Court Opinion

ID: 6549177
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:22:31.282965+00
Date Added: 2024-06-11T15:56:03.559989
License: Public Domain

McCulloch, C. J. Appellants executed to one J. O. Gunter two negotiable promissory notes, each for the sum of $837.10, due and payable three and six months, respectively, after date, and Gunter assigned the notes to appellee, a banking corporation doing business in the city of Fayetteville, Arkansas. Appellee instituted this action to recover of appellants the amount of the two notes with interest. Appellants, for defense to the action, pleaded want of valid consideration for the execution of the notes sued on, alleging that Gunter was the soliciting agent for a certain life insurance company; that the notes were executed to him for the first annual premium on life insurance policies issued by said company on the lives of eighteen young men, the amount of the several policies of insurance to be payable on the death of the young men to Special School District of Rogers, Benton County, Arkansas; that neither the school district, nor any of these appellants, had an insurable interest in the lives of the men mentioned in the policies, and that said insurance contracts were void, and, consequently, the said notes given for premiums were without legal consideration. It is further alleged that appellee had full notice of the above stated facts when it purchased the notes from Gunter, and was therefore not an innocent purchaser for value. The court, on motion of appellee, struck out the allegations concerning the consideration for the notes, leaving in the answer only the allegation of payment of the notes by the school district, and on that issue evidence was introduced, upon which there was a finding in favor of appellee. The question presented for our consideration on this appeal is whether or not the allegations of the answer, concerning the consideration for the notes, set forth facts sufficient to constitute a defense to the action. It is settled by a decision of this court, supported by the great weight of authority, that a policy of life insurance issued to one who had no insurable interest in the life of the person named, but who pays the premiums for the chance of collecting the policy at the death of such person, “is invalid because it is a wagering contract and against sound public policy.” McRae v. Warmack, 98 Ark. 52. It necessarily follows that a written obligation to pay the premium on such a policy is without valid consideration, and therefore unenforceable. The defense is available against an assignee of a note who purchased with notice of the facts concerning the consideration, but not against an innocent purchaser for value before maturity of a negotiable note. German Bank v. DeShon, 41 Ark. 331; Joyce on Defenses to Commercial Paper, § 288. No rule of evidence is violated by admitting oral proof of the consideration for a promissory note for the purpose of showing want or failure of consideration, or illegality of consideration. Martin v. Tucker, 35 Ark. 279; Taylor v. Purcell, 60 Ark. 606; Hencke v. Standiford, 66 Ark. 535; Joyce on Defenses to Commercial Paper, § 322; 2 Parsons on Bills & Notes, p. 501; 8 Cyc. pp. 252 et seq. The answer stated facts sufficient to show that the consideration for the notes was illegal, and that appellant was not an innocent purchaser. 'It was error, therefore, for the court to require those allegations to be stricken from the answer. Reversed and remanded for a new trial.