Knabb v. Reconstruction Finance Corporation , 144 Fla. 110 ( 1940 )

This cause is before the Court on writ of error to a final judgment entered by the Circuit Court of Duval County, Florida. The trial court, upon motion of counsel for the plaintiff below, directed the jury to find a verdict for the plaintiff at the conclusion of the taking of all the testimony, and on this directed verdict a judgment was entered.

The record shows that a default was entered against the defendant for the want of a plea or demurrer, but on application the default was vacated and the case went to trial on a plea of failure of consideration of each of the notes sued upon.

The material allegations of the plea showing the failure of consideration are, viz.: On or about July 15, 1936, plaintiff below agreed to sell to the defendant a certain tract of land situated in Baker County, Florida, for $15,000.00, when the defendant paid thereon $3,000.00 in cash and delivered to the plaintiff four promissory notes in the sum of $3,000.00 each, maturing in July, 1938, 1939 and 1940, respectively; that the plaintiff held the title to and was in position to convey to the defendant title to said land for the $15,000.00 by a sufficient legal instrument, free of all liens, except unpaid taxes; and that the agreement to convey by sufficient written instrument at the price and on the conditions that the land described as being located in Baker County, Florida, would be made within a reasonable time after July 15, 1936.

Pursuant to the agreement between plaintiff and defendant an instrument was prepared by the plaintiff and transmitted to the defendant purporting to cover the agreement of the parties, wherein plaintiff was to sell to the defendant the Baker County lands for the total sum of $15,000.00, but plaintiff failed or omitted to place in said instrument a promise to convey, and upon discovery of the omission thereof, the defendant protested and demanded that the plaintiff perform its contract to deliver a good and sufficient contract in writing agreeing to convey title to the Baker County lands for which the notes sued upon were given; and during the time defendant paid the sum of $3,000.00 and interest on the $12,000.00, but on July 15, 1938, defendant refused to pay the next maturing note because the plaintiff failed to perform its agreement previously made on or about July 15, 1936, in which it agreed to convey the Baker County lands to the defendant and to, deliver a written contract which would evidence the oral agreement. The defendant refused to make payment of the notes or any installment of interest thereon, after the plaintiff refused or declined to deliver an executory contract to the defendant for the notes sued upon, which were part payment of the purchase price of the land.

The plea further alleged that in July or August, 1938, the plaintiff, disregarding its contract made with the defendant and upon which it received the sum of $3,000.00 in cash and the notes sued upon, conveyed the title to the Baker County lands to one Duner, for value, without notice of the defendant's contract to purchase said lands, and the plaintiff, prior to the commencement of said suit, repudiated its contract to convey to the defendant the Baker County lands and the plaintiff is not in a position to perform its contract with the defendant because it does not have at the time of filing the plea title to the lands.

During the progress of the trial defendant applied for an order permitting or allowing the filing of additional pleas, which was denied by the trial court. These pleas have been considered and we do not think or believe it necessary for a decision of this case to pass upon the merits of the pleas offered during the trial and denied by the trial court.

The plaintiff offered in evidence a letter dated July 2, 1936, addressed to L. Knabb and signed W.C. Fordyce, Examiner, and contained language, viz.: 'Referring to our correspondence relative to the lands in Baker County, owned by the Flanders Trust, let me say that this agency now has authority to accept, with certain qualifications, your proposition to purchase the notes of Flanders Trust held by the corporation." On July 7, 1936, L. Knabb by letter replied, in which he in part said: "I have prepared my financial statement and am enclosing it to you and will give you Cashier's Check for $3,000.00 as soon as you notify me everything concerning the trade. * * * If this is all clear, you can proceed to draw necessary papers and I will execute them with you any time." On July 15, 1936, W.C. Fordyce sent to L. Knabb four notes in the sum of $3,000.00 each for his signature, and on July 21, 1936, L. Knabb wrote the plaintiff and transmitted, properly signed, the four notes and check for $3,000.00, making the total amount of $15,000.00; and Knabb in his letter to the plaintiff stated:

"I am buying these notes without recourse but as the deed to this property is in the old trust company name I think your company or the old defunct trust company receiver should make a quit claim title which would not bind them in any way except it would show you dont claim this land any longer than I could go in court and sue out me a deed and get me where I would have something for my money or as it is I don't get anything, please discuss this with your lawyer and I think he will advise this or something similar, if you hold the two old notes and dont give me anything I cant do anything towards clearing up the title until the four years runs out and I have paid all the $15,000.00 which I don't think the land should stand in this shape. I think it should be claired up and run through the courts for my protection and your company.

"Let me hear from you along this line.

"Yours truly,

"(Signed) L. Knabb."

On July 27, 1936, the plaintiff replied to the letter of L. Knabb dated July 21, 1936, after receiving check and notes, in which the following language was used:

"Referring to your suggestion that the Central Republic Trust Company now execute a quit claim deed to you conveying the land in Baker County, Florida, held in the Flanders Trust, let me say that it does not seem probable that the Trust Company will be willing to do this unless and until you are able to surrender to the Receiver of the Trust Company the two notes for $19,330.61 and $71,154.20, that you have purchased from the Reconstruction Finance Corporation. This Corporation cannot surrender these two notes until you have paid the four notes for $3,000 each you have given to the Corporation in payment for the purchased notes. This Corporation must hold satisfactory security for the payment of your notes, and the only way we can suggest that the purchased notes can be released will be for you to deposit with this Corporation other and satisfactory collateral to be held pending the payment of the four notes of $3,000.00 each you have given to the Corporation.

"Obviously, if this Corporation were to surrender the two notes it holds as collateral, and you should be able to obtain a quit claim deed from the Central Republic Trust Company, this Corporation would hold no security for the payment of your note.

"Please be advised that the two notes of the Central Republic Trust Company, as Trustee, for the Flanders Estate have been sold to you and, therefore, the Corporation is not in a position to intervene or take part in your negotiations with the Central Republic Trust Company looking to the perfection of the title to the land in question."

The record shows that during the trial of the cause it developed that many letters concerning the transaction passed between the parties. The letters offered in evidence show the existence of other letters between the parties, and counsel for defendant contended that the entire correspondence of the parties, or all the letters touching the transaction, should have been offered in evidence. It was the contention of counsel for plaintiff that the letters offered in evidence by the plaintiff threw light on the purchase of the Flanders notes described in the notes sued upon, but other correspondence between the parties, if offered in evidence, would show that the four notes sued upon and the $3,000.00 in cash was the agreed purchase price of the Baker County lands which Knabb bought or thought he was buying. The Reconstruction Finance Corporation, through Mr. Fordyce, represented to Knabb that the plaintiff owned the lands and controlled the title, but subsequently stated that it was an erroneous satement. The plaintiff sent agents into Baker County to inspect the lands and determine the value thereof. The record shows that only a few letters between the parties about the trade were offered in evidence and other letters between the parties concerning the transaction were not admitted into evidence.

The correspondence was conducted by W.C. Fordyce on stationery, viz.:

"LOAN AGENCY of the RECONSTRUCTION FINANCE CORPORATION 164 West Jackson Boulevard Chicago, Illinois." The Central Republic Trust Company, Chicago, Illinois, at the time was in receivership and was due the Reconstruction Finance Corporation a large sum of money. The notes sued upon when sent to Knabb to sign were not made payable to the Reconstruction Finance Corporation, but were made payable to W.L. O'Connell, Receiver of the Central Republic Trust Company, and the notes were transferred to the Reconstruction without recourse by the Receiver of the Central Republic Trust Company. The date of the transfer of the notes sued upon is not shown, but it is alleged that the same occurred before maturity.

A study of the record shows that plaintiff in error paid $3,000.00 in cash and executed the four notes for the sum of $3,000.00 each to the defendant in error, and at the time he thought or believed he was buying title to timbered lands situated in Baker County, but the defendant in error contends that the plaintiff in error was not purchasing timbered lands, or a claim on timbered lands, but certain notes of the Flanders Estate described in the four notes sued upon. If the judgment stands, the plaintiff recovers of the defendant the sum of $15,000.00 and the plaintiff will own the Flanders notes described in the notes sued upon. The record here clearly shows that there was never a meeting of the minds between the parties. Knabb executed the notes sued upon, thinking or believing he was buying the timbered lands in Baker County, while the defendant in error thought or believed it was selling Knabb the Flanders notes described in the instrument sued upon. These conflicting issues are squarely presented in the defendant's pleas setting up want of consideration.

There was no attack made on the plea of want of consideration and testimony was offered in support of the issues tendered. Objections were made to evidence offered by the defendant in support of his plea on the grounds that the testimony so offered tended to alter or vary the terms of a written instrument, to-wit: the four promissory notes sued upon, and upon the theory that the plaintiff was a holder thereof in due course.

The correspondence offered in evidence during the trial was between the defendant Knabb and W.C. Fordyce, Examiner, and the stationery used had thereon the "Reconstruction Finance Corporation," and the notes sued upon were made payable to William L. O'Connell, Receiver of Central Republic Trust Company of Chicago. It is asserted on the record that the plaintiff to this suit is a "holder in due course." This Court, speaking through Mr. Justice Ellis, in the case of Young v. Victory, 112 Fla. 66, 150 So. 624, defined a "holder in due course" thusly:

"Mr. Victory was not a holder of the note in due course under the negotiable instruments law. See Sec. 6811, C. G. L., 1927. He obtained the note at a judicial sale. The maker was in default in the payment of interest, the price he paid being about 50 per cent of the face value. The order authorizing the receiver to sell had not been recorded. The note purported to be the property of a bankrupt and defunct organization. All these facts challenge the assumption that he had no notice of any infirmity in the instrument.

"While to constitute a holder of a promissory note a 'holder in due course' under the statute it may not be necessary that the transfer to him should have been in the 'regular course of business,' yet it has been held in many jurisdictions construing the Uniform Negotiable Instruments Act, the provisions of which defining a holder in due course are the same as those of Section 6811, C. G. L.,supra, that the purchaser from a bank commissioner of the assets of an insolvent bank is not a holder in due course, see Ward v. Oklahoma State Bank, 51 Oklahoma 193, 151 Pac. Rep. 852; that a purchaser at a receiver's sale takes subject to all defenses. See Collis v. Kraft, 118 Kan. 531, 255 Pac. Rep. 862. Some courts hold that the question whether the holder of a note is a holder in due course is one for determination by the jury. Commonwealth Banking Trust Co. v. Smith Oby Co., 119 Ohio St. 516,164 N.E. Rep. 751. Others held it to be a question of law. Arnd. v. Heckert, 108 Md. 300, 70 Atl. Rep. 416. Whether the common law rule defining a holder in due course to be one who acquired it in due course of business has been eliminated by the Uniform Negotiable Instruments Act is doubtful. See Drumm Const. Co. v. Forbes, 305 Ill. 303, 137 N.E. Rep. 225."

See Section 6811 C. G. L.; Wilson v. Sample, 118 Fla. 416,159 So. 675; Sebring Co. v. Skinner, 100 Fla. 315, 129 So. 759; Sumter County State Bank v. Hays, 68 Fla. 473, 67 So. 109; Livingston v. Roberts' Ex'r., 18 Fla. 70; Prescott v. Johnson,8 Fla. 391.

The record shows that the plaintiff Reconstruction Finance Corporation held the title to the 33,000 acres of timber lands situated in Baker County, as shown by the letter of W.C. Fordyce, Examiner, to the defendant, which is, viz.:

"LOAN AGENCY of the RECONSTRUCTION FINANCE CORPORATION 134 South LaSalle Street Chicago, Illinois "Mr. Lucius Nabb, January 17, 1936.

"Moniac, Georgia.

"Re: Central Republic Trust Company (closed) Chicago, Illinois.

Flanders Trust.

"Dear sir:

"The Reconstruction Finance Corporation holds, through assignment from the Central Republic Trust Company of Chicago, title to approximately 33,000 acres of land in Baker County, Florida, Examination of the records in this case disclose the fact that this land was leased to you, but that for a number of years you have made no accounting for the turpentine and timber removed from the property.

"The Central Republic Trust Company of Chicago, Trustees for the Flanders estate, is no longer in business, but all of its assets are pledged to the Reconstruction Finance Corporation. It therefore devolves upon this Corporation to administer the affairs of the Flanders Trust.

"Before proceeding further in this matter, we wish to ask whether you desire to consider the purchase of the property. If you do not care to consider it, the Corporation will undertake to dispose of it in some way. Please let us hear from you at your earliest convenience.

"Very truly yours,

"(Signed) W.C. Fordyce, Examiner."

In light of the material allegations of the different counts of the declaration and the plea of the defendant to each count thereof tendered issues of fact, conditions and circumstances within the knowledge of the plaintiff at the time of the acquisition of the notes which were sufficient to put the plaintiff on inquiry, about the land trade, as shown by the correspondence; and established thereby evidence of an infirmity of the notes that should have been settled by a jury under appropriate instructions. See Sample v. Hundred Lakes Corporation, 107 Fla. 568, 145 So. 193.

The witness Fordyce acted as Examiner for the plaintiff in handling the business of the defunct Central Republic Trust Company, and as such Examiner, wrote defendant Knabb the letter, supra, and voluminous correspondence developed prior to the defendant's executing the notes sued upon, but the notes were made payable by the said Fordyce to the Central Republic Trust Company and transferred to the plaintiff before maturity; and Fordyce, after handling the items, appeared as a witness for the plaintiff and no evidence of the consideration for which the notes were given was allowed on the theory that the purported evidence tended to alter and vary the terms of the written notes prepared by Fordyce in the name of Central Republic Trust Company and by Fordyce transferred to the Reconstruction Finance Corporation before maturity.

The plea set up a breach of an executory contract to sell the defendant the Baker County lands and it is alleged that the plaintiff had full knowledge thereof and that the executory contract to purchase the land was the sole and only consideration for the notes sued upon and that the plaintiff Reconstruction Finance Corporation had conveyed the lands to a Mr. Duner, who had no knowledge of the terms of purchase made by the defendant of the said land. The plea is fully supported by the case of Sumter County State Bank v. Hays, 68 Fla. 473,67 So. 109.

For the errors committed during the progress of the trial of the cause in the lower court, I think the judgment appealed from should be reversed and a new trial awarded.