Avon Finance Co V Bridger - Managing Finances

Avon Finance Co. v. Bridger, 101 Utah 214, 120 P.2d 254 (1941), is a significant case in Utah law concerning negotiable instruments, specifically the defense of failure of consideration against a holder in due course.

The case involved a promissory note executed by Mrs. Bridger in favor of a company called the “Utah Frozen Foods Company.” The note was given in exchange for the right to operate a food locker, a type of freezer storage popular at the time. Subsequently, Utah Frozen Foods Company endorsed the note to Avon Finance Company. Bridger defaulted on the note, and Avon Finance Company, claiming to be a holder in due course, sued to recover the amount due.

Bridger defended on the ground of failure of consideration. She argued that Utah Frozen Foods Company had breached its agreement by failing to provide her with the food locker and the services promised in the underlying contract. The central issue was whether Avon Finance Company could be considered a holder in due course, which would shield it from such personal defenses Bridger could raise against Utah Frozen Foods Company.

To qualify as a holder in due course under the Uniform Negotiable Instruments Law (the prevailing law at the time), a holder must have taken the instrument: (1) for value; (2) in good faith; and (3) without notice of any infirmity in the instrument or defect in the title of the person negotiating it. The court focused on the “without notice” requirement.

The evidence showed that Avon Finance Company had a close business relationship with Utah Frozen Foods Company. They regularly financed the company’s notes, and the court found evidence suggesting that Avon Finance was aware of Utah Frozen Foods Company’s business practices and potential problems with their customer contracts, including the failure to deliver the promised food lockers. In particular, there was testimony suggesting Avon Finance knew that many customers had similar complaints about the lack of performance by Utah Frozen Foods Company.

The Utah Supreme Court held that under these circumstances, Avon Finance Company could not be considered a holder in due course. The court reasoned that Avon Finance had sufficient notice of the potential for failure of consideration in the underlying transactions. Although they didn’t have direct, explicit knowledge of Bridger’s specific complaint before taking the note, their general awareness of Utah Frozen Foods Company’s problematic business practices and potential breaches was enough to put them on inquiry notice. They should have investigated further before accepting the note.

Therefore, the court ruled in favor of Bridger, allowing her to assert the defense of failure of consideration against Avon Finance Company. This case stands for the proposition that a close connection between a finance company and a payee, coupled with knowledge of potential issues in the underlying transactions, can preclude the finance company from attaining holder-in-due-course status and shield the maker from liability on the note.