Law providing that "A holder in due course holds the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves," repeal by implication a prior statute rendering gambling contracts and usurious contracts void, so as to permit holders in due course to recover on an instrument negotiable in form and given for a gambling debt or in a usurious transaction, which the former statute declares to be void? In the earlier constructions of such provision of the Negotiable Instruments Law, there seemed to be a tendency on the part of the courts of some jurisdictions to give it a broad construction so as to protect holders in due course, whatever defenses might have existed as between the original parties to the paper.53 But it seems to be fairly well settled by the more recent decisions that a negotiable instrument given for a gambling debt can not be enforced, even by holder in due course, if the transaction in which it is given is declared by statute to be void, as is the case in some states in regard to gambling and usurious contracts. From this a general rule may

ner, 46 Ohio St. 381, 21 N. E. 634; Harper v. Young, 112 Pa. St. 419, 3 Atl. 670; Unger v. Boas, 13 Pa. St. 601; Mordecai V. Dawkins, 9 Rich. L. (S. Car.) 262; Snoddy v. American Nat. Bank, 88 Tenn. 573, 13 S. W. 127, 7 L. R. A. 705, 17 Am. St. 918; Stewart v. Miller, 3 Willson Civ. Cas. Ct. App. (Tex.), § 292; Swinney v. Edwards, 8 Wyo. 54, 55 Pac. 306; Pearce v. Rice, 142 U. S. 28, 35 L. ed. 925, 12 Sup. Ct. 130. But see Crawford v. Spencer, 92 Mo. 498, 4 S. W. 713, 1 Am. St. 745. See ch. 13.

53 Twentieth Street Bank v. Jacobs, 74 W. Va. 525, 82 S. E. 320, Ann. Cas. 1917D, 695.

54 Birmingham Trust & Sav. Co. v. Curry, 160 Ala. 370, 49 So. 319 (holding that a negotiable instrument executed in payment of a gambling debt is void, even in the hands of a holder in due course); Birmingham Trust & Savings Co. v. Curry, 160 Ala. 370, 49 So. 319; Hutchins v. Stanley, 88 Kans. 739, 129 Pac. 1180 (holding that

54

where an indorsee of a note given for margins in grain speculation did not know the nature of its consideration, but on its maturity accepted a new note with knowledge of the consideration of the original note, the new note was void as given in a gambling transaction); Gray v. Robinson, 95 Miss. 1, 48 So. 226 (holding that a note given in the purchase of futures is not enforceable against the maker, even in the hands of a holder in due course); Sabine v. Paine, 223 N. Y. 401, 119 N. E. 849 (in which case the court said: "The legislature did not, by enacting 96 of the Negotiable Instruments Law, intend to abrogate the rule we have just stated [the statutory rule rendering usurious contracts void] and the statute declaring usurious instruments void is not repealed expressly or through implication"); Twentieth St. Bank v. Jacobs, 74 W. Va. 525, 82 S. E. 320 (holding that the Negotiable Instruments Act does not repeal the prior statute rendering void gambling con

be adduced that the holder in due course of a note void in its inception can not enforce it against the maker, and a further illustration of this rule is to be found in a case where the maker was so intoxicated at the time of its execution as not to be rational,55

§ 462. Where consideration is money or property won at gambling-Other instances-Qualifications of rule. However, the maker of a note given for a gambling debt is estopped to set up the defense of invalidity in action by a third person who was induced to purchase the note in good faith by the declaration of the maker that the note was valid, unless the plaintiff and indorsee knew at the time the nature of the consideration for which the note was given.56 But, where there is no statute of the state declaring gambling contracts to be void, but providing merely for recovery of the money or property lost at gambling, or its value, in a civil action, a holder in due course of a negotiable instrument given for a gambling debt can recover thereon. So an accommodation indorsee of a note given to raise money to use in stock gambling can enforce the note against the maker, although the indorser knew the purpose for which the note was given, if the note was valid in the hands of the payee.58 Again, it is no defense to an action on a note that it was given for the purpose of taking up a check lost at gambling and also for another valid claim owing by defendant to plaintiff.59 And a holder in due course of a note given in payment of margins in grain or securities can enforce the same, in the absence of a statute making such gambling transactions void in the hands of such a holder.60 So recovery on a note given for a loan of money to be used in the payment of margins on a stock transaction can not be defeated merely because the payee knew in a general way what the money was to be used for.61 In determining

tracts, and that checks drawn in payment of a gambling debt are void in the hands of holders in due course). 55 Green v. Gunsten, 154 Wis. 69, 142 N. W. 261; Perry Savings Bank v. Fitzgerald, 167 Iowa 446, 149 N. W. 497.

56 Holzbog v. Bakrow, 156 Ky. 161, 160 S. W. 792.

57 Storz Brewing Co. v. Skirving, 94 Nebr. 215, 142 N. W. 669.

58 Citizens Nat. Bank v. MacDannald, 116 Va. 834, 83 S. E. 389. 59 Helfrich v. Scott, 184 Ill. App. 201.

60 Wilson v. National Fowler Bank, 47 Ind. App. 689, 95 N. E. 269.

61 Foster v. Beau De Zart, 13 Cal. App. 52, 108 Pac. 875.

.62

whether a note given in an option or "future" deal shall be subject in the hands of a bona fide holder to the defense of an illegal consideration, it seems that the inhibition in the statute must be sufficiently specific to cover cases of this character to warrant such a defense being sustained; so that the general rule governing in cases of statutes as to gambling must be qualified to the above extent; although where the statute expressly and in sufficiently specific terms makes such notes void it constitutes an available and good defense even against a bona fide holder;63 but the note may not be subject to such a defense as that of a gambling consideration where the transaction is valid, in that the intent of one of the parties was an actual purchase and sale of stocks, the gambling purpose being only that of the other party.64 Again, a certificate of deposit may be based upon a gambling transaction and be indorsed and assigned in a foreign state, and still the indorser or assignor be liable at the suit of a bona fide holder for value, although such negotiable paper be void in such bona fide holder's hands under express declaration of the statute of the state where suit is brought.65

62 Sondheim v. Gilbert, 117 Ind. 71, 18 N. E. 687, 5 L. R. A. 432, 10 Am. St. 23; Shaw v. Clark, 49 Mich. 384, 13 N. W. 786; Crawford v. Spencer, 92 Mo. 498, 4 S. W. 713, 1 Am. St. 745; Third Nat. Bank v. Tinsley, 11 Mo. App. 498; Provost v. McEncroe, 102 N. Y. 650, 5 N. E. 795; Northern Nat. Bank v. Arnold, 187 Pa. St. 356, 40 Atl. 794; Hentz v. Jewell, 20 Fed. 592; Jackson v. Foote, 12 Fed. 37; Third Nat. Bank v. Harrison, 3 Mc

Crary (U. S.) 316, 10 Fed. 243. But see Hawley v. Bibb, 69 Ala. 52; Cunningham v. Bank, 71 Ga. 400. See ch. 13.

63 Pope v. Hanke, 155 I 617, 40 N. E. 839; Snoddy v. American Nat. Bank, 88 Tenn. 573, 13 S. W. 127; Root v. Merriam, 27 Fed. 909.

64 Bangs v. Hornick, 30 Fed. 97. 65 Sullivan v. German Nat. Bank, 18 Colo. App. 99, 70 Pac. 162.

CHAPTER 14

USURY

Section

465.

Usury-Generally.

466. Presumption as to usury.

467. Estoppel to plead usury-Maker-Indorser.

468. Bona fide holder-Paper based on usurious contract between original parties.

469. Application of payments made on usurious instrument. 470. Proof of usury.

471. What laws govern.

472. Maker and transferee-Discount and transfer.

473. Purging of usury-Renewal bill or note-Extensions. 474. Corporations.

§ 465. Usury-Generally.-The question of the availability of the defense of usury in actions on bills, notes, etc., is so largely a matter of statutory regulation in different jurisdictions, and is so largely dependent thereupon that recourse must be had to those statutes to determine who is entitled and who not to make such a defense, and the relative and respective rights of the parties. Thus, the usury statutes of some states.

1887,

1 Lanier v. Cox, 65 Ga. 265 (Ga. Acts 1875, p. 105; Park's Ann. Code, 1914, § 3427, 3438); Anderson v. Oregon Mtg. Co., 8 Idaho 418, 69 Pac. 418, 69 Pac. 130 (Idaho Rev. Stat. § 1266; Comp. Stats. 1919, §§ 2552, 2554); Carter v. Moses, 39 Ill. 539 (Ill. Acts 1845 & 1857; Hurd's Rev. Stat. 1921, ch. 74, §7); Hemenway v. Cropsey, 37 I11. 357 (Ill. Acts 1849; Hurd's Rev. Stat. 1921, ch. 74); Tuxbury v. Abbott, 59 Maine 466 (Maine Rev. Stat. 1857, ch. 45: Rev.

Stat. 1916, p. 677, § 42); Wing v. Dunn, 24 Maine 128 (Maine Rev. Stat., ch. 69, 86; Rev. Stat. 1916, p. 677, § 42); North Bridgewater Bank v. Copeland, 7 Allen (Mass.) 139 (Mass. Stat. 1963, ch. 242; Gen. Laws 1921, ch. 107, § 3); Kendall v. Robertson, 12 Cush. (Mass.) 156 (Mass. Rev. Stat., ch. 35, 2; Mass. Rev. Stat. 1846, ch. 199; Gen. Laws 1921, ch. 107, § 3); Coatsworth v. Barr. 11 Mich. 199 (Mich. Comp. Laws, § 1316; Comp. Laws 195. § 5995); Rozelle v. Dicker

render a transaction tainted with usury void. Again, under the statutes of another state the execution of a note for a usurious loan renders the title of the holder merely defective.3 In some other jurisdictions, the only effect of the defense of usury is to purge the instrument of the usury, and does not prevent plaintiff from recovering the principal and the legal interest. And in other jurisdictions where intent is to be considered as effecting the question of usury, a corrupt bargain to contravene the statute against usury is essential to