Farmers' State Bank of Texhoma v. (wolford

• Decision Date: 04 September 1925
• Docket Number: No. 2909.,2909.
• Parties: FARMERS' STATE BANK OF TEXHOMA, OKL.,v.CLAYTON NAT. BANK (WOLFORD, Intervener).
• Court: New Mexico Supreme Court

31 N.M. 344

245 P. 543

FARMERS' STATE BANK OF TEXHOMA, OKL.,

v.CLAYTON NAT. BANK (WOLFORD, Intervener).

No. 2909.

Supreme Court of New Mexico.

Sept. 4, 1925.Rehearing Denied April 12, 1926.

Syllabus by the Court.

There was a distinction in the law merchant between instruments declared void by statute and those the consideration for which was illegal. The latter were, and the former were not, enforceable in the hands of a holder in due course.

Looking to the law merchant for the definition of “illegal consideration,” in section 55, Uniform Negotiable Instruments Law (section 549, Code of 1915), there is no repugnancy between that section and section 2510, Code of 1915, declaring void bills, notes, etc., when the consideration is money or property won at gambling.

Sections 52, 55, 57 and 59, Uniform Negotiable Instruments Law, merely declaratory of law merchant theretofore in effect in this state and not intended to modify gaming law so as to allow enforcement by holder in due course of note or bill won at gambling. Wolford v. Martinez, 28 N. M. 622, 216 P. 499, overruled.

In a suit, under section 2510, Code of 1915, to cancel a draft, the consideration for which was money won at gambling, held on appeal that, by the adoption of Uniform Negotiable Instruments Act, the gaming act was so modified that such an instrument, theretofore void, was enforceable in the hands of a holder in due course. This decision not “the law of the case” on appeal of another case by the holder in due course to recover on said draft from the drawer, in which case the plaintiff in the former case intervened as a party defendant, claiming to be the sole party adversely interested.

Appeal from District Court, Union County; Leib, Judge.

Action by the Farmers' State Bank of Texhoma, Okl., against the Clayton National Bank, to recover on a draft, in which Jabe Wolford intervened. Judgment for plaintiff, and the defendant and intervener appeal. Reversed, and remanded with directions.

Sections 52, 55, 57, and 59, Uniform Negotiable Instruments Law, merely declaratory of law merchant theretofore in effect in this state and not intended to modify gaming law so as to allow enforcement by holder in due course of note or bill won at gambling.

Joseph Gill, of Albuquerque, for appellants.

O. T. Toombs, of Clayton, for appellee.

WATSON, J.

The complaint in this case was filed January 7, 1921, alleging the purchase and ownership in due course by the plaintiff, the Farmers' State Bank of Texhoma, of a certain draft issued by the defendant, Clayton National Bank, upon the First National Bank of Denver, for the sum of $500, payable to one J. B. Martinez, and indorsed by the said Martinez, and also by Mrs. R. M. Campbell and J. J. Myers. It also alleged that said draft had been by the plaintiff presented to the defendant for payment, and such payment refused, and that thereafter the same was presented to the drawee, the First National Bank of Denver, and payment thereof refused and the same protested. It also alleged that suit had been commenced in the same court by one Jabe Wolford for the cancellation of said draft. January 8, 1921, an answer was filed by the Clayton bank admitting that the draft in question had been presented to and paid by the Texhoma bank in due course of business. The answer alleged that the draft in question was void, for the reason that it was given as a part of the stakes in a gambling game. On April 25, 1921, the Texhoma bank filed its reply denying the new matter. Meanwhile, on April 15, 1921, said Wolford had filed his amended complaint in his suit for the cancellation of said draft, the allegations of which are sufficiently set forth in our opinion on the appeal of that case (Wolford v. Martinez et al., 28 N. M. 622, 216 P. 499). No further proceedings were had in the case at bar until after the decision by this court of the suit for cancellation, May 29, 1923, rehearing in which was denied June 25, 1923. On September 17, 1923, the said Jabe Wolford, plaintiff in the other case, filed a petition for intervention in this case, setting forth, in substance, the same facts alleged by him in his complaint in the other case, and also alleging that defendant, Clayton National Bank, had no interest in the subject-matter of the litigation, except as a depository holder of moneys pending the decision of the court. September 19, 1923, the Texhoma bank replied, denying the facts and questioning their sufficiency as matter of law. On September 20, 1923, plaintiff, Texhoma bank, moved for judgment on the pleadings, which was denied. The cause proceeded to trial September 21, 1923, and judgment in favor of plaintiff, the Texhoma bank, was entered on September 25, 1923.

We have set forth the proceedings in these two cases with such particularity in order to show their interrelation, the importance of which will appear later. As appears from our former opinion the lower court, in the cancellation case, took the view that the allegations of the complaint were sufficient to show that the Texhoma bank was the legal holder and owner of the draft in due course, for which reason he sustained a demurrer to the complaint and entered judgment for the defendent, Texhoma bank. We reversed this judgment, and held that the facts alleged in the complained showed that J. W. Campbell, who won the draft from the appellant Wolford, held a defective title thereto because of the provisions of the gaming law of this state (sections 2507 and 2510, Code of 1915), and that under section 651, Code of 1915, a holder in due course of such an instrument holds it free from defects of title of prior parties, and free from any defenses available to prior parties among themselves; but that under section 653, Code of 1915, the defective title of the prior holder having been shown, the burden rested on defendant, the Texhoma bank, to show that it was a holder in due course, it being our theory that the provisions of the gaming law making such an instrument void were modified by the subsequent provisions of the Negotiable Instruments Law.

In the case at bar, the lower court found, as requested by the defendant and the intervener, that the intervener Wolford purchased the draft in question from the defendant, Clayton National Bank, and paid for the said draft and owned it, and on the same day put it up as stakes in a gambling game and lost it to said J. W. Campbell. He found also that plaintiff, Texhoma bank, had become the owner of said draft in due course of business, and, applying the law as announced in our former decision, rendered judgment in favor of the Texhoma bank.

Section 2510, Code of 1915, above referred to, is a part of an act relating to gambling, enacted in 1857, and reads as follows:

“All judgments, securities, bonds, bills, notes or conveyances, when the consideration is money or property won at gambling, or at any game or gambling device, shall be void, and may be set aside or vacated by any court of equity upon a bill filed for that purpose, by the person so granting, giving, entering into, or executing the same or by any creditor or by his executors, administrators, or by any heir, purchaser or other persons interested therein.”

The sections of the Negotiable Instruments Act, passed in 1907, above referred to, are as follows:

“Sec. 646. A holder in due course is a holder who has taken the instrument under the following conditions:

I. That it is complete and regular upon its face;

II. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such was the fact;

III. That he took it in good faith and for value;

IV. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.” Section 52, U. N. I. Act.

“Sec. 649. The title of a person who negotiates an instrument is defective within the meaning of this chapter when he obtained the instrument, or any signature thereto, by fraud, duress or force and fear or other unlawful means, or for an illegal consideration or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.” Section 55, U. N. I. Act.

“Sec. 651. A holder in due course holds the instrument free from any defect of title or prior parties, and free from defense available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.” Section 57, U. N. I. Act.

“Sec. 653. Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as holder in due course. But the last-mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.” Section 59, U. N. I. Act.

The question involved is whether one who in due course obtains title to a negotiable instrument, the consideration of which is money won at gambling, holds it free from defenses. This question we answered affirmatively in our former opinion, but appellants vigorously urge that we were wrong in so holding.

It appears that in five states having gaming laws similar to ours, the question has arisen whether the subsequent adoption of the Negotiable Instruments Act has modified them. Alexander v. Hazelrigg, 123 Ky. 677, 97 S. W. 353; Levy v. Doerhoefer's Ex'r, 188 Ky. 413, 222 S. W. 515, 11 A. L. R. 207; Martin v. Hess, 23 Pa. Dist. R. 195; Twentieth Street Bank v. Jacobs, 74 W. Va. 525, 82 S. E. 320, Ann. Cas. 1917D, 695; Plank v. Swift, 187 Iowa, 293, 174 N. W. 236, 8 A. L. R. 309; Larschen v. Lantzes, 115 Misc. Rep. 616, 189 N. Y. S. 137. In all of these cases, the decision has been contrary to ours. Reviewing them, the author of the note (8 A. L. R....