Phelps v. Williams ( 1924 )

Good, J.

October 10, 1920, Snow E. Williams and P. A. Williams executed and delivered to Harry Newman their promissory note for $10,000, due one year after date. December 4 following, Harry Newman indorsed and pledged this promissory note to Lucius B. Phelps as collateral security for a loan of $19,250, evidenced by the noté of said Newman. Phelps, indorsee, brought this action against Snow and P. A. Williams to recover upon the promissory note given by them. Plaintiff alleged that he purchased the note for value and before maturity. The defendants admitted the execution of the note, and alleged want of consideration; that the note was obtained by false and fraudulent representations of Newman, the payee; denied that plaintiff purchased the note for value; denied the indorsement by Newman; and alleged that plaintiff had notice, prior to its delivery to him, that there was no consideration given for the note, and further alleged that plaintiff had received and holds money and property from Newman, the payee and indorser, to an amount largely in excess of the amount of the note which was received by plaintiff in payment and satisfaction of Newman’s indebtedness to plaintiff, and that thereby the note has been fully paid and discharged. Plaintiff had a verdict and judgment thereon, and defendants appeal.

Defendants contend that the undisputed evidence shows that there was no consideration for the note; that it was was obtained by fraud; that plaintiff is not a holder in due course; and that the court erred in not sustaining their motion for a directed verdict. As to whether plaintiff had actual notice of any defense to the note at the time he took it as collateral security, the evidence is in conflict and presents a question of fact for the determination of the jury. The evidence does disclose that the loan by plaintiff to Newman, for which the note in suit is pledged as security, was an usurious loan, and defendants assert that this fact deprives the plaintiff of the character of an innocent holder. Several cases are cited as sustaining this view, but an examination of the authorities cited discloses that they were based upon statutes which made usurious loans absolutely void. Under such a statute, plaintiff could not collect anything from Newman upon the loan, and of course could not maintain an action upon collateral security when nothing was due upon the principal obligation. However, such is not the law in Nebraska. The effect of usury in this state is only to deprive the usurer of any interest. The evidence in the instant case shows that Newman received $17,500 in money, so that plaintiff, in a suit against Newman, would have been entitled to recover that amount. Furthermore, in this state, usury as a defense “ is personal to the borrower and his sureties and privies.” Cheney v. Dunlap, 27 Neb. 401. While the defendants are not pleading usury as a defense, they are seeking to take advantage of the fact that there was usury in the contract between plaintiff and Newman.

This court has held in Palmer v. Carpenter, 53 Neb. 394:

“ Where one executes his negotiable note payable to the order of a debtor and delivers it to him as an accommodation, and the debtor indorses and delivers the note to his creditor in payment of a usurious note due the creditor from the debtor, such accommodation note is not a renewal of the usurious note, and, in a suit on the accommodation note against the maker, he cannot interpose, as a defense, thereto, the usurious contract existing between the creditor and debtor.”

That the transaction between plaintiff and Newman was usurious does not, as a matter of law, establish the want of collateral security. Whether plaintiff was a holder for good faith in plaintiff in taking the note in controversy as value in due course, without notice of infirmities, was submitted to the jury and their finding upon that point is conclusive.

Defendants urge that plaintiff did not plead that he was an innocent holder for value, but the record discloses that evidence of both parties was received upon that question, and the case was tried as though it were an issue. Where both parties to an action have assumed that their pleadings present a certain issue, and the case is tried and judgment entered upon such assumption, neither party can, for the first time on appeal, question the fact whether such issue was raised by the pleadings. Auld v. Walker, 107 Neb. 676.

Defendants urge that the evidence shows that Newman’s note to plaintiff had been paid by the transfer to him by Newman of money and property to an amount greater than that due upon Newman’s obligation. The evidence shows that Newman, after giving his note, transferred to a brother of plaintiff, as further security for his note, certain real estate and assigned a lease, but this was transferred as collateral security to the loan, and not in payment of it. The amount collected on the lease and as income from the real estate did not equal the expense incident to the care of the real estate. The transfer, under such circumstances, of course did not operate to extinguish the debt from Newman to plaintiff, nor operate to discharge the defendants’ note held as collateral.

Complaint is made of the giving and refusal of certain instructions. We have carefully examined the instructions complained of and find that they were far more favorable to defendants than they were entitled to, and, while they may have been erroneous in some respects, the error was .favorable to the defendants, rather than to plaintiff. That an instruction is erroneous is no ground for reversal unless prejudicial to the rights of the complaining party. The instructions requested by defendants and refused would have practically taken the case from the jury and were properly refused.

The following opinion on motion for rehearing was filed February 17, 1925.

We find no error in the record prejudicial to the defendants. The judgment of the district court is

Affirmed.

Note — See Bills and Notes, 8 C. J. sécs. 701 (1926 Ann.), 1376; Appeal and Error, 3 C. J. sec. 623; 4 C. J. sec. 3013.

Heard before Morrissey, C. J., Dean, Day, Good, Thompson, and Evans, JJ.