Dana F. Eddy, Esquire
Charleston, West Virginia
James C. Blankenship, III, Esquire
Fayetteville, West Virginia
Vincent P. Cardi, Esquire
Morgantown, West Virginia
Attorneys for the Plaintiff
D. Clinton Gallaher, IV, Esquire
Fayetteville, West Virginia
Attorney for the Defendants
JUSTICE NEELY delivered the Opinion of the Court.
1. When a note is created as a result of a consumer
transaction, an assignee of such a note takes the note subject to
all claims and defenses, regardless of whether the assignee is a
holder in due course. W.Va. Code 46A-2-102 .
2. W. Va. Code, 46A-5-101 , outlines the types of
additional damages that may be recovered for various violations of
Chapter 46A, and specifies illegal, fraudulent or unconscionable
3. W. Va. Code, 46A-2-102(5) , allows the
consumer to recover an amount not to exceed the amount owing to the
assignee at the time of such assignment. Its exception for an
additional amount because of fraud is controlled by W. Va. Code,
46A-5-101 (1974), and W. Va. Code, 46A-2-102(5) (1974).
4. Under W. Va. Code, 46A-5-101 , the additional
damages for fraud or unconscionable conduct are limited to actual
damages and, if the court so determines, a penalty of not less than
one hundred nor more than one thousand dollars. Consequently,
punitive damages are not available under the fraud or
unconscionable conduct provisions of W. Va. Code, 46A-2-121 .
The Circuit Court of Fayette County asks us to determine
to what extent an assignee of a note is liable to the payor of that
note for a fraud committed by the assignor (original payee).
Specifically addressed in this certified question is the way the
West Virginia Consumer Credit and Protection Act affects the
general holder in due course rules. At issue is the ready
availability of credit to consumers.
On 12 September 1988, Robert Bolen, Sr., and Judith
Bolen, defendants/counterclaimants in this action, purchased a used
1988 Cadillac DeVille from Derald Rollyson, Inc. for $22,900. The
Bolens purchased the car for $2,889.77, traded in their 1984
Cadillac El Dorado (valued at $1,583.24), and financed the rest of
the purchase price. The Bolens promised to pay 60 monthly
installments of $486.36, which is the remainder of the purchase
price financed at an annual interest rate of 10.9 percent.
Allegedly, the DeVille was described by the salesman as
a "factory official" car. On 16 May 1989, the Bolens assert that
they discovered that, in fact, the car had been owned by Hertz and
used as a rental car in Florida from February through June of 1988.
The Bolens claim that this was a material difference and they would
not have bought the car had they known it had been a rental car.
On the same day the car was sold, Derald Rollyson, Inc.,
sold the Bolen's credit obligation to One Valley Bank of Oak Hill
(Bank). Bank received Rollyson's formal written assignment of its
rights, title and interest under that credit agreement. When the
Bolens discovered the alleged fraud, they stopped making payments
on the note. Bank then brought suit to repossess the DeVille and
to establish what amount remained on the obligation after the
repossession. The Bolens countersued Bank, asking for the damages
they suffered as a result of the alleged fraud on the part of the
To help resolve this claim, the Circuit Court of Fayette
County certified the following questions:
1. Does West Virginia Code 46A-2-102 limit the amount of compensatory or punitive damages that a consumer may recover from an assignee that holds an instrument, contract or writing that was induced by fraud on the part of the seller occurring prior to July 1, 1990? [emphasis original]
2. If the provisions of West Virginia Code
46A-2-102 allow a consumer to recover damages
from an assignee that exceed the amounts paid
by that consumer with respect to the consumers
credit obligation, are these provisions:
a. Preempted by the FTC Notice of
Claims and Defenses Regulation (16
C.F.R. 433.2); or
b. In violation of the West
Virginia or United States
Credit, for better or worse, is the lifeblood of our
consumer economy. The need to make credit more readily available
was a driving force behind the creation of the Uniform Commercial
CodeSee footnote 1 as well as the great strides made earlier by Lord Mansfield
at the end of the 18th century and transplanted wholesale into our
law in the 19th century. The ability of negotiable commercial
paper to flow nationwide without regard to local conditions allows
all business, no matter how small or remote, access to nationwide
capital markets. The main reason for this free flow of commercial
paper is the "holder in due course" provisions contained in W.Va.
Code 46-3-305  that permit a purchaser who, in good faith,
purchases a negotiable instrument and gives value for it without
notice of any defense against it or claim to the instrument, to
take the instrument free from virtually all defenses.See footnote 2
Although this rule worked well to increase available
credit, it also created some harsh results. Consumers, it was
discovered, lacked adequate bargaining power to protect themselves
from slick operators in the retail business. For example, a woman
might buy a television set on credit from Slick Willie's Appliance
Shoppe and sign a promissory note for the balance. (If she had
cash she'd be dealing with Sears!) After the woman gets home and
plugs in the television, the set blows up. Furious, she may bring
the television set back to Slick Willie's the next day only to find
that Willie has assigned her note to the Last National Bank and
headed for Rio. The bank, as holder of the note, could still
demand payment on the note, and the woman would be obligated to
pay. Meanwhile, Slick Willie has gone underground and cannot be
found. Now the consumer has no television, no useful cause of
action, but the consumer is still liable to pay for the television.
Indeed, this very scenario occurred frequently in door-to-door sales transactions, most notoriously the sale of storm
windows, storm doors and aluminum siding. Thus, by the early
1970's, the Supreme Court of New Jersey began to look behind the
claim of holder in due course status to determine whether a bank
was actually part of the scheme. In General Investment Corp. v.
Angelini, 58 N.J. 396, 278 A.2d 193 (1971), the New Jersey court
found that the "good faith" requirement to be a holder in due
course has a significant meaning:
In the field of negotiable instruments, good
faith is a broad concept. The basic
philosophy of the holder in due course status
is to encourage free negotiability of
commercial paper by removing certain anxieties
of one who takes the paper as an innocent
purchaser knowing no reason why the paper is
not as sound as its face would indicate. It
would follow, therefore, that the more the
holder knows about the underlying transaction,
and particularly the more he controls or
participates or becomes involved in it, the
less he fits the role of a good faith
purchaser for value; the closer his
realtionship [sic] to the underlying agreement
which is the source of the note, the less need
there is for giving him the tension-free
rights considered necessary in a fast-moving,
credit-extending commercial world. (quoting
Unico v. Owen, 50 N.J. 101, 109 (1967))
General Investment, 58 N.J. at 403, 278 A.2d at 196. As the New Jersey Supreme Court was taking this approach toward banks that tried to hide behind the holder in due course doctrine, the court noted that the New Jersey Legislature had taken steps to prevent the continuation of this problem:
The Legislature settled this problem for the future by L. 1969, c. 237, § 2, which provides:
"No home repair contract shall require or
entail the execution of any note unless such
note shall have printed the words 'CONSUMER
NOTE' in 10-point bold type or larger on the
face thereof. Such a note with the words
'CONSUMER NOTE' printed thereon shall be
subject to the terms and conditions of the
home repair contract and shall not be a
negotiable instrument within the meaning of
chapter 3 (Commercial Paper) of the Uniform
Commercial Code, N.J.S. 12A:3-101 et seq."
New Jersey stripped all notes based on underlying home repair contracts of their holder in due course status in order to protect consumers from this unfair situation. Similarly, the West Virginia Legislature, looking to mitigate the harshness of the holder in due course rules on consumers, enacted the West Virginia Consumer Credit and Protection Act. W.Va. Code Chap. 46A . See Clendenin Lumber and Supply Com. v. Carpenter, 172 W.Va. 375, 379-380, 305 S.E.2d 332, 336-337 (1983).
Part of the West Virginia Legislature's plan for
mitigating the harsh effects of the UCC also included stripping
assignees of consumer commercial paper of most of the benefits of
being holders in due course, although the West Virginia statute was
far more comprehensive than the early New Jersey statute quoted
above. W.Va. Code 46A-2-102(5)  provided:
The following provisions shall be applicable to instruments, contracts or other writings, other than negotiable instruments, evidencing an obligation arising from a consumer credit sale or consumer lease, other than a sale or lease primarily for an agricultural purpose . . . : Notwithstanding any term or agreement to the contrary or the provisions of article two [§46-2-101 et seq.], chapter forty-six of this code or section two hundred six [§46-9-206], article nine, of said chapter forty-six, an assignee of any such instrument, contract or other writing shall take and hold such instrument, contract or other writing subject to all claims and defenses of the buyer or lessee against the seller or lessor arising from that specific consumer credit sale or consumer lease of goods or services, but the total of all claims and defenses which may be asserted against the assignee under this subsection or subsection (7) of this section shall not exceed the amount owing to the assignee at the time of such assignment, except (i) as to any claim or defense founded in fraud and (ii) for any excess charges and penalties recoverable under section one hundred one [§46A-5-101], article five of this chapter. [Emphasis added]
In 1990, the Legislature renumbered this section and
added a provision that clearly expresses a limitation on the amount
Provided, That as to any claim or defense founded in fraud arising on or after the first day of July, one thousand nine hundred and ninety, the total sought shall not exceed the amount of the original obligation under the instrument, contract or other writing.
W.Va. Code 46A-2-102(1) . The Bolens argue that we can infer from the adoption of this amendment that there was no limitation on the amount that could be recovered from an assignee before the amendment was passed. The Bank maintains that this provision was just a clarification to remedy an ambiguity in the Code.
We do not agree with either interpretation of the action
the Legislature took in 1990. Admittedly, neither W. Va. Code,
46A-2-102(5) , nor any of its counterparts nor the
definitions contained in W. Va. Code, 46A-1-102, provided any
definition of the term "fraud." However, W. Va. Code, 46A-2-121
, expressly deals with conduct that is "unconscionable" which
we have equated with fraudulent conduct.See footnote 3 See, e.g., Orlando v.
Finance One of W. Va., Inc., 179 W. Va. 447, 369 S.E.2d 882 (1988);
United States Life Credit Corp. v. Wilson, 171 W. Va. 538, 301
S.E.2d 169 (1982).
This is reinforced by W. Va. Code, 46A-5-101 , which outlines the types of additional damages that may be recovered for various violations of Chapter 46A, and specifies "illegal, fraudulent or unconscionable conduct (§ 46A-2-121)[.]"See footnote 4
This section goes on to provide: "[T]he consumer has a cause of
action to recover actual damages and in addition a right in an
action to recover from the person violating this chapter a penalty
in an amount determined by the court not less than one hundred
dollars nor more than one thousand dollars."
Thus, while W. Va. Code, 46A-2-102(5) , allows the
consumer to recover an amount not to "exceed the amount owing to
the assignee at the time of such assignment," its exception for an
additional amount because of fraud is controlled by W. Va. Code,
46A-5-101 . As we have seen under this latter section, the
additional damages for fraud or unconscionable conduct are limited
to actual damages and, if the court so determines, a penalty of not
less than one hundred nor more than one thousand dollars.
Consequently, punitive damages are not available under the fraud or
unconscionable conduct provisions of W. Va. Code, 46A-2-121 ,
and W. Va. Code, 46A-2-102(5) .
With this understanding of the damages available under
the 1974 provisions, it is apparent that the 1990 legislative
revision holding fraud to "the total sought shall not exceed the
amount of the original obligation" is designed further to limit
recovery. This section now precludes the recovery of any actual
damages and the penalty.
Therefore the answer to the first certified question is
that W.Va. Code 46A-2-102 does limit the amount of damages
available to be recovered. This answer thereby renders the second
certified question moot.
Accordingly, the certified question having been answered,
this case is ordered dismissed from the docket of this Court.
Certified question answered.
Footnote: 1The Legislature adopted the Uniform Commercial Code as Chapter 46 of the W.Va. Code .
Footnote: 2A "holder" is a person who is in possession of a financial instrument made to his order, or in blank. W.Va. Code 46-1-201 . If a "holder" takes that note for value, in good faith, without notice that it is overdue or has been dishonored or of any defense against it or claim to it on the part of any person, then the holder is a "holder in due course". W.Va. Code 46-3-302 . If one is a holder in due course, then implicitly one has no knowledge of any claims arising from the instrument or defenses against the collection under that instrument. Once a holder is, in fact, a holder in due course, the only valid defenses against him are: infancy, incapacity, duress, illegality of the transaction, fraud in the factum, or a bankruptcy discharge on the part of the maker. W.Va. Code 46-3-305 .
Footnote: 3The relevant portion of W. Va. Code, 46A-2-121 , states:
"(1) With respect to a transaction which is or gives rise to a consumer credit sale or consumer loan, if the court as a
matter of law finds:
"(a) The agreement or transaction to have been unconscionable at the time it was made, or to have been induced by unconscionable conduct, the court may refuse to enforce the agreement[.]"
Footnote: 4The relevant provisions of W. Va. Code, 46A-5-101 , is:
"If a creditor has violated the provisions of this chapter applying to collection of excess charges (§ 46A-1-104), security in sales and leases (§ 46A-2-107), disclosure with respect to consumer leases (§ 46A-2-111), receipts, statements of account and evidences of payment (§ 46A-2-114), limitations on default charges (§ 46A-2-115), assignment of earnings (§ 46A-2-116), authorizations to confess judgment (§ 46A-2-117), illegal, fraudulent or unconscionable conduct (§ 46A-2-121), any prohibited debt collection practice (§§ 46A-2-123 through 46A-2-129), or restrictions on interest in land as security, assignment of earnings to supervised lender, security agreement on household furniture for benefit of supervised lender, and renegotiation by supervised lender of loan discharged in bankruptcy (§ 46A-4-109), the consumer has a cause of action to recover actual damages and in addition a right in an action to recover from the person violating this chapter a penalty in an amount determined
by the court not less than one hundred dollars
nor more than one thousand dollars."
While the term "creditor" is used, we believe this is applicable to the creditor's assignee since there is no suggestion that the latter should be punished more severely than the original creditor.