
    The Motor Finance Corp. v. Huntsberger.
    
      Negotiable instruments — Holder in due course — Section 8157, General Code — Indorsee of note by maker to aid payee performing executory contract — Payee’s promise to perform contract with maker, sufficient consideration, when— Purchaser of note not guarantor of performance contract by payee, tvhen — Purchaser not bound to see that proceeds applied to contract’s performance.
    
    1. A holder of negotiable paper in due course is defined bisection 8157, General Code. It is one of the elements of that definition that the purchaser must take the instrument in good faith, and want of good faith is not made to appear by showing that the note was given by the maker to aid the payee in the performance of an executory contract of which the indorsee had.notice and knowledge, there being no breach of the executory contract at the time of the transfer, and the indorsee having no knowledge or reason to believe that the executory contract would later be breached.
    
      2. It is a further element of the definition of a holder in due course that, at the time of the negotiation of the instrument, the indorsee had no notice of any infirmity in the instrument or defect in the title of the person negotiating it. Where the consideration of a promissory note is the promise on the part of the payee to perform an executory contract made between the maker and payee concurrently in point of time with the execution and delivery of the note, such promise constitutes a sufficient consideration for the note, and the indorsee thereof for full value and before maturity in good faith of such a note regular on its face is a holder in due course, if the executory contract has not been breached at or prior to the time of such negotiation.
    3. The purchaser of a promissory note under such circumstances does not become a guarantor of performance of the executory contract by the payee, neither is such purchaser bound to see to the application of the proceeds of the note to the performance of such executory contract.
    (No. 20044
    Decided March 29, 1927.)
    Ereos to the Court of Appeals of Stark county.
    This cause originated in the court of common pleas of Stark county, Ohio, as an action for money on promissory notes executed by one Huntsberger to one Lautenschlager, a dealer in automobiles. Huntsberger desired to purchase a Dort sedan car from Lautenschlager, but Huntsberger did not have the money to pay to Lautenschlager for the car, and Lautenschlager did not have the money to buy the car from the manufacturer. Thereupon it was arranged that Huntsberger should execute his notes to Lautenschlager, with the understanding that the notes would be immediately negotiated and the proceeds thereof paid to the manufacturer for the car. The notes were in fact negotiated, and Huntsberger and Lautenschlager went to the factory, but found no Dort sedan car in stock, and it was then arranged that a brougham car would be temporarily loaned to Huntsberger until such time as a sedan car could be delivered. In the course of time two of the notes became due, and were paid by Huntsberger to the Motor Finance Corporation, but, upon maturity of subsequent notes, the sedan car not yet having been delivered, Huntsberger refused to make further payments, and thereupon suit was brought by the Motor Finance Corporation claiming to be a holder of the notes in due course against Huntsberger. Huntsberger defended, alleging that there was a failure of consideration, and that the Motor Finance Corporation was not a holder in due course, and, in support of that allegation, adduced evidence that the Motor Finance Corporation had full knowledge of the transaction, and that a sedan car was to be delivered, and that it was in fact never delivered. It was claimed from this evidence that this constituted an infirmity in the notes, and, it being admitted that the Motor Finance Corporation had full knowledge of the promise to deliver the sedan car and the failure to do so, that this constituted knowledge of the alleged infirmity.
    The court of common pleas held that the Motor Finance Corporation was an innocent holder of the notes in due course, and rendered judgment thereon. The Court of Appeals reversed that judgment, sustaining the contentions of Huntsberger that there was a total failure of consideration by reason of the failure to deliver the sedan car, and further held that the Motor Finance Corporation had full knowledge of the promise made to deliver a sedan car and of the subsequent failure to do so, that this constituted an infirmity in the notes, of which the indorsee had full knowledge at the time of their execution, and that the corporation was not therefore a holder in due course. The cause was admitted to this court upon allowance of motion to certify.
    
      Messrs. Amerman S Mills, for plaintiff in error.
    
      Messrs. Memperly, Wiggins S Heggem, for defendant in error.
   Marshall, C. J.

In addition to the facts herein-before stated the record discloses that at the time of the execution of the notes a mortgage was also executed, but no description of property was inserted, because a description of the auto to be purchased could not have been definitely made. This incomplete instrument was delivered to the Motor Finance Corporation along with the notes, but the description was never completed, and suit was brought upon the notes without regard to the mortgage. The mortgage therefore has nothing to do with this transaction, except in so far as it might reflect upon the knowledge of the Motor Finance Corporation that a Dort sedan was to be delivered in consideration of the notes.

The Motor Finance Corporation seeks to recover as a holder in due course of negotiable paper. Section 8157, General Code, defines a holder in due course as follows:

“Sec. 8157. One is a holder in due course who has taken the instrument under the following conditions:

“1. That it is complete and regular upon its face.

“2. That he became the holder of it before it was overdue, and without notice that it previously had been dishonored, if such was the fact.

“3. That he took it in good faith and for value.

“4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.”

It is beyond dispute that the notes were complete and regular upon their face, and that the indorsee received them before maturity. Some question is made as to the good faith of the indorsee, but that question can easily be disposed of, because the entire transaction was tripartite in a measure, and Huntsberger knew that the notes were given in consideration of a Dort sedan car which the payee of the notes did not then have in his possession and which would have to be obtained from the factory, and Huntsberger further knew that the notes were given because he (Huntsberger) did not have the cash to pay Lautenschlager, and Lautenschlager did not have the cash to pay to the factory for the purchase of the car. Huntsberger further knew that notes in the hands of Lautenschlager, who lacked cash, would be no aid to the transaction, unless the notes were negotiated. Huntsberger was therefore in the position of dealing with an irresponsible party, or at least one not able to finance his business transactions, and he was aiding him by delivering to him notes which had many of the characteristics of accommodation paper. If Huntsberger did not know that the notes were being negotiated, it is certain that he made no objection thereto, and that he placed negotiable paper in the hands of Lautenschlager which he must have known could be used for that purpose. The finance corporation could under these circumstances have no more knowledge of Lautenschlager than Huntsberger had, and, instead of the transaction showing bad faith on the part of the finance corporation, it rather shows too much good faith unwisely reposed by Huntsberger in Lautenschlager.

The Court of Appeals, in reversing the judgment of the court of common pleas, must have found an infirmity in the notes, and it is particularly stated in the opinion that there was a failure of consideration. It is obvious that there was no failure of consideration at all prior to the time of the negotiation of the notes. The promise on the part of Lautenschlager to purchase a car and deliver the same to Huntsberger was a sufficient consideration for the execution and delivery of the notes. It is equally obvious that if the notes had not been negotiated, the failure to deliver the car would have constituted a defense to the notes in the hands of Lautenschlager. The record discloses that the factory did not have a Dort sedan car when the parties went to get it, and did not expect to have one of the particular type which Huntsberger desired within a period of 30 days. In the meantime, and before delivery of the Dort sedan, the factory suspended operations, and it became impossible to ever deliver such a car. The record further discloses that a Dort brougham car was in fact loaned to Huntsberger until such time as the Dort sedan could be delivered, and tbat Huntsberger still has the loaned car, which is of practically equal value with the sedan. Under these circumstances it is difficult to find any evidence of bad faith on the part of any one. There was merely a failure to perform an executory contract. A breach of the executory contract while the notes were still in possession of the payee would have constituted a defense, but, inasmuch as there had been no breach of the executory contract prior to the negotiation of the notes, and the finance company was not in any sense responsible for the performance of the executory contract, or bound to see to the application of the proceeds of the notes to the performance of the contract, we find nothing in this transaction which denies to the finance corporation all rights of a holder in due course. It is argued with much force, but with little logic, that the finance corporation had as much knowledge of the transaction as Lautenschlager himself. This is true, but not important. The only knowledge on the part of the finance corporation which would deny to it the protection of a holder in due course would be that of a breach of the executory contract at or before the time of the negotiation. The only circumstance which would make available to Huntsberger a defense of infirmities as between the original parties would be a breach not known to him at the time of negotiation, and yet known to the finance corporation.

The purchaser of promissory notes executed by the maker to aid the payee in the performance of an executory contract, which contract was made between maker and payee concurrently in point of time with the execution of the notes, does not become a guarantor of performance by the payee; neither is such purchaser bound to see to the application of the proceeds of the notes to the performance of such executory contract. We find, therefore, from the undisputed evidence in the record that there were no infirmities in the notes, and no failure of consideration at the time of their negotiation to the finance corporation, and that such company is a holder in due course. The judgment of the Court of Appeals must therefore be reversed, and that of the common pleas affirmed.

Judgment reversed.

Day, Allen, Kinkade, Robinson, Jones and Matthias, JJ., concur.  