, 645, 447 A.2d 1163 (1982); I know of no civil case in which we have held that an expert--even a professional engineer, like Shanok--can opine......
  • Wadia Enterprises, Inc. v. Hirschfeld, No. 14540
    • United States
    • Supreme Court of Connecticut
    • December 22, 1992
    ...level of bad faith. Habetz v. Condon, supra, at 237, 618 A.2d 501; see also Funding Consultants, Inc. v. Aetna Casualty & Surety Co., 187 Conn. 637, 447 A.2d 1163 (1982); compare Grasso Paving & Landscaping, Inc. v. Five Twenty-one Corporation, Superior Court, judicial district of S......
  • PSE Consulting, Inc. v. Frank Mercede & Sons, Inc., (SC 16839).
    • United States
    • Supreme Court of Connecticut
    • January 13, 2004
    ...found to have acted in bad faith." (Internal quotation marks omitted.) Funding Consultants, Inc. v. Aetna Casualty & Surety Co., 187 Conn. 637, 644, 447 A.2d 1163 (1982). Accordingly, a surety's failure to conduct an adequate investigation of a claim upon a payment bond, when accom......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT