Wachovia Bank & Trust Co. v. Crafton, 181 N.C. 404 (1921)

May 25, 1921 · Supreme Court of North Carolina

181 N.C. 404

WACHOVIA BANK AND TRUST COMPANY v. J. W. CRAFTON.

(Filed 25 May, 1921.)

Negotiable Instruments — Endorsement—Independent .Contracts — Gaming —Holder in Due Course — Statutes.

Tbe endorsement on a promissory note, negotiable under our statutes, is a new and independent contract, whereby tbe endorser for value and in due course, among other things, guarantees under C. S., 3047, tbat be was a bolder in due course at tbe time of tbe endorsement, and tbat tbe obligation is valid and subsisting; and tbe endorsee may maintain bis action thereon against tbe endorser independently of whether tbe note was originally given for a gambling debt made void by C. S., 2142.

Appeal by plaintiff from Long, J., at December Term, 1920, of BUNCOMBE.

Tbe action is brought by an endorsee and bolder in due course of a promissory note given by one J. M. Carver to J. W. Crafton, defendant, for money won by tbe defendant in a game of cards and endorsed by tbe defendant, tbe payee of tbe note, in due course and for value to plaintiff bank. There was denial of liability, tbe defendant, tbe endorser, alleging tbat tbe note in question was for an amount won in a gambling transaction.

Tbe jury rendered tbe following verdict:

“1. Did tbe defendant Crafton endorse tbe note declared on for $700, 18 February, 1919, due 8 April, 1919, as alleged in The complaint, and before its maturity? Answer: ‘Yes.’

“2. Did' tbe plaintiff discount and pay $690 for tbe note to W. E. Shuford, in regular course, without notice tbat it was for a gambling debt, and before maturity, as alleged by plaintiff? Answer: ‘Yes.’

“3. Was tbe note executed by J. M. Carver for a gambling debt to J. W. Crafton? Answer: ‘Yes.’”

On tbe verdict there was judgment tbat defendant go without day, and plaintiff bank excepted and appealed.

Bourne, Parlcer & J ones for plaintiff.

Marcus Erwin for defendant.

Hoke, J.

Our statutes applicable to tbe note in question, C. S., 2142, renders tbis and all notes and contracts in like case void, and it is urged in support of bis Honor’s ruling tbat, tbis being true, no action tbereon can be sustained. Tbe position as stated is undoubtedly tbe law in tbis jurisdiction, and is in accord with well considered authorities elsewhere. Glenn v. Farmers Bank, 70 N. C., 191; Calvert v. Williams, 64 N. C., 168; Sabine v. Paine, 223 N. Y., 401, reported also in 5 A. L. R., 1444. Tbis principle, however, is allowed to prevail only where tbe action is on tbe note to enforce its obligations, and does not affect or extend to suits by an innocent endorsee for value, and bolder in due course, against tbe endorser on bis contract of endorsement. It is very generally held, uniformly as far as examined, tbat tbis contract of endorsement is a substantive contract, separable and independent of tbe instrument on which it appears, and where it has been made without qualification and for value it guarantees to a bolder in due course among other things tbat tbe instrument, at tbe time of tbe endorsement, is a. valid and subsisting obligation. It is so expressly provided in our statutes on negotiable instruments, C. S., cb. 58, sec. 3047, and tbe statute, in tbis respect as in so many of its other features, is but a codification of tbe general principles of tbis branch of tbe mercantile law as established in tbe better considered decisions on tbe subject. Hunnum v. Richardson, 48 Vt., 508; Aymar v. Sheldon, 12 Wendell, 339; Sinker, Davis & Co. v. Fletcher et al., 6 Ind., 277; 4 A. & E. (2 ed.), p. 477; Norton on Bills and Notes, p. 217; 1 Calvert Daniel on Negotiable instruments, sec. 669. In 4 A. & E., supra, it is stated: “Tbat no principle is more fully Settled or better understood in commercial law than tbat tbe obligation of tbe indorser is a new and independent contract.” And in Norton on Bills and Notes it is said tbat “every indorser who indorses without qualification warrants to bis indorsee and to all subsequent holders/’ among other things, “tbat tbe bill or note is a valid and subsisting obligation.” In applying these principles, tbe cases bold tbat on breach of tbe contract of indorsement a recovery by a bolder in due course will be sustained against tbe indorser though tbe instrument is rendered void by tbe statute law. Irvin v. Marquiett, 26 Ind. App., 383; Morford v. Davis, 28 N. Y., 481; Horowitz v. Wollowitz, 110 N. Y. Supp., 972; Mofett v. Bickle, 62 Va., 280; Graham v. Maguire, 39 Ga., 531; Edwards v. Dick, 6 Eng. C. L., 405; 1 Valvert Daniel on Negotiable Instruments, sec. 373. In Irvin v. Marquiett, supra, in denying recovery on tbe note tbe Court said: “It is tbe law tbat in a suit by a tona fide bolder against an indorser the latter cannot defend on tbe ground tbat tbe original contract was based on a gaming consideration, for tbe reason tbat tbe indorsement is a separate and independent contract, and tbe indorser by bis indorsement warrants tbe validity of the original contract,” citing many authorities. In the citation to Calvert, Daniels on Negotiable Instruments, sec. 613, the author says: “The indorser engages that the bill or note is a valid and subsisting obligation, binding all prior parties according to their ostensible relations; and he may be held liable, although the instrument be entirely null and void as between prior parties themselves; and also as between prior parties and even bona fide holders without notice,” and quotes from an English case which O. J. Lee, in denying recovery on the note void for gaming said: “The plaintiff is not without remedy for he may sue the indorser on his indorsement.” The law which renders these contracts void was enacted for the suppression of gambling, but it would tend rather to encourage the vice if a successful gambler could procure the value of such a note on his indorsement and protect himself from the obligation so incurred by pleading his own wrongdoing. On both reason and authority, therefore, the defendant should be held liable for breach of his own contract of indorsement, and under the facts established by the verdict, there should be judgment for plaintiff.

Reversed.