Home Credit Co. v. Fouch

Digges, J., delivered the opinion of the Court. The appellant is a corporation of Baltimore City, its principal business being the purchase of notes from contractors who have done work for owners of homes and have taken notes in settlement for such work, and was the plaintiff below in a suit against th'e appellees, defendants below, on a note alleged to have been signed by the appellees, dated May 7th, 1925, payable twenty-four months after date, to the order of Twele Electric Company, for the sum of $355.14. The note provides for partial payments of $14.80 per month until the full amount has been paid; that failure to meet any payments when due shall render the installment feature of the obligation void, and the remaining balance shall become immediately due and payable, the makers, in the event of such default, waiving all exemption laws and authorizing any attorney of record to appear in any coiurt and confess judgment for the amount due and payable under the note, plus ten per cent, attorney’s fees and costs of suit, and waiving all right of appeal or stay of execution. The note further provides that any extension of time for payment shall not constitute a waiver of any of the rights above mentioned, and expressing “value received.” The names signed to this note are David B. Fouch and Laura E. Fouch, with seals opposite their names, and witnessed by R. Steen.

Under ³⁸⁸ the names of the signers is: “Mail address, Weaverton Route Ho. 31, Brownsville, Md.” Endorsed on the back of the note there appears: “Eor value received I/we hereby assign the within note and balance due thereunder to the Home Credit Company. Twele Electric Co., pe¡r Frederick W. Twele. Principal................$355.14 6/18/25 Paid......$14.80 7/16/25 ” 14.80 8/17/25 ” 14.80 9/16/25 ” 14.80 59.20 $295.94” Ho payments having been made by the appellees subsequent to September, 1925, a judgment by confession in favor of the appellant against the appellees for the sum of $325.53, with interest from date and costs, was entered in the Circuit Court for Washington County on May 19th, 1926. In September of that year the defendants filed a motion to strike out the judgment, whereupon the court, on December 20th, 1926, passed an order striking-; out the judgment and placing the case on the trial docket.

Later the case was removed to Frederick County and tried before a jury, resulting in a verdict and judgment for the defendants. From that judgment the appeal here is taken. The exceptions reserved are ten in number, nine to the rulings on evidence, and the tenth to the action of the court on the prayers. An examination of the record will disclose the circumstances surrounding the alleged execution of the note sued upon to be substantially as follows: A number of people living in the vicinity of Brownsville were approached in the winter or early spring of 1925 by D. F. Willoughby for the purpose of having their homes equipped with electrical wiring and fixtures, and also in respect to the erection of a pole lino for a distance of approximately two miles, upon which feeder lines were to be placed so as to make connection with the homes so equipped.

Finding that certain of the residents ³⁸⁹ in that locality were favorable to the project, Willoughby then approached Frederick W. Twele, trading as the Twele Electric Company, and engaged in the business of installing electrical fixtures and connections in homes, stating to him that about five hundred customers would desire their homes electrified; and inquiring if he would do that work. Twele told Willoughby that he was unable to finance an operation of that proportion, because of lack of capital, and it was suggested that dealing with some finance corporation might overcome the difficulty. Twele for some time prior thereto had dealt with the appellant in such matters, and he and Willoughby interviewed the president of the appellant, laying their plan of operation before him, and requesting that his company purchase the notes taken from the owners in payment of work done and materials furnished. The appellant agreed to this, saying in effect that, if upon inquiry the financial responsibility of the proposed note makers was satisfactory, his company would finance Twele, and furnished blank forms of application and satisfaction slips to be used by Twele in connection with the work.

The form of contract was not supplied by the appellant, but seems to have been furnished by Willoughby, and contained specifications showing in detail the wiring, fixtures, and outlets to be installed in each customer’s home. It is admitted that the appellees signed such a contract, which was offered in evidence, the wife signing1 her name, and that of her husband by bis direction. Tbe contract provides for the wiring in accordance with the specifications and schedule, and the appellees agreed to pay therefor, at the office of the contractor, $355.14, in twenty-four equal monthly installments of $14.80; and included in the specifications is: “24 monthly payments of $14.80 each month. It is understood this pole line may take from 5 to 6 months to complete, 1st payment 30 days from date of starting, or June 25th.” ³⁹⁰ This contract is of the same date as the note; the note, but not the contract, being' assigned to the appellant on the 20th day of June following its date.

There is evidence on behalf of the plaintiff that after the note in question was assigned to it, to wit, on May 22nd, 1925, there was written and mailed to the defendants a letter, of which the following was testified to be a copy: “May 22, 1925. “Mr. David B. Fouch, “Weverton, “Maryland. “Dear Sir: This is to notify you that we have this day purchased the note signed by you and your wife, payable to the order of the Twele Electric Company, and that hereafter all payments are to be made at the office of this Company, 11 W. Saratoga Street. Your first payment will be due and payable June 20, 1925. “Very truly yours, “Home Credit Company, “By...................” Receipt of this letter was denied. It was testified that a card was enclosed with the letter, but no reference was made in the letter to the card. Receipt of this card was admitted.

It was a form prepared by the appellant, upon which at the time of the trial there appeared: “Marne: David B. Fouch. “Address: Weverton, Route Mo. 1, Brownsville, Md. “In account with “Home Credit Company. “Amount of Contract, $355.14. Date May 20, 1925. “Amount to be paid monthly^ $14.80. Twele.” Then there appear receipts for payments coinciding with the credits on the note. The card also contains: “Payments must be made according to contract at 11 West Saratoga’ Street.

Always bring this card with you. Do not fold this card.” ³⁹¹ It was enclosed in an envelope upon which appears: “Important — Do not fold this card. Always bring this card with you. Kindly remove from envelope when making payments.

Payments are to he made at this office. 17 W. Saratoga Street.” The record further discloses that at the time the appellant received the note in question, and "before the same was discounted, it also received what is designated a “satisfaction slip,” which says: “Satisfaction Slip. This is to certify that Twele Electric Co., contractor, has completed all of the work on the part of the said contractor to he performed under and hy virtue of the contract entered into by me (us), and I (we) hereby acknowledge the negotiable note in the amount of $........, signed hy me (us) given in payment of the amount due for the work completed under the said contract. David B. Pouch. Laura E. Pouch.

"Witness — Harry Reach.” The appellees deny signing this satisfaction slip, but acknowledge the payments to have been made by them as recorded on the card and note, saying that these payments were not made by them or either of them personally, but were made for them by Frank M. Hoffmaster, a neighbor who had signed a similar contract, at the office of the appellant. The plaintiff offered three prayers and the defendants, five. The trial court granted the plaintiff’s first and third prayers and rejected its second; granted the defendant’s first, second and third prayers and rejected their “A” and “B” prayer's, which latter two asked for an instructed verdict for the de^ fendants. The plaintiff filed a special exception to the defendants’ third prayer.

The defense in this case was forgery and fraud. It is conceded hy the plaintiff that proven forgery would vitiate the note. As to fraud, the appellant contends that it is a holder in due course. The appellees deny this contention, for the reason that the plaintiff had, at the time of its purchase, knowledge of the fraud, or knowledge of such facts as would ³⁹² put it upon inquiry, which inquiry would result in the discovery of fraud.

There is no evidence of actual notice of fraud on the part of the appellant, but one of the facts within its knowledge, which it is contended required investigation, and which investigation would result in the acquisition of knowledge of fraud, was that the appellant knew that the building of the pole line was a part of the consideration given for the note; that is to say, they contend that the knowledge that the pole line was contracted to be built, and had not been constructed at the time it purchased the note, was sufficient to put it on notice of possible fraud in the inception of the contract. The soundness of this contention has been denied by this court in the cases of Black v. First Nat. Bank, 96 Md. 399 , and Shpritz v. Balto. Trust Co., 151 Md. 503 .

By the plaintiff’s second prayer, which was rejected, the court was asked to instruct the jury that, if they found that the signatures of the defendants to the note sued on were not forgeries, their verdict should be for the plaintiff, even though they should further find that, at the time of the purchase of the note by the plaintiff, the plaintiff knew that under the' contract there was a pole line to be built, and that at that time it had not been constructed. The latter part of the prayer submitted the legal proposition that a note signed, payable in installments, for work yet to be done, of which the plaintiff had notice at the time the note was negotiated to it, did not constitute it a holder with knowledge of such an infirmity as would vitiate the note. This legal proposition has been determined by this court to be sound. In the case of Black v. First Nat.

Bank, supra, at page 418, in which the cojurt was dealing with a plea seeking to prevent recovery because of knowledge by the plaintiff, who was claiming to be a holder in due course, of the contract between the maker and the payee of the note, in which contract certain things were stipulated to be done in the future, the court said: “The plea avers knowledge by the plaintiff of the terms of this agreement when the notes were taken, but contains no averment of breach and notice of breach before the ³⁹³ plaintiff took tlie notes and parted with its money on their faith and credit. Hpon principle, it would seem that this must constitute a fatal defect in the plea, and the authorities sustain this view. The rule is stated thus in U. S. Nat. Bank v. Floss, 38 Ore. 68 ( 62 Pac. 751 ) : £Thc breach of an executory agreement which forms the consideration of a negotiable note, is not a defense in whole or in part against an endorsee who' took the note for value before maturity, even if ho had notice of the contract, unless he was also informed of the breach before its purchase.’ In Davis v. McCready, 17 N. Y. 233 , the reasons upon which this rule rests are well stated in an opinion by Judge Denio.

In that case, the consideration for the acceptance of a bill of exchange was the sale of a brig, accompanied by an executory agreement of the vendor to make such repairs as would render her seaworthy. The defense was that this agreement had not been performed; but the court said: ‘The plaintiffs were not bound to follow up the transaction between the original parties to the bill. To hold otherwise would attach an inconvenient and repugnant condition to such an acceptance. By accepting simply and unconditionally a negotiable! bill, the defendants are to be held as intending to give it all the qualities of commercial paper, one of which is that it shall circulate freely for the purposes of business, and be available in the hands of any holder for value.

To decide that one who proposed to purchase it and who had a knowledge of the transaction upon which it was given, must await the consummation of that transaction, would essentially impair its character and legal effect.’ ” To the same effect see Arthurs v. Hart, 17 How. (U. S.), 6. The principle laid down here has been recently re-affirmed in the case of Shpritz v. Ballo. Trust.

Co., supra. Tinder the provisions of the Negotiable Instruments Act, every holder of a note is deemed prima facie to bo a holder in due course. Code, art. 13, sec. 78. Under the above authorities it seems clear that the fact that the holder of a negotiable instrument has knowledge that there is an executory contract between the original parties to the instrument, does not pre ³⁹⁴ vent it from being a holder in dne course; the law being that, in order to constitute such an infirmity as would render one a holder not in due course, it must be shown that there was a breach of the contract, and that such breach was known to the holder at the time he purchased the note and parted with his money therefor.

In this casia there is evidence that the plaintiff knew of the contract or agreement for the building of the pole line, and that it had not been built at the time it