Traders' Securities Co. v. Dutsch

ELLIOTT, J.

(dissenting).

It is my conclusion that the judgment appealed from is erroneous, and should be reversed, and plaintiff’s demand rejected.

To my mind, it seems that the acceptances sued on have not been legally indorsed nor legally negotiated; that the negotiation claimed to have taken place is without effect. If mj‘ conclusion Is correct, it follows that plaintiff has no more right to collect from the defendant Dutseh than Arch Manufacturing Company would have had.

The acceptances hear on their back what purports to he an indorsement, as follows: “Without recourse, pay to the order of Traders Securities Company, (signed) Arch Manufacturing Company, per W. A. Blackstad.”

The Negotiable Instrument Law, Act No. 64 of 1904, title 1, article 1, § 1, provides that an instrument in order to be negotiable “Must be. payable to order or to bearer.” These acceptances were drawn payable to order.

■Section 8 of the law provides: “The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order.”

The law in providing that an instrument must be “payable to the order of a specified person or to him or his order,” means that the instrument must be drawn payable to some person, firm, or corporation having power to indorse, negotiate,'enter into contracts, etc. Arch Manufacturing Company is neither. It is a mere trade-name used by Blackstad, Inc., for the purpose of their jewelry business.

Frank Coffman, president, treasurer of plaintiff, says: “These bills of exchange were endorsed in my presence on behalf of Arch Manufacturing Company by William A. Blackstad, and he had authority to make such endorsements.” He further says: “I know that William A. Blackstad had authority to endorse these bills of exchange on behalf of his company, for the reason that I asked for and saw the by-laws of his company which gave him such authority.”

But he says further on:

“Arch Manufacturing Company and Black-stad, Inc., are one and the same; Arch Manufacturing Company being merely a trade name used by them.”

“That Arch Manufacturing Company is in truth and in fact Blackstad, Inc., which is a Missouri corporation.”

“Arch Manufacturing Company is simply a trade name used by Blackstad, Inc.”

Arch Manufacturing Company, the nominal drawer and indorser of these acceptances, did not draw nor indorse them. It has no existence, and cannnot do anything.

Blackstad, Inc., cannot indorse them using Arch Manufacturing Company as a name in order to do it, because Blackstad, Inc., is a corporation, and must trade, indorse and contract in its own name.

“A corporation must have a name. And it is'In that name that it must sue or be sued and do all its legal acts; although a slight alteration in the name is not important.” See Givil Code, article 432, and other laws on the subject.

I therefore take the position that' the purported indorsement of these acceptances is not a legal indorsement, such as the law requires in order to effectuate a negotiation.

An instrument that is payable to bearer does not need any indorsement in order to make it negotiable.

The law, section 9, provides: “The instrument is payable to bearer: * * * When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable. * * * ”

According to Mr. Dutseh, he did not know at the time he accepted these instruments that Arch Manufacturing Company was a mere trade-name. He supposed that he was dealing with a person, firm, or corporation. 1-Iis acceptance having been made without knowledge that the purported drawer, whose indorsement was necessary in order to make the instruments negotiable, was a mere trade-name, his acceptance does not, under the letter of the law, make these acceptances payable to bearer.

It therefore seems to me, that under the situation disclosed, these acceptances were not legally indorsed, negotiated, nor susceptible of such method of transfer, with the result heretofore stated. The cases Shipman v. Bank of New York, 126 N. Y. 318, 27 N. E. 371, 12 L. R. A. 791, 22 Am. St. Rep. pages 821-829; and Armstrong v. National Bank, 46 Ohio St. 512, 22 N. E. 866, 6 L. R. A. 625, 15 Am. St. Rep. pages 655-658, have strong bearing on the present case.

It further- seems to me that the burden of proof is upoh the plaintiff to show that it is a holder in due course, and that such fact does not appear in its favor.

Section 55 of the Negotiable Instrument Law provides: “The title of a person who negotiates an instrument is defective within the meaning of this act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.”

Section 56: “To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.”

1 Section 59: “Every holder is deemed prima facia to be a holder in due course; but when it is shown that the title of .any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some other person under whom he claims acquired the title as holder in due course. But the last mentioned rule does not apply in favor of- a party who became bound on the, instrument prior to the acquisition of such defective title.”

The Supreme Court, in Lanfear v. Blossman, 1 La. Ann. 148, 156, 45 Am. Dec. 76, quoting from Story on Bills of Exchange, said: “What circumstances will amount to actual or constructive notice of any defect or infirmity in the title to the bill, so as to let it in as a bar or defence against a holder for value, has been a matter of much discussion and of no small diversity of judicial opinion. It is agreed on all sides that express notice is not indispensable, but it will be sufficient if the circumstances are of such a strong and pointed character as necessarily to cast a shade on the transaction, and to put the holder on enquiry.”

In Louisiana State Bank v. Orleans Navigation Company, 3 La. Ann. 294, the court says: “Express notice is not necessary to charge the holder with what the law considers to be notice of any defect or infirmity in a note or bill, so as to let in a defence against a holder for value; it is sufficient, if the attending circumstances are of such a positive and pointed character as to cast a shade on the transaction, and to put the holder on enquiry.”

In Hays v. Lapeyre & McCaleb, 48 La. Ann. 749, 19 So. 821, 823, 35 L. R. A. 647, the court says: “Direct and express notice is not always indispensable, to take notes out of the pale of commercial law and cut off the equities. When the circumstances are such as to bring a particular case under the operation of that rule, the maker of the note is legally entitled to insist upon its application regardless of the question of actual knowledge on the part of the purchaser of the note.”

From Ruling Case Law, volume 3;' subject, Bills and Notes, § 239: “It has been said that good faith means payment of value for the instrument, but the payment of a valuable consideration is not alone sufficient to establish good faith. Nor does the additional fact of acquisition before maturity establish a ease of bona tides. It should appear also that the facts and circumstances attending the transfer were not such as to charge the transferee with notice of a defect or infirmity in the paper,” citing Vairin v. Hobson, 8 La. 50, 28 Am. Dec. 125.

It is obvious from the edges of the acceptances that they have been detached from some other paper by means of perforations.

The defendant cites in that connection, the case of Rochford v. Alick McGee, 16 S. D. 606, 94 N. W. 695, 61 L. R. A. pages 335, 102 Am. St. Rep. 719.

In the case cited, it was established that a note had been cut out of a paper containing the contract of the party. In the present case, the perforations made may be due to the fact that these acceptances were detached from one another; but in connection with the testimony of Mr. Dutsch the perforated condition of the edges tends to support his contentions.

Mr. Coffman, plaintiff’s president, etc., says he annexes to his testimony a copy of plaintiff’s charter. It was not done; but he annexed a certificate of its incorporation, which stated that it is organized for manufacturing business purposes, and that its capital stock is $10,000.

.Each of these acceptances contain on their face a printed statement, as follows: “The obligation of the acceptor hereof arises out of the purchase of goods from the drawer.”

The testimony shows that Coffman was well acquainted with the business of Blackstad, Inc., and it is a justifiable inference that he knew that the goods referred to on the face ■of the acceptances was jewelry, which had been sold to Dutsch on time, and was aware of the worthless character thereof. He. saw on the face of the acceptances that they called for no interest, rior for the payment of attorney’s fees in case of suit. He testified that Traders’ Securities Company, Inc., paid $268.20 therefor, without recourse, giving Arch Manufacturing Company, Inc., a check for the amount. This check is contained in the record. It has cut on it the word “paid,” and bears some purported bank indorsement which establishes nothing, and has on its back, placed there with a rubber stamp, an indorsement by “Arch Mfg. Co.”; by whom placed there does not appear. The amount claimed to have been paid for these acceptances amounts to 90 per cent, of the total sum called for by the acceptances on their face. . A prudent conservative business concern, engaged in business for a profit, could not afford to pay such a cash price for paper, without recourse, in advance of the maturity of the paper. To make a profit, every acceptance would have to be paid, without suit! otherwise there would result loss without recourse. Plaintiff could not reasonably stay in business but a short time on its capital, paying such a price for such paper without recourse. Taking the entire record showing, it seems to me to be a reasonable conclusion that plaintiff’s business is collecting for Blackstad, Inc., and that Blackstad, Inc., is endeavoring to accomplish through Traders’ Securities Company, Inc., a collection that would not be attempted in its own name.

Our law has endeavored to protect our citizens from wrongs of this kind. Rev. St. 1870, § 2668; Act No. 119 of 1888; Act No. 64 of 1918 (sections 1 and 5, amended by Act No. 303 of 1926 § 2); Act No. 240 of 1918. The object of these enactments is to prevent fraud in matters like the present. It has been held by the Supreme Court in a number of cases, Halliday v. Bridewell, 36 La. Ann. 238; Kent v. Mojonier, 36 La. Ann. 259; Wolfe v. Joubert, 45 La. Ann. 1100, 13 So. 806, 21 L. R. A. 772; In re Pelican Ins. Co., 47 La. Ann. 935, 17 So. 427; Smith v. Williams, 152 La. 948, 94 So. 859; Toelke v. Toelke, 153 La. 697, 96 So. 536, that because a party does business in a firm name, when he is the only person interested in the business, is no reason why he cannot sue and compel the payment of a debt justly due him on account of said business; but in the cases cited, there was no effort to accomplish a fraud by collecting something not justly due.

In the present case, the record, to my min’d, justifies the conclusion that the name Arch Manufacturing Company is used and put forward in this business with Dutsch by Black-stad, Inc., and Traders’ Securities Company, Inc., for the purpose of compelling Dutsch to pay for jewelry that was worthless, and which the plaintiff does not pretend had any real value as such. In the case of Smith v. Williams, 152 La. 948, 94’ So. 859, the court, construing Act No. 64 of 1918, had this to say: “It is a general rule, that, in the absence of statute to the contrary, a person may transact business and execute his contracts under any name he may choose to adopt, provided, of course, no fraud be committed.”

In this case, under the showing made, the plaintiff cannnot recover from Dutsch, except as the result of a fraud committed by compelling him to pay for jewelry that was worthless and of no value.

I therefore dissent.