Security Central Nat. Bank v. Williams

• Decision Date: 21 October 1976
• Citation: 52 Ohio App.2d 175,368 N.E.2d 1264
• Parties: , 6 O.O.3d 167, 22 UCC Rep.Serv. 1196 SECURITY CENTRAL NATIONAL BANK, Appellant, v. WILLIAMS, Appellee.
• Court: Ohio Court of Appeals

Page 175

52 Ohio App.2d 175

368 N.E.2d 1264, 6 O.O.3d 167, 22 UCC Rep.Serv. 1196

SECURITY CENTRAL NATIONAL BANK, Appellant, v. WILLIAMS, Appellee.

Court of Appeals of Ohio, Tenth District, Franklin County.

Oct. 21, 1976.

Syllabus by the Court

If sufficient facts exist to alert a bank or financing agent to the possibility that the original deal from which an assigned note was generated was not a completely above-board transaction, the court is justified in finding that the assignee did not take the note in good faith and is not entitled to the protection afforded a holder in due course.

Jack Lett, Grove City, for appellant.

Abraham & Purkey, Columbus, for appellee.

McCORMAC, Judge.

Appellant sued appellee for $3,020.49 claimed to be due on a promissory note which the bank had received by assignment from Art Sales, Inc. Appellee answered denying the indebtedness and further denying that the bank was a holder in due course, alleging fraud as a defense.

The case was tried to the trial court who found that appellant was not a holder in due course and that appellee had a defense applicable against the bank. The court rendered a judgment in favor of appellee. From the judgment of the trial court, a timely notice of appeal was filed, setting forth the following assignments of error:

"1. The findings and decision of the court was error because it was against the pleadings and the evidence presented. More specifically, the trial court erred in its finding that appellant was not a holder in due course.

"2. The trial court erred in granting judgment for the defendant-appellee in dismissing plaintiff-appellant's complaint at plaintiff's costs.

"3. The trial court erred when it denied appellant's motion for a new trial. Appellant is the holder in due course and was entitled to a favorable judgment at the trial of these proceedings."

The assignments of error will be combined for discussion, as the sole issue presented herein is whether the bank was a holder in due course. It is clear that if the bank was not a holder in due course, that fraud and failure of consideration were established as defenses against Art Sales, Inc., which would also be applicable against the bank.

R.C. 1303.31(A) defines a holder in due course as follows:

"A holder in due course is a holder who takes the instrument:

"(1) for value; and

"(2) in good faith; and

"(3) 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."

The sole area of dispute in this case is whether appellant took the instrument in question in good faith. In that respect, the trial court in its ruling on a motion for a new trial, stated as follows:

"Well, now, the Court relied upon the pronouncement by our own Court of Appeals here in Franklin County, case of American Plan versus Woods. We relied upon the statement that: 'A transferee of a negotiable note does not take in " good faith" and is not a holder in due course of a note given in the sale of consumer goods where the transferee is a finance company' in this case the bank 'involved with the seller of the goods, and which has a pervasive knowledge of factors relating to the term of the sale.'

"Now, the Court listened to the evidence and I think the Court was legitimate in drawing whatever legitimate inferences it may from the facts that was testified to and the Court drew the inference from the facts that there was a knowledge between the seller of the goods, Mr. Skaggs, who was involved with Art Sales, Mr. Grant Reed, who was vice-president of the bank, and inferred certain facts from the fact that here were people who had invested considerable amounts of money. In this case, Mr. Williams, some three thousand some dollars for certain equipment that was utterly useless to him without the additional services of the tapes, and that there were thirty-three people who had similar contracts and notes discounted by Art Sales with the Portsmouth Bank. Every one of them found themselves in the same situation, and the Court found and I still feel the same that the bank was not a holder in due course. The bank acts through its employees, its agents, its vice-president, and what have you, and I find from the evidence that they had a pervasive knowledge of the factors involved in the sale of these items, that there was a connection there, in fact, and that they were not holders in due course with negotiable notes. They did not take them in good faith as required. The motion to reconsider is overruled. Motion for new trial is denied."

Appellant contends that the trial court's finding of fact that the bank did not take the instrument by assignment in good faith is against the manifest weight of the evidence.

The facts show that Art Sales, Inc., sold equipment...