Bills and Notes – Holder in Due Course – Notice of Infirmity in Instrument to Finance Company Closely Connected to Dealer

The defendant purchased a car from a dealer who represented it to be a new demonstrator. In fact, the car was a used one. The defendant executed a negotiable note for the balance of the purchase price and a chattel mortgage on forms which were furnished the dealer by the plaintiff finance company. The dealer handled the paper, but the plaintiff was to finance the sale and the note was payable at the office of the plaintiff. Both the bill of sale and the chattel mortgage described the car as a new demonstrator. The note was indorsed in blank by the dealer and, along with the bill of sale and the chattel mortgage, was sent to the office of the finance company. Prior to the receipt of the certificate of title from the state, the finance company paid the dealer for the note. The title showed that the car was used and the defendant refused to pay further instalments. On appeal from a judgment for plaintiff, held, reversed. The plaintiff did not qualify as a holder in due course because it had actual knowledge of the infirmities in the instrument. Since the plaintiff was not a holder in due course, it was bound by the same equities that existed between the defendant maker and the dealer-payee and could not recover on the negotiable note. General Motors Acceptance Corp. v. Daigle, (La. 1954) 72 S. (2d) 319.