Reliance Equipment Co. v. Sherman

Decision Date31 March 1927
Docket Number1 Div. 445
Citation216 Ala. 214,112 So. 822
PartiesRELIANCE EQUIPMENT CO. v. SHERMAN.
CourtAlabama Supreme Court

Rehearing Denied May 19, 1927

Appeal from Circuit Court, Mobile County; Saffold Berney, Judge.

Action on promissory note by the Reliance Equipment Company against B.R. Sherman. From a judgment for defendant, plaintiff appeals. Transferred from Court of Appeals, under Code 1923 § 7326. Reversed and remanded.

Alex T Howard, of Mobile, for appellant.

Gordon & Edington, of Mobile, for appellee.

BOULDIN J.

The suit is on a negotiable promissory note by an indorsee against the maker. The question of merit in the case is whether the plaintiff is a holder in due course. The note was, without dispute in the evidence, negotiated and indorsed by the payee before maturity for credit on an account due from the payee to the indorsee.

A pre-existing debt constitutes value and supports an assignment of commercial paper as in due course. Code, § 9053; Walden v. Warren (Ala.) 109 So. 749.

Plea No. 4 proceeds on the theory that the purchase of the note for credit on account due from payee to indorsee was not such value, and that for this reason the note was subject to the defense of failure of consideration. There was error in overruling demurrer to this plea. The case turns on whether the indorsee had notice of any infirmity in the note affecting his standing as a holder in due course, under the law of negotiable instruments. "Every holder is deemed prima facie to be a holder in due course." Code § 9085.

The note being negotiated for value before maturity, the burden was on the defendant to prove notice. Somerall v. Citizens' Bank, 211 Ala. 630, 101 So. 429. The only evidence going to this question was that of Mr. Zelnicker, president of plaintiff company, touching conversation with Mr. Beard, the payee, at the time the note was negotiated, as follows:

"I asked Mr. Beard if there was any consideration for the note, and he answered by saying that he had a contract with Mr. B.R. Sherman (the maker) to build him a house and then sell him the house and lot, and that note was given in part payment of the contract price."

This was notice of no more than that the consideration of the note was executory and made in connection with an executory agreement.

To constitute notice of an infirmity, the indorsee must have "knowledge of such facts that his action in taking the instrument amounted to bad faith." Code, § 9082. Knowledge that the note is founded on a promise of future service, or otherwise executory, is not such notice as will alter the indorsee's status as a holder in due course.

When the maker issues his negotiable promissory note, the law writes into the contract an unconditional promise to pay the same to any holder by indorsement in good faith for value and before maturity, whatever may happen as between the original parties to the transaction.

Unless the purchaser has notice of facts which should arouse suspicion in the mind of one of ordinary business prudence that the consideration has failed, or is so likely to fail that he becomes a participant in...

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10 cases
  • Barre Trust Company v. Frank S. Ladd Et Ux
    • United States
    • Vermont Supreme Court
    • May 5, 1931
    ... ... 396; Chaffee ... v. Rutland R. R. Co. , 71 Vt. 384, 45 A. 750; ... Baker v. Sherman & Miller , 73 Vt. 26, 31, ... 50 A. 633 ...           The ... plaintiff also moved ... arouse suspicion in the mind of one of ordinary business ... prudence, Reliance Equipment Co. v ... Sherman , 216 Ala. 214, 112 So. 822. If the holder of ... a note had ... ...
  • Cotton v. John Deere Plow Co.
    • United States
    • Alabama Supreme Court
    • June 22, 1944
    ... ... v. Shades Valley Boys' Club, 232 Ala. 357, 168 So ... 139; Reliance Equipment Co. v. Sherman, 216 Ala ... 214, 112 So. 822; Spires v. Jones, 212 Ala. 117, 101 ... ...
  • Hall v. Hall
    • United States
    • Alabama Supreme Court
    • June 13, 1941
    ... ... financially able to immediately discharge said obligation, ... and in complete reliance upon the good faith, honesty, and ... integrity of the said Arthur B. Hall, he was then and there ... Section ... 9053, Code of 1923, Code 1940, Tit. 39, § 29; Reliance ... Equipment Co. v. Sherman, 216 Ala. 214, 112 So. 822; ... Walden v. Warren, 215 Ala. 94, 109 So. 749; ... ...
  • Tennessee Valley Bank v. Williams
    • United States
    • Alabama Supreme Court
    • June 24, 1943
    ...be drawn, the plaintiff was entitled to the affirmative charge as duly requested, and its refusal was error to reverse. Reliance Equipment Co. v. Sherman, supra; Forbes v. First National Bank, supra. For the error let the judgment stand reversed. Reversed and remanded. BOULDIN, FOSTER, and ......
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