
    Traders’ Security Company v. Pennington.
    (Decided November 18, 1930.)
    C. R. LUKER for appellant.
    FINLEY HAMILTON and RAY C. LEWIS for appellee.
   Opinion, of the Court by

Commissioner Stanley

Affirming.

The appellant, Traders’ Security Company, sued the appellee, W. Gr. Pennington, to recover on four trade acceptances of $59.60 each, bearing interest from date, July 29, 1925, which had been executed to the Arch Manufacturing Company, of St. Louis, and alleged to have been assigned before maturity for a valuable consideration to the plaintiff, who was the holder thereof in due course. The suit is similar to Traders’ Securities Co. v. Oslin & Son, 227 Ky. 828, 14 S. W. (2d) 149, and Traders’ Securities Co. v. Oney, 228 Ky. 182, 14 S. W. (2d) 752. The defendant, a country merchant of Laurel county, denied every allegation of the petition, and in his answer elaborately set up the circumstances and conditions surroúnding the execution of the instrument sued on, which, if true, sustains his plea therein made that they were obtained from him by gross fraud on the part of an agent of the payee. He further pleaded that the Arch Manufacturing Company was in truth and in fact but a name under which Blackstad, Incorporated, which also operated under the name of National Novelty Import Company, was doing business; that the plaintiff, Traders’ Security Company, with a capital of only $10,000, was the successor of the Metropolitan Discount Company, and organized at the time Blackstad began operating as the Arch Manufacturing Company for the purpose of buying paper obtained by it; that the plaintiff had notice and knowledge of the fraudulent methods of doing business by Blackstad Incorporated, under its two assumed names; that before acquiring the instruments sued on it had had other suits of a similar nature in nearby counties to wbicb tbe same defense had been offered; and, if in fact tbe plaintiff bad acquired tbe paper sued on, it bad done so well knowing at tbe time that it bad been obtained by fraud, misrepresentation, and deceit. He further charged that the plaintiff, working with tbe Arch Manufacturing Company, bad acquired tbe negotiable instruments taken by it through fraud and collusion for the sole and only purpose of defeating any defense or contention of fraud that might be made against them, and bad so acquired the acceptances executed by tbe defendant. He charged that tbe plaintiff knew or by tbe exercise of reasonable diligence could have known that tbe instruments bad been obtained from him through fraud, and, notwithstanding this knowledge of the facts, it bad bought tbe acceptances signed by him, and that tbe first of the series had been paid by bis banker, a counterclaim for tbe amount of wbicb was made.

Tbe plaintiff filed a demurrer and motion to strike tbe two paragraphs of tbe answer containing tbe affirmative defenses, wbicb were overruled. Some time thereafter tbe case came to trial. Tbe defendant’s evidencé of tbe extraordinarily fraudulent manner in wbicb tbe instruments bad been obtained from him was not in any way contradicted. Tbe appellant contends that tbe evidence was not sufficient to justify tbe verdict that it was not tbe bolder of tbe instruments in due course. On tbe contrary, tbe appellee contends that tbe admissions of tbe plaintiff’s manager, made in bis deposition taken on interrogatories, constituted a scintilla of proof sufficient to sustain tbe verdict that tbe instruments bad not been acquired in good faith or in innocence of fraud by wbicb they were secured.

Tbe affirmative allegations of tbe answer above outlined were not denied by a reply or controverted of record. It therefore stood and now stands admitted that tbe plaintiff obtained tbe instruments sued on with full, notice and knowledge of the undenied gross fraud by means of which they had been obtained, and bad acquired, tbe notes through collusion and a fraudulent scheme between the Arch Manufacturing Company and itself. In such circumstances it acquired no better title than tbe original payee, wbicb it is conclusively shown had no title because of tbe f raud. Sections 3720b-58, 3720b-59, Kentucky Statutes; Gibbs v. Metcalf, 201 Ky. 504, 256 S. W. 1109.

An appeal is granted, and the judgment is affirmed.  