Opinion
No. 31111.
March 19, 1934.
BILLS AND NOTES.
Note given to corporation for stock subscription held enforceable by innocent holder for value paid before maturity, notwithstanding statute providing that note given by subscriber for stock shall not be considered payment therefor (Code 1930, section 4148).
APPEAL from Circuit Court of Hinds County.
Wells, Wells Lipscomb, of Jackson, for appellant, and Robertson Campbell, of Jackson, amicus curiae.
The note was void and unenforceable in the hands of appellee.
A note, obligation, or security of any kind given or transferred by any subscriber for stock in any corporation shall not be considered, taken, or held as payment of any part of the capital stock of the company.
Sec. 4148, Code of 1930; Ellis-Jones Drug Co. v. Williams, 103 So. 810; Aldridge v. Rice, 138 So. 570; Montjoy v. Delta Bank, 24 So. 870; Dean et ux. v. Robertson et al., 1 So. 159; Gray v. Robinson, 48 So. 226.
The general rule is that illegality of consideration is not a defense to an instrument in the hands of a holder in due course, but to this rule there is one well-established exception and that is, when a statute, expressly or by necessary implication, declares the instrument absolutely void, it acquires no validity by its transfer to an innocent holder for value.
Elkin-Hensen Grain Co. v. White, 98 So. 531; Mitchell v. Campbell, 72 So. 231; Republic Trust Co. v. Taylor, 184 S.W. 772, 776; Crawford v. Davis et al., 88 S.W. 436; Ater v. Rotan Grocery Co., 189 S.W. 1106.
Appellee had notice of the infirmity in the note and no recovery can be had on said note.
41 C.J. 605, sec. 571; 65 C.J. 650.
The Bank of Forest did not have title to the note of appellant.
49 C.J. 980, sec. 209; Cassedy v. Wells, Jones, Wells Lipscomb, 137 So. 472.
Wm. I. McKay, of Vicksburg, and O.B. Triplett, Jr., of Forest, for appellee.
The rights of a holder in due course of a note given for stock have not as yet been passed on by our court, the case at bar being of first impression. But we respectfully submit that even with reference to the rights of a holder with notice our court is placing the wrong interpretation on the statute.
German Merc. Co. v. Wanner, 52 L.R.A. (N.S.) 453, 25 N.D. 479, 142 N.W. 463; Washer v. Smyer, 4 A.L.R. 1320, 211 S.W. 985.
Our statute does not affect the rights of a holder in due course of a note given for stock.
Washer v. Smyer, 4 A.L.R. 1320; 8 C.J. 767; First National Bank v. C.W. Leeton Bros., 131 Miss. 324.
A holder in due course holds the instrument free from any defect of title of prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.
Secs. 2715 and 2716, Code of 1930.
While not essential to its right to recover, yet the appellee was a holder in due course and entitled accordingly. Of this fact there can be no controversy from the record.
In a proper case defendant may be estopped to set up the defense that the original consideration was illegal.
8 C.J. 722; Currie-McGraw Co. v. Friedman, 135 Miss. 701; Bank v. Merkel, 97 Miss. 824; Henderson v. Anderson, 11 L.Ed. 499.
As a general rule, it is proper to indulge a presumption that in their business and social relations all persons act honestly and properly and in good faith.
22 C.J. 146-148; 49 C.J. 1028; Carpenter v. Longan, 21 L.Ed. 313.
The appellee is a holder in due course and entitled to recover as such.
Appellant gave a note for five hundred dollars for stock subscription in a corporation. This note was, before its maturity, transferred to appellee for full value without notice. Appellant declined to pay the note, and defended under section 4148, Code 1930, which reads as follows: "A note, obligation, or security of any kind given or transferred by any subscriber for stock in any corporation shall not be considered, taken, or held as payment of any part of the capital stock of the company."
The exact question for decision is whether an innocent holder for value paid before maturity of a note of this character may recover upon it. Appellant cites Ellis Jones Drug Co. v. Williams, 139 Miss. 170, 103 So. 810, and Aldrich v. Rice, 161 Miss. 879, 138 So. 570, but in these two cases the point stated was not decided. Also appellant relies upon the long line of cases wherein privilege licenses were not paid, or where the notes were given in future transactions, or for the purchase of intoxicating liquors and the like, in all of which the statute expressly or by inescapable implication declared the note or obligation to be absolutely void. Appellant cites also several cases taken from the Texas Court of Civic Appeals.
The precise question has not often been before courts of last resort. The state of the authorities is shown in the annotation to Washer v. Smyer, 4 A.L.R. 1320-1330, in which case the stated question was answered by the Supreme Court of Texas in the affirmative. We are in accord with the reasoning applied in Washer v. Smyer, 109 Tex. 398, 211 S.W. 985, 4 A.L.R. 1320, and have arrived at the same conclusion.
Affirmed.
The opinion handed down in this case is supported by Riddell et al. v. Tallahatchie Home Bank, 160 Miss. 141, 133 So. 128, and Tallahatchie Home Bank v. C.H. Aldridge (Miss.), 153 So. 818 (not yet reported [in State Report]). Those cases are squarely in point; they hold that a violation of the Blue Sky Law (the giving of negotiable notes for stock in a corporation) was no defense to such notes in the hands of an innocent purchaser for value without notice.
The facts in the case of Mitchell v. Campbell, 111 Miss. 806, 72 So. 231, 233, arose before the Negotiable Instruments Act was adopted (chapter 244, Laws 1916), therefore the anticommercial statute, section 4001, Code 1906, applied and not the Negotiable Instruments Act. That is what the court meant in using this language in the opinion: "In fact, no point is made that appellant as assignee has any greater rights than his assignor would have."
Suggestion of error overruled.