Bank of Statesville v. Black-Welder Furniture Co.

181 S.E.2d 785 (1971)

BANK OF STATESVILLE, Statesville, North Carolina
v.
BLACKWELDER FURNITURE COMPANY.

No. 7122DC375.

Court of Appeals of North Carolina.

June 23, 1971.

Sowers, Avery & Crosswhite by W. E. Crosswhite, Statesville, for plaintiff appellee.

Raymer, Lewis, Eisele by Douglas G. Eisele, Statesville, for defendant appellant.

CAMPBELL, Judge.

The question presented to this Court is whether the endorsement on the back of the note was sufficient to prove both the endorsement and the authority of Edwards to endorse the note for Industries.

The case of Whitman, Inc. v. York, 192 N.C. 87, 133 S.E. 427 (1926) presents a factual situation quite similar to this case. In that case the plaintiff acquired negotiable notes in good faith and for value without notice of any infirmity in either note or of any defect in the title by which the Paul Rubber Company, Payee, held the said notes. On the back of each note there appeared the words, "The Paul Rubber Company, by W. M. McConnell, Pres." The plaintiff, as the owner and holder of the notes, presented no evidence tending to show by whom the words on the back of the note were written. The trial judge instructed the jury to find that the plaintiff was not a holder in due course. Connor, J., speaking for the court, stated:

"* * * It is well settled by decisions of this court, as well as of other courts, and by approved text-writers, that words written on the back of a negotiable instrument, purporting to be an indorsement by which the instrument was negotiated, do not prove themselves. The mere introduction of a note, payable to order, with words written on the back thereof, purporting to be an indorsement by the payee, does not prove or tend to prove their genuineness. * * *"

Several authorities are cited in support of this statement including Tyson v. Joyner, 139 N.C. 69, 51 S.E. 803 (1905); Mayers v. McRimmon, 140 N.C. 640, 53 S.E. 447 (1906).

Under the Law Merchant and the Negotiable Instruments Law, for a person to acquire the position of a holder in due course of a negotiable instrument so as to effectually cut off any defenses which the maker might have, he has the burden of establishing that he was, in all respects, a holder in due course. This included establishing the authority of a purported endorser to execute such endorsement. The old bank adage of "know your endorser" meant something. This was, as it should be, because the bank, as a purchaser of the instrument, was in the best position to inform itself as to the authority of the seller-endorser to make the transaction.

The Session Laws of 1965, which repealed the Negotiable Instruments Law and enacted in lieu thereof the Uniform Commercial Code, have not changed this requirement.

G.S. § 25-3-307(3) provides:

"After it is shown that a defense exists a person claiming the rights of a holder in due course has the burden of establishing that he or some person under whom he claims is in all respects a holder in due course."

Here, defendant has established, by admissions and affidavits, that it has a defense of failure of consideration insofar as Industries is concerned. The plaintiff seeks to cut off this defense by being a holder in due course. The burden thereupon fell to the plaintiff to show that it was "in all respects a holder in due course." By presenting nothing more than the note itself to prove the authority of Edwards to endorse for Industries, plaintiff failed to carry its burden. G.S. § 25-3-403(1) provides that:

"A signature may be made by an agent or other representative, and his authority to make it may be established as in other cases of representation. * * *"

The case of J. L. Smathers & Co. v. Toxaway Hotel Co., 168 N.C. 69, 84 S.E. 47 (1915) relied upon by the plaintiff is not contrary to the facts herein expressed. In that case, the burden of proof was placed upon the party claiming to be a holder in due course to establish that fact. That case points out that where an infirmity in the note has been established so as to create a valid defense by the maker and this defense is sought to be avoided by the establishment of a holder in due course, then the person claiming to be the holder in due course has the burden of proving it. In that case, the claimant introduced evidence to prove it. The question as to the authority of the endorser of the note to endorse it to the claimant was not controverted, and thus that case is not pertinent to the particular facts in this case.

Plaintiff having failed to carry its burden of proof to show that it was in all respects a holder in due course, defendant was entitled to summary judgment; and it was error for the trial court to deny the defendant's motion for summary judgment Therefore, we remand the case to the District Court for entry of the appropriate judgment.

Reversed and remanded.

BRITT and GRAHAM, JJ., concur.