MR. JUSTICE HARLAN delivered the opinion of the court.
This is a writ of error to a judgment in favor of the First National Bank of Montgomery, against Oates, the plaintiff in error, upon a promissory note for $5,200, executed by him at Eufala, Ala., on the twenty-fifth day of July, 1873, and made payable on the 1st of December thereafter, to the order of
On or about Nov. 4, 1873, Micow applied to the bank for an extension of time upon certain indebtedness then held by it against the company, amounting to about $40,000, and all of which matured thereafter and in that month. That indebtedness had been previously extended, on several occasions, at usurious rates of interest, paid invariably in advance. The bank signified its willingness to give an extension for thirty, sixty, ninety, and one hundred and twenty days, upon collateral security being furnished, and upon the payment in advance for such extension of interest at the rate of one and one-quarter per cent per month, upon the different classes of the company's paper by it held. These conditions were complied with, and the extension was accordingly made for the periods stated. The required interest was not carried into the extension bills, but was paid in advance. Among the collaterals placed with the bank, under this arrangement, was the note for $5,200 already described, indorsed in blank, "B.H. Micow, Prest."
The evidence was somewhat conflicting as to whether the officers of the bank, at the time of receiving the note in question, had actual notice from Oates as to its consideration. It was, however, conceded that its president had reason to believe the note was given for stock of the company. Oates, although residing at Eufala, was a stockholder and director of the bank. No inquiry was made of him by the officers of the bank, before receiving the note as collateral security, as to any defence
On the 24th of November, 1873, the bank gave written notice to Oates that it held his note as collateral security for the indebtedness of the company. A few days thereafter he transmitted to the bank the company's agreement or obligation, under which he had purchased the stock and given his note, informing its officers that he had, by the same mail, returned his stock-certificate to the company, and demanded the surrender and cancellation of his note. The bank, replying to this notification, stated that it had purchased the note as negotiable paper, in good faith, for a valuable consideration, and without notice of any private understanding between Oates and the company, its officers or agents.
These are the essential facts developed in the record. We are to inquire whether the court below committed any error of law to the prejudice of the plaintiff in error.
The first contention of the plaintiff in error is, that, by the terms of the contract under which he purchased the stock and gave his note, and in view of the false and fraudulent representations of the company's agent as to its financial condition, he was entitled, as of absolute right, to surrender the certificate of stock and have his note returned or cancelled; and, further, that his defence, upon that ground, was secured to him by the statutes of the State of Alabama, in force when the contract was made.
It is clear that, as between the Tallassee Manufacturing Company and Oates, the defence of the latter is perfect. And it would undoubtedly be sustained, even against the defendant in error, were it true, as claimed, that, by the statutes of Alabama, the transfer of the note was without prejudice to any defence which the maker might assert against the payee. This renders it necessary that we should ascertain to what
By sect. 1833 of the Revised Code of that State it is declared that "bills of exchange and promissory notes payable in money, at a bank or private banking-house, are governed by the commercial law, except so far as the same is changed by this code." Sect. 1839 declares that "all contracts or writings, except bills of exchange, promissory notes payable in money at a bank or private banking-house, and paper issued to circulate as money, are subject to all payments, set-offs, and discounts had or possessed against the same, previous to notice of the assignment or transfer."
Thus stood the law of Alabama until April 8, 1873, when, by statute of that date, entitled "An Act to amend sect. 1833 of the Revised Code of Alabama," it was enacted that sect. 1833 (copied in full in the act) "be so amended as to read as follows: `Bills and notes payable at a banker's or a designated place of payment, are negotiable instruments; bills of exchange and promissory notes payable in money at a bank or a certain place of payment therein designated, are governed by the commercial law.'" Acts 1872-73, p. 111. By the same statute, sect. 1833, as it then stood in the Revised Code, was expressly repealed. It should be observed that the words "except so far as the same is changed by this code," in sect. 1833 as it originally stood, are omitted from that section as remodelled by the act of 1873.
The argument of the plaintiff in error is, that although, by the explicit declaration in the act of 1873, "bills and notes payable in money at a certain place of payment, therein designated," are negotiable instruments, to be governed by the commercial law, such bills and notes are, nevertheless, under sect. 1839, "subject to all payments, set-offs, and discounts had or possessed against the same, previous to notice of the assignment or transfer." We concur with the court below in holding that construction to be wholly inadmissible. It seems that upon this precise point there has been no direct adjudication by the Supreme Court of Alabama, to which primarily belongs the duty of giving authoritative construction of the statutes of that State. The only case in that court to which we are
For these reasons we are of opinion that the statutes of Alabama do not permit, as against a bona fide holder, for value, of a "promissory note, payable in money at a certain place of payment therein designated," defences which are disallowed
Giving to the Alabama statute the construction indicated, our next inquiry is, whether the bank, under the circumstances disclosed in this case, became, according to the recognized principles of commercial law, a bona fide holder for value of the note in suit. That it acquired the note in good faith, without fraud, we are not permitted by the evidence to doubt. Its officers were not bound to inquire of Oates, before they took the note, whether he had any defence or set-off. They rightfully supposed, as the face of the note imported, that he had undertaken absolutely to pay the amount specified at the time and place designated. That the president of the bank had reason to believe it was given for stock of the Tallassee Manufacturing Company is a fact of no significance whatever in determining the question of good faith. Having no knowledge or notice of the private agreement between Oates and the company, as set forth in the separate obligation of the latter, which was withheld from the public, the bank officers justly assumed that there was no circumstance attending the sale of the stock which could lessen the obligation of Oates to pay the note according to its tenor and effect.
But it is contended that by the rules of commercial law, as recognized by the Supreme Court of Alabama, one who receives a promissory note as collateral security for a pre-existing debt does not become a purchaser for value, in the course of business, so as to cut off equities which the maker may have against the payee. Such was declared to be the settled doctrine of that court in Fenouille v. Hamilton, 35 Ala. 319. But the opinion in that case contains some passages which apply with peculiar force to a suit like this. The court said: "In this case there was no other consideration for the transfer of the note to the defendant than the security of the pre-existing indebtedness of the defendant's indorsee. The fact that the defendant may have been led to grant indulgence, or forbear to enforce his remedies for the collection of the debts, does not prove that such indulgence or forbearance was an element of the contract, or the consideration upon which it was made. If there was any forbearance by the defendant, it was a voluntary act to
Upon principle and authority, we do not doubt that the defendant in error was, in the sense of the commercial law, a bona fide holder for value of the note in suit. In Swift v. Tyson (supra), cited by counsel, this court, speaking by Mr. Justice Story, said that it entertained no doubt "that a bona fide holder for a pre-existing debt of a negotiable instrument is not affected by any equities between antecedent parties, when he has received the same before it became due, without notice of any
That language would seem to be conclusive of the question under consideration. There was here a present consideration at the time of the transfer, independent of the indebtedness of the manufacturing company to the bank. That consideration as to the bank was the unconditional extension of time upon all the company's indebtedness, for different periods reaching beyond the maturity of the note transferred as collateral security. Such extension for fixed periods was a cardinal element of the contract. The creditor forbore pursuit of the remedies which the law supplied for the enforcement of his demands, then soon to mature, in consideration of collateral security being furnished, and in consideration also of the payment by the debtor of usurious interest in advance. Besides, having received the note, indorsed so that it became a party thereto,
One other question remains to be considered. Counsel for plaintiff in error have pressed with much vigor the suggestion that the bank, consistently with public policy, should not be regarded as a bona fide holder for value of the note in suit, since the contract under which it received the note involved in its execution a direct violation of the statutes against usury. We are referred in support of that position to several decisions of the Supreme Court of Alabama which, it must be conceded, announce the broad doctrine that one "who has become the indorsee of a bill, by violating the provisions of a statute, can not with any degree of propriety be said to be a bona fide holder in the usual course of trade." 13 Ala. 410; 14 id. 688; 16 id. 406. Without extending this opinion by a critical examination of those cases, we repeat that in the determination of such a question we are not bound by the decisions of the State court. The question is one of general law, and depends in nowise for its solution upon local laws and usages.
We are referred, in this connection, to two cases, Levy v. Gadsby (3 Cranch, 180), and Gaither v. The Farmers' & Mechanics' Bank, 1 Pet. 37. The first is so meagerly reported that it is difficult to see the precise ground upon which the conclusion of the court was placed, and the second is clearly distinguishable from this. There, a note was indorsed and delivered as collateral security for a pre-existing debt, evidenced by a note given on a usurious contract. The case was held to be governed by the statute of Maryland, which declared "all bonds, contracts, and assurances whatever, taken on a usurious contract," to be utterly void. Under that statute the contract of indorsement was held to be void. In the eye of the law, it was as though it had never existed, and consequently no cause of action, it was adjudged, passed to the indorsee.
The case in hand is altogether different. The statute under
It denounces no penalty other than a forfeiture of the interest which the note or bill carries, giving to the debtor the right to sue for and recover twice the amount of interest so paid. If we should declare the contract of indorsement void, and, consequently, that no right of action passed to the bank on the note transferred as collateral security, an additional penalty would thus be added beyond those imposed by the law itself. "On what principle could this court add another to the penalties declared by the law itself?" De Wolf v. Johnson, 10 Wheat. 367; Farmers' & Mechanics' National Bank v. Dearing, 91 U.S. 29; Barnett v. National Bank, 98 id. 555.
Besides, in this case, the forbearance extended to the debtor was not upon the sole consideration of usurious interest paid in advance: it was upon the additional and substantial consideration that the debtor corporation gave collateral security for the payment of indebtedness about to mature, and which it confessed its inability to meet. We have already seen that the transfer of the note before maturity, as collateral security, and so indorsed that the bank became a party to the instrument under obligation to make due presentment and give due notice of non-payment, was itself a sufficient consideration to constitute the bank a bona fide holder for value, within the recognized principles of the law merchant. The presence, then, in the contract under which the note was indorsed and delivered to the bank of an additional consideration, — the payment in advance of usurious interest, — which the law declares to be vicious and illegal, ought not to destroy the entire contract of indorsement, when there is a sufficient consideration, aside from the usury paid, upon which it may rest.
We are of opinion that no error of law was committed by the court below.