Geiger Finance Co. v. Graham

• Court: Georgia Court of Appeals
• Writing for the Court: HALL; EBERHARDT; WHITMAN
• Citation: Geiger Finance Co. v. Graham, 182 S.E.2d 521, 123 Ga.App. 771 (Ga. App. 1971)
• Decision Date: 13 May 1971
• Docket Number: No. 3,No. 45922,45922,3
• Parties: , 9 UCC Rep.Serv. 598 GEIGER FINANCE COMPANY v. Carolyn GRAHAM

Page 521

182 S.E.2d 521

123 Ga.App. 771, 9 UCC Rep.Serv. 598

GEIGER FINANCE COMPANY v. Carolyn GRAHAM.

No. 45922.

Court of Appeals of Georgia, Division No. 3.

May 13, 1971.

Syllabus by the Court

The retail instalment contract here is not a negotiable instrument as defined in Code Ann. §§ 109A-3-104 through 109A-3-112; therefore the transferee is not a holder in due course and the trial court did not err in allowing the defense of failure of consideration to be raised.

Plaintiff in a suit on a note appeals from the judgment. It contends the court erred in denying its motion for a directed verdict and in subsequently awarding judgment to the defendant, when she offered no defense sufficient in law against a holder in due course. The judge sat as the trier of facts in this case, and upon plaintiff's motion for directed verdict ruled that it was not a holder in due course and that defendant could raise the defense of failure of consideration.

The evidence showed that on March 12 defendant signed a paper with Economy Exterminating Company entitled 'Retail Installment Contract/Including Promissory Note and Security Agreement.' It called for a cash price of $250, with a time balance of $300 to be paid in 18 monthly instalments. That same day she also signed a 'completion ticket' which stated that the agreed services had been satisfactorily performed. Apparently the company made only one spraying under this contract (the same day it was signed) and the description of the service rendered was 'treatment for fungus PPB.' Defendant testified that when she signed the contract, this place on the form was blank, and that the agreement she made with Economy's agent was for semi-monthly spraying for roaches over a one year period. Plaintiff purchased the contract from the exterminators either the same day or a few days after its execution. Defendant filed an answer to plaintiff's complaint, denying most of its allegations and in turn alleging that Economy failed to treat her premises for roaches with the exception of the one spraying (treatment unknown) for which she stood ready to pay the reasonable cost.

Baker & Bailey, Kirby G. Bailey, Atlanta, for appellant.

S. S. Robinson, Atlanta, for appellee.

HALL, Presiding Judge.

The pleadings showed that a defense existed. Plaintiff therefore had the burden of establishing that it was a holder in due course. Code Ann. § 109A-3-307(3); Pitillo v. Demetry, 112 Ga.App. 643, 145 S.E.2d 792. A holder in due course is one who takes a negotiable instrument in good faith, for value and without notice of any claim or defense against it. Code Ann. § 109A-3-302(1)(c).

The transcript does not clearly indicate the basis upon which the trial court ruled that plaintiff was not a holder in due course, nor is it necessary for our determination of the correctness of the ruling. Plaintiff's contentions all go to lack of notice of a claim or defense on the face of the paper. While the facts here might support a contrary finding, that is not the relevant issue. Plaintiff has overlooked one basic factor in the law of commercial paper-the status of 'holder in due course' applies only to the holder of a negotiable instrument.

Contrary to the rule in many states, ¹ Georgia held this type of contract to be a negotiable instrument under the N.I.L. Colson & Sons v. Ellis, 40 Ga.App. 768, 151 S.E. 654; Peoples Loan & Finance Co. v. Ledbetter, 69 Ga.App. 729, 26 S.E.2d 671; Howard v. Trusco Finance Co., 87 Ga.App. 509, 74 S.E.2d 379. The issue has not been raised since the enactment of the U.C.C., although a footnote in a 1964 case decided under the N.I.L. suggested that conditional-sale contracts would not be Article 3 paper. Van Norden v. Auto Credit Co., 109 Ga.App. 208, 210, 135 S.E.2d 477. There has been a wholesale market for these contracts because it has been assumed they were negotiable instruments which, after a quick transfer, were impregnable to most defenses the consumer would have against the purveyor. Under the umbrella labeled 'free flow of commercial paper' have flourished not only legitimate businesses but the most pernicious rackets. The legislature occasionally corrects some of the more apparent abuses. See 1970 Ga.Laws 441 (Contracts Against Public Policy). However, even assuming ordinary commercial ethics, the effect of such a construction is obvious. 'Conditional sales contracts are invariably written by sellers and finance companies for sellers and finance companies. They are often printed in unconscionably small type and presented to the buyer as a mere formality. * * * The seller is usually justified in believing either that the buyer will not read the contract at all or will not understand it if he does wade through it. Even were the buyer to read and comprehend the avalanche of legal consequences which would greet any default on his part, * * * on the installment plan he must sign one conditional sales contract or another, and they are all pretty much alike. * * * It is against this background that we must view the plight of (a buyer) who staggers into a contract which could make him liable to pay the full price * * * to a finance company, with which he has not dealty directly, even though the vendor sells him a defective article' (or fails to perform the service). Warren, Tools of Chattel Security Transactions, 1956 Ill.Law Forum 531, 543. 'The average citizen, and particularly the financially unimportant, (is) no more likely to know the law of negotiable paper * * * than the holding in Shelley's Case.' Buffalo Industrial Bank v. DeMarzio, 162 Misc. 742, 296 N.Y.S. 783, 785.

The question here is whether this kind of paper is a 'note' within the definition of the U.C.C. (It is not a draft, check or certificate of deposit-the only other forms of negotiable instrument authorized). Code Ann. § 109A-3-104(1) states that a negotiable instrument is a writing signed by the maker containing 'an unconditional promise or order to pay a sum certain in money and no other promise, order, obligation or power given by the maker or drawer except as authorized by this Article.' (Emphasis supplied). Ga.Code § 109A-3-112 lists certain additional terms which an instrument may contain without affecting its negotiability. The meaning of these two sections read together is clear. If a writing contains any other promise, order, obligation or power, it is simply not a negotiable instrument and the concept of a holder in due course does not apply.

While the language of the N.I.L. concerning form was similar in many ways, this section of the U.C.C. was specifically intended to be an expansion of the N.I.L. The words 'no other * * * obligation or power given by the maker' are new. The intent is that a negotiable instrument carries nothing but the simple promise to pay, with certain limited exceptions. See Comment 3, § 3-104, 1962 Official Text of the U.S.C. By enacting the U.C.C., the legislature contemplated change. The caption reads: 'An Act to revise, classify, consolidate and supersede present laws relating to * * * commercial paper * * * and to repeal the present laws relating thereto and to establish new laws * * *; to establish definitions of commercial paper * * *.' Ga.L.1962, p. 156.

The writing here cannot meet this new test. Among other things, it grants to the holder powers to waive particular defaults or remedies...