Newcomb v. Niskey's Lake

• Decision Date: 11 July 1940
• Docket Number: 13182.
• Citation: 10 S.E.2d 51,190 Ga. 565
• Parties: NEWCOMB v. NISKEY'S LAKE, Inc., et al.
• Court: Georgia Supreme Court

10 S.E.2d 51

190 Ga. 565

NEWCOMB v. NISKEY'S LAKE, Inc., et al.

No. 13182.

Supreme Court of Georgia

July 11, 1940

Syllabus by the Court.

1. The act approved August 18, 1924, known as the Negotiable Instruments Law (Code of 1933, §§ 14-101 et seq.), did not repeal § 4286 of the Civil Code of 1910, protecting the bona fide holder for value of negotiable instruments from defenses set up by the maker, acceptor, or indorser, 'except * * * immoral and illegal consideration. * * *' Neither did said act repeal the act of 1916 (Ga.L.1916, p. 48) containing the provision as condified in § 57-112, which declares: 'Any person, company, or corporation violating the provisions of section 57-101, shall forfeit the entire interest so charged or taken, or contracted to be reserved charged or taken. No further penalty or forfeiture shall be occasioned, suffered or allowed.' This section must be considered in connection with the related unrepealed § 4286 of the Code of 1910, and both must be considered in connection with §§ 57-101, 57-102, which define (1) legal interest and (2) usury. When so considered, and giving effect to § 57-112 of the Code of 1933, and § 4286 of the Civil Code of 1910, since passage of the Negotiable Instruments Law of 1924, the exaction of usury in a negotiable instrument will cause a forfeiture of the entire interest contracted to be taken as against the holder in due course, as defined in the Negotiable Instruments Law.

2. A different ruling than as given above is not required in the circumstances stated in the second question propounded by the Court of Appeals.

3. Since passage of the Negotiable Instruments Law the indorser as referred to in the corresponding division of the opinion can plead usury as grounds of forfeiture of interest as against a holder in due course.

4. The fourth question propounded does not require an answer.

The Court of Appeals certified the following questions to the Supreme Court for decision:

'1. Is the rule of law, 'A security infected with usury is void in Georgia, quoad the legal interest, together with the usury, even in the hands of an innocent holder without notice' (Bailey v. Lumpkin, 1 Ga. 392), still in force in Georgia since the passage of the Negotiable Instruments Law (Ga.L.1924, p. 126), now Code, § 14-101 through 14-9902; or, to put it differently, has the law that neither the legal not the usurious interest can be recovered in this State upon usurious negotiable contract (bond) executed subsequently to the passage of the Negotiable Instruments Law, been modified by that act as to usury, so that a purchaser without notice takes the usurious negotiable contract free from the taint of usury?

'2. Would the answer be the same in a suit by a holder on a renewal negotiable bond against said maker, where the original transaction was a loan of $80,000, and the lender charged the borrower for the loan more than the maximum rate of interest provided by the statute (Code, § 57-101), in that he required the borrower to pay $8,000 or 10 per cent. of the principal amount loaned, as commissions for making the loan, together with interest at the rate of 8 per cent. per annum, and and bond further provided: 'The company agrees to pay the principal hereof and the interest hereon, without deduction therefrom for any Federal income taxes which the grantor, the trustee, or the holder may be required to pay thereon or authorized to retain therefrom under any present or future law of the United States; but the aggregate amount which said grantor should be called upon to pay by reason of this agreement should not exceed four per cent. of the annual interest thereon in any one year;' and the bond contained the further provision: 'Said bonds are made subject to redemption, in whole or in part, on any interestpayment date, at a premium of two per cent. on the face of the bond and accrued interest;' and this original contract was negotiated and delivered to said holder (who did not have notice of said 10 per cent. commission charges) before the effective date of the Negotiable Instruments Law; and where the renewal contract (now sued upon and dated after the effective date of the Negotiable Instruments Law) provided for interest at the rate of 8 per cent. per annum, and provided further: 'The company agrees to pay the principal hereof and the interest hereon, without deductions therefrom for any normal Federal income taxes which the grantor or the trustee might be required to pay thereon or authorized to retain therefrom under any present or future law of the United States, but the aggregate amount which the company may be called upon to pay by reason of this agreement shall not exceed 4 per cent. of the annual interest thereon in any one year;' and the renewal bond contained the further provision: 'Said bonds are made subject to redemption, in whole or in part, on any interest payment date, as provided in said deed of trust, at par and accrued interest and income-tax charges, if any?

'3. Since the passage of the Negotiable Instruments Law, could an indorser who signed the following indorsements 'For value received, we hereby guarantee the payment of the within bond, principal and interest, according to the tenor and effect thereof,' on said original and renewal contract (bond) in question 2, plead usury against said holder and be released? See In re Adair Realty & Trust Co., D.C., 35 F.2d 531; Guaranty Mortgage Co. v. National Life Insurance Co., 55 Ga.App. 104, 115, 189 S.E. 603; Guaranty Mortgage Co. v. National Life Insurance Co., 184 Ga. 644, 192 S.E. 298.

'4. If question 3 is answered in the negative, would said indorser be released from liability for the entire interest? See Code, § 57-112; Vaughan v. Farmers' & Merchants' Bank, 146 Ga. 51(1), 90 S.E. 478; Furr v. Keesler, 3 Ga.App. 188, 59 S.E. 596; Laing v. Hinesville Bank, 31 Ga.App. 416(2), 120 S.E. 799.'

H. C. Holbrook, of Atlanta, for plaintiff in error.

Jones, Powers & Williams, of Atlanta, for defendants in error.

ATKINSON Presiding Justice.

1. Reference is to the first question propounded by the Court of Appeals. It is declared in the Code: 'The legal rate of interest shall be seven per centum per annum, where the rate per centum is not named in the contract, and any higher rate must be specified in writing, but in no event shall any person, company, or corporation reserve, charge, or take for any loan or advance of money, or forbearance to enforce the collection of any sum of money, any rate of interest greater than eight per centum per annum, either directly or indirectly by way of commission for advances, discount exchange, or by any contract or contrivance or device whatever.' § 57-101. 'Usury is the reserving and taking, or contracting to reserve and take, either directly or by indirection, a greater sum for the use of money than the lawful interest.' § 57-102. Usury being an excess of legal interest it is a violation of the Code, § 57-101, to reserve and take usury or to contract to reserve and take usury. The foregoing sections are to be considered in connection with § 57-112, which declares: 'Any person, company, or corporation violating the provisions of section 57-101, shall forfeit the entire interest so charged or taken, or contracted to be reserved, charged or taken. No further penalty or forfeiture shall be occasioned, suffered or allowed.' This was codified from the act of 1916 (Ga.L.1916, p. 48). Exaction of usury is odious, illegal, and immoral. Bailey v. Lumpkin, 1 Ga. 392, 406; Laramore v. Bank of Americus, 69 Ga. 722; Angier v. Smith, 101 Ga. 844, 28 S.E. 167; Atlanta Savings Bank v. Spencer, 107 Ga. 629, 636, 33 S.E. 878; Union Savings Bank & Trust Co. v. Dottenheim, 107 Ga. 606, 34 S.E. 217. And because it is so, usury has been held to void all interest reserved or taken or contracted to be reserved or taken in a negotiable instrument, even in the hands of a bona fide purchaser for value without notice. Bank of Lumpkin v. Farmers' State Bank, 161 Ga. 801, 132 S.E. 221; Stewart v. Miller & Co., 161 Ga. 919, 132 S.E. 535, 45 A.L.R. 559, and see remarks of Russell, C.J., in the dissenting opinion, 161 Ga. pages 933, 934, 132 S.E. pages 541, 542; Lankford v. Holton, 187 Ga. 94, 99, 100, 200 S.E. 243; In re Hotel Equipment Co., 297 F. 842; 66 C.J. 344, § 358, notes 17, 18. Usury, being of such character, though not expressly mentioned by that name, comes within the second exception provided in the Civil Code of 1910, § 4286 (omitted from the Code of 1933), which declares: 'The bona fide holder for value of a bill, draft, or promissory note, or other negotiable instrument, who receives the same before it is due, and without notice of any defect or defense, shall be protected from any defenses set up by the maker, acceptor, or indorser, except the following: 1. Non est factum. 2. Gambling, or immoral and illegal consideration. 3. Fraud in its procurement.' With the statutes existing and construed by this court as above mentioned there came the act approved August 18, 1924 (Ga.L.1924, p. 126) known as the Negotiable Instruments Law, Code of 1933,§§ 14-101 through 14-9902. Pertinent parts of that act will now be mentioned. In § 14-507, set forth and annotated also in 5, Uniform Laws Annotated, Negotiable Instruments Act (Edward Thompson Company), 257, § 57, note J, it is declared: 'A holder in due course holds the instrument free from any defect of title to prior parties, and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.' This does not define the term 'holder in due course.' By resort to § 14-502 the term is thus defined: 'A holder in due course is a holder who has taken the instrument...