Whitaker v. Smith
| Decision Date | 22 June 1934 |
| Citation | 255 Ky. 339 |
| Parties | Whitaker et al. v. Smith |
| Court | United States State Supreme Court — District of Kentucky |
1. Bills and Notes. — Generally, contracts and instruments declared void by statute are unenforceable, not only as between original parties thereto, but also in hands of holder in due course.
2. Bills and Notes. — Defense of usury is available to maker of note, notwithstanding note evidencing agreement may be fair on its
face and does not disclose usurious transaction (Ky. Stats. 1930, sec. 2219).
3. Statutes. — Statute enacted on ground of public policy will not be considered as repealed by implication through enactment of later statute, unless intention to repeal is plainly manifested in later act.
4. Usury. — Negotiable Instrument Act held not intended to impliedly repeal statute denouncing usury as applied to notes coming within act (Ky. Stats. 1930, secs. 2219, 3720b-1 to 3720b-195).
5. Bills and Notes. — Maker of note given as part of usurious transaction, notwithstanding note passed into hands of holder in due course, held entitled, when sued on note, to credit on note for amount of usurious interest paid on indebtedness represented thereby (Ky Stats. 1930, secs. 2219, 3720b-1 to 3720b-195).
Appeal from Perry Circuit Court.
F.J. EVERSOLE for appellants.
I.A. BOWLES for appellee.
Reversing.
On January 21, 1924, the appellant and defendant below Laura Whitaker and her husband, C.C. Whitaker, executed to the Hargis Bank & Trust Company of Jackson, Ky., their promissory note agreeing to pay it one year thereafter the sum of $3,000, and which they secured by a mortgage on real estate situated in Perry county. The interest demanded and agreed upon was 10 per cent., and which rate was paid to the bank by the makers at each twelve months' renewal period of the note up to and including the last renewal in January, 1930, but it was to run for only a period of six months and upon which only $150 interest was demanded and collected in advance.
The appellee and plaintiff below, Emily Smith, was a depositor in the Hargis Bank & Trust Company. On February 5, 1930, her deposit was an amount substantially equal to the Whitaker note, and on that day she agreed to take the note in satisfaction of her deposit account, and which was the last day the bank remained open; it going into the hands of the state banking commissioner for liquidation who took charge of its affairs on the next day.
On September 13, 1930, plaintiff filed this equity action in the Perry circuit court against defendants to collect the note and to enforce the lien to secure it. The banking commissioner intervened in the suit and sought certain relief based upon a charge of fraudulent assignment of the note to plaintiff by the bank and on which defendants in their answer also relied, and made it a cross-petition against both the bank and the banking commissioner, and joined with the latter in the prayer of his intervening petition.
The answer also pleaded the usury that had been paid by the defendants to the bank from the time of the inception of the indebtedness and sought credit therefor. The mortgaged property was insured against loss by fire, and while that policy was in force the insured property was destroyed, and there was due under the policy the sum of $1,309, which was adjudged to be paid to plaintiff, and judgment was rendered against defendants for the balance of the face of the note without allowing any credit for the usury paid, and, complaining of that denial, defendants prosecute this appeal. All other questions raised by the pleadings, as well as those urged by interveners, were disposed of, and from which no appeal has been prosecuted.
We thus see that the only questions for determination are: (1) Whether or not plaintiff, under the facts presented by the record, became and is the holder of the note in due course, and, if so, then (2), whether our negotiable instruments statute, being sections 3720b-1 to and including 3720b-195, of Carroll's Kentucky Statutes, 1930 Edition, protects her as such holder from the defense of usury made and relied on by defendants? In determining the latter question, it becomes necessary to consider the condition of the law as it has been declared in this jurisdiction with reference to contracts which are declared by statute to be "void." It will be perceived that the question as we have so propounded it does not embrace contracts which are void at common law, although in treating the obligatory effect of void contracts in the hands of innocent parties (including notes and obligations for the payment of money) most of the decisions and text-writers draw no distinction between a contract declared to be void by statute and one so declared by the common law. But, because we do not have the latter question in this case, we will confine our discussion to those contracts and instruments declared void by statute.
The almost universal rule regarding such contracts is that they are void and may not be enforced, not only as between the original parties thereto, but likewise are they prohibited from enforcement by one who may become the holder of them in due course, and which is upon the ground that being void they never had any obligatory force and are no more binding upon the maker than if he had never executed them. The theory upon which that conclusion was reached is that the Legislature in so providing (i.e., that the particular contract should be void) did so in furtherance of what it conceived to be a wholesome public policy, and that to prevent that policy from being thwarted through the act of an assignment of the instrument (or contract) would put it into the hands of the parties to it to defeat such declared public policy. The latest text, embodying such court conclusions, will be found commencing on page 556 of Brannan's Negotiable Instruments Law (5th Ed.), and which is thus stated by the author:
To the same effect is the text in 8 C.J. 768, sec. 1033, saying: "If the instrument or contract is declared `void' by statute it cannot be enforced even by a bona fide holder, and this is so even in those states where the Negotiable Instruments Law has been enacted." In the same section the compiler points out that some of the courts, and perhaps a majority of them, declined to apply the rule to a bona fide holder of a negotiable instrument where the statute stamps the vice in the instrument as merely "illegal"; but even those courts apply the rule as so announced where the particular prohibitive matter in the statute is declared therein to render the contract void. On page 772 of the same volume further emphasizing the same rule, and especially as applicable in Kentucky, the text says: ...
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