SECURITY FINANCE COMPANY v. W. H. MILLS, Individually, and Trading as Mills Tire Company.
(Filed 21 March, 1928.)
1. Bills and Notes — Requisites and Validity — Fraud in the Factum and Fraud in the Treaty — Effect Thereof.
Where in an action upon a note the defendant pleads and introduces evidence tending to show fraud in the treaty and acknowledges that he signed it, and the plaintiff claims as a purchaser in due course for value without notice, with evidence to support it, the plaintiff is entitled to recover upon the evidence in the absence of competent evidence tending to show that he had notice of the infirmity of the instrument at the time he had acquired it.
2. Same.
A negotiable instrument procured by fraud in the treaty is voidable between the original, parties and binding in the hands of innocent third parties, and one procured by fraud in the factum is absolutely void.
Appeal by plaintiff from Stack, J., at Third September Term, 1927, of Waice.
Civil action to recover the amount due oh six negotiable promissory notes executed by the defendant to the Brenard Manufacturing Company for a number of radio machines, said notes having been endorsed and sold to the plaintiff, according to its evidence and contention, in good faith, before maturity, for value and without notice of any infirmity in said notes or defects in the title of the party negotiating them.
The execution of the notes is not denied, but defendant alleges that he was induced to sign them, together with an agency contract, by the false and fraudulent representations of the agent of the Brenard Manufacturing Company, in that it was stated by said agent, with intent to deceive the-defendant, that each of the radio machines sold to the defendant was equipped with a patent static rejecter or remover which would eliminate all static and enable the operator to pick up foreign broadcasting stations with' ease, at any time of the day or night-, whereas in fact no such rejecter exists.
*338Tbe contract signed by tbe defendant at tbe time of tbe execution of tbe notes in suit contains tbe stipulation tbat “no verbal or other agreement not appearing herein shall be binding on you” (Brenard Manufacturing Company). There is no mention in said contract of a static rejecter of any kind. Tbe defendant testified tbat be was able to read and write; tbat be did read tbe contract and notes before signing them, and that be knew their contents.
Upon denial of liability and issues joined, the jury returned tbe following verdict:
“1. Did tbe plaintiff purchase tbe notes sued on before maturity and in good faith, and for value without notice of any infirmity in tbe notes or defects in title of tbe persons negotiating them? Answer: No.
“2. "Was W. H. Mills, trading as Mills Tire Company, induced to buy tbe radio sets and induced to sign tbe contracts and notes in question by any fraudulent representations? Answer: Yes.
“3. What amount, if anything, is tbe defendant indebted to tbe plaintiff ? Answer: Nothing.”
Judgment on tbe verdict for defendant; plaintiff appeals, assigning errors.
J. L. Emanuel for plaintiff.
Eugene Mills and Thos. W. Ruffin for defendant.
Stacy, O. J.
Tbe validity of the trial is called in question by numerous exceptions and assignments of error, but we shall not consider them seriatim, as it is necessary to award a new trial for failure of the court to instruct the jury as requested by the plaintiff in one of its special prayers, that if they found the facts according to' the evidence or as it tends to show, the first issue should be answered in favor of the plaintiff.
Notwithstanding the defendant’s plea of fraud in the treaty, and evidence tending to support it (Furst v. Merritt, 190 N. C., 397, 130 S. E., 40), we find no competent evidence on the record of notice to the plaintiff of such fraud prior to the purchase of the notes in suit. Bank v. Burgwyn, 108 N. C., 62, 12 S. E., 952. However, as the case goes back for another bearing, the defendant may yet show, if be can, such notice. Bank v. Burgwyn, 110 N. C., 267, 14 S. E., 623.
There is this important distinction between fraud in the treaty and fraud in the factum: Instruments procured by means of the former are voidable as between the original parties and binding in the bands of innocent third) persons, while those induced by means of the latter are void. Medlin v. Buford, 115 N. C., 260, 20 S. E., 463. Nothing can be founded on an instrument that is absolutely void, whereas from those which are only voidable, fair titles may flow. Furst v. Merritt, supra.
New trial.