Harponola Company v. George H. Wilson

• Decision Date: 02 May 1923
• Parties: HARPONOLA COMPANY v. GEORGE H. WILSON
• Court: Vermont Supreme Court

120 A. 895

96 Vt. 427

HARPONOLA COMPANY v. GEORGE H. WILSON

Supreme Court of Vermont

May 2, 1923

February Term, 1923.

ACTION OF CONTRACT on a promissory note. Pleas, fraud in procuring the note, and failure of consideration. Trial by jury at the June Term, 1922, Caledonia County, Moulton, J., presiding. At the close of all the evidence the court directed a verdict for the plaintiff and judgment was rendered therefore. The defendant excepted. The opinion states the case.

Reversed and remanded.

Sumner E. Darling, Jr., for the defendant.

Shields & Conant for the plaintiff.

Present WATSON, C. J., POWERS, TAYLOR, SLACK, and BUTLER, JJ.

OPINION

TAYLOR

The action is on a promissory note given by the defendant to one L. W. Watson, a member of the Peerless Talking Machine Company, so-called, payable to P. J. Stover another member of the company, or his order, and indorsed by the latter to the plaintiff before maturity. The defendant filed an answer setting up fraud in procuring the note and failure of consideration. The trial was by jury. At the close of the evidence the court directed a verdict for the plaintiff, to which the defendant was allowed an exception. An exception was also saved to the judgment on the verdict. Other exceptions were taken by the defendant during the trial, but are waived by failure to brief.

The plaintiff is a corporation engaged in the manufacture of phonographs with its principal office and place of business at Celina, Ohio. The defendant is a merchant in business at Hardwick, Vermont. The plaintiff markets phonographs manufactured by it through jobbers and dealers. Some time in June, 1920, it entered into business arrangements with individuals who styled themselves Peerless Talking Machine Company and represented their headquarters to be in Chicago Ill. Among the number were L. W. Watson and P. J. Stover, who figured principally in the transactions presently to be noticed.

As the first ground of the motion for a directed verdict the plaintiff claimed that the defendant had failed to make out the defense of fraud in procuring the note. Whether the evidence was sufficient to take this question to the jury is first for consideration. In detailing the evidence we shall state what it fairly tended to show in the view most favorable to the defendant.

July 7, 1921, the defendant was interviewed by a representative of the Peerless Talking Machine Company, hereinafter referred to as the Peerless Company. Prior to that time the defendant had not dealt in phonographs and had never owned one. This representative solicited the defendant to act as an agent of the Peerless Company for the sale of phonographs on commission. It was proposed to ship the defendant certain phonographs on consignment, the same to remain the property of the Peerless Company until sold; that he was to be under no responsibility, but was to act as an agent and receive a commission of 25 per cent. for doing the business; that the company would send out advertising matter to persons whose names were to be furnished by the defendant and would send men around to canvass from house to house to sell machines; that the company would furnish records which the defendant was to sell on a 40 per cent. commission. Cuts representing the style of the phonographs were shown and the defendant was told that they were as good as the "Victor." The selling price of the machines was to be $ 210. In the course of the negotiations a proposed agency contract was shown the defendant which he read and handed back to the agent. Its provisions conformed to the proposals stated above. The defendant was tricked by the agent into signing an agreement of an entirely different tenor which he had not read. It purported to be an agency agreement such as had been proposed, but it contained an order for "four sample cabinet imperial taking machines of $ 157.50 quality," and a promise to pay the Peerless Company, or order, therefore the sum of $ 630 on demand. The contract signed was so worded as to confine the agency agreement, including the non-liability clause, to machines "shipped upon future orders." The defendant asked for a copy of the contract but was put off with the promise that it would be furnished later. He was told to store the machines when they arrived and wait until the men came who were to be sent to make the canvass. The machines came sometime in August and were not uncrated but were stored as directed. September 10, 1921, Watson called on the defendant and presented a bill for the four machines. The latter insisted that he had not bought any machines, whereupon Watson produced the contract signed by the defendant. In response to the defendant's protest that a trick had been played upon him, Watson said he was glad to know that, but still insisted upon payment. As an inducement, he proposed to accept a payment of $ 330 and a note for the balance and to take back all machines not sold at the end of a year. To assure the defendant that he would not "lose" anything by the transaction and to make it "safe" for him, Watson indorsed on the back of the contract an agreement to refund $ 157.50 for each machine not sold at the expiration of one year from the date of the contract. The machines had not then been opened up so that they could be examined. Watson told the defendant, "the boys will be here in about two weeks to take the machines out and sell them for you;" and that they were to advertise with banners and posters. Finally, the defendant was persuaded to give Watson a check for $ 330 and the note in suit for $ 300, payable thirty days after date. From that time forward the defendant was unable to get any communication from the Peerless Company. The promised advertising material was not sent, the men who were to take the machines out and conduct a selling campaign did not show up, and the defendant could get no response to letters written the company. After a while he uncrated the machines and offered them for sale, but without success. They were found to be of inferior quality and not salable at the price named in the agency agreement. A fair price to dealers was about what the defendant paid in cash. It was represented to the defendant that the Peerless Company were manufacturers of phonographs with their home office at Celina, Ohio, and the crates containing the machines shipped the defendant were marked:

From Peerless Talking Machine Co. Manufacturers of Phonographs

Celina Ohio

They were not such and had no place of business in Celina, Ohio nor elsewhere, so far as was known to the manager of the plaintiff who had had intimate business relations with the men calling themselves the Peerless Company for more than a year. They had a mail box at the Celina postoffice where mail was received, of which the plaintiff's manager had the combination. He was accustomed to remove the mail and hold it until called for or to forward to different places as directed.

Section 58 of the Negotiable Instruments Act (G. L. 2927) provides that a negotiable instrument in the hands of any holder other than a holder in due course is subject to the same defenses as if it were non-negotiable. It follows that fraud in the inception of a negotiable instrument, or absence or failure of consideration, such as would defeat a recovery thereon between the immediate parties, is available as a defense when the plaintiff is not a holder in due course. So the inquiry on this branch of the case is whether the evidence would support such a defense if the Peerless Company were the plaintiff. Manifestly the burden of establishing the defenses of fraud and failure of consideration is upon the defendant. Unless he has adduced evidence sufficient for the consideration of the jury on one or both of these issues, the plaintiff could safely rely on the prima facie case made by the note properly indorsed. It is presumed to be a holder in due course, as defined in Section 52 of the Act (G. L. 2921), and the note is deemed prima facie to have been issued for a valuable consideration. Section 24 of the Act (G. L. 2894). Some courts have held that although the production of the note is prima facie evidence of consideration, if the defendant gives evidence tending to show want of consideration, the plaintiff has the ultimate burden upon the whole evidence of showing that there was consideration. The courts so holding make no reference to section 28 of the Act (G. L. 2898) and seem to have overlooked its effect. It provides: "Absence or failure of consideration is matter of defense as against any person not a holder in due course; and partial failure of consideration is a defense pro tanto whether the failure is an ascertained and liquidated amount or otherwise." It seems clear that under the Negotiable Instruments Act the burden is cast upon the defendant, not only of introducing some evidence of lack or failure of consideration, but of ultimately establishing the issue by a preponderance of evidence. Williston on Con. § 108; Brannon on Neg. Ints. Law, 91-98, where the cases are reviewed.

It will be noticed that the motion for a verdict left out of account the defense of failure of consideration. However, the court treated the question as raised in disposing of the motion. The plaintiff made no claim but that the evidence showed actionable fraud in procuring the so-called agency agreement, but insisted that the original fraud was waived by the adjustment reached at the time the note was given. Respecting the representations made by Watson as to the value of the phonographs and his agreements relating to matters to be performed in the future, it was claimed that they were not fraudulent in law. The court adopted the plaintiff's theory in granting the motion. But this was not a...