Opinion
35804.
DECIDED SEPTEMBER 28, 1955.
Action on notes. Before Judge Forehand. Worth Superior Court. March 26, 1955.
Robert B. Williamson, for plaintiffs in error.
W. C. Smith, Ford Houston, P. B. Ford, contra.
Under the terms of the Negotiable Instruments Law, the payee named in a negotiable promissory note can not be a "holder in due course."
DECIDED SEPTEMBER 28, 1955.
Credit Equipment Corporation, a New York Corporation, brought an action against Pendley Lumber Company, a partnership composed of T. I. Pendley, Albert F. Pendley, T. G. Pendley, Raymond Pendley, and Curtis Bennett, upon three promissory notes dated September 23, 1949, and due on March 30, April 30, and May 30, 1950. The defendants admitted a prima facie case in order to obtain the opening and concluding arguments. The defendants pleaded a failure of consideration and sought by cross-action to recover an amount of money paid to the plaintiff on three similar notes. The gist of the defendants' plea is as follows: All six of the notes were made payable to the plaintiff and were given in connection with the same contract. The defendants had entered into a contract with Ohmlac Paint Refining Company, under which the defendants were to purchase a large quantity of paint from "Ohmlac" and after the paint was in the defendants' warehouse the seller was to send representatives into Worth County to demonstrate the paint and create a market for the paint, it being a new paint on the market and there being no market for such paint in Worth County. The paint was shipped to the defendant partnership in two separate shipments. The first shipment was paid for with the negotiable instruments on which judgment is sought against the plaintiff in the cross-action. The defendant partnership paid those negotiable instruments. The second shipment was made to the defendants, and the negotiable instruments sued on in the main action were given in payment thereof and made payable to the plaintiff at the request of an agent of the seller (Ohmlac Paint Refining Company). The seller failed to send the representatives to Worth County to demonstrate the paint and create a market for it, and all of the paint is still in the defendants' warehouse, and without a market for said paint it is worthless to the defendants. On the trial of the case the court ruled out all testimony with reference to the contract between "Ohmlac" and the defendants, ruled that the plaintiff was an innocent purchaser for value of the notes, that the contract between the defendants and "Ohmlac" would not be binding on the plaintiff, and, on motion of the plaintiff, directed a verdict for it in the full amount sued for. The defendants filed a motion for new trial on the general grounds, which was later amended to include several special grounds. The trial court denied the motion for new trial as amended, and the defendant excepts to this judgment.
Although the special grounds of the motion for new trial assign error on several rulings of the trial court, the only question for decision is whether or not the plaintiff is a holder in due course, so as to prevent the defendant partnership from presenting evidence in support of its plea of failure of consideration. If the plaintiff is a holder in due course, the defendants having admitted a prima facie case, the court properly excluded the evidence in support of the plea and was thereafter correct in directing a verdict for the plaintiff. However, if the plaintiff was not a holder in due course, then the defendants' evidence in support of their plea of failure of consideration should have been admitted and the decision as to who should prevail left to the jury.
In Meadows Mill Co. v. Yawn, 73 Ga. App. 543, 549 ( 37 S.E.2d 372), where a purchaser made a note payable to a third party at the seller's request, rather than to the seller, and the note was endorsed by him to the third party, this court said: "When a note is so made, payable to a third party, the payee is not a holder in due course so as to cut off defenses that would be available to the maker had the note been payable to the seller." "Under the terms of the negotiable-instruments law, the payee named in a negotiable promissory note can not be a `holder in due course.'" Davis v. National City Bank of Rome, 46 Ga. App. 194 (1) ( 167 S.E. 191). "Absence or failure of consideration is matter of defense as against any person not a holder in due course." Code § 14-305. Accordingly, the trial court erred in rejecting the defendants' evidence in support of their plea of failure of consideration, since the plaintiff was the payee in the promissory notes sued on and not a holder in due course; and thereafter the court erred in denying the defendants' motion for new trial.
Judgment reversed. Quillian, J., concurs. Felton, C. J., concurs in the judgment.