Caldwell v. Roach

Supreme Court of Wyoming · 1932 · Corporations

12 P.2d 376 (1932)

Updated August 22, 2026

CorporationsNegotiable InstrumentsHolder in Due CoursePiercing the Corporate VeilFailure of Considerationexecutory contractcorporate instrumentalitycontrol of corporation

Facts

Defendants executed negotiable notes to the Laramie Water Company as part of a contract for water rights. Defendant H. D. Roach testified that he signed only after the contract was modified to require a new contract within two years attaching the water right to land he actually owned, but no such new contract was ever executed and he claimed the transaction was later canceled. Plaintiff claimed he bought the notes before maturity for value, in good faith, and without notice of any defense, but defendants introduced evidence tending to show plaintiff was closely connected with and may have controlled the water company. The notes were endorsed to plaintiff without recourse, and evidence was offered that plaintiff made no inquiry into the makers' financial standing and had longstanding financial and operational involvement with the company.

Issue

Whether the evidence was sufficient to let the jury decide that plaintiff was not a holder in due course because of his control over the corporate endorser and his knowledge, or duty to know, of the executory contract underlying the notes; and whether the trial court erred in entering judgment notwithstanding the verdict instead of granting a new trial.

Rule

Control of a corporate endorser is a material circumstance in determining whether a transferee is a holder in due course. If the transferee is effectively the same as the endorser corporation, or is in a position to carry out the endorser's executory obligations, and the evidence permits a finding that he knew or under the circumstances should have known of the executory contract and failed to perform it, he may be found not to be a holder in due course. On a motion for judgment notwithstanding the verdict, the court should consider not only the evidence admitted and reasonable inferences from it, but also erroneously excluded evidence and whether any defects can likely be supplied on retrial; if so, a new trial rather than judgment notwithstanding the verdict is proper.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Cheyenne, Wyoming, Mesa Valley Irrigation Company sold Omar Velez a water-delivery interest, and Omar signed negotiable notes for the price. Before any note matured, the company endorsed them to Grant Mercer, who had advanced the company substantial funds for years, owned nearly all of one class of its stock, directed its operations through company officers, and knew the sale required the company to issue a replacement contract within 18 months attaching the water interest to Omar's own land; no replacement contract was ever issued.

If Omar asserts failure of consideration when Mercer sues on the notes, which is the best analysis of Mercer's holder-in-due-course claim?

Explanation. The majority held that mere knowledge of an executory contract does not usually defeat holder-in-due-course status in the ordinary third-party case. But where the transferee effectively controls the corporate endorser, is in a position to carry out the endorser's executory obligation, and knew or under the circumstances should have known of that obligation, failure to perform may justify finding that he is not a holder in due course. Those circumstances make the issue one for the jury rather than one resolved as a matter of law for the transferee.