Alexander & Co. v. Hazelrigg

123 Ky. 677 | Ky. Ct. App. | 1906

Opinion by

Judge Nunn

Affirming.

This action was instituted by appellant, doing business as Geo. Alexander & Co., against the appellee, upon the following promissory note: “$1,592.90. Mt. Sterling, Ky., Sept. 14th, 1904. Sixty days after date, we jointly and severally promise to pay to Desha Lucas, or order, fifteen hundred and ninety-two and 90/ioo dollars, negotiable and payable at the Montgomery National Bank, Mt. Sterling, Ky., value received, with interest at 6 per cent, per annum. [Signed] John W. Hazelrigg.” It is clear that this is a negotiable promissory note, within the meaning of section 184 of the act relating to negotiable instruments, in Sess. Acts 1904, p. 250, c. 102.

The appellant, in his petition, made the following allegations ■ with reference to his ownership of the note: “That upon a time subsequent .to date and before the maturity of the said instrument the said Desha Lucas indorsed his'name upon said instrument, and then and there sold and delivered same to this plaintiff who then and there became, and is now, the owner and holder of same in due course.” The appellee filed his answer to the petition. Omitting the formal parts, it reads as follows: “The defendant, John W. Hazelrigg, for answer herein, says it is true he signed the note filed in the plaintiff’s petition; but he has no knowledge or information sufficient to form a belief that at a time subsequent to the date of said note, or before the maturity of said instrument, the said Desha Lucas indorsed his name upon said instrument, or then and there or ever sold or delivered the same to the plaintiff, or that the plaintiff then or there or ever became, or is now, the owner or holder of same in due course. (2) For further answer herein, defendant says that the note sued on herein -was executed to Desha Lucas in payment of a bet or wager, which was lost upon the result of a horse race, and the consideration for the execution thereof under the law of Kentucky is vicious, illegal, and void, and which defendant relies on and in bar of any recovery herein.” The appellant filed a demurrer to each of the paragraphs of the answer. The court overruled it. The appellant declined to plead further. His petition was dismissed, with a judgment against him for costs, and he has appealed.

The first objection made by appellant’s counsel is that the first paragraph of the answer is insufficient because the allegations of the petition and the exhibits filed therewith are such that the appellee had presumptive knowledge of every fact which he denied by reason of want of knowledge or information. To this we cannot agree. It cannot seriously be contended that, because the appellant brought this suit on the note with Desha Lucas’ name upon the back of it, it was presumptively within the knowledge of the appellee that appellant took it in good faith and for value before maturity, and at the time it was negotiated to the appellant he had no notice of the infirmity of the instrument of defect in the title of the .person negotiating it. As we understand the first paragraph of the answer, it made an issue upon these points.

The real question to be determined-is whether a negotiable note executed for money lost on a bet or wager can be successfully defended, when owned and held by an innocent purchaser for value without notice of the infirmity or illegal consideration of the note. As we understand the appellant’s petition, he concedes that prior to the passage and- the taking effect of the negotiable instrument act, referred to, such a note could be successfully defended in the hands of an innocent purchaser; but since that act took effect he contends that all laws inconsistent with that act stood repealed. He claims that under section 57 the question of consideration cannot be inquired into as against the holder in due course. He takes the paper free from defenses. And in support of this position w'e are referred to the case of Wirt v. Stubblefield, 17 App. D. C. 283. In that case it was held that the section, the same as section 57 referred to above, changed the law of the District of Columbia as to a note given for a gambling debt in the hands of a holder in due course; the court saying: “We know, moreover, that the great and leading object of the act, not only with Congress, but with the larger number of principal states of the Union that have adopted it, has been to establish a uniform system of law to govern negotiable instruments wherever they might circulate or be negotiated. It was not only uniformity of rules and principles that was designed but to embody in a codified form, as fully as possible, all the law upon the subject, to avoid conflict of decisions, and the effect of mere local laws and usages that have hitherto prevailed. The great object sought to be accomplished by the enactment of the statute is to free the negotiable instrument as far as possible from all latent local infirmities that would otherwise inhere in it to the prejudice and disappointment of innocent holders as against all the parties to the instrument professedly bound thereby. This clearly could not be effected so long as the instrument was rendered absolutely null and void by local statute.”

It has been the policy of this State to suppress gaming, and the statutes making gaming contracts void are founded upon what the Legislature has for many years deemed to be sound public policy. It is inconceivable that the General Assembly, in the passage of the act of 1904 for the protection of innocent holders of negotiable instruments, intended to or did repeal section 1955, Ky. St. 1903, which declares all gaming contracts void. In our opinion the disappointment now and then of an innocent holder of a negotiable instrument would not be as hurtful and injurious to the best interests of the State as the removal of the ban from gaming contracts. Mr. Daniel in his work on Negotiable Instruments (section 197) says: “The bona fide holder for value, who has received the paper in the usual course of business, is unaffected by the fact that it originated in an illegal consideration, with out any distinction between cases of illegality founded in moral crime or turpitude, which are terms mala in se, and those founded in positive statutory prohibition, which are termed mala prohibita. The law extends this peculiar protection to negotiable instruments, because it would seriously embarrass mercantile transactions to expose the trader to the consequences of having a bill or note passed to him impeached for some covert defect. There is, however, one exception to this rule — that when a statute, expressly or by necessary implication, declares the instrument absolutely void, it gathers no vitality by its circulation in respect to the parties executing it.” In the case of Sondheim v. Gilbert, 117 Ind. 71, 18 N. E. 687, 5 L. R. A. 432, reported in 10 Am. St. Rep., at page 23, the court said: “In order, therefore, to uphold a judgment which invalidates commercial paper in the hands of innocent holders, such as plaintiffs are conceded to be, it is essential that a statute should be shown governing the case, which in direct terms declares that transactions such as those here involved are unlawful, and that notes given under circumstances exhibited by the facts in this case are absolutely void. The principle may be considered as well established that when a statute in express terms pronounces contracts, bills, securities, and the like, resulting from or growing out of wagering or gambling transactions, which are prohibited by statute, absolutely void, no recovery can be had thereon; and the doctrine that transactions which a statute in direct terms declares to be unlawful cannot acquire validity by the transfer of commercial paper based thereon, which is also under direct legislative denunciation, is fully supported by authorities.” And the authorities are referred to, and the court continues: “In such a case fhe note will be declared void in the hands of an innocent holder.” In the case of Bohon’s Assignees v. Brown, etc., 101 Ky. 355, 20 Ky. Law Rep. 1496, 41 S. W. 275, 38 L. R. A. 503, 72 Am. St. Rep. 420, the court said: “In the case of Cochran v. German Insurance Bank, 9 Ky. Law Rep. 196, the superior court held that ‘a bill or note based upon a gambling consideration is absolutely void, and the drawer or maker is not bound to even an innocent holder.’ And in the ease of Farmers’ & DroverS1’ Bank of Louisville v. Unser, 13 Ky. Law Rep. 966 the court says: ‘The whole current-of authority is that the obligor may insist upon the illegality of the contract or consideration, notwithstanding the note is in the hands of an innocent holder for value in all those cases in whch he can point to an express declaration of the Legislature that such an illegality makes the contract void. ”

For these reasons, the judgment of the lower court is affirmed.