## Facts

- John Wade, Jr. worked for Mike Fazzari.
- Wade met with Fazzari at Fazzari’s home.
- Fazzari could not read or write English; Fazzari’s wife could read English and was in the next room during the meeting.
- Wade asked Fazzari to sign a paper and represented it was a statement of wages needed for Fazzari’s income-tax return.
- Relying on that representation, Fazzari signed the paper and did not ask his wife to read it.
- The paper was actually a promissory note under which Fazzari promised to pay $400 (with interest) to Wade.
- After learning what he had signed, Fazzari consulted an attorney and was advised to warn local banks not to take the note.
- At trial, the evidence showed Fazzari warned a cashier at First National Bank of Odessa (the bank) not to pay money to Wade on the note because Wade had tricked him into signing it.
- Months later, the note was presented to the bank by a third party to whom Wade had indorsed the note.
- The cashier had forgotten the earlier warning; the bank accepted the note, paid $400 by cashier’s check, and sent the note through banking channels for collection.
- The note was protested and returned unpaid, and the bank sued Fazzari as maker to recover on the note.

## Issues

1. Whether the bank took the note as a holder in due course when its cashier had previously been warned that the note payable to Wade had been procured by deception.
2. Whether Wade’s conduct amounted to fraud in the factum (fraud as to the nature of the paper signed), allowing Fazzari to avoid liability on the note.
3. Whether Fazzari’s failure to have his English-literate wife read the document prevented him from asserting fraud in the factum.

## Decision

- The County Court entered judgment for Fazzari and dismissed the bank’s complaint.
- The court concluded the bank was not a holder in due course because it had notice, through its cashier, that the note was tainted by Wade’s misconduct.
- The court treated the misrepresentation as fraud in the factum because Fazzari was led to believe he was signing a wage/tax paper rather than a promissory note.
- The court rejected the argument that Fazzari’s failure to call in his wife to read the paper barred the defense on these facts.
- (Subsequent history: the County Court judgment was later reversed by the Appellate Division.)

## Legal Principles

- A holder in due course must take a negotiable instrument for value, in good faith, and without notice of any defense or claim against it at the time of acquisition.
- Notice to a bank employee acting within the scope of the transaction is chargeable to the bank for purposes of determining holder-in-due-course status; later forgetfulness does not erase the earlier notice.
- Fraud in the factum exists when the signer is deceived about the character of the instrument itself (for example, believing the paper is a non-obligatory wage statement when it is a promissory note).
- Fraud in the factum is a “real” defense that can defeat enforcement of the instrument, including against a party claiming holder-in-due-course rights, where the signer neither knew nor had a fair chance to learn the instrument’s true nature.
- A signer’s inability to read, combined with an affirmative misrepresentation about what is being signed, can support a finding of fraud in the factum; whether the signer acted unreasonably by not having the document read is a fact-bound inquiry.

## Conclusion

The County Court held that Fazzari was not liable on the $400 note because Wade procured the signature by misrepresenting the document’s nature and the bank, having been warned about the Wade note, could not claim holder-in-due-course protection; the complaint was dismissed.


First National Bank of Odessa v. Fazzari, 193 N.Y.S.2d 367 (1959)