Perry Sav. Bank v. Fitzgerald

• Decision Date: 27 November 1914
• Docket Number: No. 29636.,29636.
• Citation: 167 Iowa 446,149 N.W. 497
• Parties: PERRY SAVINGS BANK v. FITZGERALD.
• Court: Iowa Supreme Court

167 Iowa 446

149 N.W. 497

PERRY SAVINGS BANK

v.FITZGERALD.

No. 29636.

Supreme Court of Iowa.

Nov. 27, 1914.

Appeal from District Court, Dallas County; Lorin N. Hays, Judge.

Action upon a promissory note. Trial to a jury and a directed verdict against defendant for $958.86. From the judgment against him, he appeals. Reversed.R. & F. G. Ryan, of Des Moines, and Harry Wifvat, of Perry, for appellant.

H. S. Dugan and White & Clarke, of Adel, for appellee.

PRESTON, J.

The note was, by its terms, payable to the order of H. I. Steltzer, and was by him indorsed to plaintiff, without recourse. By way of defense, appellant claimed that the appellee was not a bona fide purchaser of the note sued upon; that the note was not negotiable; that the signature of appellant to the note was obtained by fraud and misrepresentation; that the note upon which suit was brought was for usurious interest and pretended commissions exacted from appellant for extensions and renewals to a certain note in the sum of $159.11; and that this was the only consideration. For reply, plaintiff says that it became the holder of the note before it was due and without any notice of any defector infirmity in the instrument, or title of said Steltzer, and that plaintiff purchased the note for a valuable consideration, in due course, and in good faith, and without notice.

There are two principal questions involved. One is, when a note is composed of usurious interest incorporated therein, whether or not a holder in due course takes such note free from any forfeiture on account of such usurious interest, and whether the plaintiff bank is a holder in due course of the note. There are several other questions which entered into the trial of the case with respect to the rulings on admissibility of the evidence, and whether, under the evidence, the court was justified in sustaining the motion for a directed verdict.

[1] 1. It is the claim of defendant that the note sued upon is made up of usury, or largely so. Defendant admits, as we understand the record, that $159.11 of the $937 note is owing by him, but he says that no more is due.

It is contended for appellee, and the trial court so held, that usury cannot be pleaded against a holder in due course; that plaintiff is a holder in due course and takes free from such defense. The contention of appellee is that by the passage of the Negotiable Instruments Act, and particularly that portion now appearing as section 3060a57 of Code Supp. 1907, the law as to usury has been modified so that a purchaser in due course and without notice now takes a usurious note free from any taint of usury; that the law in this state now is that there is only one defense available against a holder in due course, and that is that the instrument was a forgery. The section of Code Supp. just referred to is as follows:

“The holder in due course holds the instrument free from any defect of title of 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.”

It is the latter part of the section upon which plaintiff relies.

On the other hand, appellant argues that to so hold is to say that the section just referred to of the Negotiable Instruments Law is to repeal by implication sections 3038, 3040, 3041, and 3042 of the Code. The first section referred to fixes the rate of interest which may be charged, and the second prohibits a higher rate. Section 3041 provides a penalty for usury, and section 3042 reads in this wise:

“Any assignee of a usurious contract, becoming such in good faith in the usual course of business and without notice of such fact, may recover of the usurer the full amount of the consideration paid by him therefor, less any sum that may have been realized on the contract, anything in this chapter contained to the contrary notwithstanding.”

The holdings have been that under this section usury may be pleaded against a bona fide holder for value of a negotiable instrument as well as against the payee; that a note in which is included usurious interest is void to the amount of such usurious interest included therein, even though the note be in the hands of a bona fide purchaser. Bacon v. Lee & Gray, 4 Iowa, 490;Campbell v. McHarg, 9 Iowa, 354;Smith v. Coopers, 9 Iowa, 376;Burrows v. Cook, 17 Iowa, 436. See, also, Pond v. Waterloo Agl. Works, 50 Iowa, 596;Polk County Savings Bank v. Harding, 113 Iowa, 511, 85 N. W. 775.

Appellee does not claim such was not the rule prior to the enactment of the Negotiable Instruments Law by the 29th G. A. c. 130. The Negotiable Instruments Act does not purport to repeal sections 3041 and 3042 of the Code. These sections are not referred to in the title of the act. See chapter 130, Laws of the 29th G. A. Section 197 of that act, now 3060a, Code Supp., does repeal certain other sections of the Code, specifically giving the number. Nor does section 3060a57 refer to the two sections of the Code just mentioned.

The negotiable instruments statute is a comprehensive piece of legislation. It goes into detail in dealing with the subjects embraced by it. The scope of it deals with commercial paper, so as to protect purchasers of such against defenses available as between the original parties.

[2] It is familiar doctrine, not requiring the citation of authority, that repeals by implication are not favored; that all statutes upon a subject will be upheld and sustained, if possible, and, when the statutes cover in whole or in part the same matter and are not absolutely irreconcilable, no purpose of repeal being clearly expressed or indicated, it is the duty of the court, if possible, to give effect to both.

[3] Section 3041 of the Code provides a penalty as follows:

“If it shall be ascertained in any action brought on any contract that a rate of interest has been contracted for, directly or indirectly, in money or in property, greater than is authorized by this chapter; * * * and in no case where unlawful interest is contracted for shall the plaintiff have judgment for more than the principal sum, whether the unlawful interest be incorporated with the principal or not.”

Under the Iowa authorities before cited, the meaning of this statute is that a holder in due course takes a negotiable instrument subject to a forfeiture for usurious interest contracted for, whether the same be included in the principal or not.

Section 3042, heretofore quoted, provides a remedy for an assignee of a usurious contract, becoming such in good faith in the usual course of business and without notice of such fact, and provides that he may recover of the usurer the full amount of the consideration paid him, less any sum that he may have realized on the contract. By the language of the one section the Legislature has provided a penalty that attaches to the usurious contract in any one's hands, and by the second provision, provided for the protection of a holder thereof in due course by giving him a remedy as against his assignor. This works no hardship upon any innocent party, yet there is sufficient to accomplish the evident intention of the Legislature to punish the practice of charging usurious interest.

The first provision of section 3060a57 before quoted is:

“A holder in due course holds the instrument free from any defect of title of prior parties.”

Section 3060a55 provides:

“When title defective. The title of a person who negotiates an instrument is defective within the meaning of this act 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.”

The only provision of this section which would apply to a usurious contract is that the same was given for an “illegal consideration.”

[4] That contracts including usury are not contracts based upon an illegal consideration is the basis of the decision in Burrows v. Cook, 17 Iowa, 436, a case which involved usury charged before and after March 8, 1853, the date of the adoption of the existing statute as to usury. In that case the court said:

“The position of the defense is that, notwithstanding the contract in its original concoction was in this regard illegal, being verbal, yet that the objection on this account was unavailable to the plaintiffs: First, because they subsequently legalized the same by reducing it to writing, that is to say, by giving their notes, secured by the deed of trust now in controversy, which included the unlawful interest. But, secondly, if such a consequence did not follow, nevertheless illegality of consideration, unlike usury, could not be urged as an objection against the recovery of the notes in the hands of innocent holders who had taken an assignment of the same before due, without notice of the alleged infirmity. The soundness of this position we are not prepared to gainsay--we believe it to be good law. But while the unlawful interest charged between the 20th of January and the 8th of March, 1853, inclusive, is not now available to the plaintiffs as against Lee, Higginson & Co., innocent assignees, the same being simply illegal and not usurious, still the contract to pay the same, being in parol, had not the effect (although the transaction between the parties was a continuous one) to prevent the usury law of the 8th of March, 1853, from taking effect upon the dealings and transactions of the parties after that date, so that whatever usury was charged against the plaintiffs since then is available to them against any and all persons who may attempt to enforce the collection of the same.”

The second clause of section 3060a57 is: “And free from defenses available to prior parties among themselves.”

It was the rule in this state prior to the passage of the Negotiable Instruments Act, as shown by the cases...