Court Opinion

ID: 9807520
Source: CourtListenerOpinion
Date Created: 2023-08-31 20:08:10.190615+00
Date Added: 2024-06-11T11:41:28.712631
License: Public Domain

Burwell, J.
(dissenting): I cannot agree to the conclusions of the Court in this appeal, and deem it proper to give the grounds of my dissent. By the terms of the statute which was in force in this State before the Act of 1866, all contracts founded upon an usurious consideration were *497declared to be void, and according to all the authorities, promissory notes thus expressly avoided are void in the hands of endorsees for value without notice.
By the Act of 1866 the legal rate was fixed at 6. per cent., with a proviso allowing 8 per cent, to be charged for money loaned, if the contract was in writing, and signed by the party to be charged; and it was therein enacted that if a greater than the legal rate was charged, the interest should not be recoverable. This law, as was said by Justice Dillard, in Bank v. Lutterloh, 81 N. C., 144, introduced a new theory. It was an expression of the popular will. It did not declare the contract void in whole or in part. It did declare that the contract, so far as it related to interest, was not enforcible in the Courts, that it could not be collected by larv, and in effect it enacted that so much of the contract as concerned the rate of interest was void, the word “void” being used here as it is in Moore v. Woodward, 83 N. C., 531.
Speaking accurately, the contract for interest in excess of the legal rate was made by that act, not void, but illegal.
This act remained in force until 1875, when the Legislature adopted a law which distinctly declared “ void ” all contracts, both as to principal and interest, if a greater than the legal rate was charged. When this statute went into effect, what are called usurious contracts, and all notes, bonds, etc., founded on such contracts, were not only illegal, but void.
At January Term, 1874, of this Court, the case of Glenn v. Bank was decided (70 N. C., 191), and Justice Rodman said in his opinion filed in that cause: “ If the statute.declares a security void, it is void in whosesoever hands it may come. If, however, a negotiable security be founded on an illegal consideration (and it is immaterial whether it be illegal at common law or by statute), and no statute says it shall be void, the security is good in the hands of an innocent holder, or of one claiming through such a holder. The case of Bay v. Azling, 16 Ad. & Ellis, 423, is a notable illustration of the *498.difference. Gaming securities were declared void by 9 Anne, ch. 14, § 1, and it was held that they were void in the hands of a bona fide innocent endorsee. The act of 5 and 6 William, ch. 41, § 1, modified the act of Anne, and declared they should be illegal. The Court held that after that act they could be recovered on by au innocent holder.”
It is to be presumed that the Act of 1874-5 enacted as it was one year after that announcement of the rule of law, was framed by men acquainted with that decision, and that it was then provided that all usurious contracts should he void, in order that they might be invalid in whosesoever hands they might come.
In 1876-’7 another change was made in the law, and the statute then enacted is in force at this time. That act nowhere, in totidem verbis, declares void a contract for interest in excess of the legal rate. It is to be presumed that this enactment was also framed in distinct recognition of the rule laid down by the learned Justice in Glenn v. Bank, supra, and I think much significance is to be attached to the fact that, with this rule thus brought to its attention, the Legislature repealed a law which declared all such contracts void, and adopted one which omitted to so declare them. And here it may be well to note the often inaccurate, or, rather, misleading use of the "word “ void ” in statutes and reports. Parker, C. J., in Somes v. Brewer, 2 Pick., 183, says of the words “ void and voidable,” that they “have not always been used with nice discrimination. Indeed, in some books there is a great want of precision in the use of them.” And he adds that; for the purposes of the case he was considering, “the term ‘ void ’ will be used to express that which is in its very creation wdiolly without effect, an absolute nullity.” In Baucom v. Smith, 66 N. C., 538, Pearson, C. J., said of the bond there in suit, that it “ was void in the hands of the obligee for the illegality of consideration;” and then he adds: “Had the bond been assigned- before it was due, the assignee for val*499uable consideration, and without notice, could have maintained an action to enforce payment. This is settled. Henderson v. Shannon, 1 Dev., 147.” Numerous instances of this use of the word “void” could easily be cited from our .reports. Justice Reade makes similar use of the word in Coor v. Spicer, 65 N. C., 401. What he there says may well be quoted here: “Except as otherwise provided by statute, a negotiable instrument void as between the original parties, by reason of any illegality in the consideration, was nevertheless good in the hands of an endorsee- for value and without notice.”
If it be said that the effect of the provision of the Act of 1876 — 77 is to make void all contracts entered into contrary to its provisions, it is to be replied that, in the interest of commerce and trade, bona fide purchasers of commercial paper are favorites of the law of every enlightened nation, and, at this day at least, it is not allowable to destroy, by an inference, negotiable instruments in the hands of such purchasers. The rule is, as I understand, that if the maker of a negotiable note contests the right of one who has acquired it by endorsement, for value, before maturity and without notice of any defence, to recover of him the amount of the note, he must be able to show a statute that, in totidem verbis, declares the note to be void, or one that makes the contract illegal, and, expressly or by necessary implication, declares that this illegality shall avoid the contract and all securities given in fulfilment of such illegal contract, into whosesoever hands they may come, and thus render them unenforcible in the Courts. Story on Prom. Notes, §192; Converse v. Foster, 32 Vt., 828. In sections 807 and 808 of Daniel on Neg. Inst., it is said that “in many localities negotiable instruments executed upon gaming or usurious considerations are upon the same footing as those executed for other illegal considerations — that is,-void between the parties, but valid in the hands of a bona fide holder”; * * * and that “ where *500the instrument was executed upon an illegal consideration, especially if illegal by statute (but not absolutely avoiding the instrument), it throws upon the holder the burden of proving bona fide ownership for value, * * * and in all cases where the statute does not declare the instrument void, bona fide ownership for value being proved, the holder is entitled to recover.” The reason of this rule is well stated in Bank v. Prather, 12 Ohio St. Rep., 497, as follows: “The cardinal principle of the commercial law which protects commercial paper, regular upon its face and negotiated before its maturity, cannot be otherwise vindicated; and this is of much more importance than that one who has received the benefits of the paper should be compelled to perform an engagement which lie voluntarily made.” In Converse v. Foster, svpra, the rule, as I conceive it to be, is thus expressed by Poland, J.: “The English statutes against usury and gaming not only impose a penalty for such il If gal acts, but expressly declare that all notes, bills, bonds and other securities given for such illegal consideration shall be utterly void. All the cases that have been cited, and all that can be, so far as we know, both English and American, upon this subject, turn upon this very distinction and difference between the statutes. In those cases in which the Legislature has declared that the illegality of the contract or consideration shall make the security, whether bill or note, void, the defendant may insist on such illegality, though the plaintiff, or some other party'between him and the defendant, took the bill or note bona fide and gave a valuable consideration for it. But, unless it has'been so expressly declared by the Legislature, illegality of consideration will be no defence in an action at the suit of a bona fide holder for value without notice of the illegality.” A recognition of the principle thus well expressed may be seen, I think, in the chapters of the Revised Code that relate to-usury and gaming, and in the Act of J874 — ^75, above referred to.
*501In Moore v. Woodward, supra, the learned 'Justice who delivered the opinion says: “Under our present statute, while the contract is valid as to the principal, a stipulation for usurious interest secured by a separate bond and mortgage therefor ought, as between the parties at least, on plea of the illegality, to bar the direct collection of the same by an action therefor.” In a former part of the opinion he had remarked that, under the provision of the Revised Code, an usurious contract was void, “in whosesoever hands it might come.” His subsequent statement, quoted above, seems to indicate that he thought that contracts made in contravention of the pro-visión of the present law, which he was discussing, were illegal and were void as between the parties, but, being only illegal, were not void in whosesoever hands they mightcome— evidently having in mind the rule laid down by Justice Rod-man in Glenn v. Bank, supra.
The Act of 1876-77 (The Code, §3336), which we are construing, is, in all essential particulars, copied from the National Banking Act (Revised Statutes, § 5198). The words are almost identical. The forfeitures and penalties are the same. The Supreme Court of the United States has held, in Oates v. Bank, 100 U. S., 239, that that act “does not declare the contract under which the usurious interest is paid to be void,” and it is to be noted that this language is used by that Court in drawing a contrast between the act it was construing and the law of Maryland, which did declare all usurious contracts void, and therefore not enforcible even in the hands of bona fide endorsees. We therefore have an adjudication of the point under discussion from the highest Court.
In conclusion, our statute does not expressly make void notes given for an usurious consideration. It is not a necessary inference from its provisions that the Legislature intended they should be so. I think, therefore, that, though the note here in suit is founded upon an illegal consideration, it is recoverable in the hands of a bona fide holder for value and without notice.