Opinion
22356.
ARGUED FEBRUARY 11, 1964.
DECIDED MARCH 5, 1964.
Cancellation, etc. Fulton Superior Court. Before Judge Pharr.
R. P. Herndon, for plaintiff in error.
Wm. G. Grant, Robert W. Spears, contra.
1. The transferee of a note payable on demand is not a holder in due course, and any defense against the original payee is maintainable against such transferee.
2. Where it is alleged in a suit against the transferee that such demand note and the deed to secure it were executed by a woman 90 years of age, and because of her senility, she could not understand their meaning, and that there was no consideration therefor, grounds are alleged that would authorize enjoining a sale under power contained in the deed and to decree both the note and deed void.
ARGUED FEBRUARY 11, 1964 — DECIDED MARCH 5, 1964.
The amended petition seeks to allege a case of fraud and deceit and failure of consideration in the giving of a second loan deed and note on real estate for the performance of certain work under a home improvement contract. The prayers are for injunctive relief to prevent the sale of the property under the power contained in the deed to secure debt and for cancellation of the same. The note and security deed had been transferred by two defendants who had contracted to perform the work to the third defendant, who is the defendant in error here, for value received, but the petition also alleges that the transferee is not a bona fide purchaser for value, having knowledge of the facts and circumstances whereby she was induced to execute the loan instruments which she thought were application papers for a loan, she being 90 years old and suffering from general debility and senility who could not properly read the contract but relied upon the presumed integrity of the persons with whom she was dealing; the instruments being dated within a two day period after the contract so as to show that the work could not have been performed between the date of the contract and the loan instruments; the amount of the first loan being greater than that allowed in the contract to pay it off, showing intentional fraud from the beginning; the deed to secure debt securing a demand note yet the contract provides for monthly payments of $40 per month with interest added (attached contract shows $25 weekly with interest added); the failure of the defendants employed to perform the work or to pay off the amount of the first loan thus makes the contract a unilateral one by reason of the failure of consideration; and the transferee knew of the provisions of the actual contract, the failure of the performance of the contract, the nonpayment of the amount to be paid on the first loan, and if the transferee paid value for the papers "it was with full knowledge that the alleged contract had not been performed," and she participated in the perpetuation of fraud against the plaintiff, said defendant being "well aware of all facts and circumstances surrounding the entire transaction and conspired with defendants ... to defraud plaintiff and take her property from her by unfair and illegal means." General and special demurrers were filed to the original petition and renewed after each of the two amendments. After a hearing, the court sustained the general demurrers and dismissed the petition as to the defendant in error. The exception is to this judgment.
1. This case involves portions of the negotiable instruments law (Ga. L. 1924, p. 126; Code § 14-101 through 14-1707). While the 1924 Act purports to cover the subject of negotiable instruments, and in different portions thereof it speaks of "overdue" instruments, it nowhere says what "overdue" means. Section 4292 of the Code of 1910 provides that "Bills, notes, or other paper, payable on demand, are due immediately." This law is not contradicted or changed by the 1924 Act and remains the law although omitted from the 1933 Code. Supporting this ruling, see Newcomb v. Niskey's Lake, Inc., 190 Ga. 565 ( 10 S.E.2d 51), where it was held that Section 4286 of the 1910 Code, which was omitted from the 1933 Code, remained the law and was not repealed by the 1924 Act. Therefore, we hold that the transferee of the note here involved, which is expressly made due on demand, occupies the status of a holder of an "overdue" note. The provision of Code § 14-503 that, "where an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course," does not even purport to define the due date of such an instrument. But Code § 14-502 defines a holder in due course as one that becomes the holder thereof "before it was overdue." Consequently Code § 14-507, which exempts a holder in due course from defenses available to prior parties, must be construed with Code § 14-502 (2) which says he must have become the holder before it was overdue, and Section 4292 of the Code of 1910 which says the demand note was due immediately.
The Court of Appeals obviously entertained the foregoing views when in Stewart v. Finance Co. of the South, 49 Ga. App. 462 ( 176 S.E. 73), it held, at page 464, that: "A note payable on demand becomes due immediately and interest runs thereon from date, and a purchaser thereof takes it subject to the equities between the parties. Brinson R. Co. v. Exchange Bank, 16 Ga. App. 425 ( 85 S.E. 634); Exchange Bank of Oakfield v. Odum, 19 Ga. App. 52 ( 90 S.E. 977)." The due date of an instrument made due on demand was likewise held to be immediately in Hotel Lanier Co. v. Johnson, 103 Ga. 604 ( 30 S.E. 558).
We find nothing in Code § 14-503 to constitute an alteration of Code § 14-502 (2). It is obvious that if, as provided in Code § 14-502 (2), a holder in due course must be one who becomes the holder "before it was overdue," one taking it an unreasonable length of time after its issue would not be deemed a holder in due course. The latter is consistent with the former and in nowise changes it. But Code § 14-509 is cited as authority against what we have said. The provision there that, "Every holder is deemed prima facie to be a holder in due course" is simply a legislative attempt — which is patently erroneous — to exercise an exclusive judicial function by construing its enactment. When the instrument bears on its face irrefutable proof that it is "overdue," as all demand instruments do, no court could or would hold that a prima facie case to the contrary is made. The remainder of Code § 14-509, with reference to the burden of the holder to prove that he acquired the title as holder in due course, as relates to demand instruments, is clearly erroneous for he would not be allowed to contradict the writing which shows that even under Code § 14-502 (2) he is not a holder in due course. The only thing to be learned from Code § 14-503 and 14-509 is that the Constitution wisely denied power to the legislature to construe laws. We find in Code § 14-207 (1) that an instrument is payable on demand "where it is expressed to be payable on demand," and then this significant statement: "Where an instrument is issued, accepted or endorsed when overdue it is, as regards the person so issuing, accepting or endorsing it, payable on demand." Here, "on demand" is equated with "overdue." We therefore rule that the defendant as transferee of the note, which is expressly made payable on demand, is not a holder in due course under Code § 14-502, and that he holds it subject to any defense available against the original payee. Code § 14-508.
2. We now look to the amended petition to see if it contains allegations sufficient to withstand the general demurrers. We note: (1) The maker was a 90 year old lady who due to senility could not understand the meaning of the documents. (2) The indebtedness against her home was payable monthly which she could meet, while this note which she thought was an application for a loan, was due in full immediately when it was signed, and her inability to pay it will mean the loss of her home. (3) She made a contract with the payees whereby they would pay only a part of the lien on her home, do specified repairs on the home and allow her to pay them $40 monthly with 6% interest. (4) Only an incompetent would thus wish to repair her home and, at the same time and before the repairs were made, sign this note which authorized them to take her home immediately if she failed to pay the entire amount of $3,975. (5) The taking of a demand note in the circumstances is indicative of an intention to defraud. (6) There is no consideration for the note.
For the reasons set forth in the foregoing opinion it was error to sustain the demurrers and dismiss the petition. Since the judgment makes no reference to the several paragraphs to which special demurrers were directed, we construe it not to include the special demurrers, and they are left for a future ruling thereon.
Judgment reversed. All the Justices concur.