Sabine v. Paine

• Decision Date: 14 May 1918
• Citation: 223 N.Y. 401,119 N.E. 849
• Parties: SABINE v. PAINE.
• Court: New York Court of Appeals Court of Appeals

223 N.Y. 401

119 N.E. 849

SABINE

v.PAINE.

Court of Appeals of New York.

May 14, 1918.

Appeal from Supreme Court, Appellate Division, Second Department.

Action by C. Olivia Sabine against Maggie S. Paine, impleaded, etc. From a judgment for defendant entered on a verdict and the denial of a new trial affirmed by the Appellate Division, 166 App. Div. 9,151 N. Y. Supp. 735, plaintiff appeals. Affirmed.

Joseph P. Tolins, of New York City, for appellant.

Hector M. Hitchings, of New York City, for respondent.

COLLIN, J.

The action is upon a promissory note in the sum of $2,100, made by the defendant and owned by the plaintiff. The note was payable, four months after its date, to the order of Eugene F. Vacheron. It was delivered to him as the agent of the defendant for the purpose of having it discounted for her. He, after indorsing it, transferred it to the plaintiff for the sum of $1,850. Under the evidence and the decision of the Appellate Division, this appeal presents the single question, Is a usurious promissory note enforceable by a holder in due course?

The negotiable Instruments Law (Consol. Laws, c. 38) enacts:

‘A 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.’ Section 96.

‘A holder in due course is a holder who has taken the instrument under the following conditions: 1. That it is complete and regular upon its face; 2. 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; 3. That he took it in good faith and for value; 4. 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 91.

When the Negotiable Instruments Law was enacted, it was an established rule of law in this state and many other jurisdictions that a holder of a note void by virtue of a statutory declaration because of usury, who became such before the maturity of the note for value and without notice of the usury, could not enforce the note. The rule is an exception to the general principle that a negotiable instrument, in the lands of an innocent holder, who had received it in good faith in the ordinary course of business, for value, and without notice of a defense, is not invalid and is enforceable by the holder. The general principle has been stated:

‘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, without any distinction between cases of illegality founded in moral crime or turpitude, which are termed 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 the bill or note passed to him impeached for some covert defect.’ 1 Daniel on Negotiable Instruments (6th Ed.) § 197.

The rule, constituting an exception to it, rests upon the legislative intention and enactment. An instrument which a statute, expressly or through necessary implication, declares void, strictly speaking, is a simulacrum only. It is without legal efficacy. It cannot obligate a party or support a right. In Claflin v. Boorum, 122 N. Y. 385, 388,25 N. E. 360, 361, we said:

‘A note void in its inception for usury continues void forever, whatever its subsequent history may be. It is as void in the hands of an innocent holder for value as it was in the hands of those who made the usurious contract. No vitality can be given to it by sale or exchange, because that which the statute has declared void cannot be made valid by passing through the channels of trade.’

The rule has general recognition in judicial opinion. Eastman v. Shaw, 65 N. Y. 522;Vallett v. Parker, 6 Wend. 615;Harper v. Young, 112 Pa. 419, 3 Atl. 670;Kendall v. Robertson, 12 Cush. (Mass.) 156;Town of Eagle v. Kohn, 84 Ill. 292;Sondheim v. Gilbert, 117 Ind. 71, 18 N. E. 687,5 L. R. A. 432, 10 Am. St. Rep. 23; Bohon's Assignee v. Brown, 101 Ky. 354, 41 S. W. 273,38 L. R. A. 503, 72 Am. St. Rep. 420;Birmingham Trust & Savings Co. v. Curry, 160 Ala. 370, 49 South. 319,135 Am. St. Rep. 102;Snoddy v. Bank, 88 Tenn. 573, 13 S. W. 127,7 L. R. A. 705, 17 Am. St. Rep. 918; German Bank v. De Shon, 41 Ark. 331, and cases cited. The fact that the holder when he took the paper did not know that it had had no inception-that no prior party could sue upon it, and that he was loaning money upon it-does not affect the rule. He is bound to know the character of the paper he is dealing in. Eastman v. Shaw, 65 N. Y. 522, 530;Miller v. Zeimer, 111 N. Y. 441, 18 N. E. 716.

The statutes of this state fix the rate of interest upon the loan or forbearance of money at $6 upon $100 for one year, and at that rate, for a greater or less sum, or for a longer or shorter...