Erle G. Swanson and Helen F. Swanson v. Commercial Acceptance Corporation

Erie G. Swanson and his wife filed this diversity action against The Fuline Corporation and the Commercial Acceptance Corporation seeking rescission of two promissory installment notes executed by the Swansons in part payment of the purchase price of sixty Fuline automatic hot drink dispensing machines, together with chattel mortgages on the machines securing the notes. The notes and mortgages are held by Commercial. The claim for rescission is based upon alleged breach by Fuline of a warranty of fitness of the dispensing machines for their intended purpose.

Commercial' counterclaimed for judgment upon the unpaid balance of the notes on the ground that it is a holder in due course and therefore took the notes free of the Swansons’ breach of warranty defense against Fuline.

The issue of Commercial’s status as a holder in due course was segregated for trial, and judgment was ultimately entered in Commercial’s favor. The Swansons have appealed.

The Swansons contend that Commercial was not a holder in due course because of its participation in the transaction resulting in the execution of the notes, and because the notes were endorsed to “Commerce Acceptance Company, Inc.”

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