River Bros. v. C.F.T. Co., Inc.

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] This is an action to recover amount alleged to be due on two trade acceptances of which plaintiff claims to be a holder in due course. These bills, each in the sum of $220, were drawn on May 31, 1923, by the Cascade Products Company on the defendant corporation and were accepted by it on the same date. The acceptances were executed by the defendant company, which was engaged in business in the City of Grants Pass, Oregon, in payment for certain washing-machines contracted to be delivered by the Cascade Products Company. It is alleged that the plaintiff purchased the acceptances before maturity, for value, and without notice of any infirmity in the bills or defect in the title of the person negotiating them.

The answer admits the execution of the trade acceptances, but denies that the plaintiff is the holder in due course. As a further and separate defense, after reciting the execution of the instruments, it is alleged that the "Cascade Products Company agreed to ship the said washing-machines immediately upon receipt of said order and that the said Cascade Products Company failed, neglected and refused to fill said order and did not ship the kind and quality ordered, and by reason thereof the defendant herein refused to pay the amount agreed upon."

Further: "The defendant alleges that the plaintiff herein is not the holder of said instruments in writing, as set forth in plaintiff's complaint and that the said alleged transfer of the bill of exchange was not made at all, or if made, was done for the purpose of defrauding the defendant herein." And finally:

"That the plaintiff had knowledge that the Cascade Products Company had not fulfilled their part of the obligation with the defendant herein, and that the said alleged transfer, if made, was fraudulent and for the purpose of defrauding the defendant by trying to make it appear that the plaintiff was the holder in due course of the said trade acceptances."

Plaintiff replied with a general denial to the affirmative matter as above stated.

On these issues the cause was submitted to a jury and a verdict returned in favor of the defendant. Plaintiff appeals.

Was the plaintiff entitled to a directed verdict? It established a prima facie case by introducing the trade acceptances whose execution was admitted, and by proving its ownership thereof. By virtue of Section 7851, Or. L., plaintiff is presumed to be a holder in due course. It had the right to rely upon this presumption until evidence had been offered by defendant showing that the title of the person negotiating the instruments was defective. If such were shown by the defendant, it was incumbent upon plaintiff to establish by the greater weight of the evidence that it was a holder in due course. Section 7847, Or. L., 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 fraud."

In the answer of the defendant no facts were alleged upon which the charge of fraud could be predicated. The pleader seems to have been content merely to allege conclusions. No contention is made that the execution of these acceptances was obtained through "duress, or force and fear, or other unlawful means, or for an illegal consideration." If the title is defective, within the meaning of the act, it is by reason of its negotiation "in breach of faith or under such circumstances as amount to fraud." Turning again to the pleading and giving it every reasonable intendment to which it is entitled after verdict, we find there was no allegation of failure of consideration for the acceptances. It is alleged that the Cascade Products Company did not ship washing-machines of "the kind and quality ordered." In other words, we take it that defendant complains of a breach of warranty.

While failure of consideration is no defense against a holder in due course, it might well be argued that, if the Cascade Products Company had failed to deliver any washing-machines, the negotiation of the trade acceptances, under such circumstances, would be a breach of faith and would amount to the perpetration of a fraud. The general denial of the allegations of the complaint that plaintiff is a holder in due course does not put such matter in issue and is not sufficient to overcome the presumption of the statute attaching to negotiable paper: Holdsworth v. Anderson Drug Co., 118 Va. 359 (87 S.E. 565); First National Bank of Buffalo v. Wallace, 50 N.D. 330 (196 N.W. 303); Gulf States Steel Co. v. Ford, 173 N.C. 195 (91 S.E. 844). To overcome the prima facie case established by plaintiff it was necessary for the defendant to allege and prove facts showing a defective title.

Let us assume, although we do not so decide, that there is an issue under the pleadings whether the plaintiff is a holder in due course. It appears, without contradiction, that the plaintiff, which is a San Francisco firm dealing in negotiable paper, acquired these trade acceptances before maturity and is the owner and holder thereof. There is evidence that, prior to the purchase of the bills in question — which was at face value less 8 per cent discount — the plaintiff made investigation, through a commercial agency, as to the financial standing of the defendant. It had knowledge of the facts that the Cascade Products Company was in the business of selling merchandise and accepting trade acceptances in payment therefor. It is recited in the bill of exceptions that the "purchase of these instruments was made in the course of plaintiff's business," and that the discount of 8 per cent was the market rate at San Francisco on papers of this nature. There is no testimony tending to show that the plaintiff had any knowledge of this particular transaction whereby a high-powered salesman evidently persuaded a merchant to cast to the winds all business caution. There are no facts or circumstances surrounding the negotiation of these bills from which an inference of bad faith could be drawn. Mr. French, of defendant company, testified that he made a trip to San Francisco to investigate this matter and to demand return of the acceptances and was advised by Mr. Alexander of Cascade Products Company that he would have to see an attorney named Ringole who represented plaintiff in such matters. Mr. French says that he went to Ringole's office and told him, "We would not pay any more of those acceptances until we had got the machines." Continuing, Mr. French testified that Ringole said: "They have not paid for the acceptances yet and was waiting for some other fund." Referring to this alleged admission, the witness continued, "I did not understand the conversation. I did not know exactly what he meant and could not go into details and ask a man what his business was other than my own. And he turned to this young man (the office boy who had accompanied French) and told him such and such was the case; that they had not received the money up to that time because of some particular fund."

This testimony relating to an alleged admission of Ringole, attorney for the plaintiff company, is inadmissible. So far as the record discloses, the statement, if made, was without authorization of the plaintiff and, therefore, may be rejected as a declaration against interest. The fact that Ringole was an attorney for the plaintiff did not, under the circumstances, render the testimony admissible. It was hearsay and incompetent:Welch v. Johnson, 93 Or. 591 (183 P. 776, 184 P. 280);Toomey v. Casey, 72 Or. 290 (142 P. 621); Walk v.Hibberd, 65 Or. 497 (133 P. 95); Kabat v. Moore, 48 Or. 191 (85 P. 506); 2 R.C.L. 977.

If we eliminate from our consideration the testimony concerning the statement of Ringole there is absolutely no evidence tending in the slightest degree to refute the contention that plaintiff is a holder in due course. The sale of the washing-machines was at Grants Pass, Oregon, while the acceptances were negotiated at San Francisco, California. It is highly improbable that the plaintiff knew anything about the sale in question. There are no suspicious circumstances surrounding the negotiation of this paper to indicate bad faith.

Ordinarily, whether plaintiff in purchasing these acceptances acted in good or bad faith would be a question of fact for the jury. If there was any fact present from which a reasonable inference could be deduced that plaintiff was not acting in good faith, the finding of the jury would be conclusive: Everding Farrell v. Toft, 82 Or. 1 (150 P. 757, 160 P. 1160). However, in the instant case we are not precluded from denying the conclusiveness of the finding of the jury for the reason that there was no evidence to support it. It is idle to argue that the question of the good faith of the plaintiff was for the jury when there was no contradiction in the testimony on that phase of the case. As stated in Fehr v.Campbell, 288 Pa. 549, 137 A. 113:

"The question of the good faith of a holder of commercial paper is generally one of fact for the jury, but where the evidence is undisputed and conclusive, it is the court's duty to decide the point as a matter of law and instruct the jury accordingly."

Of course, the mere fact that the evidence is uncontradicted does not make it incumbent upon the court to instruct, as a matter of law, what verdict should be rendered. Even though the evidence be uncontradicted, if it were unreasonable or improbable, it would, nevertheless, be a question for the jury to determine. In view of the record in this case, it was the duty of the court to allow plaintiff's motion for a directed verdict. There was no issue of fact to submit to the jury: Eisenberg v. Lefkowitz, 142 A.D. 569 (127 N.Y. Supp. 595); Newton County Bank v. Cole (Mo.App.),282 S.W. 466; Omaha Steel Works v. Martin, 78 Colo. 560 (243 P. 619); Whittlesey v. Drake, 43 Idaho 623, 253 P. 621; Security Finance Co. v. Thompson, 216 Ky. 364 (287 S.W. 938); Porter v.Fronheiser, 86 Pa. Super. 354.

The judgment of the Circuit Court is reversed and one is hereby rendered against the defendant for the sum of $440, together with interest thereon at the rate of 6 per cent per annum from May 31, 1923. No attorney fees will be allowed for the reason that the record does not contain any evidence as to what would constitute a reasonable attorney fee for the prosecution of this action.

REVERSED AND DECREE ENTERED.

RAND, C.J., and BEAN and BROWN, JJ., concur.