Smith v. McGlinchy

Walton, J. The exceptions must be overruled. The rule that the parties to a negotiable note are not competent witnesses to prove that it was given for an illegal consideration is not applicable to suits between the immediate parties to an illegal contract. It is for the protection of innocent parties only. Thus, in Fox v. Whitney, 16 Mass. 118, in an action between the personal representatives of the parties to a note, the court held [155] that a surety on the note was a competent witness to prove the note usurious, because the action was between the personal representatives of the immediate parties to the illegal contract. And this limitation of the rule was sanctioned in Thayer v. Crossman, 1 Met. 416, and the further limitation deduced from it, that the rule does not apply when the note is not negotiated till after it is overdue; the reasoning being that, inasmuch as the indorsee of an overdue note obtains no rights except such as were possessed by the payee, and the rule not being applicable to a suit by the payee, it could not be applicable to a suit by his indorsee. In this case, the action is not based upon the contract created by the note itself. It is upon the contract created by the negotiation and transfer of it. It is an action against an indorser. And the true defense is, not that the note was given originally for intoxicating liquors (although such seems to have been the fact), but that it was negotiated and transferred to the plaintiff’s testate for a like illegal consideration ; and it is the latter illegality, and not the former, that constitutes the true defense to the action. And in such an action, so defended, the rule of exclusion does not apply. Consequently, the objection to the testimony of the makers of the note was not well founded, and the exceptions must be overruled. Exceptions overruled. Peters, C. J., Virgin, Libbet, Emery and Haskell, JJ., concurred.