Pacific States Automotive Finance Corporation v. Addison

• Decision Date: 30 November 1927
• Docket Number: 4740
• Citation: 45 Idaho 270,261 P. 683
• Parties: PACIFIC STATES AUTOMOTIVE FINANCE CORPORATION, a Corporation, Respondent, v. W. K. ADDISON, Appellant
• Court: Idaho Supreme Court

261 P. 683

45 Idaho 270

PACIFIC STATES AUTOMOTIVE FINANCE CORPORATION, a Corporation, Respondent, v. W. K. ADDISON, Appellant

No. 4740

Supreme Court of Idaho

November 30, 1927

SALES-FRAUD-PROMISSORY STATEMENTS-BUSINESS NAMES-FOREIGN COMPANY-"DOING BUSINESS WITHIN STATE"-BILLS AND NOTES-HOLDER IN DUE COURSE.

1. Fraud in inception of sale contract for washing-machines for which trade acceptances were given held not shown notwithstanding evidence that seller's agent made oral promises concerning delivery of merchandise and methods to be employed in its sale, where sale contract expressly provided that no representation, agreement or covenant outside of those contained therein would be recognized, and first words of instrument were, "read before signing."

2. Where neither contract for sale of washing-machines nor trade acceptances given therefor at time of sale were completed within the state of Idaho and transaction was purely interstate, failure to file, under Laws 1921, chap. 212 certificate on part of seller company having fictitious name and under which it did business did not render transaction as to trade acceptances prima facie fraudulent.

3. In action by indorsee on trade acceptances, facts held not to show that title of indorser to instruments under C. S., sec 5922, was defective so as to remove presumption, under sec 5926, attaching in favor of indorsee, that every holder is deemed prima facie to be holder in due course.

4. Where consideration paid by indorsee of trade acceptances was more than nominal, fact that it acquired the instrument at an excessive rate of discount held not to make its good faith a question for jury, where there was nothing in transaction surrounding purchase of instruments by indorsee to charge it with bad faith.

5. Holder of negotiable instruments is not bound at his peril to be on the alert for circumstances exciting suspicions of wary vigilance, nor does he owe to party putting paper afloat the duty of active inquiry in order to avoid imputation of bad faith.

APPEAL from the District Court of the Third Judicial District, for Ada County. Hon. Dana E. Brinck, Judge.

Action to recover on trade acceptances. Judgment for plaintiff. Affirmed.

Judgment affirmed. Costs to respondent.

Johnson & Nixon, for Appellant.

The title of Alexander or Cascade Products Company to the instruments was defective. (C. S., sec. 5922; Pocatello Security Trust Co. v. Henry, 35 Idaho 321, 328-331, 27 A. L. R. 337, 206 P. 175; Wright v. Spencer, 39 Idaho 60, 62-67, 226 P. 173; Shellenberger v. Nourse, 20 Idaho 323, 329, 333, 334, 118 P. 508; German-American Bank v. Cunningham, 97 A.D. 244, 89 N.Y.S. 836; First National Bank v. Campbell, 39 Idaho 736, 741, 230 P. 43; Laws 1921, chap. 212, p. 424.)

The burden of proof was upon respondent to show that it took without notice. (C. S., sec. 2926; First National Bank v. Pond, 39 Idaho 770, 775, 230 P. 344.)

There was ample evidence in the record to impeach and contradict the testimony of Mr. Lyen, sole witness for respondent, and from which the jury might reasonably have drawn the inference that the respondent was not a holder in due course and consequently respondent did not sustain the burden of proof and it was error for the court to take the case from the jury. (First Nat. Bank v. Pond, 39 Idaho 770, 775-776, 230 P. 344, and cases cited; Winter v. Nobs, 19 Idaho 18, 27-29, Ann. Cas. 1912C, 302, 112 P. 525; Park v. Johnson, 20 Idaho 548, 553-555, 119 P. 52; Park v. Brandt, 20 Idaho 660, 119 P. 877; Vaughan v. Johnson, 20 Idaho 669, 119 P. 879, 37 L. R. A., N. S., 816.)

The court would not permit Lyen, on cross-examination, to testify about his acquaintance and dealings with Domestic Products Company, which was the name under which Alexander conducted business from February, 1924, when Cascade Products Company went out of business, and this ruling is assigned as error because of an agreement in writing between respondent and Alexander doing business as Domestic Products Company, which agreement is referred to in the answer and which provided that action upon these trade acceptances be deferred for a certain time, or until receipt of the goods, and which contract was alleged in the answer to contain statements showing that when respondent took over the trade acceptances it had full knowledge of the terms and conditions of the contract under which the washing-machines were sold to Addison.

This original contract was shown by the evidence to be in the possession of plaintiff and it was given reasonable notice in the answer to produce it. The plaintiff failed to produce it or to account for its absence. Under these circumstances secondary evidence of its contents was admissible (C. S., sec. 7970, subd. 2).

Gustave Kroeger and Harry Keyser, for Respondent.

No fraud shown in the inception of the contract.

(a) Principal not bound by representations of agent going beyond the terms of the contract.

(b) For the same reason there was no agreement not to transfer the trade acceptances.

Principal not bound by representations of agent where contract provides that no agreement save those in the contract would be recognized. (2 C. J. 857; Bruner v. Kansas Moline Plow Co., 7 Ind. Ter. 506, 104 S.W. 816; Blackstad Merc. Co. v. J. W. Porter & Co. (Tex. Civ. App.), 158 S.W. 216; Steiner Mfg. Co. v. Kochaniewicz (N. J.), 128 A. 608; Colonial Development Corp. v. Bragdon, 219 Mass. 170, 106 N.E. 633; Schuster v. North American Hotel Co., 106 Neb. 672, 184 N.W. 136, 186 N.W. 87; Kasch v. Williams (Tex. Civ. App.), 251 S.W. 816; Southern Fertilizer Co. v. Harrell, 17 Ga.App. 642, 87 S.E. 911; Locomobile Co. of America v. Belasco, 32 Cal.App. 329, 162 P. 920; American Emigrant Co. v. Clark, 47 Iowa 671.)

Statutes requiring firms doing business under fictitious names to file certificates have no application, as transaction was wholly interstate. (D. M. Ferry & Co. v. Smith, 36 Idaho 67, 209 P. 1066; General Motors Acceptance Corp. v. Lund, 60 Utah 247, 208 P. 502; Dunn-Salmon Co. v. Edwards, 60 Pa. S.Ct. 340.)

Mere suspicious circumstances will not charge the purchaser with bad faith and notice of alleged defenses; there must be actual notice either of the facts constituting the defense or of such facts and circumstances that the purchase of the paper in the face of such knowledge amounts to bad faith. (First Nat. Bank v. Pond, 39 Idaho 770, 230 P. 344; Butte Machinery Co. v. Jeppesen, 41 Idaho 642, 241 P. 36; Whittlesey v. Drake, 43 Idaho 623, 253 P. 621.)

In the absence of evidence showing that plaintiff in an action on a note did not take the note in due course or showing notice of facts constituting equities or defenses or such circumstances that act in taking note amounted to bad faith, plaintiff was entitled to directed verdict. (Butte Machinery Co. v. Jeppesen; Whittlesey v. Drake, supra.)

The early and present doctrine is that the right of a bona fide holder for value in the usual course of business of negotiable paper cannot be defeated by proof that he was negligent and omitted to make inquiries which common prudence would have dictated. (Richardson v. Monroe, 85 Iowa 359, 39 Am. St. 301, 52 N.W. 339; Lake v. Reed, 29 Iowa 258, 4 Am. Rep. 209; Lane v. Evans, 49 Iowa 156; Pond v. Waterloo Agricultural Works, 50 Iowa 596.)

To charge the holder of a negotiable promissory note with notice of infirmities, he must have been guilty of something more than mere negligence in taking the note. Indeed, gross negligence, it is said, is not sufficient, and nothing but fraud is sufficient to destroy the character of the holder as one who acted in good faith. (Cook v. Weirman, 51 Iowa 561, 2 N.W. 386.)

BUDGE, J. Wm. E. Lee, C. J., and Taylor and T. Bailey Lee, JJ., concur. Givens, J., dissents.

OPINION

BUDGE, J.

This action was brought by respondent, as indorsee, upon three certain trade acceptances given by appellant in payment of and for the purchase of a number of dish-washers and washing-machines. Contemporaneously with the execution and delivery of trade acceptances, on November 28, 1923, a written contract of sale was entered into between appellant, as buyer, and the Cascade Products Company, as seller, covering the terms of their agreement for the purchase and sale of the machines mentioned. The contract called for the shipment of the articles named at "earliest convenience," and contained the following stipulation:

"The Buyer hereby acknowledges the purchase of the above merchandise in good faith and that this order cannot be countermanded, and that all representations, agreements and covenants between said Seller and Buyer are set forth herein and none other are valid, binding or recognized."

The cause was tried to the court and a jury, and after the introduction of evidence by both sides, the court directed a verdict for respondent for the full amounts of the three trade acceptances, together with interest and attorney fees. This appeal is from the judgment entered on the verdict.

Specifications of error made and relied upon by appellant are predicated upon the action of the court in directing the jury to return a verdict for respondent, and in striking out and sustaining respondent's objections to certain evidence offered by appellant.

The dealings had with appellant by which the contract for the sale of the machines was executed and the trade acceptances procured were through an agent of the Cascade Products Company, one Johnson. It is claimed by appellant that the agent made certain false and fraudulent representations concerning transfer of the trade acceptances and the purposes for which they were desired, as a means of obtaining appellant's signature thereto, as showing that the title of the Cascade Products Company to the...