Kone v. Security Finance Co.

• Decision Date: 21 May 1958
• Docket Number: No. A-6628,A-6628
• Citation: 313 S.W.2d 281,158 Tex. 445
• Parties: Sam L. KONE, Petitioner, v. SECURITY FINANCE CO. et al., Respondents.
• Court: Texas Supreme Court

Page 281

313 S.W.2d 281

158 Tex. 445

Sam L. KONE, Petitioner, v. SECURITY FINANCE CO. et al., Respondents.

No. A-6628.

Supreme Court of Texas.

May 21, 1958.

W. Pat Camp, Moursund, Ball, Bergstrom & Barrow, San Antonio, for petitioner.

Brown & Brown, John A. Daniels, Pat Legan, San Antonio, for respondents.

CALVERT, Justice.

Suit was by Sam L. Kone against Security Finance Company, a partnership, and its individual members, and against Felix Chapa, owner of Chapa Motors, and B. T. Woodard. Kone sought a judgment against the defendant Woodard vesting in plaintiff the title to two Chevrolet automobiles and, alternatively, a judgment against all other defendants of compensatory and exemplary damages. By cross-action Woodard sought a recovery of title to and possession of the two automobiles and, alternatively, a recovery of damages against its co-defendants.

Judgment was rendered on a special jury verdict that the plaintiff take nothing against Woodard and Chapa, but that he recover compensatory damages in the sum of $3,479 and exemplary damages in the sum of $2,000 against Security Finance Company and its partner-members. Woodard was awarded title to and possession of the two automobiles.

Plaintiff did not appeal from that portion of the judgment denying him a recovery of the automobiles nor from that portion denying him a recovery of damages against Chapa, and those matters are not in issue. On an appeal perfected by Security and its partner-members from the judgment adverse to them, the Court of Civil Appeals reversed and remanded the cause for retrial. 307 S.W.2d 163.

Kone's suit grew out of his purchase of two Chevrolet automobiles from Chapa Motors. In payments for the automobiles Kone executed and delivered to Chapa Motors three checks payable to Chapa Motors in the respective sums of $200, $1,800 and $1,479. The checks were endorsed by Chapa Motors by one Elmo Thompson and were delivered to Security with directions by Thompson that the proceeds of the two larger checks be applied to the payment and discharge of debts held by Security against Chapa growing out of the sale of two other automobiles to one Beard and one Cobb. They were so applied. Security paid Thompson $200 in cash for Kone's check in that sum. The checks were presented to and paid by the bank on which they were drawn and were charged to Kone's account.

Title papers to the two automobiles were held by Woodard, another dealer, who declined to deliver them until he had been paid the sum of $3,438. Kone was thus out his money but was unable to obtain title to the automobiles.

Kone's prayer for damages against Security and its partner-members was predicated on three alternative legal theories: (1) that Security had taken control of and was in fact operating Chapa Motors; (2) that in the purchase and sale of the automobiles in question Security was the real principal and Chapa its agent, and (3) that the funds derived by Security from the checks were held in trust for Kone. These matters were all put in issue by Security's answer, it and its partner-members contending that Security was a holder in due course of the checks and entitled to protection as such.

The case was submitted to the jury on special issues. The jury found that Security had not taken over and was not operating Chapa's business for its own benefit (14), but that the two automobiles were sold by Woodard to Secutiry (1) through Chapa (3) who was Security's agent in the sale to Kone (16); that when Woodard, without negligence on his part (9), delivered the two automobiles to Chapa it was agreed that he would be paid $3,438 therefor (5 requested by Woodard) and that title would not pass until payment was made (5); that when Security received Kone's checks it knew or should have known of the agreement with Woodard (6 requested by Woodard) and also knew that Kone's checks should be applied to payment of the purchase price to Woodard (1 requested by Kone) and to the payment of taxes and license and transfer fees (2 requested by Kone); that upon authorization of Elmo Thompson, an employee and agent of Chapa (11), who acted within the scope of his employment (12), Security, then knowing or being charged with notice that Woodard had not been paid (13), received and converted Kone's checks to its own use and benefit (15) by applying the same on a prior indebtedness, and thus perpetrated a wilful fraud on Kone (18) for which it should be punished by payment of exemplary damages to Kone in the sum of $2,000 (19). In answer to special issue 20, however, the jury fund that at the time the Kone checks were endorsed and delivered to Security by Chapa Motors, Security was a holder thereof in due course.

On motion of Kone the trial court disregarded the answer of the jury to issue 20 and, as above indicated, rendered judgment for Kone against Security. Reversal by the Court of Civil Appeals was predicated on asserted error of the trial court in disregarding the answer to issue 20. The Court of Civil Appeals held that there was evidence to support the finding that Security was a holder in due course of Kone's checks, and that that finding was in necessary conflict with the finding that Chapa was acting as Security's agent in making sale of the automobiles to Kone. There is no doubt that the finding in answer to issue 20 is in conflict with several of the other findings.

Kone seeks to overturn the judgment of the Court of Civil Appeals and sustain the action of the trial court in disregarding the answer of the jury to issue 20 on two grounds, viz.: (1) the evidence establishes as a matter of law that Security was not a holder in due course of the checks, and (2) the issue was an immaterial and superfluous one and should never have been submitted.

Section 52 of Article 5935, Vernon's Annotated Texas Civil Statutes, defines a holder in due course as one who has taken an instrument under the following conditions: '1. That it is complete and regular upon its face; 2. That 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.'

Petitioner Kone does not question that when the checks were negotiated by Chapa Motors to Security they were complete and regular on their faces, were not overdue, and had not been dishonored. He insists, however, that Security did not furnish a consideration deemed valuable in law, and that the evidence establishes conclusively that Chapa Motors' title to the checks was defective and that Security took the checks in bad faith.

The contention that Security did not furnish a valuable consideration for the checks is based upon the fact that they were credited on pre-existing debts. The contention is overruled. Petitioner recognizes that Section 25 of Article 5933, V.A.T.S., provides that 'An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.' That was the rule in this state even before the adoption of the Negotiable Instruments Law, Herman v. Gunter, 83 Tex. 66, 18 S.W. 428, 429; Adams v. Williams, 112 Tex. 469, 248 S.W. 673, 676, and it is still the rule. Taylor & Co. v. Nehi Bottling Co., Tex.Civ.App., 30 S.W.2d 494, 497, writ refused. The...