might be difficult to see why the very indorsee for illegal consideration might not sue the maker, if his indorser had an unquestionable claim, and had voluntarily passed the paper from himself to this indorsee. The indorsee cannot in such a case sue the indorser; but we incline to think that he may, by the indorser's title, sue a previous party.(z)

Where notes are made void by express statute, they cannot become good in the hands of subsequent holders; and upon no such note can a subsequent holder have a valid claim against the maker; but if he holds the note for value and in good faith, he may have a valid claim against his own indorser, either as the maker of a new note or the drawer of a new bill, or else upon the consideration which passed between them. (a)

SECTION IV.

OF TRANSFERS FOR ANTECEDENT DEBTS, OR FOR SECURITY.

In all cases where the note is not made void by law, but is void as between the parties to it, for want, or failure, or illegality of consideration, it becomes a good note or bill, as against all parties, in the hands of a subsequent holder, provided the note or bill was indorsed over before it was dishonored, and provided also it was indorsed over for a sufficient consideration. The first of these, relating to the time when the indorsement must be made, will be considered hereafter. In regard to the second, there is some conflict and uncertainty as to whether either pay

(z) See Knights v. Putnam, 3 Pick. 184; Parr v. Eliason, 1 East, 92; Daniel v. Cartony, 1 Esp. 274. But see Lowes v. Mazzaredo, 1 Stark. 385. This question usually arises in cases of usury, and we shall consider it more fully when we come to treat of that subject.

(a) In Edwards v. Dick, 4 B. & Ald. 212, in an action against the drawer of a bill of exchange, it was held to be no defence that the bill was drawn and accepted for a gaming-debt; it having been indorsed over by the drawer for a valuable consideration to a third person, by whom the action was brought. So in Johnston v. Dickson, 1 Blackf. 256, in an action by the bona fide assignee of a promissory note against the assignor, it was held to be no defence that the note was originally given by the maker to the defendant for an illegal consideration. We shall consider this and other ques tions relative to the rights of a bona fide holder more fully in the chapter on that subject.

ment of, or security for, a previously existing debt, is such a consideration as protects the indorsee or holder.

The general question presents itself under three aspects. One, where negotiable paper is received in payment of an antecedent debt. Another, where it is received as collateral security for an antecedent debt. A third, where it is received as collateral security for a debt or contract which is simultaneous with the transfer of the paper. The question arises in no other cases, for if negotiable paper be indorsed and given outright for a debt contracted at the time, or in pursuance of a contract then executed, this is certainly a valid consideration; and the real question is, whether only this constitutes such a consideration.

The doctrine, that none of the three considerations above mentioned are sufficient, rests upon two grounds, which are quite distinct. One of these is, that the transferee of the paper, as he gives for it no new consideration, is not injured by losing it; or rather, that if it be taken away, he has all that he had before he received it; and consequently his title or interest is no better than his indorser's, and whatever defence a prior party could make against that indorser, the same may now be made against him; and if it be made successfully, and he loses the paper, he falls back on the debt due to him from the indorser, which is just as good as it was before.

The other objection is, that none of these three transactions is within the original purpose or true function of negotiable paper. Such paper, it is held, is made, in the first instance, for goods bought, or otherwise on a bargain simultaneous with it; and afterwards it may be negotiated by the payee, that is, given by him in a transaction like that in which he received, sold, or discounted it, in either of which cases the property passes absolutely for a present consideration. And anything else than this is irregular; is not a business transaction; no proper negotiation of negotiable paper, and no such use of that paper as is contemplated by the peculiar principles or privileges of negotiable paper; and therefore these principles or privileges do not attach to it, but it is open in the hands of the assignee to all the defences which could have been made against it, had it continued in the hands of the assignor.

We very much doubt the adequacy of either of these reasons, in either of these cases. As to the first reason, it may sometimes

be applicable in part, but, as we should suppose, very seldom. We have already seen, that a note indorsed and given for an antecedent debt is, under some circumstances at least, certainly good; and where it constitutes an absolute payment of that debt, it must unquestionably be so. But, in general, we suppose it would be very seldom true in fact, that a note indorsed and given for an antecedent debt, as security or otherwise, or as security for a simultaneous debt, can be withdrawn or annulled, and leave the party receiving it as well situated as before. He has, it is true, his whole claim against the transferrer; but he does not hold it under so favorable circumstances. In the great majority of cases, the transfer is in execution of a bargain, by which something is gained by the transferrer; either delay or forbearance, or further credit, or the giving up by the transferee of other means, or declining to use other opportunities of indemnity or security. If the rule was confined to those cases to which it is strictly applicable, we apprehend that it would be found to have a very limited operation. It would be one thing to hold, that an indorsee of negotiable paper, who can surrender it and be in all respects as well situated as if he had not taken the paper, should be open to the defences available against his indorser. But it would be a very different thing to hold, that all indorsees for an antecedent debt, or for collateral security, are in this position.

As to the other reason, that these are not regular business transactions, or, as is sometimes said, that these transfers are not made in due course of business, we think the supposition on which the reason rests to be erroneous. Such transactions now constitute a large part of the use which is made of negotiable paper. Even bank-bills, where it is desired to withhold them for a time from circulation, are sometimes pledged as security. This is seldom a "regular," or perhaps a proper transaction; but the objections to be urged against it are grounded upon the especial nature and purpose of this kind of negotiable paper, and do not attach to common bills or notes. It is certainly very common to offer notes for discount at a bank, and other notes as a security for them; and we cannot see what objection can lie against this transaction, or any ground for saying that the bank should be open to defences against the notes they take as security, which they are not open to as to those which they discount. So far from holding that transfer for security is not a regular

disposition of a negotiable note, we think it one extremely com mon in point of fact, wholly unobjectionable in itself, and often extremely convenient to all parties. And the law could not decide that this was an improper use of negotiable paper, and withdraw its protection on this ground, without impairing the utility of this paper, and throwing a useless hinderance in the way of mercantile transactions. It is, therefore, our conclusion, that when the principles of the law merchant have established more firmly and unreservedly their control and their protection over the instruments of the merchant, all of these transfers (not affected by peculiar circumstances) will be held to be regular, and to rest upon a valid consideration. It is now quite well settled, that in the first of the three cases before stated, namely, where negotiable paper is received in payment and extinguishment of a pre-existing debt, the holder is entitled to protection.(b)

(b) This is held in the following cases: Percival v. Frampton, 2 Cromp. M. & R. 180; Poirier v. Morris. 2 Ellis & B. 89; Swift v. Tyson, 16 Pet. 1; Riley v. Ander son, 2 McLean, 589; Varnum v. Bellamy, 4 McLean, 87; Pugh v. Durfee, 1 Blatchf. C. C 412; Homes v. Smyth, 16 Maine, 177; Norton v. Waite, 20 Maine, 175; Adams Smith, 35 Maine, 324; Williams v. Little, 11 N H. 66; Atkinson v. Brooks, 26 Vt. 569; Chicopee Bank v. Chapin, 8 Met 40; Blanchard v. Stevens, 3 Cush. 162; Brush v. Scribner, 11 Conn. 388; McCasky v. Sherman, 24 Conn. 605; Youngs v. Lee, 18 Barb. 187, 2 Kern. 551; White v. Springfield Bank, 1 Barb. 225, 3 Sandf. 222; Bank of Sandusky v. Scoville, 24 Wend. 115; Bank of St. Albans v Gilliland, 23 Wend. 311; New York Marbled Iron Works » Smith, 4 Duer, 362; Ferdon ". Jones, 2 E. D. Smith, 106; and see cases in note d, infra; Walker v. Geisse, 4 Whart. 252, 258; Bush Peckard, 3 Harring. 385; Reddick v. Jones, 6 Ired. 107; Bond v. Central Bank, 2 Ga. 92; Bank of Mobile v. Hall, 6 Ala. 639; Pond ». Lockwood, 8 Ala. 669; Barney v. Earle, 13 Ala. 106; Carlisle v. Wishart, 11 Ohio, 172, overruling Riley v. Johnson, 8 Ohio, 526; Bostwick v. Dodge, 1 Doug. Mich. 413; Bertrand v. Barkman, 8 Eng. Ark. 150. In Williams v. Little, 11 N. H 66, Parker, C. J. said: "The party who takes a negotiable note by indorsement bona fide before it is payable, in payment of a precedent debt, and discharges that debt, without notice of any defence existing against the note, has as meritorious a case as he who receives the note in payment for goods sold at the time. Townsley v. Sumrall, 2 Pet. 170, 182. If it be said that the one parts with his property upon the faith of the promise contained in the note which is received in payment for the goods, it may be answered, that the other, giving credit to the note, parts with and discharges an obligation to pay money, which is, in contemplation of law, property of quite as high a character. He cannot, after such payment and discharge, maintain an action upon the debt he has thus discharged, merely because the maker of the note he received in payment might have had some defence against it in the hands of the payee from whom he received it. There is a sufficient consideration. He has parted with a right. Something more is necessary to enable him to recover his debt which he has surrendered. He may be restored to his right to recover the amount of his debt, if the maker avoids the note in his hands by a defence which arose prior to the indorsement. But the holder, having thus parted

In New York it was at one time held that the receiving of a note in payment merely of an existing debt was not enough, without giving up other security.(c) But the rule now seems to be otherwise. (d)

It may be remarked, that when negotiable paper is received in payment of a debt, it may be received as absolute payment, and in extinguishment of the debt, or it may be received as conditional payment, namely, as payment, provided it shall turn out productive, upon the use of due diligence. In two or three of

with his property, on the faith of a promise which the maker had made negotiable, and which bore no marks of dishonor, the question recurs why he has not as good and meritorious a title as he who had parted with merchandise, or incurred responsibilities upon a similar consideration. If the holder may, upon a failure to recover the note in the one case, be remitted to his original right, and recover his debt against the indorser, he may in the other recover back his merchandise, or its value, or the money he has paid. Nor are we aware of any policy which should lead to such a distinction. The payment of a debt is, or ought to be, as much a commercial transaction as a sale of goods, or a loan of money. If it is in the usual course of trade to purchase, it ought also to be in the usual course of trade and commercial dealing to pay."

(c) See Francia v. Joseph, 3 Edw. Ch. 182; Spear v. Myers, 6 Barb. 445; Goldsmid v. Lewis Co. Bank, 12 Barb. 407; Rosa v. Brotherson, 10 Wend. 85, commented on and explained in Smith v. Van Loan, 16 Wend. 659. So held in Tennessee. Vatterlien v. Howell, 5 Sneed, 441; Nichol v. Bate, 10 Yerg. 429. In the following cases, other security being given up, the holder was held entitled to recover.

Smith v. Van

Loan, 16 Wend. 659; Bank of Salina v. Babcock, 21 Wend. 499; Mohawk Bank v. Corey, 1 Hill, 511.

(d) See cases cited supra, note b. In Youngs v. Lee, 18 Barb. 187, 192, the court said: "The mere discharge of an antecedent debt is a valuable consideration." In the Court of Appeals, 2 Kern. 551, the case was put on this ground: "In the case before us, the note was received in extinguishment of a demand upon a note not yet due, and the note was delivered up. The surrender, upon a consideration of a security not due, extinguishes the security." In Stettheimer v. Meyer, 33 Barb. 215, it was held that it made no difference that the debt was overdue, if the evidence of the indebtedness, or a security therefor, was at the time of taking the note given up. In Farrington v. Frankfort Bank, 24 Barb. 554, a person was induced, by false and fraudulent representations of the drawer of bills of exchange, to indorse the same for his accommodation, and the bills were therefore delivered to the cashier of a bank which then held protested drafts drawn by the same drawer on the same drawees There was no agreement between the drawer and the cashier that the new drafts should be received in payment of the protested drafts, but they were procured, and delivered to the cashier with the intention that they should be held as additional and collateral security to the protested bills. The new drafts were subsequently passed to the credit of the drawer on the books of the bank, and he was charged with the protested bills, and the latter were stamped with the cancelling-iron of the bank, but still remained in its possession. It was held that the bank was not a bona fide holder. See also Payne v. Cutler, 13 Wend. 605; Clark v. Ely, 2 Sandf. Ch. 166; Fulton Bank v. Phoenix Bank, 1 Hall, 562; Stewart v. Small, 2 Barb. 559.