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Amsterdam v. De Paul

Decided: November 6, 1961.

ROBERT AMSTERDAM AND ROSE HOLDER, PARTNERS T/A EASTERN SALES FINANCE COMPANY, PLAINTIFF-APPELLANT,
v.
THOMAS DE PAUL, DEFENDANT-RESPONDENT



Gaulkin, Kilkenny and Herbert. The opinion of the court was delivered by Kilkenny, J.A.D.

Kilkenny

Plaintiff holder of a negotiable promissory note sued the defendant alone, as alleged co-maker thereof. The Hudson County District Court, sitting without a jury, found that plaintiff was a holder in due course but that the defendant's signature on the instrument was the result of fraud in the factum unaccompanied by negligence on his part. Accordingly, it rendered judgment in favor of the defendant. Plaintiff appeals therefrom.

In a prior suit in another court, plaintiff had obtained a default judgment against the other two makers of this note, Ronald and Elizabeth Perkowsky, and that judgment remains unsatisfied.

The evidence supports the trial court's finding that De Paul signed the note in issue in reliance upon the false representation made to him by the maker, Ronald Perkowsky, that he was signing only a "character reference" which Perkowsky needed in connection with the purchase of merchandise from Bushberg Brothers of Union City, the payee of the instrument. Because of his subnormal mentality, his only schooling having been in a "special class" of the public school, De Paul was not able to read, except small words, and then he needed reading glasses for this purpose.

When he signed this note, he did not read it; he had no reading glasses with him, and the note was not read to him by Perkowsky or by the representative of Bushberg Brothers who witnessed his signature. It seems clear, therefore, that the district court was correct in finding that De Paul's signature was obtained as the result of fraud in the factum , without any negligence on his part.

Fraud in the factum is a good defense to an action on a negotiable instrument as against a holder in due course, provided there has been no negligence on the part of the maker. N.J. Mtge. & Invest. Co. v. Dorsey , 60 N.J. Super. 299 (App. Div. 1960), affirmed 33 N.J. 448 (1960). As stated in 60 N.J. Super. , at p. 303:

"The rationale of the defense is the fundamental of contract law that one cannot be bound on an obligation he does not know he is entering into. Restatement, Contracts , § 475."

As stated in 7 Rutgers L. Rev., pp. 409-410:

"Controversies raising the problem of fraud in the execution usually involve a situation where the person asserting the defense is unable to read or write, is old and feeble, blind, ignorant, or signs the paper without reading it on the representation that he does not incur a financial liability. * * * Lack of intent to enter into a binding obligation is just as impelling a reason for relieving the person from apparent liability as is lack of capacity. In either case the law states that a person is not bound because he did not enter into a binding agreement."

See, too, Britton on Bills and Notes, sec. 130, p. 566; 10 C.J.S. Bills and Notes § 499 (b), pp. 1100-1101; and 160 A.L.R. 1296.

Plaintiff argues that since the fraud upon the co-maker was practiced by a maker and not by the payee, the defense was not available as against the payee or its transferee, the plaintiff. However, we find no validity in such a distinction. A negotiable instrument which is the product of fraud in the factum , unaccompanied by ...


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