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Action on promissory note. Before Judge Phillips. Decatur City Court. January 18, 1954.
1. The assignment of error on the final judgment in the case as contained in the bill of exceptions was sufficient, the assignment of error was sufficiently specific, and the writ of error was not subject to dismissal for either of those reasons.
2. The answer sufficiently set up a defense of lack of consideration and fraud in the procurement of the note sued on, and the trial court erred in sustaining the general demurrers thereto and in striking the answer.
John Kirk filed suit in the City Court of Decatur against Irving M. Galanty for $1,850, alleged to be due on a note executed by the defendant, dated January 2, 1952, repayable $50 weekly, beginning January 7, 1952, and for 37 weeks thereafter, and bearing interest after maturity at the rate of 8% per annum. The plaintiff alleged that he had made demand against the defendant and said demand had been refused, although said payments were past due; and he attached, as Exhibit "A" to his petition, a copy of the note sued on. He further alleged that the note provided for attorney's fees, that he had given notice of intention to collect such fees, and he attached to his petition a copy of said notice, marked Exhibit "B."
The defendant filed his plea and answer to the petition on November 12, 1952. On November 22, 1952, the plaintiff filed certain special demurrers to the plea and answer filed by the defendant. The defendant thereafter, on May 6, 1953, before any hearing was had on the demurrers filed by the plaintiff, amended his plea and answer. On May 12, 1953, the plaintiff filed additional demurrers to the answer as amended, and included therein a motion to strike the entire answer of the defendant.
The answer as amended, after denying the material allegations of the petition, alleged: "4. For further plea and answer this defendant shows that he is not indebted to plaintiff in the amount sue[d] or in any amount whatsoever. 5. Defendant shows that on September 19, 1951, he executed a note and delivered the same to one Ben Rachelson, said note being for the principal sum of $1,875.42. Defendant alleges that some time after September 19, 1951, the said Ben Rachelson did endorse said note and deliver the same to plaintiff as additional security for sums of money due by the said Ben Rachelson to plaintiff. 6. (a) Defendant shows that prior to December of 1951 the said Ben Rachelson was heavily indebted to plaintiff in the sum approximately $40,000, and in order to settle his entire indebtedness with plaintiff he delivered to plaintiff accounts receivable and merchandise of the agreed value of $40,000, said agreed value having been calculated between plaintiff and the said Rachelson. (b) Defendant can not allege what amount of said $40,000 was represented by merchandise and what amount was represented by accounts receivable, but defendant alleges that said settlement was effected between plaintiff and the said Rachelson by placing a bulk value on said accounts receivable and stock of merchandise at the agreed figure of $40,000. (c) Defendant is unable to list the names of said accounts receivable. (d) Defendant alleges that said merchandise and accounts receivable were delivered to the plaintiff in full payment and satisfaction of debts and obligations due plaintiff by the said Ben Rachelson. 7. Defendant alleges that under the terms of said settlement between Ben Rachelson and John Kirk, the said Kirk was to have returned to Rachelson all papers in the hands of Kirk, among them being the note signed by defendant. 8. Defendant alleges that on January 2, 1952, plaintiff demanded of the defendant payment of the note made payable to the said Rachelson and endorsed by the said Rachelson to plaintiff, plaintiff fraudulently and with intent to deceive the defendant representing to the defendant that said note was still outstanding and unpaid. 9. Defendant alleges that relying on said representation made by plaintiff to defendant that said note was still outstanding and unsatisfied, defendant did pay to plaintiff the sum of $25.42 in cash and did execute a new note payable directly to plaintiff and signed by this defendant in the amount
of $1,850. Defendant shows that it was not until several days later after the execution of said note that he learned that the original note in the amount of $1,875.42 had been paid and satisfied. 10. Defendant shows that there was no consideration flowing to him to support the obligation of the note upon which this suit has been brought, said note having already been satisfied and he was not indebted to plaintiff in any amount whatsoever. 11. Defendant alleges that plaintiff procured the execution of said note fraudulently and with intent to deceive the defendant. Defendant alleges that plaintiff represented to him that his original note made payable to Ben Rachelson in the amount of $1,875.42, which said note had been endorsed to plaintiff and was then being held by plaintiff, was unpaid and unsatisfied and that said representation being made by plaintiff to defendant was false; that plaintiff knew that said representation was false and plaintiff made said representation to induce this defendant to execute a new note. Defendant relied on said representation, thereby executing said note to his detriment. 12. Defendant shows that he paid the $25.42 to plaintiff relying on plaintiff's representation to him that the original note for $1,875.42 had not been paid, when, in fact, said note had been paid and satisfied, and defendant at the time he paid the $25.42 to plaintiff and executed a new note for $1,850 was not indebted to plaintiff in any sum whatsoever. 13. Defendant alleges that the note which he originally gave to Ben Rachelson on September 19, 1951, as described in paragraph 5 of his original plea and answer, was given to Rachelson without consideration; that said note was endorsed and delivered by Rachelson to plaintiff herein without the knowledge of this defendant. Defendant alleges that plaintiff was not an innocent holder for value for said note in that he knew at the time he acquired said note that there was no consideration flowing from Rachelson to defendant to support the execution of said note. 14. Defendant alleges that at the time plaintiff called upon him to execute the note dated January 2, 1952, upon which this suit was brought, plaintiff acknowledged to defendant that he knew there was no consideration for said original note dated September 19, 1951, and thereupon urged defendant to execute the new note payable $50 per week for 37 weeks, saying to defendant that defendant would receive value in merchandise from Rachelson on a weekly basis in sums equivalent to $50 per week for which defendant would not have to pay. 15. Plaintiff at the time that he made said representations to defendant knew that the said Rachelson was insolvent and was preparing to go into bankruptcy. He knew that all of the merchandise and accounts receivable belonging to Rachelson had theretofore been transferred from Rachelson to plaintiff, as heretofore alleged, and plaintiff knew that defendant would be unable to make purchases from Rachelson to satisfy said note then being executed by defendant to plaintiff, all of which was unknown to defendant. 16. Defendant alleges that the procuring of said note upon which this suit was brought by plaintiff from defendant was fraudulent, in bad faith, and without consideration."
The trial court sustained the plaintiff's motion to strike the answer, and the defendant excepted pendente lite. Thereafter, the case went to trial and a verdict was rendered for the plaintiff and judgment entered thereon on January 18, 1954, for $1,850 principal, $248.49 interest, and $209.84 attorney's fees, and costs of court.
The bill of exceptions before this court recites the sustaining of the plaintiff's demurrers to the defendant's answer, and the striking of the same by an order of the trial court, and assigns error on that order. Thereafter the bill of exceptions reads: "Having stricken the defendant's answer as above recited, and such ruling being controlling, as plaintiff in error contends, and which ruling entered into and affected the further progress and final result of the case, the court erred in permitting said verdict to be rendered and said judgment to be entered. To the action of the court in permitting said verdict to be entered, the plaintiff in error excepts and assigns the same as error upon the ground that the same was contrary to law, for the reason that the plaintiff in error was not allowed to prove his issuable defense as set forth in his answer, and that the court having stricken the answer of the plaintiff in error in its said ruling, as plaintiff in error contends, being controlling in effect, the said verdict and judgment illegally terminated the case."
The defendant in error in this court makes a motion to dismiss the writ of error on the ground that it contains no valid assignment of error on the final judgment in the case, and on the ground that the assignment of error is not specific.
1. (After stating the foregoing facts.) The bill of exceptions having properly assigned error upon the judgment of the court striking the defendant's answer, the defendant in his bill of exceptions sufficiently assigned error on the final judgment in the case in the language set forth in the statement of facts. Lyndon v. Georgia Ry. &c. Co., 129 Ga. 353 (3) (58 S. E. 1047); Walker v. Calhoun,40 Ga. App. 385 (1) (149 S. E. 791).
2. The suit was upon a note in the principal amount of $1,850. The answer alleged that he executed a note for $1,875.42 to one Rachelson, who was heavily indebted to the plaintiff; that the $1,875.42 note was endorsed by Rachelson as collateral to the plaintiff; that thereafter the said Rachelson, in order to settle his entire indebtedness to the plaintiff, delivered to him approximately $40,000 worth of merchandise and accounts receivable; that the note of the defendant for $1,875.42 was thereby satisfied; that the plaintiff knew that the note had been executed by the defendant to Rachelson without consideration; and that the plaintiff represented falsely to the defendant that the $1,875.42 note was due and unsatisfied. The answer further set up that the plaintiff admitted to him that he knew that the $1,875.42 was without consideration, and in addition to the representation that the note had not been paid and satisfied, that if defendant would sign the note sued upon, Rachelson would pay to him in merchandise the equivalent of $50 weekly. The answer further relates that this representation was false, and that the plaintiff well knew that he had taken over all of the merchandise and accounts receivable of Rachelson; that Rachelson was a bankrupt, and that he could not furnish merchandise to the defendant. The defendant set up in his answer that he did not know the $1,875.42 had been satisfied, and did not know that he had turned over all of his merchandise and accounts receivable to the plaintiff. The defendant alleges that, in the circumstances above related, he gave to the plaintiff a note for $1,850, which is the note sued upon and $25.42 in renewal of the $1,875.42 note that he had originally made to Rachelson. The plaintiff filed a general demurrer to the answer, the court sustained it, struck the answer, and the defendant excepted.
The answer was sufficient, though rather loosely drawn, to set up the defense that the note was without consideration. Jones v. Lawman, 56 Ga. App. 764 (194 S. E. 416).
The plaintiff contends that the accounts receivable that Rachelson delivered to him in payment of his indebtedness due the plaintiff, including the defendant's note, did not constitute payment until they themselves were paid. This is true where accounts receivable are turned over by a debtor to his creditor as collateral security; but, where the accounts are, as the answer alleged is true in this case, sold outright to the creditor in payment of a debt due him by their owner, the creditor can, of course, accept them as full payment for the debt due him; and, in this event, their transfer to the creditor extinguishes the debt due him, whether the accounts are ever collected, and if no fraud or deceit is practiced by the debtor in inducing his creditor to accept accounts owing to the debtor, in satisfaction of the debt he owes to his creditor. The transfer of the accounts would be effective for that purpose, even if they were not collectible. It might be that a creditor would desire to own an account due to his debtor by some relative or friend from whom he would not even desire to collect, and perhaps would well know that from such person he could not collect the account.
The facts alleged in the answer also were sufficient to set up the defense that the defendant was induced by false representations made by the plaintiff to deliver the note sued upon to him. It can not be said that the defendant is barred, under the facts alleged in the answer, from urging the defense that he was fraudulently induced by such false representations to sign the note, by any lack of diligence in the discovery of the fraud. There is nothing in the answer to indicate that there was any reason that the defendant should not have accepted the representations made by the plaintiff as true, or that there was anything to put him on guard as to the plaintiff's sincerity in making them. Ordinarily, in business transactions one has a right to believe another, unless what the latter says is inherently improbable, and a person making a misrepresentation by which another is defrauded is not in position to maintain that, before accepting the representations as true, the person dealing with him should make investigation as to his veracity.
Lastly, the plaintiff contends that the holding in Chandler v. Merchants & Mechanics National Bank, 30 Ga. App. 694 (2c) (118 S. E. 785), is applicable to the defense in this case. It reads as follows: "It is the general rule that, 'in the case of accommodation paper pledged, the pledgee can recover only the amount of the debt due him from the pledgor,' rather than the face amount thereof with interest, so as to retain as trustee for the pledgor any surplus remaining after payment of the debt; 'but the fact that the holder has other collateral securities for the same debt, more than sufficient to cover it without the accommodation note, also pledged, but which have not been realized so as to extinguish the debt, is no defense for the accommodation maker against the pledgee of the note, though if the debt has been so extinguished the pledgee could not recover.' (21 R. C. L. 670; 3 R. C. L. 1061; 31 Cyc. 887 ( 3))."
In the case at bar, the defense set up in the answer was not that the plaintiff had received from Rachelson added security for the debt Rachelson owed him, and that the defendant was entitled to be relieved of his obligation to pay the note sued upon simply because of the delivery by Rachelson to the plaintiff of the additional security. What the answer does set up is that the plaintiff had accepted from Rachelson certain merchandise and accounts receivable, not as collateral, but as payment; not to secure, but to extinguish, obligations of Rachelson to the plaintiff, including the note sued upon. The law pronounced in the decision cited is sound, but inapplicable to the issue made by the pleadings in this case.
The answer set up a good legal defense to Use action on the note, and the general demurrer was erroneously sustained.
Noah J. Stone, Joseph J. Fine, contra.
Jack B. Smith, Ginsberg & Rose, for plaintiff in error.
Saturday May 23 03:35 EDT

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