Court Opinion

ID: 5760451
Source: CourtListenerOpinion
Date Created: 2022-01-12 17:13:38.749419+00
Date Added: 2024-06-11T08:41:32.356596
License: Public Domain

Rabiu, J. (dissenting).
I would reverse the order appealed from and would deny summary judgment to the plaintiff.
This suit has its origin in the purchase by plaintiff of steel coils which were shipped from Japan. The shipment was insured “ against all risks. ” The plaintiff made a claim on its policy asserting that the goods were damaged during the period of coverage. The insurance company did not contest the claim, but for the sole purpose of fixing the amount of the loss arranged *6with plaintiff to sell the coils at auction. Under this arrangement no property rights were given to the insurance company— ownership remaining with the plaintiff.'
In furtherance of the sale the corporate defendant* was invited to submit a bid for the merchandise. The invitation to bid had this provision: ‘1 This sale is to be on ‘ as is, where is ’ basis for account of ‘ whom it may concern ’ ”. The defendant submitted the successful bid. While the terms of sale provided for payment in the full amount by certified or cashier’s check prior to delivery, those terms were changed as the result of negotiation between plaintiff and defendant. A down payment of $50,000, and the balance by three promissory notes were substituted in place of cash before delivery.
This suit is brought because of the failure of defendant to pay the second promissory note of that series in the amount of $15,062.19 made payable to the order of the plaintiff.
The defense is breach of warranty, fraud and failure of consideration.
The plaintiff seeks to bar these defenses for two reasons: (1) that it is a holder in due course, and (2) that the sale was made on an “ as is, where is basis.”
The entire court is in agreement that the “ as is, where is ” clause does not bar defendants from asserting their claims in the circumstances of the case. However, I do not agree with the majority’s conclusion that plaintiff is a holder in due course and, consequently, is insulated from these defenses.
The invitation to bid indicated that the merchandise to be sold was located at a particular warehouse, and invited inspection at that location before submission of bids. The defendant did inspect the merchandise at that location. However, it seems that the shipment was not confined to the merchandise it was invited to inspect, but part of it came from an entirely different location of which the defendant was unaware. It is the defendant’s claim that this merchandise, which it was not given an opportunity to inspect, was in a different condition and far inferior than that which was shown to it. It is for that reason that defendant asserts the defenses of fraud, misrepresentation, breach of warranty, and failure of consideration.
If the defendant received what it was invited to inspect, of course, it would be barred by the “ as is, where is ” clause. But, if it can substantiate its claim that it was shipped merchandise other than what it bought, from a place other than to which it *7was directed, it would not be so barred. As indicated, the entire court is in agreement in this respect and there is no question but that a triable issue is presented on this question.
However, the majority holds that plaintiff is a holder in due course and any defense with respect to the condition of the merchandise may not be asserted against it. I agree with the majority that a payee of a negotiable instrument may be a holder in due course. Indeed, such rule of law is now codified into statute (Uniform Commercial Code, § 3-302). However, it is equally clear that not every payee is in fact a holder in due course. A distinction must be made between a payee who is a party to the underlying transaction and the payee who is completely separated from the consideration of a note. (See Whitney, Modern Commercial Practices [2d ed.], § 461; Miller v. Campbell, 173 App. Div. 821, 824; First Nat. Bank & Trust Co. of Elmira v. Conzo, 169 Misc. 268.) Under the facts, as alleged in the affidavits, it cannot be said as a matter of law that plaintiff is in fact a holder in due course so as to make the defenses raised here unavailable against it. On the contrary, it could be said that on the conceded facts, as a matter of law, the plaintiff was not such a holder. However, it is sufficient to defeat summary judgment that there be a triable issue in that respect.
The record strongly indicates that the plaintiff was the principal in the transaction and as such could be responsible to the defendants if the defendants prove their claims. It is of importance to understand that this is not a situation where the insurer is paying the insured the full value of the goods insured, and holds the sale in order to obtain the salvage value of the merchandise. Bather, the" sale here was held for the insured, who received the proceeds of that sale — the sale being held merely so that the parties could establish the amount of the loss. Though the sale was arranged by the plaintiff’s insurance company, we cannot say as a matter of law that it was not acting as the agent of the insured. Nor is there any indication in this record that the insurer was acting on its own behalf. Consequently, if the insurer or its agents committed any fraud, or misrepresented the articles in any manner, the plaintiff would be responsible as the principal to the transaction. While plaintiff may not have actually participated in the wrongdoings, it is nevertheless responsible for the acts of its agent.
In reaching my conclusion that plaintiff cannot be ruled a holder in due course, I note that title to the goods, which were purchased by the defendant, at all times remained with the plaintiff. While that may not be, in and of itself, sufficient to deprive the plaintiff of the status of a holder in due course, it is some *8evidence in support of the contention that the plaintiff was the principal in the transaction and, therefore, not a holder in due course. Indeed, the invitation to hid stated that the sale was to be for the account of “ whom it may concern ” which, of course, can only refer to the plaintiff. The record permits of the possible conclusion that plaintiff was made aware of every step of the transaction. Plaintiff’s involvement is clearly evidenced by its active negotiation with the defendant in changing the terms of payment to provide for notes rather than for all cash prior to the delivery of the merchandise.
How then can it be said that it was so clearly proven that plaintiff remained unassociated and sufficiently aloof from the transaction so as to be held not responsible for the consequences of any misrepresentation made with reference to the sale! There is no doubt in my mind that there exists, at least, a triable issue in that respect. I reach my conclusion without resorting to the rule of law that the burden of proof is on the plaintiff to establish that it is a holder in due course after it is shown that a defense exists. (Uniform Commercial Code, § 3-302.) It is abundantly clear that regardless of who has the burden, there is a triable issue here raised. It is for these reasons that judgment should be vacated and the order granting summary judgment to the plaintiff be reversed.
Stevens, Capozzoli and Bastow, JJ., concur with Bbeitel, J. P.; Rabin, J., dissents in opinion.
Order and judgment affirmed, with $50 costs to the respondent.

 Unless otherwise indicated the word defendant shall refer to the corporate defendant.