Middle Georgia Livestock Sales v. Commercial Bank & Trust Co.

Court of Appeals of Georgia

Middle Georgia Livestock Sales v. Commercial Bank & Trust Co.

182 S.E.2d 533, 123 Ga. App. 733, 9 U.C.C. Rep. Serv. (West) 383, 1971 Ga. App. LEXIS 1359

CourtCourt of Appeals of Georgia

DecidedApril 29, 1971

Docket45987

StatusPublished

Cited by12 cases

This text of 182 S.E.2d 533 (Middle Georgia Livestock Sales v. Commercial Bank & Trust Co.) is published on Counsel Stack Legal Research, covering Court of Appeals of Georgia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Middle Georgia Livestock Sales v. Commercial Bank & Trust Co., 182 S.E.2d 533, 123 Ga. App. 733, 9 U.C.C. Rep. Serv. (West) 383, 1971 Ga. App. LEXIS 1359 (Ga. Ct. App. 1971).

Pincite

Opinions

Deen, Judge.

The sole question in this case is whether a holder in due course for value of a check given by an innocent maker for the purchase of cattle which turned out to have been stolen may recover the value of such check from the maker. This in turn involves a construction of the controlling section of the Uniform Commercial Code, § 3-305 (2) (b) providing that a holder in due course takes the instrument free from defenses of any party thereto with whom it has not dealt except "such other incapacity, or duress, or illegality of the transaction as renders the obligation of the party a nullity.” In its reference to illegal transactions, this appears to be, if anything, a bit narrower in context than former Code § 14-510 which was a part of our law from the original Code of 1863 until its repeal by Ga. L. 1967, p. 562 (see Newcomb v. Niskey’s Lake, 190 Ga. 565 (10 SE2d 51)) and which allowed "immoral and illegal consideration” as a defense against a due course holder. Under the Commercial Code "a holder in due course is subject to the defense of illegality when under the applicable local law such illegality makes the obligation of the defending party a nullity or void, but he is not subject to the defense when the illegality makes the obligation merely voidable.” Anderson’s Uniform Commercial Code, Vol. 1., §3-305:14, p. 607. This means that the illegality is considered as of statutory origin and its "existence and effect is left to the law of each state. If under the local law the effect is to render the obligation of the instrument entirely null and void, the defense may be asserted against a holder in due course. If the effect is merely to render the obligation voidable at the election of the obligor, the defense is cut off.” Uniform Laws Ann., Uniform Commercial Code, Vol. 2, p. 115, n. 5.

An excellent disquisition on Article 3 of the UCC appears in 23 [735]*735ALR3d, p. 932 et seq. In § 28 it is stated, citing Pac. Nat. Bk. v. Hernreich, 240 Ark. 114 (398 SW2d 221), that the instruments must be not merely unenforceable but void ab initio under applicable state law to present a defense against a holder in due course.

The case then turns on the question of whether the sale of cattle, presuming the seller possessed guilty knowledge of the fact but the buyer did not, represents an "illegal consideration” so as to render it absolutely void. "A contract to do an immoral or illegal thing is void.” Code § 20-501. A sale of stolen goods, although to a bona fide purchaser for value, cannot transfer any lawful interest in the property and does not divest the title of the true owner. General Fire &c. Co. v. Kuffrey, 115 Ga. App. 121 (1) (153 SE2d 590); Gordon v. Gulf American Fire &c. Co., 113 Ga. App. 755, 759 (149 SE2d 725). Knowingly disposing of stolen property is, like the actual asportation, a type of theft and a statutory offense. Code Ann. § 26-1806. Being prohibited by statute, it is an illegal transaction within the meaning of Code Ann. § 109A-3— 305 (2) (b) supra, which under the Uniform Commercial Code leaves the determination of what transactions are illegal to be decided under the statute law of the forum. This accords with prior decisions of our courts. In Smith v. Wood, 111 Ga. 221, 226 (36 SE 649), it was held: "A note given for something the sale of which the law absolutely prohibits and makes penal is based upon an illegal consideration, and is consequently void in the hands of any holder thereof. The thing for which the note is given is outlawed, and the note standing upon such a foundation is outlawed also.” To the same effect see Johnston Bros. & Co. v. McConnell, 65 Ga. 129, dealing with a sale of fertilizer prohibited by statute, and holding that contracts for the sale of articles prohibited by statute are not only void as between the parties themselves but gather no vitality by being put in circulation. "To hold otherwise would be to have them transferred as soon as executed, enabling parties claiming to be innocent, and perhaps really so, to collect money upon a consideration the foundation of which would have its existence in the positive violation of a criminal law.” Id., p. 132.

It follows that the note is unenforceable even in the hands of a [736]*736holder in due course, and the trial court erred in granting summary judgment for the plaintiff.

Judgment reversed.

Bell, C. J., concurs. Pannell, J., concurs specially.

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Deen, Judge.

The sole question in this case is whether a holder in due course for value of a check given by an innocent maker for the purchase of cattle which turned out to have been stolen may recover the value of such check from the maker. This in turn involves a construction of the controlling section of the Uniform Commercial Code, § 3-305 (2) (b) providing that a holder in due course takes the instrument free from defenses of any party thereto with whom it has not dealt except "such other incapacity, or duress, or illegality of the transaction as renders the obligation of the party a nullity.” In its reference to illegal transactions, this appears to be, if anything, a bit narrower in context than former Code § 14-510 which was a part of our law from the original Code of 1863 until its repeal by Ga. L. 1967, p. 562 (see Newcomb v. Niskey’s Lake, 190 Ga. 565 (10 SE2d 51)) and which allowed "immoral and illegal consideration” as a defense against a due course holder. Under the Commercial Code "a holder in due course is subject to the defense of illegality when under the applicable local law such illegality makes the obligation of the defending party a nullity or void, but he is not subject to the defense when the illegality makes the obligation merely voidable.” Anderson’s Uniform Commercial Code, Vol. 1., §3-305:14, p. 607. This means that the illegality is considered as of statutory origin and its "existence and effect is left to the law of each state. If under the local law the effect is to render the obligation of the instrument entirely null and void, the defense may be asserted against a holder in due course. If the effect is merely to render the obligation voidable at the election of the obligor, the defense is cut off.” Uniform Laws Ann., Uniform Commercial Code, Vol. 2, p. 115, n. 5.

An excellent disquisition on Article 3 of the UCC appears in 23 [735]*735ALR3d, p. 932 et seq. In § 28 it is stated, citing Pac. Nat. Bk. v. Hernreich, 240 Ark. 114 (398 SW2d 221), that the instruments must be not merely unenforceable but void ab initio under applicable state law to present a defense against a holder in due course.

The case then turns on the question of whether the sale of cattle, presuming the seller possessed guilty knowledge of the fact but the buyer did not, represents an "illegal consideration” so as to render it absolutely void. "A contract to do an immoral or illegal thing is void.” Code § 20-501. A sale of stolen goods, although to a bona fide purchaser for value, cannot transfer any lawful interest in the property and does not divest the title of the true owner. General Fire &c. Co. v. Kuffrey, 115 Ga. App. 121 (1) (153 SE2d 590); Gordon v. Gulf American Fire &c. Co., 113 Ga. App. 755, 759 (149 SE2d 725). Knowingly disposing of stolen property is, like the actual asportation, a type of theft and a statutory offense. Code Ann. § 26-1806. Being prohibited by statute, it is an illegal transaction within the meaning of Code Ann. § 109A-3— 305 (2) (b) supra, which under the Uniform Commercial Code leaves the determination of what transactions are illegal to be decided under the statute law of the forum. This accords with prior decisions of our courts. In Smith v. Wood, 111 Ga. 221, 226 (36 SE 649), it was held: "A note given for something the sale of which the law absolutely prohibits and makes penal is based upon an illegal consideration, and is consequently void in the hands of any holder thereof. The thing for which the note is given is outlawed, and the note standing upon such a foundation is outlawed also.” To the same effect see Johnston Bros. & Co. v. McConnell, 65 Ga. 129, dealing with a sale of fertilizer prohibited by statute, and holding that contracts for the sale of articles prohibited by statute are not only void as between the parties themselves but gather no vitality by being put in circulation. "To hold otherwise would be to have them transferred as soon as executed, enabling parties claiming to be innocent, and perhaps really so, to collect money upon a consideration the foundation of which would have its existence in the positive violation of a criminal law.” Id., p. 132.

It follows that the note is unenforceable even in the hands of a [736]*736holder in due course, and the trial court erred in granting summary judgment for the plaintiff.

Judgment reversed.

Bell, C. J., concurs. Pannell, J., concurs specially.

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182 S.E.2d 533, 123 Ga. App. 733, 9 U.C.C. Rep. Serv. (West) 383, 1971 Ga. App. LEXIS 1359, Counsel Stack Legal Research, https://law.counselstack.com/opinion/middle-georgia-livestock-sales-v-commercial-bank-trust-co-gactapp-1971.

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