Peoples Bank of Aurora v. Haar
| Decision Date | 13 December 1966 |
| Docket Number | No. 40916,40916 |
| Parties | 3 UCC Rep.Serv. 1065, 1966 OK 252 The PEOPLES BANK OF AURORA, Colorado, Plaintiff in Error, v. Edward HAAR, Defendant in Error. |
| Court | Oklahoma Supreme Court |
Syllabus by the Court
1. A bank takes a check 'for value' for purposes of determining its status as a holder in due course when it acquires a security interest therein. A security interest is acquired in a check by the bank to the extent it makes an advance on the check or to the extent the check is deposited in an account and the credit given by the bank for the check is withdrawn or applied. 12A O.S.1961, §§ 4--208 and 209.
2. The burden of proving that an instrument is taken in good faith and without knowledge of a defense is placed upon a party claiming to be a holder in due course after the adverse party introduces evidence indicating the possibility of a defense to the instrument as between the payor and payee.
3. As a general rule, a party cannot complain of the trial court's refusal to give a requested instruction that is not correct both in form and in substance so that it can be given to the jury without modification or omission. However, it is the duty of the court, even though not requested to do so, to cover all material issues and the proper theories of the parties in the instructions to the jury.
Appeal from District Court of Texas County; C. R. Board, Judge.
Appeal from a judgment rendered on a jury verdict denying the plaintiff recovery of advances made and credit given on two checks drawn by defendant and upon which he stopped payment. Reversed and remanded with directions.
Ogden, Ogden & Williams, Guymon, for plaintiff in error.
Frank E. Hensley, Tryon, Sweet & Hensley, Guymon, for defendant in error.
The parties on this appeal hold the same position they held in the trial court. The plaintiff is The Peoples Bank of Aurora, Colorado. In April 1963 there were presented to the plaintiff two checks drawn by the defendant, Edward Haar. These checks were payable to the order of Western Aircraft Leasing of Aurora, Colorado. One check, in the amount of $4,000.00, was drawn on the First State Bank of Elkhart, Kansas. The other check, in the amount of $3,500.00, was drawn on the City National Bank of Guymon, Oklahoma. When these checks were presented to the plaintiff by the payee, or persons purporting to be officers of the payee, plaintiff called the City National Bank of Guymon, Oklahoma, talked with one of its officers and inquired about the financial status of the defendant. The plaintiff then cashed the $3,500.00 check and allowed the payee to deposit the $4,000.00 check in an account. The bank allowed immediate credit on this check.
The defendant had drawn these two checks and delivered them to the payee on April 3, 1963, as payment for some unspecified interest in Western Aircraft Leasing Company. The defendant then became concerned that he would not receive the interest he bargained for and on the 3rd or 4th day of April, 1963, he requested that each of the banks on which the checks were drawn stop payment.
In the regular channels of banking plaintiff was advised payment had been stopped, and immediately froze the account to which the $4,000.00 check had been deposited. The plaintiff applied the remaining funds in the account to cover the advance it had made on the $3,500.00 check, and the credit given on the $4,000.00 check. The amount was insufficient to reimburse the bank for these advances and credit and, after some payments were made by the payee to the plaintiff, the bank was still due $2,299.40.
In the trial court the plaintiff filed its action against the defendant alleging it was a holder in due course of the two checks. The case was tried before a jury and the jury's verdict was in favor of the defendant. A judgment was entered by the trial court on the basis of this verdict.
The plaintiff alleges several grounds of error on the basis of the evidence. It claims the court should have sustained its demurrer to the evidence or directed a verdict in its favor, and that the defendant's evidence was not sufficient to support the verdict for defendant.
The basic question presented by this case is whether plaintiff is a holder in due course. If it is, then it is entitled to recovery because 12A O.S.1961, § 3--305 provides that a holder in due course takes an instrument free from all defenses of any party to the instrument with whom the holder has not dealt. The plaintiff did not deal with the defendant. If the plaintiff is not a holder in due course, then the defendant is entitled to judgment because a maker may stop payment on a check prior to its payment.
12A O.S.1961, § 3--302, defines a holder in due course. This statute provides three elements to qualification as a holder in due course. The holder must take the instrument:
'(1) (a) for value; and
(b) in good faith; and
(c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.'
To determine the sufficiency of the evidence and what duties the trial court had as to the plaintiff's demurrer and request for a directed verdict, it is necessary to examine the evidence relating to the three elements of a holder in due course.
The first requirement is that the instrument be taken 'for value.' It is clear that the defendant's checks were taken by the plaintiff for value. Two sections of the Oklahoma Commercial Code, 12A O.S.1961, § 1 et seq., state that acquisition of a security interest in an instrument constitutes taking for value:
1. Section 3--303 provides that a holder takes 'for value' when it acquires a security interest in the instrument otherwise than by legal process.
2. Section 4--209 says that a bank has given value, for purposes of determining its status as a holder in due course, if it has a security interest in an item.
12A O.S.1961, § 4--208, enumerates several instances in which a bank is deemed to have a security interest. Two of these are pertinent:
1. When an item is deposited in an account, to the extent to which credit given has been withdrawn or applied;
2. When an advance is made on an item.
The evidence shows without contradiction that the $4,000.00 check was deposited and the plaintiff allowed credit on this item. The plaintiff therefore had a security interest to the extent to which credit was withdrawn. The evidence further shows without contradiction that the bank advanced and paid the $3,500.00 check and thus had a security interest therein. The plaintiff therefore was a holder 'for value.' A case supporting this analysis of the Commercial Code provisions and the fairness of that conclusion is Universal C.I.T. Credit Corp. v. Guaranty Bank & Trust Co. (D.C.Mass.), 161 F.Supp. 790.
This leaves for consideration the elements of good faith and lack of knowledge of a defense. The defendant alleged that the two checks were not supported by actual or legal consideration. His evidence indicated that, after he gave the checks to the payees, he became concerned that he had not, or would not, receive the unspecified interest for which he gave the checks. The evidence did not show clearly what his agreement was with the payees, but it did indicate the possibility of a defense as between the defendant and the payees. This is all that is required by the law to place upon the plaintiff the burden of proving that it was in good faith and had no knowledge of the defense. See Beesley v. Wm. A. Nicholson Co., Inc., 148 Okl. 270, 298 P. 607, and 12A O.S.1961, § 3--307. The plaintiff's evidence, though not as direct as it probably could have been on these elements, tended to show both good faith and lack of knowledge. The plaintiff's evidence included the following:
1. The check for $3,500.00 was drawn on the City National Bank, Guymon, Oklahoma. The assistant cashier of the plaintiff testified that before cashing this check or giving credit on the $4,000.00 check he called the City National Bank and talked with a vice president. His testimony was:
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