Land Finance Corporation v. Sherwin Electric Co.

• Decision Date: 02 May 1928
• Citation: 141 A. 598,101 Vt. 114
• Parties: LAND FINANCE CORPORATION v. SHERWIN ELECTRIC COMPANY
• Court: Vermont Supreme Court

141 A. 598

101 Vt. 114

LAND FINANCE CORPORATION v. SHERWIN ELECTRIC COMPANY

Supreme Court of Vermont

May 2, 1928

January Term, 1928.

Bills and Notes---Prima Facie Case---Burden of Proof after Introduction of Evidence Tending To Show Fraud in Procuring Trade Acceptances---Evidence Tending To Show Fraud---Jury Question.

1. In ACTION OF CONTRACT on trade acceptances by holder and purchaser thereof, where one defense interposed was fraud when plaintiff proved acceptances and introduced them in evidence, it made a prima facie case on which it could rely until defendant introduced evidence of fraud in procuring acceptances sufficient to support such defense against drawer.

2. In ACTION OF CONTRACT on trade acceptances by holder and purchaser thereof, when defendant introduced evidence sufficient for consideration of jury tending to show fraud in procuring of acceptances, burden was on plaintiff to prove by a preponderance of evidence that it bought acceptances in good faith.

3. In ACTION OF CONTRACT on trade acceptances by holder and purchaser thereof, exclusion of evidence tending to show that defendant was induced to sign acceptances by drawer's fraud, held prejudicial error.

4. In such action, question whether purchaser of acceptance was holder for value in due course, in good faith, held for jury.

5. Under Negotiable Instruments Act, negligence on part of plaintiff in purchasing negotiable paper, or suspicious circumstances sufficient to put a prudent man on inquiry will not of themselves prevent a recovery, but are to be considered merely as evidence bearing on question of bad faith.

ACTION OF CONTRACT on trade acceptances. Plea, that acceptances were obtained through fraud, and that plaintiff was not holder in good faith. Trial by jury at the March Term, 1927, Chittenden County, Chase, J., presiding. Verdict for plaintiff directed by court, and judgment thereon. The defendant excepted. The opinion states the case.

Reversed and remanded.

Chas F. Black for the defendant.

Max L. Powell for the plaintiff.

Present: WATSON, C. J., POWERS, SLACK, and MOULTON, JJ., and THOMPSON, Supr. J.

OPINION

THOMPSON

This is an action of contract on two trade acceptances drawn by the Autocrat Sales & Distributing Corporation on the defendant and accepted by it, payable to the order of the drawer, and indorsed by it to the plaintiff before maturity. The defendant filed an answer setting up fraud in procuring the acceptances and that the plaintiff was not a holder in due course, not having taken said acceptances in good faith. Trial 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 taken to the judgment on the verdict.

The plaintiff is a corporation with its office and place of business in New York City, and, at the time of the transactions involved in this suit, was engaged in purchasing book accounts and commercial paper of merchants. One Leopold Blumberg, who was the only witness for the plaintiff, except Arthur E. Sherwin who was called to prove the acceptances, is the president and treasurer of the plaintiff, and has always owned or controlled all of its capital stock. The defendant is a partnership consisting of George D. Sherwin and Arthur E. Sherwin, and is engaged in the electrical business at Burlington, Vt. The Autocrat Sales & Distributing Corporation is, or was, a corporation engaged in selling electric dishwashing machines, with its headquarters at 40 West 33rd Street, New York City. One B. M. Ainsworth was its general manager. This corporation is hereinafter referred to as the Autocrat Company.

There were originally three acceptances, all bearing the date of April 18, 1925, each for the sum of two hundred and thirty-two dollars and fifty cents, and respectively payable on sixty, ninety, and one hundred and twenty days after date. They are printed with the exception of the date, name, and residence of the defendant, name of the bank through which they are payable, and the name of B. M Ainsworth, all of which are in writing. On the face of each acceptance there are printed in small type the words: "The obligation of the acceptor hereof arises out of the purchase of goods from the drawer." The defendant paid the first acceptance, but refused to pay the two on which this action was brought.

The plaintiff did not rest after the acceptances had been introduced in evidence, but counsel, evidently expecting that the defendant would introduce evidence tending to prove fraud in the procuring of the acceptances, said that they wanted to put the plaintiff on to prove that he was a holder in due course, as he had to return to New York that night, and Mr. Blumberg was then called to the witness stand. He testified that he lived in New York City, that he was a lawyer by profession and had practiced law for over twenty years, that he was president and treasurer of the Land Finance Corporation, and owned or controlled all of its capital stock.

He first testified that this corporation had been in business since 1922, but, in cross-examination, testified that he had previously been connected with a similar concern called the Financial Guild; that it went out of business in the early part of 1925, and he continued under the Land Finance Corporation.

He further testified that the first he ever knew of the Autocrat Company was in the early part of April, 1925, when a Miss Wood, a broker who occasionally brought business to his office, brought Mr. Ainsworth, the manager of the Autocrat Company, to his office.

Ainsworth wanted to sell him some of their trade acceptances, and, in response to questions, told Blumberg that they were selling a dishwashing machine; that they had been in business only a few months; that they took trade acceptances in payment for the merchandise they sold payable in sixty, ninety, and one hundred and twenty days after date; that a concern called the AEtna Finance Corporation had purchased some of their trade acceptances, but they were "over-loaded" and did not want to carry any more at present. In response to an inquiry about the same, Ainsworth showed Blumberg, and later sent him, a copy of an accountant's report of the financial condition of the Autocrat Company. This report was not satisfactory to Blumberg, as he thought it did not show assets enough to protect him in case of loss. He told Ainsworth that it was not satisfactory, and that before they would buy any of the trade acceptances he would have to leave them at the office; that they would have to first verify the authenticity of the signatures and also the credit standing of the acceptors, and, if they were satisfied as to those facts, they would buy whatever paper they might choose to buy.

After testifying to the foregoing talk with Ainsworth, Blumberg was asked what other investigation he made of the Autocrat Company and its business, and he replied: "We made no further investigation of the Autocrat Company, because we were not giving them any credit. When we purchased the trade acceptances, in addition to our inquiries at the banks to verify the authenticity of the signatures and the credit standing of the acceptors, we checked up with the credit agency--Dun's--to find out the credit standing of the acceptors."

Blumberg told Ainsworth that he wanted some credit insurance. A short time later Ainsworth told him that he made application to the National Surety Company for this insurance, but, as the Surety Company already had an outstanding policy of credit insurance, it refused to issue a second policy, and it was suggested that the plaintiff participate in the credit policy which the AEtna Finance Company had. A few days later a man representing the AEtna Finance Company went to Blumberg's office and talked this matter over with him. In the course of the talk Blumberg asked this man, whose name does not appear, how they got along with the Autocrat Company, and he said, "Fine," that they found things satisfactory, but they had over sixty thousand dollars of their paper and did not want to carry any more. Shortly after this a letter was drafted by Blumberg and a Mr. Cohen, who was attorney for the AEtna Finance Company, which was signed by that Company and sent to the plaintiff. It appears from this letter that the policy of credit insurance was issued to the Autocrat Company and assigned by it to the AEtna Finance Company. In this letter the AEtna Finance Company "agree to and do hereby release unto you (Land Finance Corporation) any and all monies which will be paid by the National Surety Co. for and on account of any loss of any accounts and/or trade acceptances purchased by you from the Autocrat Sales & Distributing Corp. and covered by such policy and will immediately upon receipt of any such monies pay over the same to you." It also appears from this letter that the place of business of the AEtna Finance Company was at 40 West 33rd Street, New York City, the same address where the headquarters of the Autocrat Company were.

In direct examination, Blumberg testified that he wanted credit insurance "in case the bankers of any of the acceptors of the trade acceptances were unsatisfactory," but the inference to be drawn from his testimony in cross-examination and in redirect examination is that he wanted this insurance to protect himself from any loss he might sustain because of the non-payment of acceptances which he might buy. In cross-examination he testified as follows: "Q. Then you have an insurance policy? A. No, sir. I had one but that went to the bad also. Q. Were you not protected by insurance? A. I thought I was. * * * Q. You learned from the AEtna that they had an insurance policy covering it against loss...