Opinion
40993.
DECIDED NOVEMBER 25, 1964.
Action on notes, etc. Burke Superior Court. Before Judge Kennedy.
George W. Fryhofer, for plaintiff in error.
H. Cliff Hatcher, contra.
The evidence failed to show that the plaintiff, assignee of the notes sued on, was not a holder in due course and therefore the defenses of failure of consideration raised by the defendants' pleadings, were not available to them on the trial, in the absence of such proof; therefore the court erred in overruling the plaintiff's motions for judgments n.o.v.
DECIDED NOVEMBER 25, 1964.
Commercial Credit Equipment Corporation brought separate actions against Roy L. Reeves and N. A. Elliott to recover balances of $2,574.08 and $3,806.85, respectively, alleged to be due it, as the assignee of promissory notes containing title retention contracts for the purchase by the defendants of certain farm machinery which was sold pursuant to foreclosure of the contracts. Defendant Reeves filed a plea of want of consideration, alleging that the seller, Sharpe Implement Company, had never delivered certain ordered items and that a diesel purchased from them was defective and seeking recoupment in the amount of $4,815. Defendant Elliott filed a plea of want of consideration, alleging that a combine and corn head purchased from Sharpe Implement Co. was defective and that neither the seller nor the plaintiff would repair or replace it and seeking recoupment in the amount of $2,289. The plaintiff amended its petitions, deleting its prayers for attorney's fees, leaving balances allegedly due of $2,045.95 and $3,306.85. The cases were consolidated for trial before a jury.
The following evidence was adduced at the trial: Defendant Reeves testified that he didn't know whether the seller transferred the transactions, which were done on December 12, 1960, to the plaintiff; that he received only a tractor, a bottom plow and a harrow; that a cultivator, rotor cutter, planter and distributors were never delivered; that the plaintiff's branch manager, Mr. Cannon, knew he didn't get the cultivator because he bought another one and financed it through the plaintiff; that he did not report the defective tractor to either the seller or the plaintiff, but he told Mr. Cannon in February, 1961, and for about 60 days thereafter about the nondelivery; that Mr. Cannon asked the seller about these items and was told they would deliver them, which they never did; that he used the tractor only occasionally up through January, 1962, when the sheriff levied on his equipment, because ever since a week after its delivery it would not hold oil; that he couldn't get anyone to fix it and had to borrow one to avoid losing his whole crop; that Mr. Cannon did tell defendant Elliott at his house that he would see about getting the combine fixed. Defendant Elliott testified that he purchased a combine and a corn head from the seller on November 1, 1960; that he ran the combine one day and the cylinder set it afire and the whole insides came out the back; that he told this to Mr. Cannon, who promised to tell the seller to fix it, but that they told him that they wouldn't mess with those things anymore; that neither machine he had ordered was delivered, the contract numbers not corresponding with the machine numbers; that the plaintiff never did straighten out the matter but they knew of the condition of the machine at the time it was bought because he called them and told them; that the first notice he gave the plaintiff was in February 1961; that he kept the equipment up until January 1962, but it cut only about 75% of his crop; that he didn't try to give the equipment back to the plaintiff; that it was there for them, they knew its condition and all they had to do was come pick it up. The plaintiff's branch manager, Frank G. Cannon, Jr., testified that defendant Reeves' contract was transferred to the plaintiff on December 12, 1960, the day it was executed, and received by the plaintiff the next day; that defendant Elliott's contract was transferred on November 1, 1960, and received the next day; that the contracts were on forms furnished to the seller by the plaintiff and the transfer to the plaintiff is transacted on the same form as the sale contract; that the first knowledge the plaintiff had about any nondelivery or dissatisfaction was in February, 1961; that defendant Reeves told him about the condition of the tractor; that Reeves said nothing about the tractor; that he was never able to get delivery of the equipment and they sold him some in its place, for which Reeves paid; that Elliott had not said anything at that time about the condition of his combine; that he never did try to fix it for him since they just make the money available for the purchase from the seller, Sharpe Implement Co.; that the plaintiff has no connection with the manufacturer; that they were dealing with this equipment, they knew where they were getting the equipment from and all that; that they were part of the purchase and sale with the seller.
The court overruled the plaintiff's motions for directed verdicts and thereafter verdicts and judgments were rendered in favor of both defendants. The court overruled the plaintiff's motions for judgments n.o.v., to which judgments it excepts.
The contracts in this case were executed before the effective date of the Uniform Commercial Code, January 1, 1964. "A holder in due course is a holder who has taken the instrument under the following conditions: (1) That it is complete and regular upon its face; (2) That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact; (3) That he took it in good faith and for value; (4) That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it." Code § 14-502.
The only condition which is questioned is (3), above. The fact "[t]hat the plaintiff had knowledge of the consideration of the notes did not carry with it any notice of the failure of consideration, nor was it bound to make inquiry as to whether the consideration had or would fail. Florence v. Commercial Bank of Athens, 34 Ga. App. 329 (1) ( 129 S.E. 560), and Hengstler v. Huguley-Scott Auto Co., 39 Ga. App. 287 ( 146 S.E. 645). . . To constitute bad faith by a purchaser of a negotiable instrument before maturity he must have acquired it with actual knowledge of its infirmity or with a belief based on the facts or circumstances as known to him that there was a defense or he must have acted dishonestly. Benton v. Sikyta, 84 Neb. 808 ( 122 N.W. 61, 24 LRA (NS) 1057) and Gerseta Corp. v. Wessex-Campbell Silk Co., 3 F.2d 236. See Britton, `Bills and Notes,' p. 407, § 100." C. S. Nat. Bank v. Johnson, 214 Ga. 229, 231 ( 104 S.E.2d 123); Code § 14-506. "Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration, and every person whose signature appears thereon to have become a party thereto for value." Code § 14-301. This presumption was strengthened in the present case by the following phrases in the notes: "Date property delivered: 12-12-60," and "Above seller hereby sells, and undersigned buyer hereby purchases on the terms and conditions set forth below and on the reverse hereof, the following personal property in its present condition, delivery and acceptance of which buyer hereby acknowledges. . ." (Emphasis supplied.) The evidence showed that the plaintiff did not have notice of the defects or the nondelivery of the machinery until February of 1961-2 and 3 months after the notes were transferred to it. Even if the evidence is construed to indicate that the plaintiff financed the sale of the machinery from the manufacturer to the seller, as well as the sale from the seller to the defendants, this is not sufficient to demand a finding that the plaintiff had such relationship with the manufacturer or the seller as to impute to it knowledge of any defects or nondeliveries. There is no evidence of any facts which would put the plaintiff on notice that either the manufacturer or the seller was unreliable or dishonest, or which would show that the plaintiff was a party to any acts of fraud. On the contrary, it appeared that the plaintiff was merely the financing agency which happened to have financed both transactions, which fact, in itself, was not inconsistent with good faith. "The necessities of commercial life have impelled the courts to resort to the fiction that when a negotiable instrument is transferred, the legal title to it passes, so that the purchaser can sue on it in his own name and is therefore unaffected by defenses against it in the hands of the former owner . . . it is better that there should be an occasional instance of hardship than to have doubt and distrust hamper a common method of making commercial exchanges." 11 Am. Jur. 2d, 57, Bills and Notes § 36, citing Chemical Nat. Bk. v. Kellogg, 183 N.Y. 92 75 N.E. 1103). The absence or failure of consideration is a matter of defense only as against a person not a holder in due course, Code §§ 14-305, 14-507, 14-509; Swafford v. Certified Finance Co., 90 Ga. App. 83, 85 ( 82 S.E.2d 168); likewise, inadequacy of consideration does not prevent the holder of a note from enjoying the protection of a bona fide holder. Hartfelder Cochran v. Clark, 10 Ga. App. 422 (1) ( 73 S.E. 608).
The verdicts and judgments were not authorized by the evidence; therefore the court erred in overruling the motions for judgments n.o.v. The judgments of the court are reversed with direction to enter judgments in accordance with the motions for judgments n.o.v.
Judgments reversed with direction. Frankum and Pannell, JJ., concur.