an express statute in terms forbade certain things, and declared all acts and contracts in connection therewith void. Under the law merchant illegality as a defense was not necessarily real. It depended upon the class of illegality and how it was determined. If the particular act or transaction was void merely at common law, or by construction of a particular statute, based upon considerations of public policy, no real defense was presented. However, if the statute, in terms or by necessary implication, declared the act or acts aimed at by the statute, and all transactions in connection therewith, to be void, such defense was available, even against a bona fide holder of negotiable paper. The question now presents itself: how is it under the Negotiable Instruments Law?

Certain of the States, by modification of the language of the Law, have avoided the question altogether; as, for example, Wisconsin and Illinois, where the matter is expressly referred to and covered in their

enactment.

The pertinent parts of the law are:

Section 57, which sets forth the rights of "a holder in due course," and makes use of the following language: "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 52, which defines "a holder in due course."

Section 59, which has to do with the burden of proof, when certain enumerated "defects" have been established.

Section 55, which sets forth when a title is "defective," within the terms and meaning of Section 59.

Section 56, which lays down the rule as to what constitutes "notice" of such "defects," so as to charge a holder.

The language of Section 57, especially when read in the light of the others, is very broad and comprehensive, and would seem

to be intended to preclude any defense whatever, especially of the class now under consideration, under any circumstances. It appears, however, that upon this, precisely, the courts have disagreed. It is contended, on the one hand, that the Negotiable Instruments Law, has by necessary implication repealed, at least pro tanto, any and all prior statutes which affected this class of defense, as well as effected a change in the common law and the law merchant. On the other hand, it is contended, that, so far as applicable at all, such result is not necessary, or even logical.

Let us now look at some of the conflicting decisions. The first case decided under the law was Wirt v. Stubblefield. This case was decided in 1900, Congress having enacted the law, without in any way altering or modifying Section 57, in 1899. As a defense to an action on a promissory note, it was sought to set up that the note was void, having been given as the result of a wager, upon the theory that old English statutes of Charles and Anne, against gaming, were still in effect in the District of Columbia. The court held, that the statutes had been in effect, and that they had made such contracts void, but that they had been repealed, as to negotiable instruments. The court, in rendering its decision said:" "that the British statutes of 16 Charles 2, Ch. 8, and 9 Anne, Ch. 14, against gaming, so far as they might or would, if in force, affect the validity of the negotiable instruments embraced by act of Congress, are inconsistent with the provisions of the latter act. and they are, therefore, to the extent that they are so inconsistent or repugnant to the act of Congress, repealed. and no longer, as to negotiable instruments, in force in this District." In reasoning to its decision, the court uses the following language: "We know the origin and history of the act of Congress. We know it is largely derived in its form and provisions from the English Act upon the subject; and

we know, moreover, that the great and leading object, not only with Congress, but with the large number of the principal commercial States of the Union that have adopted it, has been to establish a uniform system of law to govern negotiable instruments wherever they might circulate or be negotiated. It is not only uniformity of rules and provisions that was designed, but to embody in a codified form, as fully as possible, all the law upon the subject, to avoid conflict of decision, and the effect of mere local laws and usages that have theretofore prevailed. The great object sought to be accomplished by the enactment of the statute was, to free the negotiable instrument, as far as possible, from all latent or local infirmities that would otherwise inhere in it, to the prejudice and disappointment of innocent holders, as against all of the parties to the instrument professedly bound thereby. This clearly could not be effected so long as the instrument was rendered absolutely null and void by local statute as against the original maker or acceptor, as is the case by the operation, indeed by the express provision, of the statutes of Charles and Anne."

Again, at page 290, it is said: "It is difficult to conceive, if we bear in mind the object and policy intended to be promoted by, as well as the entire scope and express provisions of, the 'negotiable instruments law,' that the framers of that act ever intended

to save and preserve unrepealed as part of the law governing negotiable instruments, the old English statutes of 16 Car. 2, and 9 Anne, against gaming. On the contrary, it was most clearly among the objects and purposes of that act, to get rid of all such impediments and hindrances to the circulation of negotiable instruments as had been created by those old statutes, and to embody the entire law upon the subject, as far as practicable, into one well digested and consistent act."

Again, at pages 288-9: "Consideration is illegal either at the common law or by statute. When the title to a bill or note is de

fective by reason of an illegal consideration at the common law, the instrument is good in the hands of an innocent indorsee against all parties. But not so where the consideration is made illegal by statute, and the instrument is declared to be null and void, as in cases of bills or notes made upon gambling or usurious transactions."

And at page 286: "Gambling consideration is not mentioned, nor is that of usury, in the recent act of Congress of January 12, 1899; nor are any of the statutes upon the subject of gambling or usury referred to, and if, therefore, the old British statutes to which we have referred have been partially repealed by the act of Congress, it is by implication, and not by express terms. The act of Congress does provide, however, by Section 190, 'That all laws of force within the District of Columbia, inconsistent with the foregoing provisions of this act, be, and the same are hereby repealed.' It must, therefore, have been supposed, and within the contemplation of Congress, that there were laws or legislation in force proper to be repealed, and the question is, what laws were thus intended to be repealed."

Thus it appears, that the various grounds supporting the first view of this matter are clearly, distinctly and vigorously set forth by the court in this case.

The next case which I shall consider is Alexander v. Hazelrigg. This was decided in 1906, the State of Kentucky, in 1904, having enacted the Negotiable Instruments Law, embodying Section 57 without change. Kentucky, previously, had had a statute expressly making all gambling contracts void, and this was not in terms repealed by the act of 1904. In this case, as in the one just considered, the action was upon a promissory note by a holder in due course, and the defense sought to be set up was illegality, resulting from the note having originated in a gambling transaction. The court held the defense available, and expressly refused to follow the case of Wirt v. Stubblefield, which was relied upon by the plaintiff. In

(4) 123 Ky. 677, 97 S. W. 353.

reasoning to its decision, the court says, at pages 353-4 of the Southwestern Reporter: "The real question to be determined is whether a negotiable note executed for money lost on a bet or wager can be successfully defended when owned and held by an innocent purchaser for value without notice of the infirmity or illegal consideration of the note. As we understand the appellant's petition, he concedes that prior to the passage and taking effect of the negotiable instruments act, referred to, such a note could be successfully defended in the hands of an innocent purchaser; but since that act took effect he contends that all

laws inconsistent with that act stand repealed. He claims that under section 57 the question of consideration cannot be inquired into as against the holder in due course. He takes the paper free from defenses. And in support of this position, we are referred to the case of Wirt v. Stubblefield. In that case it was held that the section, the same as section 57, referred to above, changed the law of the District of Columbia as to a note given for a gambling debt in the hands of a holder in due course." The court then quotes from the decision mentioned, and continues:

"It has been the policy of this State to suppress gambling and the statutes making gaming contracts void are founded upon what the Legislature has for many years deemed to be sound public policy. It is inconceivable that the General Assembly in the passing of the act of 1904 for the protection of innocent holders of negotiable instruments, intended to or did repeal section 1955, Ky. Sts. 1903, which declared all gaming contracts void. In our opinion the disappointment now and then of an innocent holder of a negotiable instrument would not be as hurtful and injurious to the best interests of the state as the removal of the ban from gaming contracts. Mr. Daniel in his work on Negotiable Instruments, says: "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 con

(5) Supra. (6) Sec. 197.

sideration, without any distinction between cases of illegality founded in moral crimes or turpitude, which are termed mala in se, or those founded in positive statutory prohibition, which are termed mala prohibitia. The law extends its peculiar protection to negotiable instruments, because it would seriously embarrass mercantile transactions to expose the trader to the consequences of having a bill or note passed on him impeached for some covert defect. There is, however, one exception to this rule that when a statute, expressly or by necessary implication, declares the instru ment absolutely void, it gathers no vitality by its circulation in respect to the parties executing it.''

Here we have clearly indicated most of the grounds upon which this view rests, though, perhaps, they are not set forth with so much fullness of reasoning as are those in the other case.

Wirt v. Stubblefield does not appear to have been extensively followed, but there are a number of decisions in other jurisdictions which coincide with the views expressed in Alexander v. Hazelrigg, and even amplify and extend its grounds of decision.

Eskridge v. Thomas, was an action under an express statute to enjoin the prosecution of a promissory note, on the ground of usury. A defense was sought to be founded on the contention that the Negotiable Instruments Law, including section 57, which had been enacted in West Virginia subsequent to the statute relied upon by the plaintiff, had repealed or modified the usury law of that State. The action, however, was sustained. In reaching this decision, the court delivered a well reasoned opinion, from which I quote certain portions, to illustrate its scope and grounds:

"To meet these trade requirements, to facilitate the movement of capital, and to inspire confidence and correct some defects or deficiencies in the circulation of commercial paper, manifestly were some of the purposes to be subserved by the enactment of the Negotiable Instruments Law.

"But conceding the wholesome, material and benign purposes of this legislation, that

concessum cannot be permitted to violate or ignore other equally beneficent and essential statutory provisions. These the lawmaking branch of the government, not the court, must repeal or amend, if necessary to suit public convenience.

"The obvious purpose and effect in enacting the Negotiable Instruments Law was the embodiment of the general law merchant as it had been previously applied in the courts. The presumption is that when passing it, the Legislature had in contemplation the existence of the usury statute and the decisions of Virginia and this State construing it as involving all contracts comprehended within its scope. It knew, as we must assume, that, by a prior general rule, when a statute declares an instrument void, it gathers no vitality by circulation, although upon such instrument an indorser may be held liable to a bona fide holder without notice.8"

-"When there is nothing in a statute indicating an intent to the contrary, the well recognized doctrine is:

"That the Legislature did not intend to innovate upon, unsettle, alter, violate, repeal or limit another general statute or statutory system, the entire subject matter of which is not directly nor necessarily involved in the (subsequent) act,'" citing Bank v. Jacobs, 74 W. Va. 525, 82 S. E. 320, which was a case involving the same fundamental question, the effect of the Negotiable Instruments Law."

In a similar case in Pennsylvania, a District Court,10 contributes the following reasoning, based on an interpretation of the express wording of Section 57:

"However, this act (Negotiable Instruments Law), applies only to paper that might have been obligatory between the parties that which it was legally possible for the parties to make. Where the parties were never bound because the law made the note void, as being contrary to public policy as expressed in the statutes, the Negotiable Instruments Act does not have any application.

That this act was not intended to inject life into a written instrument that was

by law null and void, ab initio, is apparent from the use of the word 'liable' in section 57 of this act, viz: 'A holder in due course may enforce payment for the full amount thereof against all parties liable thereon.' The liability is defined to be the situation of one who is bound in law and justice to do something which may be enforced by action.11

"The maker of a note given in payment of a gambling transaction is not liable on such instrument, as by law such instrument is null and void and of no effect. It is questionable whether such a note ever becomes a negotiable instrument."12

The conflict between the two views in this matter is interestingly illustrated in the decisions of the courts of New York State. In the Court of Appeals, though several times discussed by individual judges, there had been no decision upon the question until Sabine v. Paine,13 decided in 1918, which finally disposed of the contention for that jurisdiction. In the Supreme Court, however, prior to the date mentioned, there had been a number of decisions, some holding one way, and some the other. This situation is strikingly shown in volume 151 N. Y. S. At page 735, of this Report, we find the case of Sabine v. Paine, decided February 5, 1915, from which decision the appeal above mentioned was taken; and at page 873, of the same Report, we find Oeser v. Behrend, decided March 3, 1915, at the next

succeeding appellate term of the Supreme Court, and by different judges. In each case, the same fundamental question was involved, namely, the effect of the Negotiable Instruments Law, enacted in New York in 1897, upon the previously enacted and existing usury statute.

In the first case, upon a review of preceding cases, it was held, that the Negotiable Instruments Law did not effect any change in the previously existing law, under which it had been held that a note void for usury was void always and everywhere, and that usury was still a defense. In the second case, a similar review of the cases

was made, and the opposite decision reached, though by a divided court, one of the judges delivering a vigorous dissenting opinion. He, likewise, reviewed the previous conflicting decisions, and set out, to some extent, the respective bases upon which the opposing conclusions rested. I quote a part of his opinion, page 875:

"The argument of the leading case relied on by plaintiff, (Schlessinger v. Kelly, 114 App. Div. 546, 99 N. Y. S. 1083), is based on the view that the statute grew out of an attempt to secure uniformity in all the states, and to free negotiable instruments, or papers purporting to be such, as far as possible in the hands of innocent holders from latent or local infirmities, and to hold that this included infirmities going to their inception, equally with others, was more consonant with the purposes of the Act, and there is much force, undoubtedly, in this argument.

"On the other hand, while surrounding circumstances may be considered in construing ambiguous legislative enactments, the language used is after all, the primary source from which to determine the legislative intendment, and as repeal by implication is not favored, where the words are as consistent with an intent not to change or repeal, such would seem to be the natural effect to be given to them. As express words would seem the more natural way of effecting an intended change, the fact they are not used would indicate that no change was intended, and such inference cannot but be strengthened where, as in this statute, the Legislature by express provisions repealed other parts of the existing statute * * *The inference would seem reasonable, if it had intended a further repeal, it would have included it in that section."

law. *

became such before 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 hands of an innocent holder, who had received it in good faith in the ordinary course of business, for value, and without notice of a defect, is not invalid, and is enforceable by the holder."

Here the court quotes, 14a and contin

ues:

"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 efficiency. 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 rendered valid by passing through the channels of trade.'

"The rule has general recognition in judicial opinion," citing authorities.

"The fact that the holder, when he took the paper, did not know that it 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," citing authorities.

"The statute is peremptory and unequivocal in enacting that a usurious obligation is absolutely void.

"The Legislature did not, by enacting section 96 of the Negotiable Instruments Law, intend to abrogate the rule we haye stated. The statute declaring the usurious instrument void is not repealed expressly or through implication. The court is, under its command, to declare it void, enjoin prosecution of it, and order it to be surrendered and cancelled, whenever satisfactory proof of its usurious character appears. It is a pretense, and ineffectual as a source of obligation or right. It is insubstantial, and within the intendment of the Negotiable