Story Case

A revenue law provided that all notes and bills of exchange should be required to bear a stamp, and that any such instrument issued without a stamp should be void and unenforceable. Shortly after this law went into effect, several notes were executed by Eastman, Gibbons & Company, a firm of wholesale druggists, payable to their bank, as evidence of a loan. No one remembered the revenue stamps at the time. About a month later, but before maturity of any of the notes, the bank wished to discount them with another bank, the Fidelity Northwestern Bank. The stamps were then attached and cancelled, so that the discounting bank did not suspect that they had ever been lacking. At the maturity of the notes, Eastman, Gibbons & Company, being still in need of funds, pressed for an extension. When this was refused, the firm was obliged to default in payment, and was sued. The omission of the stamps was now remembered, and was urged by the defendants to prevent a judgment being given against them. The Fidelity Northwestern Bank submitted that, since the tax had been paid, there was no reason for holding the notes void, and further, that it should be protected against such a defense, since it was a holder in due course, for value and without notice. Is the defense good?

Ruling Court Case. Dake Vs. Chapin, Volume 57 Illinois Reports, Page 295

Dake held drafts for $1000, drawn by the Fifth National Bank of Chicago upon Ninth National Bank of New York, payable to the order of Dake. While gambling at faro, he lost all of the money he had. He indorsed these drafts, staked, and lost them. They subsequently came into the hands of Chapin, who paid value for them, and who knew nothing of the foregoing circumstances. Dake now brings this action to recover these notes. He relies upon a statute which provides that all notes and bills made upon any gambling consideration shall be void.

Chapin contends that they are not void as to him, because he was a bona fide purchaser without notice.

Mr. Justice Sheldon said: "Under the broad language of the statute, and within its true meaning, we think the indorsement of these drafts was void; that Chapin, although bona fide holder, acquired no title thereby, and that the property in them still remains in Dake." Judgment was given for Dake.

Ruling Law. Story Case Answer

If a statute declares a certain kind of negotiable instrument void, such statutory declaration constitutes a real defense which is good against every subsequent holder, whether or not he be a bona fide purchaser without notice. Statutes frequently declare notes void which are given in gambling transactions; sometimes, usurious notes are declared void; in either case, such a note is void as against every subsequent holder, irrespective of the good faith of the holder. The Negotiable Instruments Law has provided that such defenses as the foregoing are only personal defenses and may not be raised against a bona fide purchaser, without notice of the history of the instrument.

If the words of the revenue statute, in the Story Case, are clear and unequivocal, the court can do nothing but give them their full effect. Many early stamp tax laws did provide that unstamped instruments should be void. Invalidity can not be remedied at a future time, especially not by a party other than the maker of the instrument. Nor is "real" invalidity of any less consequence because it was unknown to the purchaser. It is not a personal relief against the liability, which is cut off as against the one who does not know of it, but an absolute lack of validity in the instrument as a result of the statute. The court must, therefore, in the Story Case, give judgment for the defendant.