Local Finance Co. v. Charlton

• Decision Date: 26 March 1956
• Docket Number: No. 7424,7424
• Citation: 289 S.W.2d 157
• Parties: LOCAL FINANCE COMPANY, a corporation, Plaintiff-Appellant, v. Carl D. CHARLTON and Jewell D. Charlton, Defendants-Respondents.
• Court: Missouri Court of Appeals

Page 157

289 S.W.2d 157

LOCAL FINANCE COMPANY, a corporation, Plaintiff-Appellant, v. Carl D. CHARLTON and Jewell D. Charlton, Defendants-Respondents.

No. 7424.

Springfield Court of Appeals, Missouri.

March 26, 1956.

Herbert Douglas, Neosho, for plaintiff-appellant.

A. R. Dunn, Neosho, for defendants-respondents.

STONE, Judge.

In this action on a negotiable promissory note dated January 30, 1953, in the original principal sum of $275.58 payable in eighteen monthly installments of $15.31 each, the first of which was due March 15, 1953, executed by defendants, Carl D. and Jewell D. Charlton, who are husband and wife, payable to the order of Compact Sales Co., and endorsed without recourse by that payee, plaintiff, a finance company with its business office in Joplin, Missouri, who asserts that it is a holder in due course of the note [Section 401.052], appeals from the adverse judgment entered on a jury verdict for defendants. (All statutory references herein are to RSMo 1949, V.A.M.S.)

In their answer, defendants pleaded fraud in the factum, i. e., that their signatures were obtained 'by trick, artifice and fraud' on the part of one C. A. Stubblefield (hereinafter referred to as Stubblefield), an agent of Howard Stubblefield, who did business under the trade name of Compact Sales Co. (hereinafter referred to as Compact), in that Stubblefield 'asked them to sign what he falsely stated and represented to them to be (and what they believed to be) a receipt' for a vacuum cleaner but which was, in fact, the note (and chattel mortgage) in suit. Defendants further pleaded fraud in the inducement, i. e., that Stubblefield falsely stated that Compact 'was seeking a person' in the area of defendants' home on R.F.D. 1, Neosho, Missouri, to make appointments for representatives of Compact to demonstrate vacuum cleaners in other homes under an arrangement known (and hereinafter referred to) as a 'club plan,' whereby Compact would pay to the person making such appointments $25 for each vacuum cleaner sold as a result thereof; that 'only one person would be selected to make appointments' within an area extending 'from * * * Granby in Newton County to Southwest City in McDonald County'; and that, relying upon such false representations, defendant, Jewell D. Charlton, was induced to accept 'said position' and to sign a 'club plan.' ¹ Defendants denied that plaintiff was a holder in due course and asserted that it took the note with full knowledge of 'the scheme and methods' used to defraud defendants.

The evidence upon trial tended to support the averments of defendants' answer. Stubblefield, coming to defendants' home at night, 'wanted us to act as agent for him and make appointments for him to sell vacuum sweepers to other people and we were to get paid ($25) for each sweeper he sold someone'--'he said we could have the territory from Granby to Southwest City, be the only ones through there to make appointments.' After admittedly having read it in full, Mrs. Charlton signed a 'club plan,' a single-spaced typewritten sheet which stated the 'conditions for acceptance as club member' and the 'acceptance' by Compact but included no reference to territory. Then Stubblefield said that 'he would like to leave a vacuum sweeper in our home since we were going to be an agent for him and he would like for us to sign a receipt showing he had left it in good hands.' Stubblefield 'had a clip board with the papers on it and the club plan was on top and we signed that and under it was the two lines of the receipt and we signed that.' When asked why she read the 'club plan' but not the 'receipt,' her reply was 'well, he was getting ready to leave and said he was in a hurry and would we sign those papers and the receipt and club plan'; but, when plaintiff's counsel immediately put the direct inquiry as to whether Stubblefield 'gave you plenty of time to read them if you wanted to read them,' Mrs. Charlton conceded 'I guess I could have.' Mrs. Charlton subsequently learned that she was not 'sole agent' for Compact; and, although she made some appointments for demonstrations, she 'didn't turn them in--I told them what was up.'

Plaintiff purchased the Charlton note for $225 on February 5, 1953, and 'soon after' defendants 'got a card from (plaintiff) saying that they had purchased a note against us for a vacuum sweeper,' to which Mrs. Charlton responded by letter dated February 20, 1953, 'when we bought our Compact cleaner we understood from the salesman that the Co. took care of the mortgage--we did not intend to get mixed up with any Finance Co. when we bought it.' At the trial, Mrs. Charlton insisted that Stubblefield had said nothing about sale of a vacuum cleaner to defendants and that they had not purchased one. Strangely and perhaps significantly, Mr. Charlton, who also signed the 'receipt' (actually the note), did not testify.

Plaintiff, asserting that, as a holder in due course, it holds the Charlton note free from the defenses of fraud in the factum and fraud in the inducement interposed by defendants [Section 401.057], complains on appeal that the trial court erred in refusing to direct a verdict for plaintiff at the close of all of the evidence. The note in suit is complete and regular on its face, and plaintiff's evidence that it purchased the note for value and before the first monthly installment became due is undisputed. But, whether at the time the note was negotiated to plaintiff, i. e., on February 5, 1953, it 'had no notice of any infirmity in the instrument or defect in the title of the person negotiating it' [Section 401.052], and thus whether plaintiff, in fact, became a holder in due course, is a sharply-contested issue.

Section 401.056, which is a mere codification of prior case law [Downs v. Horton, Mo.App., 209 S.W. 595, 599(11), affirmed 287 Mo. 414, 230 S.W. 103, 106], provides that '(t)o constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.' In oft-quoted language, our Supreme Court held in Jennings v. Todd, 118 Mo. 296, 24 S.W. 148, 149-150, that, although '(i)n general one will be charged with notice of a fact who has information which should put him upon inquiry if, by following up such information with diligence and understanding, the truth could have been ascertained', it is 'well settled in this state, however, that the doctrine of notice, as it affects the good faith of transactions generally, does not apply to negotiable commercial paper.' And, in language as frequently quoted with unqualified approbation, it was said in the earlier case of Hamilton v. Marks, 63 Mo. 167, 178, that 'both upon principle and authority, and from the experience of jurists and commercial men, and the interests of the affairs of business life, it is safe to say that the liberal doctrine which promotes the free circulation of negotiable instruments, is the best, and that the good faith of the transaction should be the decisive test of the holder's rights.' ² It was firmly settled long ago, beyond room for argument now, that the purchaser of a negotiable promissory note procured by fraud may not be charged with notice of an infirmity or defect by showing that he was negligent in taking the instrument or that he acquired it with knowledge of facts and circumstances that would arouse the suspicion of an ordinarily prudent person, ³ and that nothing short of actual knowledge or bad faith will defeat the title of such purchaser. ⁴ Of course, actual knowledge may be inferred from the facts and circumstances surrounding acquisition of the note ⁵ but not 'from things that would merely put a prudent man on inquiry.' ⁶

The record in the case at bar indicates (although not clearly and satisfactorily) that salesmen for Compact appointed, under the same 'club plan,' a number of 'sole agents' in the same neighborhood, and that others signed 'receipts' (actually negotiable promissory notes) under similar circumstances. However, a meticulous search of the transcript on appeal reveals no evidence from which plaintiff might have been charged as of February 5, 1953, the date of purchase of the Charlton note, with knowledge of Compact's transactions with, or fraudulent procurement of notes from, any of the other 'sole agents' appointed under the 'club plan,' excepting only Mr. and Mrs. Robert Caldwell of Neosho. On December 17, 1952, one Britton, another salesman for Compact, had called at the Caldwell home; and, under circumstances quite similar to those related by defendants herein, Mrs. Caldwell then had signed a 'club plan' and she and her husband had signed a 'receipt' for a vacuum cleaner. When the Caldwells received, some four to seven days later, a notice from plaintiff 'saying that we owed' $245, they immediately went to plaintiff's office in Joplin and told someone (Mrs. Caldwell thought Whitehead--her husband said 'the manager over there, assistant manager, whoever it was I was talking to') 'all about it.'

Although, on March 21, 1953, plaintiff 'sold back' to Compact the Caldwell note and 'the Gates note' (concerning which there was no other evidence), both of which originally had been endorsed by Compact without recourse, there was no denial of Whitehead's further testimony that he had 'fifty or seventy-five accounts' which he did not 'sell back' to Compact, and that plaintiff had done business with Compact for 'about a year and a half' before plaintiff quit 'right after this (Charlton) deal * came up.' Admittedly, defendants had not communicated with plaintiff prior to February 5, 1953, and obviously plaintiff then could not have acted upon, or been charged with, information thereafter acquired. Brown v. Hoffelmeyer, 74 Mo.App. 385, 393. Of course, the fact that plaintiff took the...