Walker v. Commercial Credit Co.

• Decision Date: 21 June 1937
• Docket Number: No. 4772.,4772.
• Parties: WALKER v. COMMERCIAL CREDIT CO., Inc.
• Court: Texas Court of Appeals

107 S.W.2d 688

WALKER v. COMMERCIAL CREDIT CO., Inc.

No. 4772.

Court of Civil Appeals of Texas. Amarillo.

June 21, 1937.

Rehearing Denied July 10, 1937.

Appeal from District Court, Lubbock County; Clark M. Mullican, Judge.

Suit by Mrs. Albert Walker against the Commercial Credit Company, Incorporated, and another, wherein the named defendant filed a cross-action. From a judgment on an instructed verdict for the named defendant on its cross-action, and denying plaintiff any relief against the named defendant, plaintiff appeals.

Reversed and cause remanded.

E. L. Klett, of Lubbock, and W. F. Nix, of Amarillo, for appellant.

Clayton & Bralley, of Amarillo, and Wm. H. Evans, of Lubbock, for appellee.

FOLLEY, Justice.

The parties will be designated herein as in the trial court.

The plaintiff, Mrs. Albert Walker, a feme sole, filed this suit in the Ninety-Ninth district court of Lubbock county. Tex., against the Mott Motor Company, a trade-name under which R. H. Mott operated, and the Commercial Credit Company, a corporation, defendants.

On February 13, 1935, the Mott Motor Company of Lubbock sold to John W. Thompson a 1935 model Plymouth car and took a note secured by a mortgage on the car, which note and mortgage were transferred to the defendant Commercial Credit Company. Thereafter, in June, 1935, Thompson defaulted in paying his note and the Commercial Credit Company recovered judgment in the county court of Potter county against Thompson for debt and foreclosure of the mortgage and sold said car at sheriff's sale to the defendant Commercial Credit Company. Thereafter, on September 28, 1935, the Commercial Credit Company, under its credit plan with the Mott Motor Company, sold this car back to the Mott Motor Company for the unpaid balance due by Thompson in the sum of $634.73.

On October 15, 1935, the Mott Motor Company sold this same car to the plaintiff, Mrs. Albert Walker, at which time the plaintiff alleges that the car was represented to her by W. W. Royalty, C. C. Hunt, and R. H. Mott, of the Mott Motor Company, as being a "new" car that had been used only a short time as a demonstrator and had been run no more than 2,100 miles. The plaintiff executed, as part consideration for the purchase price, her note for $702, dated October 15, 1935, payable to the Mott Motor Company, in 18 monthly installments of $39.50 each, and also executed and delivered to the Mott Motor Company a chattel mortgage lien upon the car to secure the payment of the note. On October 16, 1935, the Mott Motor Company sold and transferred the note and mortgage to the Commercial Credit Company for the sum of $584, which was the customary discount made by the Commercial Credit Company upon such instruments for new cars. The automobile was described in the mortgage as a "new car." The manufacturer's Serial Number and Motor Number, 2457204 and PJ96007, respectively, were the same in this mortgage as in the Thompson mortgage formerly held by the Commercial Credit Company.

There is no question but what the Mott Motor Company failed to disclose to the plaintiff that the car was a repossessed machine and that it had been owned and used by Thompson for some three or four months. Thompson testified in the trial of the case that he drove it about 12,000 miles. The testimony shows that Mott showed the plaintiff the speedometer on the car before she bought it and it then had a reading of about 2,100 miles, and it was further represented by Mott and Royalty that the car had been used by them only as a demonstrator. Thereafter, Mrs. Walker paid the November, December, and January installments, but later learning the true facts about the car, refused to pay any further installments. In the meantime, R. H. Mott moved to Topeka, Kan.

In May, 1936, the plaintiff filed this suit against the Mott Motor Company and the Commercial Credit Company, and procured service on R. H. Mott by nonresident notice. Since such was the case and Mott made no appearance on the court, the court dismissed him from the case and the cause was tried between the plaintiff and the defendant Commercial Credit Company. Just two days before the case was tried, the defendant Commercial Credit Company sequestered the automobile. Plaintiff sought damages for the alleged fraud, breach of contract, breach of warranty, and want of consideration, and in the alternative sought to offset any such debt that the Commercial Credit Company might have against her on the purchase price, and further asked for damages for the alleged wrongful sequestration. The plaintiff further pleaded that both the defendants, acting jointly and severally, for themselves, and through their agents, sold the automobile to the plaintiff upon false and fraudulent representations; that both the defendants were guilty of fraud; and that the Commercial Credit Company had actual and constructive notice that the car sold the plaintiff was not a new car but the Thompson used car.

The Commercial Credit Company, which we shall denominate defendant hereafter, alleged it was a good faith purchaser of the note, for valuable consideration, and without notice or participation by it in any of the frauds or misrepresentations made by the Mott Motor Company or its employees, and denied under oath that Royalty or Mott were ever its agents, and while it at one time held a note and mortgage on the same automobile and had foreclosed the same, that it did not know it was the same car but relied solely on the description of the car as set out in plaintiff's mortgage as being a new car. The defendant filed a cross-action against the plaintiff for its debt and for foreclosure of its mortgage. The court heard all the testimony of both plaintiff and defendant, and after the close of the testimony, gave an instructed verdict for the defendant upon its cross-action, denying plaintiff any relief against the defendant, from which verdict and judgment rendered thereon the plaintiff appeals.

The plaintiff's first proposition is that the court erred in giving the jury a peremptory instruction to return a verdict against the plaintiff for the reason that the plaintiff had introduced evidence that the defendant purchased the note in controversy with actual notice that the car in question was not a new car as represented in the mortgage, and that this issue of notice should have been submitted to the jury. The defendant admitted that it knew that the Thompson car was a used car, but denied that it knew the plaintiff's car was the same automobile. The only positive testimony as to knowledge of the defendant in this respect is from defendant's own witnesses, F. H. Hemphill and E. T. Williamson. Each of these witnesses, who handled the transaction for the defendant, testified that he knew the Thompson car was a used car, but that he did not know the plaintiff's car was the same car, and each relied on the representations made by the dealer, Mott, in the mortgage that the car was a new car. No other witnesses testified as to notice or knowledge on the part of the defendant. The record reflects that the defendant purchased some 9,500 similar notes and mortgages in the year 1935, and purchased some 250 or 300 such notes and mortgages from the Mott Motor Company alone during such year, and that when the defendant resold the Thompson car back to the Mott Motor Company, it had no further use for its file on the car and destroyed the same. The record further shows that the defendant made no examination of the collateral before buying the same.

It is a well-settled rule of law in this state that the ordinary rule of notice does not apply to the purchaser of a negotiable instrument for a valuable consideration before maturity. The test in negotiable instrument cases is good faith, and not diligence or negligence. Quanah, A. & P. Ry. Co. v. Wichita State Bank & Trust Co. (Tex.Sup.) 93 S.W.(2d) 701, 704, 106 A.L.R. 821. In the Quanah Case the Supreme Court of Texas, speaking through Judge Critz, says:

"Unless the purchaser has actual knowledge of facts and circumstances that would render the paper noncollectible, or has knowledge of such facts as that a purchase of the instrument would amount to bad faith, it is immaterial that he has notice of such facts as would put a reasonably prudent person on inquiry, and that such inquiry would lead to discovery. * * *

"In connection with the above, it is a rule in this state that in the purchase of a negotiable instrument the title is derived from the instrument itself, and not from the title of the party who transfers it. Ordinarily, one in possession of a negotiable instrument has the power to dispose...