Court Opinion

ID: 3865199
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:58:54.495078+00
Date Added: 2024-06-11T07:41:31.495709
License: Public Domain

This case raises two questions, — are the notes sued uponvoid, as given in violation of law? If not so void, having been transferred to the plaintiff as collateral security for a preexisting debt, before maturity and without notice, are they in his hands discharged of the equities existing between the original parties to the promises?
In general, all promises and agreements made in violation of the common law, or of any statute, may be avoided as between the original parties to such agreements; and when the illegality is shown, courts will not enforce such contracts or permit such parties to derive any benefit therefrom; and when a penalty is attached by law to the doing of any particular act, this is deemed in itself a prohibition of the act and to make the act illegal. But the rule does not go so far as to make every illegal act void. A promise founded upon an illegal consideration is void in its *Page 553 
inception and essence, so that no rights or liabilities can spring out of it, only when it is declared to be thus void, by the express terms of the prohibitory enactment. The 78th chapter of the Revised Statutes prohibits the manufacture and sale, for consumption within this State, of certain liquors named in section 1, except in the mode and through the agencies therein appointed; and visits a penalty upon the offender. The same statute (§ 46) enacts that no action shall be maintained for the value of any liquor sold in violation thereof. But so far from declaring void, contracts made upon the illegal sale of liquors, the 44th section enacts, that payments and compensations made upon such contracts shall be deemed to be without consideration only between the original parties. It is evident, therefore, that the legislature, by this statute, did not intend in any manner to impair the settled rights of a bona fide holder of negotiable paper, although the same was given upon the sale of liquor in violation of law. The general doctrine is, that mere illegality of consideration does not extend to, and affect the rights of an endorsee for value and without notice. Story on Promissory Notes, § 192; Taylor v. Page, 6 Allen, 86 and cases there cited.
The second ground assigned for a new trial raises the question, how far a negotiable note, endorsed bona fide and before its maturity, as collateral security for a preexisting debt, is, in the hands of such bona fide endorsee, open to the equities subsisting between the original parties; in other words, whether such a transfer, in itself and without more, is a transfer for value, and upon a sufficient legal consideration. This question has been considered and determined by this court in the case of the Bank of the Republic v. Carrington et al., 5 R.I. Rep. 519, where it was held, that "a promissory note endorsed over as collateral security for a preexisting debt, if received by the creditor before the maturity of the collateral note and without notice, is endorsed for value, in the usual course of business, and may be held by the creditor discharged of the equities between the original parties." In addition to the cases cited in the opinion delivered in that case, is the case ofMc Carty v. Root, 21 How. 432, where the court refer to the question as one settled in that tribunal, and the more recent case of Le Breton et al. v. Pierce, 2 Allen, 14, in which *Page 554 
the principle of the earlier decisions in Massachusetts, upon this point, is reaffirmed. The rule of decision, however, in this country, has been far from uniform. The courts of New York hold, that unless the endorsee parts with some new and specific consideration, at the time of receiving the collateral note, it is not in his hands free from the equities. The same rule has been followed in Ohio and Connecticut. Mr. Parsons, in his recent treatise on Notes and Bills, 1-223, seems to regard it no longer an open question in the English courts, and that the holder of collateral paper, taken before it is due, and merely as security for a debt then existing, is entitled to the protection of abona fide holder. In support of the proposition, he cites the cases of Percecal and others v. Frampton, 2 Cromp. M.  R. 180, and Poirier v. Morris, 2 Ellis  B. 89. The main point involved in the last case was, whether the plaintiffs, Poirier Brothers, a French house, were the holders for value, of aforeign bill, drawn by the defendants, Morris et als., and remitted to the plaintiffs by Coates  Co., at the request of the American firm of Hovey, Williams  Co., to discharge an indebtedness due from this firm to the plaintiffs. Coates  Co., who had funds of Hovey, Williams  Co. in their hands, buying the bill in question of the defendants, through a broker, on one post-day, to be paid for, according to the custom of merchants in London, the next post-day, and failing before that day, the defendants did not receive pay for the bill drawn. It was held that the plaintiffs, Poirier Brothers, were holders for value, and they recovered.
It is important for the ends of trade and commerce, to restrict as little as possible, the negotiability of commercial paper; and we have already decided (5 R.I. Rep. 519) that where a person takes a negotiable note, not overdue and without actual or constructive notice of any equities between the original parties, although he takes it as collateral security for a preexisting debt, he may enforce it against prior parties, unaffected by such equities.
Exceptions overruled, and motion for a new trial denied, with costs. *Page 555