Appeal from Harris County Court; Murray B. Jones, Judge.
BROOKE, J.
This suit was instituted by the appellee against the appellant to recover on two promissory notes dated August 28, 1914, executed and delivered by the appellant to John H. Jones, each for the sum of $250, maturing two and four months after dates, respectively, and being payable in Houston, Harris county, Tex., and drawing 6 per cent. interest. Appellee further alleged that before maturity of each of said notes, he purchased the same in good faith, in due course for a valuable consideration from the said John H. Jones, and that at the time of the institution of said suit he was the legal and equitable holder and owner thereof. Appellee further alleged that at the maturity of said notes he caused the same to be protested in due course, the protest fees amounting to $11.35, and appellee sued to recover the amount of said notes and protest fees.
The appellant, in addition to general demurrer and general denial, by way of special answer, pleaded that the notes were without consideration, and were obtained by the said John H. Jones from him fraudulently, and that the appellee, at the time he acquired said notes, knew of said fraud and failure of consideration for the notes, and did not pay an adequate consideration therefor, and that the appellee and John H. Jones conspired together for the purpose of cheating and defrauding the appellant. Appellant further pleaded that said notes were given in payment for stock of the Gas Products Company, a Delaware corporation, and that stock was issued to him in consideration of said notes, and before either of said notes were mature or paid, and that the notes, being issued in payment for stock of a corporation, were void and unenforceable.
Upon the trial had upon the 18th day of February, 1916, a jury, which had therefore been demanded, was by both parties waived, and the whole case submitted to the court, who took the case under advisement, and on February 18, 1916, found for the appellee and rendered judgment against the appellant in appellee's favor for $532.34, with 6 per cent. interest from the date of said judgment until paid. Motion for new trial was filed and overruled, and notice of appeal given, and the case is before this court properly for adjudication.
In addition to the above statement, it will, perhaps, be well to set out the findings of fact and conclusions of law found by the court, as follows, to wit:
"Findings of Fact.
"I find that on the 28th day of August, A. D. 1914, in the city and state of New York, the defendant executed and delivered to John H. Jones the two notes sued on, dated August 28, 1914, for the sum of $250 each, maturing two and four months after date, respectively, payable in Houston, Harris county, Tex., and drawing interest at the rate of 6 per cent. per annum, together with two other notes for the sum of $250 each, but which are not involved in this suit.
"(2) I find that said notes were given by the defendant to the said John H. Jones in payment for stock of the Gas Products Company, a corporation not then in existence, but which was later incorporated on the 14th day of September, 1914, under the laws of the state of Delaware and having its principal office in Delaware, the purpose of said corporation being the transaction of a manufacturing business and other purposes; and at the time of the execution of the notes, it was agreed by Jones that he would immediately issue said stock to defendant; that thereafter on the 20th day of September, 1914, certificates for $2,000 in stock of said corporation were issued to said defendant by said Gas Products Company in consideration of the execution of said notes, and that said stock was issued and delivered to the defendant before any of said notes were mature or paid.
"(3) I find that John H. Jones at the time of the execution of the notes was engaged in promoting what was afterwards known as the Gas Products Company, a Delaware corporation, and at the time of the incorporation of said company said John H. Jones became its president, and shortly thereafter the stock in said corporation was issued to the defendant and was signed by said corporation through said John H. Jones, as president.
"(4) I find that prior to the execution of the notes defendant had known John H. Jones for only a few days, and that there was no fiduciary relationship between them; that Jones represented to defendant that the stock was a good business venture and would pay good returns. Defendant believed the representations made by Jones and acted upon them.
"(5) No evidence was introduced on the trial to show that the corporation laws of Delaware and New York are in any wise different from those of Texas.
"(6) I find that said notes were on the 4th and 9th days of September, 1914, respectively, indorsed in blank by the said John H. Jones and delivered to the plaintiff herein, and that plaintiff paid value for said notes, and bought same before maturity and in the usual course of business and with no notice, actual or constructive, of any vice or infirmity of the paper as between the immediate parties thereto.
"From the foregoing facts I arrive at the following conclusions of law
"Conclusions of Law.
"(1) Whatever may have been the legal effect of the representations and dealings prior and at the time of the execution of the notes between Jones and the defendant, the defendant was the author of the notes and put them in circulation, and plaintiff is an innocent purchaser of said notes for value, and under the laws of this and other states is entitled to protection as such, and is entitled to a judgment against defendant for the amount of said notes, with interest and costs.
"(2) I further conclude that the notes having been executed in consideration for the promise of Jones to deliver the stock in the corporation are probably invalid and unenforceable as between the parties, unless the fact that the corporation was not then in existence would make the transaction merely a subscription for stock. I do not deem it necessary to pass on this question, that is, as to whether the transaction between Jones and Zielinski was a straight out sale of stock, or whether it was a subscription to stock."
The assignments of error are:
(a) Because the court erred in rendering judgment for plaintiff against defendant, because the judgment rendered herein is contrary to the law, and is not supported by the evidence adduced on the trial of said cause.
(b) Because the judgment is rendered against the weight and preponderance of the testimony.
(c) Because as a matter of law the plaintiff is not entitled to recover.
The proposition is as follows:
"A note given in an illegal transaction, i. e., one forbidden by a statute, expressly or by necessary implication, is void and unenforceable by any one, even by a purchaser, in due course, before maturity, for a valuable consideration and without notice of the infirmity thereof."
This question has been raised in various forms in a great many of the courts of this state heretofore. It was raised and passed upon by the Supreme Court in the case of Thompson v. Samuels (Sup.) 14 S. W. 143. We transcribe in full the opinion of the court in that case, for the reason that we believe the correct solution of a proposition heretofore rather obscure in this state has been reached. The opinion, which was rendered by Acker, Justice, is as follows:
"It is contended that the court erred in rendering the judgment for defendant because, `the evidence having shown that the note sued on had passed into the hands of an innocent purchaser for value before maturity, and without any notice of an illegal consideration, the fact that it may have been given for a gambling debt would not relieve the maker thereof.' If the suit was by Hilmbrower to enforce the payment of a note given by Samuels for money lost by gaming, there could be no doubt that the defense interposed by Samuels would be good, for we believe it to be settled by the decisions in this state that such contracts are voidable as between the parties thereto, and also between the maker and indorsee after maturity, and will not be enforced by the courts if the defense be properly interposed. Norvell v. Oury, 13 Tex. 31; Connor v. Mackey, 20 Tex. 747; Monroe v. Smelly, 25 Tex. 586 ; Donnelly v. Bank, 3 Willson, Civ. Cas. Ct. App. § 169. But it is contended by appellee that the note sued on was not only voidable, but void, and therefore incapable of enforcement even in favor of an innocent indorsee for value before maturity; and the authorities supra are relied on in support of this contention. It is true that, in several of the cases cited, it is said that such contracts are void; but, upon a careful examination of the decisions by the Supreme Court, we are induced to believe that the word `void' is used more through inadvertence than by design. If such contracts are void, then the illegality of the consideration may be made available as a defense under all circumstances, without regard to the innocence and good faith of the holder.
"The case of Norvell v. Oury, 13 Tex. 31, was a suit by the payee against the maker of the note for money lost at a game of cards. The defense was pleaded, and sustained by verdict and judgment in the trial court. On appeal it was contended that, the contract being valid in the state where it was made, the court erred in charging the jury that, if they believed that the consideration for the note was money lost by gaming, they should find a verdict for defendant, it matters not...
