is nothing illegal in such a settlement. It is the executory agreement to make it in the future which is invalid; and the invalidity seems the same whether such an executory agreement is made at the outset or is subsequently adopted in substitution of a prior legal contract. The distinction is between an agreement to pay differences which may exist in the future and an agreement to pay the differences which exist at the time the agreement is made. If the parties originally make an illegal agreement contemplating settlement by payment of differences, they may substitute for it subsequently a valid contract contemplating actual delivery. 46 § 1675. Negotiable instruments. If negotiable paper made by the loser is given to the winner in a gambling transaction, the latter can maintain no action upon it.47 An indorsee of an instrument who is not a holder in due course clearly stands in no better position than the original payee. 48 A renewal of a negotiable instrument originally given for an unenforceable gambling debt is itself unenforceable; 49 Tomblin v. Callen, 69 Iowa, 229, 28 48 In re Taylor's Estate, 192 Pa. St. 304, 43 Atl. 973, 73 Am. St. Rep. 812; Young v. Glendinning, 194 Pa. St. 550, 45 Atl. 364; but see Riordan v. Doty, 50 S. C. 537, 27 S. E. 939. "Hay v. Ayling, 16 Q. B. 423; Union Collection Co. v. Buckman, 150 Cal. 159, 88 Pac. 708, 9 L. R. A. (N. S.) 568, 119 Am. St. Rep. 164; Boughner v. Meyer, 5 Colo. 71, 40 Am. Rep. 139; Bates v. Cronin's Estate, 196 Ill. App. 178; Bride v. Clark, 161 Mass. 130, 36 N. E. 745; Kemp v. Hammond Hotels, 226 Mass. 409, 115 N. E. 572; Remer v. Ettinger, 48 N. Y. Misc. 641, 96 N. Y. S. 263; Orvis v. Holt-Morgan Mills, 173 N. C. 231, 91 S. E. 948; Gaw v. Bennett, 153 Pa. 247, 25 Atl. 1114, 34 Am. St. 699; Booher v. Anderson, 35 Tex. Civ. App. 436, 80 S. W. 385; Ash v. Clark, 32 Wash. 390, 73 Pac. 351. And see many cases collected 119 Am. St Rep. 174 n., also cases infra in this section. 48 Hawley v. Bibb, 69 Ala. 52; Union Collection Co. v. Buckman, 150 Cal. 159, 88 Pac. 708, 9 L. R. A. (N. S.) 568; Benson v. Dublin Warehouse Co., 99 Ga. 303, 25 S. E. 645; Sondheim v. Gilbert, 117 Ind. 71, 18 N. E. 687, 5 L. R. A. 432, 10 Am. St. Rep. 23; Murphy v. Rogers, 151 Mass. 118, 24 N. E. 35; Gooch v. Faucett, 122 N. C. 270, 29 S. E. 362, 39 L. R. A. 835; Winward v. Lincoln, 23 R. I. 476, 51 Atl. 106, 64 L. R. A. 160. 49 Hay v. Ayling, 16 Q. B. 423; Kuhl v. M. Gally Universal Press Co., 123 Ala. 452, 26 So. 535, 82 Am. St. Rep. 135; Stone v. Mitchell, 7 Ark. 91; and an agreement of compromise of such a claim is equally invalid. 50 § 1676. Rights of a holder in due course. The only conflict concerning the enforceability of a negotiable instrument given for a gambling debt arises when it has come into the hands of a holder in due course. In regard to illegality generally the rule is clear that unless a statute clearly declares void a negotiable instrument in the hands of all parties a holder in due course can recover. 51 But some statutes so plainly de Union Collection Co. v. Buckman, 150 Cal. 159, 88 Pac. 708, 9 L. R. A. (N. S.) 568, 119 Am. St. Rep. 164; International Bank v. Van Kirk, 39 Ill. App. 23; Campbell Co. Bank V. Schmitt, 143 Ky. 421, 136 S. W. 625; Cutler v. Welsh, 43 N. H. 497; Hollingsworth v. Moulton, 53 Hun, 91, 6 N. Y. S. 362; Haley v. Long, 1 Peck (Tenn.), 93. 50 Union Collection Co. v. Buckman, 150 Cal. 159, 88 Pac. 708, 9 L. R. A. (N. S.) 568, 119 Am. St. Rep. 164; Emery v. Royal, 117 Ind. 299, 20 N. E. 150; Creutz v. Heil, 89 Ky. 429, 12 S. W. 926; Pitkin v. Noyes, 48 N. H. 294, 97 Am. Dec. 615, 2 Am. Rep. 218; Grandin v. Grandin, 49 N. J. L. 508, 9 Atl. 756, 60 Am. Rep. 642; Haley v. Long, 1 Peck (Tenn.), 93; Reed v. Brewer (Tex. Civ. App.), 36 S. W. 99; Everingham v. Meigham, 55 Wis. 354, 13 N. W. 269. But see Hyams v. Stuart King, [1908] 2 K. B. 696. 51 In the case cited below, recovery was allowed: Birch v. Jervis, 3 C. & P. 379 (bill for not opposing bankrupt's discharge); Simpson v. Pogson, 3 Dowl. & R. 567 (note for fraudulent preference); Bluthenthal v. Columbia, 175 Ala. 398, 57 So. 814 (note for illegal sale of liquor); Moseley v. Selma Nat. Bank, 3 Ala. App. 614, 57 So. 91 (falsely dated note made on Sunday); Citizens, Nat. Bank v. Bucheit, 14 Ala. App. 511, 71 So. 82, 72 So. 1019 (note of foreign corporation doing business illegally); Commercial Nat. Bank v. Jordan, 71 Fla. 566, 71 So. 760 (note given in performance of illegal corporate contract); Hunt v. Davenport, 138 Ga. 622, 75 S. E. 644 [note illegally omitting to state that it was for price of patent. But a holder in due course was held not entitled to recover in Exchange Nat. Bank v. Henderson, 139 Ga. 260, 77 S. E. 36, 51 L. R. A. (N. S.) 549, on a note given to bribe a voter, or in International Agricultural Corporation v. Spencer, 17 Ga. App. 649, 87 S. E. 1101, on a note given for fertilizer not properly inspected or labelled]; State Bank v. Lawrence, 177 Ind. 515, 96 N. E. 947, 42 L. R. A. (N. S.) 326 (note for services of unlicensed physician); Pontiac Sav. Bank v. Reinforced Concrete Pipe Co., 178 Mich. 261, 144 N. W. 486 (note to partnership which had not filed required certificate); Farmers' Saving Bank v. Reed, 192 Mo. App. 344, 180 S. W. 1002 (note for illegal assignment of liquor license); Lawrence v. Clark, 36 N. Y. 128 (note for extra payment to composition creditor); Cowing v. Altman, 71 N. Y. 435, 27 Am. Rep. 70 (note for illegal fees to assignee in bankruptcy); Carrollton Press Brick Co. v. Davis (Tex. Civ. App.), 155 S. W. 1046 [note of foreign corporation illegally doing business within the State; but in Jones v. Abernathy (Tex. Civ. App.), 174 S. W. 682, and Republic Trust Co. v. Taylor clare the instrument void that under them even an innocent holder has been denied recovery.52 The possible effect of the Negotiable Instruments Law upon the question has been previously considered. 53 Unless the object of the law is to protect the maker of the instrument as one imposed upon, rather than to prevent and punish the transaction, the holder in due course should clearly be allowed to recover, for the result of a failure to allow recovery is that the maker, a party to the illegality— escapes liability and the wrongdoing payee has obtained a price for the instrument from the innocent purchaser, which the latter may have trouble in recovering. The tendency of the modern law in regard to instruments illegal because based on a gambling consideration is to protect the holder in due course. 54 But a number of decisions resting (Tex. Civ. App.) 184 S. W. 772, notes in violation of a special statute were held absolutely void]; Gray v. Boyle, 55 Wash. 578, 104 Pac. 828, 133 Am. St. Rep. 1042 (note for illegal rebate of insurance premium); American Sav. Bank v. Helgesen, 64 Wash. 54, 116 Pac. 837, Ann. Cas. 1913 A. 390 (usurious note); Samson v. Ward, 147 Wis. 48, 132 N. W. 629 (note illegally omitting to state it was for price of stallion); Crombie v. Overholtzer, 11 U. C. Q. B. 55 (note for goods illegally sold on Sunday); Canadian Bank of Commerce v. Gurley, 30 U. P. C. P. 583 (note for compounding felony). 52 Birch v. Jervis, 3 C. & P. 379 (bill for signing bankrupt's certificate); Lowe v. Waller, 2 Doug. 736 (usury); German Bank v. DeShon, 41 Ark. 331 (usury); Ensign v. Coffelt, 102 Ark. 568, 145 S. W. 231 (note for patent); Perry Savings Bank v. Fitzgerald, 167 Iowa, 446, 149 N. W. 497 (usury); Johnson v. Grayson, 230 Mo. 380, 130 S. W. 673 (usury); Unger v. Boas, 13 Pa. St. 601; Cohn v. Lunn, 133 Tenn. 547, 182 S. W. 584 (notes for patent); In re Summerfeldt v. Worts, 12 Ont. 48 (check for gaming losses); and see Georgia and Texas cases in the preceding note. 53 Supra, § 1159. 54 Fitch v. Jones, 5 El. & Bl. 238; Edwards v. Dick, 4 B. & Ald. 212; Haight v. Joyce, 2 Cal. 64; Union Colection Co. v. Buckman, 150 Cal. 159, 88 Pac. 708, 9 L. R. A. (N. S.) 568, 119 Am. St. Rep. 164; Boughner v. Meyer, 5 Col. 71, 40 Am. Rep. 139; Sullivan v. German Nat. Bank, 18 Colo. App. 99, 70 Pac. 162; Adams v. Woolridge, 3 Scam. (4 Ill.) 255; Pope v. Hanke, 155 Ill. 617, 40 N. E. 839, 28 L. R. A. 568; Biegler v. Merchants' L. & T. Co., 164 Ill. 197, 45 N. E. 512; Sondheim v. Gilbert, 117 Ind. 71, 18 N. E. 687, 5 L. R. A. 432, 10 Am. St. Rep. 23 (cf. Irwin v. Marquett, 26 Ind. App. 383, 59 N. E. 38, 84 Am. St. Rep. 297); Kushner v. Abbott, 156 Ia. 598, 137 N. W. 913; Higginbotham v. McGready, 183 Mo. 96, 81 S. W. 883, 105 Am. St. Rep. 461; Storz Brewing So. v. Skirving, 94 Neb. 215, 142 N. W. 669; Northern Nat. Bank v. Arnold, 187 Pa. 356, 40 Atl. 794. See also Griffith v. Sears, 112 Pa. 523, 4 Atl. 492; Hurlburt v. Straub, 54 W. Va. 303, 46 S. E. 163; Stevens v. Freund, 169 Wis. 68, 171 N. W. 300. generally on the construction of local statutes 55 have denied recovery to the innocent holder. 56 Even where a statute makes the instrument void in the hands of a holder in due course, an exception is made if the holder was induced to purchase by a representation or assurance of the maker, subsequent to the inception of the instrument.57 § 1677. Indorsement of negotiable instrument for gambling consideration. If a valid negotiable instrument made by a third person is indorsed by the owner in payment of a gambling debt, or for other illegal consideration the indorsee becomes the owner and can recover from the parties on the instrument prior to the indorser.58 The contrary has indeed been held, 59 but such a conclusion rests on a misapprehension of the nature of an indorsement which is both a contract and a conveyance. As a contract, since it is unlawful, the indorser is no more liable to the indorsee upon it than any obligor to any obligee of a gambling contract; but the indorsement transfers the ownership of the 55 The English Statute of 9 Anne, c. 14, which was held to make such instruments totally void, has been the basis of similar legislation in the United States. 56 Bowyer v. Brampton, 2 Str. 1155; Hitchcock v. Way, 6 Ad. & E. 943; Cooke v. Stratford, 13 M. & W. 379; Manning v. Manning, 8 Ala. 138; Kuhl v. M. Gally Universal Press Co., 123 Ala. 452, 26 So. 535, 82 Am. St. Rep. 135; Birmingham Trust, etc., Co. v. Curry, 160 Ala. 370, 40 So. 319, 135 Am. St. Rep. 102; Conklin v. Roberts, 36 Conn. 461; Cunningham v. National Bank, 71 Ga. 400, 51 Am. Rep. 266; Sherfy v. Lachenmyer, 190 Ill. App. 443; First Nat. Bank v. Carroll, 80 Ia. 11, 45 N. W. 304, 8 L. R. A. 275; Holzbog v. Bakrow, 156 Ky. 161, 160 S. W. 792, 50 L. R. A. (N. S.) 1023; Emerson v. Townsend, 73 Md. 224, 20 Atl. 984; Spies v. Rosenstock, 87 Md. 14, 39 Atl. 268; Gray v. Robinson, 95 Miss. 1, 48 So. 226; Lagonda Nat. Bank v. Portner, 46 Ohio St. 381, 21 N. E. 634; Unger v. Boas, 13 Pa. St. 601; Snoddy v. Bank, 88 Tenn. 573, 13 S. W. 127, 7 L. R. A. 705, 17 Am. St. Rep. 918; Hurlburt v. Straub, 54 W. Va. 303, 46 S. E. 163, and cases cited infra, n. 72. See also Pearce v. Foote, 113 Ill. 228, 55 Am. Rep. 414; Bohon's Assignee v. Brown, 101 Ky. 354, 41 S. W. 273, 38 L. R. A. 503, 72 Am. St. Rep. 420. 57 Anonymous, 2 Mod. 279; Holzbog v. Bakrow, 156 Ky. 161, 160 S. W. 792, 50 L. R. A. (N. S.) 1023; Hurlburt v. Straub, 54 W. Va. 303, 46 S. E. 163. See also Rodriguez v. Martinez, 5 Philippine, 67. 58 Reed v. Bond, 96 Mich. 134, 55 N. W. 619. See also Flower v. Sadler, 10 Q. B. D. 572. 59 Drinkall v. Movius State Bank, 11 N. Dak. 10, 88 N. W. 724, 57 L. R. A. 341, 95 Am. St. Rep. 693. See also 20 Cyc. 937. instrument and, in conformity with the well-recognized rule that a court will not disturb an executed transaction on account of illegality, the indorsee becomes the owner of the instrument with all the rights of an owner against all parties to it except his immediate indorser. In jurisdictions, however, where the loser in a gaming transaction is allowed to recover what he has lost even though actually transferred, the indorser may reclaim the instrument as he might reclaim money or other property; 60 and prior parties to the instrument if they had notice of the facts would not be justified in paying the indorsee, who was a part to the illegality, though they would be liable to a holder in due course. If the primary obligor as well as the indorser and indorsee was party to the illegality, no recovery can be allowed, for in that case the obligation on which recovery is sought is illegal and the plaintiff is chargeable with participation in the illegality.61 A few statutes have gone so far as to invalidate totally any transfer for a gaming consideration. Under such a statute not even an innocent holder in due course can maintain an action upon an instrument indorsed to a previous holder for a gambling consideration.62 As a matter of policy the propriety of protecting one who has lost at gaming at the expense of an innocent purchaser for value of what has been lost, may well be questioned. In the absence of so drastic a statute, the right of a holder in due course to recover on negotiable instruments previously indorsed on a gaming or other illegal consideration, would not be questioned.64 63 § 1678. Mortgages and pledges to secure illegal debts. Where property is transferred not in satisfaction of the claim. but by way of pledge or mortgage for the winnings in a gam See infra, § 1679. Steers v. Lashley, 6 T. R. 61; Burrus v. Witcover, 158 N. C. 384, 74 S. E. 11, 39 L. R. A. (N. S.) 1005. 62 Pearce v. Rice, 142 U. S. 28, 35 L. Ed. 925, 12 S. Ct. Rep. 130 (Illinois statute); Chapin v. Dake, 57 Ill. 295, 11 Am. Rep. 15; Pearce v. Foote, 113 Ill. 228, 55 Am. St. Rep. 414; Commercial Nat. Bank v. Spaids, 8 Ill. App. 493. And see for similar statutes, 1 Ames, Bills & Notes, 350, 352. 63 Under such a statute if the maker in good faith pays the indorsee, he is not discharged, since he has paid one who has no title, and must pay over again to the indorser-a party to the illegality. See Commercial Nat. Bank v. Spaids, 8 Ill. App. 493. 64 Rumping v. Arkansas Nat. Bank, 121 Ark. 202, 180 S. W. 749. |