Court Opinion

ID: 6541380
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:15:57.927813+00
Date Added: 2024-06-11T15:55:50.550063
License: Public Domain

Eakin, J., dissenting. I am unable to concur in the opinion of the court. The jury have found that the instrument in question was given to the first holder upon an agreement which was usurious. In other words, they find, in effect, that the loan was made by Blocher, who took the instrument as his security and as his property. The finding of usury cannot consist with the view that the loan was made by the bank* and that the transaction was not complete until the note was discounted by the bank. The bank, as is clearly shown,, discounted the note for Blocher, at his own request and passed the proceeds to his credit. It had, upon its face, all the characteristics of negotiable paper. The bank had no notice of the usury, nor any reason to doubt that the note was Blocher’s. It discounted the note before matur- 0 ity, in the usual course of business, and at legal rates. The anomalous and inconvenient attitude which our State had for a long time occupied, from the first year of her existence ; allowing against indorsees without notice all defenses which might have been set up against the payee, was not productive of serious inconveniences amongst a community of farmers and planters. It was felt, however, with the rise of commercial interests, and the policy was changed. By act of April 24th, 1873, bills of exchange and promissory notes, transferred before maturity in good faith, and for value, were made to be governed, here as elsewhere, by rules of the law merchant, and thus our State came inte harmony with other civilised and commercial nations. Although the exceptions against the negotiability of commercial instruments, fair upon their face, were based upon what seemed very technical grounds ; yet it may be conceded to have become the settled rule both in England and America, that where a statute declares an instrument to be void, whether bill, bond, note or other security, it shall by force of the statute remain so even in the hands of an innocent indorsee for value. Such was the force of the old statutes against usury now happily changed in England. The statute was obeyed as tyrannical, rather than approved as reasonable. There never has been atime, however, when the courts have not felt that this was in serious contravention of an enlightened commercial policy ; and they have taken care that no other classes of void contracts, however' absolutely null between the parties, shall come within the exception save where the statute expressly declares that the note, bond, bill, or other instrument, by which it is evidenced or secured, shall itself be void. The courts have ever held that a contract may be void, as immoral, or against the policy of the law, or against the prohibitions of a statute which does not expressly provide that the instrument executed upon it shall be void; yet, if it be' made the foundation of a note or bill in form assignable by the law merchant, it will be good in the hands of an innocent holder. That is to say, that although the contract be void, yet when evidenced by a negotiable paper and actually negotiated, it passes under the protection of the law merchant and from high considerations of public and international policy, must carry with it the credit which the names of the parties may give it. Notwithstanding some carelessness of expression in the remarks of judges, when the cases themselves are considered, I think the authorities in support of the principle are •uniform and unquestioned. Danl. on Neg. Inst., vol. 1, secs. 197 and 198. Mr. Chitty, in his work on bills, Marg., p. 95, states the rule thus: ‘ Tn those cases in which the legislature has declared that illegality of the con- tract 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 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 defense, in an action at the suit of a bona fide holder for value,* without notice of the irregularity, unless he obtained the bill after it became due. To the same effect have been the great mass of American authorities, and gaming and usurious contracts are often ci’ted as notable instances of exceptions to the commercial policy of making all negotiable paper, regular upon 'its face, good in the hands of an innocent indorsee, for value, before 'maturity. (See remarks of Savage, Ch. J., in the case of Vallet v. Parker, 6th Wendell, 619). The exceptions are •based upon the language of the statutes. Within three months of the passage of the act in this state, which as construed by the court, destroyed the commercial value of bills and notes, an act was passed (February 16th, 1838,1 fixing rates of legal interest, and declaring void all ■securities given upon usurious contracts, with & proviso which cannot but seem strange, in view of the positive antagonism elsewhere exhibited to the negotiability of com■mercial paper. It was provided that the act should not extend to any bills of exchange or promissory notes in the hands of an indorsee or holder, who shall have received the 'Same in good faith, and for a valuable consideration, and who had not at the time of discounting or receiving such bill or note, or paying such consideration for the same, actual notice” of the usury ; thus placing upon a commercial footing one class of contracts alone, which in England for a long time, and in some of the states, had been excluded from that protection. Gould’s Digest, Title “Interest”. Afterwards, by one clear sweep, Cons. ’68, sec. 21, art. 15, and by act of July 13, 1868, all usury laws were effectually abolished, and the plea of usury forbidden as a defense in any action. Gantt’s Dig., Title, “Money and Interest”. It may be said there were no existing laws on the subject, in force in the state, when the convention assembled, which proposed to the people the constitution of 1874. It is matter of public history that the evils of allowing •unlimited rates of interest had become flagrant and startling. The matter was deemed of such consequence as to require restraint upon the legislature, in the organic law of ■the government. Sec. 33, of art. XIX, provided that “all •contracts for a greater rate of interest than ten per cent, per annum shall be void as to principal and interest, and the general assembly shall prohibit the same by law, but whex’e -no rate of interest is agreed upon, the rate shall be six per ■cent, per annum.” The first legislature which assembled under this constitution, by act of February 9, 1875, after prohibiting all persons from taking or receivixxg, in money, goods, or other •valuable things, any amount of interest, over ten per cent, per annum, enacted by sec. 3, that “all bonds, bills, notes, ■assurances, conveyances and all other contracts and securities whatever, whereupoxx or whereby there shall be re•served any greater sum, or greater value for the loan or forbearance of any money, goods, things in action, or any other valuable thing, than is prescribed in this act, shall be void.” By sec. 4, it was enacted that the provisions of the last section should not extend to any bill of exchange or promissory note in the hands of an indorsee or holder, who had received the same in good faith, for valuable consideration, 'without notice at the time of the usury. Is this 4th section clearly unconstitutional? If not, it must prevail; a fair doubt must save it. A critical examination of the language of the constitutional provision discloses two things which arrest the attention : Almost all the statutes, which in England and America had been leveled against usury, had declared that the bond or note or other security given upon the usurious contract should be void. It was this language which seems to have constrained the courts, to follow securities, so condemned, into the hands of innocent holders, and to deprive them of all commercial character; whilst other notes or bills based upon contracts which the law held void, as immoral or against public policy, or positive statutes, were held good, when assigned bona fide, for value, without notice. Can any one say there is less of turpitude, for instance, or illegality, in a contract for illicit cohabitation,, than in a contract for too much interest on money? Are they not equally void ? As contracts they are. But when evidenced by a peculiar form of instrument given to secure payment, those instruments which under the law merchant, become negotiable; then, in the interests of commerce, and to subserve a higher policy, they are generally held valid in. the hands of an innoceut holder. The cases where they are-not so held are exceptional, and are based upon the language of statutes, which directly and pointedly declare without, qualification that the bill, or note, or other security, shall, be void. It must be remembered that commercial paper is sui' generis. The rules which govern it are peculiar, and it. has a peculiar value, analogous to that of money. It is-something more than a chose in action. It serves the purposes of exchange. It is property. Replevin will lie for it. It cannot be truly said of it, as of other contracts, that, being void it must remain so of necessity; that no life-can be infused into it by transfer. A contract to pay a sum... •of money for any illegal act is void. A note given to secure the payment is equally so. Yet by the general law it will become a living thing by endorsement to an innocent holder, unless there be some expression in a statute to prevent it, applicable to the note itself independent of the contract on which it is founded. This happens in every case where a note or bill, worthless to the payee on account of its origin, acquires vitality by assignment for value, before ■due and without notice, without the distinction between the •commercial security and the contract out of which it arose, the decisions of the courts are wholly unintelligible. The ■contract may be void and the hill or note embodying it may become good by transfer. Without this point in mind, the expression of judges and text writers hav.e led to confusion by, the interchangeable use of “contract’' and “bill” or “note,” but a review of the authorities both in England and America will show that bills or notes or other commercial paper had never been held void in the hands of innocent holders merely because the contracts out of which they grew were void, but always in the few cases where it has been done, because the language •of the statute was stern and peremptory to make void the instrument itself, whether bond, bill, note or other assurance. In the case of Jackson v. Henry, 10 John., 196; Kent, Ch. J., remarked : “The case of Lowe v. Walker, (.Doug. 736), was an action brought by an innocent holder, upon the very bill of exchange given on an usurious consideration, and the court of K. B. felt themselves bound, though with visible regret, by 'the peremptory words of the statute, and by the case of Bowyer v. Bamptowl, (2nd Strange, 1155), which was a gaming note under the statute of 9 Anne, and which equally declares the security void. This is the greatest, length to which the courts of England have gone to the prejudice of an innocent party.” With this disposition, I think it cannot be doubted that the K. B.would have held the security good if the words of the statute had only been directed against the contract, making it void, as all contracts are-made by the courts, which spring from immoral considerations, or contravene public policy -, and had not directly and pointedly declared that the security should be void. The same effect, by virtue of the same peremptory language,, would have been given to our own old statute against usury but for the saving clause which protected commercial paper in the hands of innocent holders. The first of the points above alluded to, in consideration of the clause of our constitution now in question, is: That the makers have thought fit to avoid the contract of usury, and have refrained from using any apt language avoiding the security or instrument given upon it. It is to be presumed that its framers were advised of the English statutes against usury, and the decisions upon them, which-had held commercial paper based upon usurious contracts,, void in the hands of innocent holders; not because the usurious contracts were so, but because parliament had declared that the instrument, or security itself, should be. It is-further to be presumed that the framers knew that the courts of England and America had, in favor of commerce, persistently held that in the great mass of void contracts-commercial paper given to secure their performance, would be protected in the hands of innocent holders ; and were aware also, of the past policy of our State under former usury laws, to protect usurious instruments in like circumstances-. Perhaps it is not too much to presume, also, that they were aware of the strong tendency of more modern legislation in equity to relieve commercial paper .of such embarrassment.. It is a fact that since the ealier and more rigid statutes in that country, other acts have been passed of a like nature-with our own former act, saving usurious paper in the hands of innocent holders, although it is still made void as-to the parties, and all others taking it without consideration, or with notice, or after due. These considerations, although by no means conclusive, are very potent in leading the mind to conclude, that if the constitution had meant to restore the old rigor of the law, and to provide that in all time the legislature should be precluded from giving such securities or any vitality in the hands of innocent persons, it would have used language more direct to the purpose than, under the decisions of the court, can be implied from making the contracts void. The lawyers in the body could not have rested satisfied with such a vaguadeclaration, in the face of the rule adopted by all of the courts and so clearly stated by Mr. Justice Rodman in Glen, v. The Farmer's Bank, 70 N. C., p. 206, as follows : “If a statute' declares a security void, it is void in whosoever hands it may come. If, however, a negotiable security be founded on an illegal consideration, (and it is immaterial whether it be illegal by common law or statute), and no statute says it shall be void, the security is good, in the-hands of an innocent holder, or of any one claiming through such a holder.” Another point in the clause which attracts attention, is : That whilst it is self-executing, it seems to impose some-duty still upon the legislature, in order to carry into effect its true spirit. It fixes, determinately, that usury shall be-no longer lawful — the taking of greater interest than is-therein specified — and that all contracts for that purpose-shall be void. But so are all other legal contracts in one sense. What is the legislature called upon to do by way of prohibition more than has been done by the constitution itself, if ex vi termivi it meant to avoid all instruments executed on usurious contracts ? It is not unreasonable to suppose that the constitution, whilst inserting that usurious contracts should be always held void, meant nevertheless-to leave it with the legislature to regulate the effect and. ■consequences of those void contracts upon the securities given to enforce them, or the transactions based upon them, in a manner consistent with the protection of innocent parties. It would be attended with the gravest consequences to hold that the contract with all that depends upon it must, in all cases, be absolutely void beyond legislative control. 'That in its logical result would be more far-reaching, and more disastrous than we can conceive it possible to have been in the view of the framers of the constitution. A literal construction of that kind, with a rigid adherence to logical consequences, would not only avoid between the parties every deed of trust, with power of sale,' given to secure a usurious debt, but upon the sale, would prevent any title from passing to an-innocent purchaser, after he may. have paid the money, and conveyed with warranty, or made valuable improvements. The mortgagor might at any time ’within seven years recover the land. For the mortgage and note would, under the construction contended for, be all included in the usurious contract, and being absolutely void, would not be foundation for any title. Such consequences would in time unsettle all property in the State, and the legislature, stifled by a constitutional] restriction, could not arrest the evil. It could never give validity to titles so acquired. Other instances of logical results equally shocking may be easily imagined. The first legislature which sat, after the adoption of the constitution, seems to have been desirous of doing its duty in the premises, and has passed a law, in fui'therance of the •constitutional policy. It went further than the constitution and expressly avoided all bills, bonds, etc,, executed ■upon usurious considerations, with a saving of commercial paper. The recognized rule of comity governing the courts, in ■connection with the legislative department, is that the power and policy of the latter shall be sustained unless ■clearly unconstitutional. Each department, in the first instance, construes the constitution for itself. That is the sworn duty of the members. Whilst it is the duty of the ■courts at last to restrain any violations of that instrument by any other department, it should pay such deference to the views of the co-ordinate departments as to refrain from interference where there is room for fair and reasonable doubt. I cannot say that the act of 1875 is clearly unconstitutional ; and solving the doubt in favor of legislative action, I think we should sustain it, I think the note in the hands of the bank is valid. Hon. E. H, English did not sit in this case.