Court Opinion

ID: 9827243
Source: CourtListenerOpinion
Date Created: 2023-09-01 17:19:19.628621+00
Date Added: 2024-06-11T07:42:27.487397
License: Public Domain

On Rehearing.
It is insisted that the decision in cause No. 1435 should not be applied in this case because there is neither plea nor evidence that the sale of the stock was made in this country nor the note sued upon payable here. This is a distinguishing feature, and was so recognized at the time the decision was rendered, though it was not commented upon. This was regarded as of minor importance because the law of the place where the contract was made and where it is to be performed must both yield to the law of the forum if the former contravenes the plain public policy of the forum. The latter is ordinarily supreme in such cases.
It is asserted that this court—
“erred in holding that notwithstanding the plaintiff could and did make out his case without the aid of the illegal sale, if any, by suing on and introducing the note which imported a valuable consideration, the defendant might plead the illegal acts, if any, associated with the execution of the note sued on. * * * Counsel for appellee confidently relied upon this proposition so well sustained by authority, to answer every contention of appellant, and presented it in oral argument; but the court failed to treat the question at all in the opinion. We respectfully urge the court to meet this question, and either follow or overrule Oliphant v. Markham, 79 Tex. 543, 15 S. W. 569, 23 Am. St. Rep. 363, so that we may have at lehst the main question as to the availability of the illegality, if it exists as a defense where plaintiff did not have to rely,on the illegal sale, if any, to make out his prima facie case.”, , . ’
In the case mentioned Oliphant sued J. S. and T. W. Markham upon their note given for money loaned by the former to J. S. Markham, who used the same to pay margins due ■ by the latter to Floyd & Co. upon future contracts between J. S. Markham and Floyd & Co. It had theretofore been held that such *294future contracts were contrary to public policy. At the time Oliphant loaned the money he ¿new it was Markham’s purpose to use the same in the manner stated. Upon the facts indicated Justice Gaines said:
“But it does not follow that every contract which is incidentally connected with or grows out of such a transaction is tainted with its vice. In the case referred to the doctrine was recognized ‘that the test, whether a demand connected with an illegal act can be enforced is whether the plaintiff requires any aid from the illegal transaction to establish his case.’ ”
In that case the loan of the money and execution of the note sued upon was wholly collateral to the illegal contract. In the present case the note sued upon was not collateral or incidental to the objectionable transaction. It was part thereof. Its consideration arose directly out of the same. The rule announced by Judge Gaines is limited to contracts .incidentally connected with or growing out of the vicious transaction. It has no application in a suit to enforce a contract directly connected with and based upon such a transaction.
According to appellee’s theory illegality of consideration could never be interposed in defense of a suit upon a note simply because the plaintiff can make out a case by suing upon and offering the note in evidence. Such conclusion is not to be deduced from the authority relied upon by appellee. As illustrating the effect of the decision in Oliphant v. Markham, see the following: Futch v. Sanger (Tex. Civ. App.) 163 S. W. 597; Willard v. Knoblauch (Tex. Civ. App.) 206 S. W. 735. In the original consideration of this case Oliphant v. Markham was deemed so manifestly inapplicable to a suit upon a note originating directly in and based upon an objectionable transaction that it was not regarded as necessary to discuss the matter. But, in deference to the earnest insistence of counsel, our view upon the matter is indicated.
In the original opinion attention is called to the peculiar character of the $1,300 instrument given by Saloman to Azar in part payment for the note sued upon. Appellee says that we are not at liberty to resort to the evidence to determine whether this was a negotiable note because the defendant in its pleading set up that plaintiff “made payment by * * * and the execution of a note to the said Azar for $1,300 made payable after an installment of the note sued upon had matured.”
Appellee is correct in its contention that in the state of the pleading it should be assumed that in part payment for the note Saloman gave a note, but we cannot accede to the further contention that it must also be assumed that the note so given was negotiable. Defendant simply pleaded that it was a note, and in this state of the pleading it was permissible to resort to the evidence to ascertain whether it was negotiable. The evidence as to its contents shows that it was not negotiable. This being the case, there is no occasion to recede from the view that under section 54 of the Negotiable Instruments Act Saloman is protected to the extent only of the amount theretofore paid.
Upon this phase of the case appellant in its motion for rehearing says:
“Because the court erred in holding that ap-pellee was justified in law in refusing to pay the unpaid part of the $1,300 after having notice of the illegality, and could no longer be regarded as a holder for value of so much of the $4,000 as was paid for by the unpaid part of the $1,300 when appellee received notice of illegality. This error arises from a misunderstanding by the court of the meaning of the words in section 54 of the Negotiable Instruments Act, “he will be deemed a holder in due course only to the extent of the amount theretofore paid by him.”
“The court assumed without question or discussion that the giving of a promissory note was not ‘payment’ within the meaning of the law. The constructions elsewhere of that language in states from which we took this law show that the holdings have been that the giving of a check or promissory note in payment in part or in whole of the purchase price of another note purchased is a ‘payment’ within the meaning of this act. It is held by the cases that the maker of a note given in payment of another one is bound at all events to pay his note notwithstanding he may have learned of defenses to the note he bought before he paid the note he executed for the purchase price, and that the giving of such a note is not as to the maker a conditional payment, but is only so as to the payee. The execution of such a note in part payment for another note is as much a payment for such other note as if it had been paid in cash.
“Counsel for appellee are unable to understand why the. court did not treat this question, why the main question here was assumed without question against appellees when they presented such a line of authorities as should have merited some notice thereof. Possibly the court overlooked or did not appreciate the point made. Appellant’s sixth proposition (page 10 of brief) presented this point, and cited Wilson v. Denton, 82 Tex. 531, 18 S. W. 620, 27 Am. St. Rep. 908, Miller v. Mark, 46 Utah, 257, 148 Pac. 412; Matlock v. Scheuerman, 51 Or. 49, 93 Pac. 823, 17 L. R. A. (N. S.) 747; Adams v. Soule, 33 Vt. 538.”
This court did not overlook .the point made, but evidently did not appreciate it, and still fails to do so. The reason for this is that each of the cases cited dealt with negotiable notes or checks given by the purchaser, whereas the instrument given by Saloman is nonnegotiable, and remains in Azar’s hands.
Referring to the cases relied upon by ap-pellee:
In Miller v. Mark and Matlock v. Schuerman negotiable checks were given, and such. *295cases rest upon principles different from those applying in the case of a negotiable note given by the purchaser. This is expressly recognized in Miller v. Marks.
In Wilson v. Denton the purchaser gave his negotiable note, and it had been negotiated by the payee. •
Adams v. Soule was decided in 1860, and is not in harmony with later rulings of the Supreme Court of the United States and of Texas, to the effect that the protection accorded an innocent holder of negotiable paper should not be extended further than is necessary to his complete protection and thereby permit the holder to pervert the equitable principles upon which it is based for the purpose of aiding one party to a commercial instrument in obtaining an advantage over the other. Dresser v. Missouri, etc., 93 U. S. 92, 23 L. Ed. 815; Van Winkle Gin Co. v. Bank, 89 Tex. 147, 33 S. W. 862; Wright v. Hardie, 88 Tex. 657, 32 S. W. 885.
Section 54 of the Negotiable Instruments Act is a recognition of the just' rule announced in the last three cited cases, and applies to the case here presented of a purchaser who, in part payment for the note sued upon, gave the seller his nonnegotiable obligation which was still owned by the seller.
Appellant has also filed a motion for rehearing. The only feature thereof deemed necessary to be discussed is the fourth ground, which is to the effect that it was error to hold appellee protected to the extent of the payment of $250, made by him on his obligation to Azar because such paymént was made subsequent to the filing of this suit, and he was therefore charged with notice of the defenses herein. The evidence discloses that the payment was made as follows: On July 27, 1922, $100; on August 26, 1922, $100; on September 27, 1922, $50.
The original answer of the appellant was not filed until September 5, 1922. In this answer the only attack made upon the validity of the note related to an alleged agreement between the appellants and Azar that it should be paid out of the proceeds of gambling. The mere fact that appellee had been compelled to sue upon the note did not charge him with notice of any infirmity therein, so there was nothing to charge him with notice when the payments of July 27th and August 26th were made. When he made the payment of September 27th the only infirmity asserted in the answer then on file related to a defensive issue which the jury found against appellant. The intoxicating liquor feature of this case had not been injected into it at the time the last payment was made, and that is the feature upon which the ruling of this court is based. Therefore the record does not disclose notice to appellant of the fatal infirmity in the note at the time he made the payments aggregating $250. .
For the reasons stated, both of the motions for rehearing are overruled.