258 NOTES AND BILLS. [CH. VIIL So, if, without actual fraud, there is a want or failure of consideration, which would operate as a defence if the transferrer had sued, the transferee chargeable with notice or knowledge thereof is open to the same defence, if it be not accommodation paper. And this rule has been carried beyond the limits even of constructive fraud. For it has been held that the holder of a note had no claim against parties to it, if the note were open to a defence while in the hands of his transferrer, and the nature of the paper or the circumstances of the transaction by which he became the holder showed that his ignorance of the defence arose from a want of reasonable care and diligence. But the "good faith" required of the holder certainly does not now require reasonable care and diligence on his part to ascertain the right of the transferrer to give him the paper. There was, however, a period, though not a long one, when this requirement was a part of the English law of negotiable paper. (d) Then gross negligence was adopted as the rule. (e) Afterwards gross negligence was held merely to be evidence of mala fides, and not the thing itself. And now, to use the emphatic words of Lord Denman, the last remnant of that doctrine is shaken off. (f) It may now be said to be the law in that country, (g) that the holder of negotiable paper does not lose his rights by proof that he took the paper negligently, nor unless fraud be shown. The doctrine of Gill v. Cubitt has been followed in several cases in this country,(h) but on principle and on high authority law of тот Invw See Laneus Evans 49th 7a. 150. to charge holder with frand - must be shown that he hull notice of the frund. Proof of circumstances which would re ha reusonable man. usson in ingung (d) In Gill v. Cubitt, 3 B & C. 466, the question was held to be, whether the plaintiff had taken the bill under circumstances which ought to have excited the suspicion of a prudent and careful man. See also Down v. Halling, 4 B. & C. 330; Snow v. Peacock, 2 C. & P. 215; Beckwith v. Corrall, 2 C. & P. 261; Strange v. Wigney, 6 Bing. 677; Hatch v. Searles, 2 Small & G. 147, 31 Eng. L. & Eq. 219 (e) Crook v. Jadis, 5 B. & Ad. 909; Backhouse ». Harrison, id. 1098. (f) Gross negligence may be evidence of mala fides, but it is not the same thing. We have shaken off the last remnant of the contrary doctrine." Per Lord Denman, C. J., in Goodman v. Harvey, 4 A. & E. 870, 6 Nev. & M. 372. It is a question for the jury whether the party taking the bill was guilty of bad faith. See Cunliffe v. Booth, 3 Bing. N. C. 821. See Crook v. Jadis, 5 B. & Ad. 909, per Patteson, J. (g) Miller v. Race, 1 Burr. 452; Lawson v Weston, 4 Esp. 56; Goodman v. Har vey, 6 Nev. & M. 372; Raphael ». Bank of England, 17 C. B. 161, 33 Eng. L. & Eq. 276; Uther v. Rich, 10 A. & E. 784; Arbouin v. Anderson, 1 QB 498 (h) Pringle v. Phillips, 5 Sandf. 157; Holbrook v. Mix, 1 E. D. Smith, 154; Hall v. Hale, 8 Conn. 336; Sandford v. Norton, 14 Vt. 228; Nicholson v. Patton, 13 La. 43 ; Smith v. Mechanics', &c. Bank, 6 La. Ann. 610; Greneaux v. Wheeler, 6 Texas, we incline to the opinion that the rule of the late English cases is better adapted to the free circulation of negotiable paper, and the true interests of trade. (i) But it must still be true, that while gross, or even the gross est negligence, is a different thing from fraud, the negligence may be such, and so accompanied, as to afford reasonable and sufficient grounds for believing that it was intentional and fraudulent.(j) Thus, although notice or knowledge of defeating circumstances may not be proved, the facts of the case, the relations between the parties, and their method of dealing, may be such as to show 515; Cone v. Baldwin, 12 Pick. 545 In Merriam v. Granite Bank, 8 Gray. 254, Shaw, C. J., after stating the general rule, said: "But this rule is to be taken with a strict observance of the qualification, that the negotiable security be taken in the due course of business, without notice, or reasonable cause to suspect, that the party from whom it is taken has not the full title which the possession of the security and the names borne upon it naturally import" In this case a promissory note indorsed in blank was accidentally left by the owner in a broker's office. The broker was indebted to a bank for money lent, payable on demand, and he was accustomed to give the bank as collateral security for such loans his own memorandum checks, payable on demand, and indorsed notes as collateral security. The note in question was found among these notes and checks, but there was no evidence of the manner in which it came there. The former president of the bank testified, that, from his knowledge of the business of the brokers in question, and from what they had often told him, he supposed that the collateral notes were not notes which the brokers had purchased or discounted, but notes on which they had made advances, and which they held as collateral. It was held, under these circumstances, that the bank took the notes on the credit of the brokers merely, and the taking was under such circumstances as to put them on their guard to inquire into the title of the brokers. (i) Matthews v. Poythress, 4 Ga. 287, 306; Ellicott v. Martin, 6 Md. 509. This question was considered at length in the recent case of Goodman v. Simonds, 20 How. 343, 363, in which it is said, that if the defect or infirmity in the title of the instrument appears on its face at the time of transfer, the question whether the person who took it had notice or not is generally a question of construction for the court; but that where it is proposed to impeach the title of the holder by proof of facts and circumstances outside of the instrument itself, the defendant is bound to prove notice or knowledge of such facts, and mere want of care and caution on the part of the holder is not sufficient. In Crosby v. Grant, 36 N. H. 273, the point was not decided, but it was held that, if a person who took a note under circumstances of suspicion such as ought to put him on inquiry, took it subject to equities, yet the facts that the note was taken on the last day of grace from a bank in Boston, Massachusetts,, where it had been dis counted, the maker residing at Great Falls in New Hampshire, the full amount being paid to the banks, and at the trial the indorsements of several parties appeared to be erased from the note, leaving upon it that of the payee alone, do not constitute a case for the application of this doctrine. See also Worcester Co. Bank v. Dorchester, &c. Bank, 10 Cush. 488. (j) See cases cited supra, p. 258. that there was either knowledge, or an intentional and careful avoidance of knowledge; this we should say must have the same effect in law as knowledge. But evidence of notice to, or of knowledge on the part of the holder, of facts which would defeat his recovery, must not be ambiguous.(k) The negligence of the loser is, however, no excuse for the dishonesty of the receiver, and therefore a failure. to give public notice of the loss of a bill or note will not preclude the owner from showing that the holder took it mala fide. But the negligence of the one may be an excuse for the negligence of the other, and might authorize him to defend himself on the maxim, Potior est conditio possidentis.(l) If the defendant is compelled by due process of law to pay the note to another party, the plaintiff who holds the note cannot recover it of him. Thus, if the paper be not negotiable, and trustee process is served upon the promisor, (m) or if the paper be negotiable, and such process is served in States where it may be served in such cases, the promisor must pay the plaintiff in the trustee process, and this would be a defence if sued by the holder.(n) But if the paper be negotiable, and such attachment is not allowed by statute, the rights of a bona fide holder are not affected by such an attachment.(o) Although it is made before the transfer to the holder, the doctrine of lis pendens, viz. that whoever purchases property which is in litigation at the time takes it subject to any decree which may be made in respect to it in the pending suit, does not apply to negotiable paper.(p) (k) "It must clearly appear that the indorsee was apprised of such circumstances as would have avoided the note in the hands of the indorser." Per Woodbury, J., Perkins v. Challis, 1 N. H. 254. (1) Per Best, C. J., in Snow v. Peacock, 3 Bing. 406, 411, 11 J. B. Moore, 286. See also Matthews . Poythress, 4 Ga. 287. (m) Cushman v. Haynes, 20 Pick. 132. (n) Peck v. Maynard, 20 N. H. 183; Thompson v Carroll, 36 N. H. 21; Stearns v. Wrisley, 30 Vt. 661; Amoskeag Manuf. Co. v. Gibbs, 8 Foster, 316; Griswold v. Davis, 31 Vt. 390. (0) Kieffer v. Ehler, 18 Penn. State, 388; Ludlow v. Bingham, 4 Dallas, 47; Huff v. Mills, 7 Yerg. 42; Hinsdill v. Safford, 11 Vt 309; Little v. Hale, id. 482. In Vermont, by a statute passed in 1841, negotiable paper is subject to attachment until notice of the transfer is given. A statute passed in 1852 exempted from the operation of this statute paper discounted at banks. Griswold v. Davis, 31 Vt. 390. (p) Hill v. Kroft, 29 Penn. State, 186; Winston v. Westfeldt, 22 Ala. 760. The knowledge of a defect or defeasance will not destroy the rights of the transferee, unless it be a defect or defeasance which would have destroyed the rights of his transferrer. Thus, if A makes a note to B, who indorses it for value to C after the consideration has wholly failed, but before its maturity, and B has no knowledge of this failure, but C has such knowledge, he will nevertheless recover on the note, because he stands in B's place, and has all B's rights. And therefore any of C's indorsees, immediate or distant, will be unaffected either by C's knowledge or by their own.(g) And knowledge on the part of the holder, at the time he took the note, that it was not to be paid on a specified contingency, is not sufficient to defeat his right to recover, although the contingency had then happened, if he was ignorant of this fact.(r) So, too, it has been held that a person who acquires a good title to a note, by taking it in ignorance that the agent making it had exceeded his authority, may take a renewal of the note from the agent, although at that time he knew that the original note was given without authority.(s) If the maker or other person liable on negotiable paper pays it before it is due, he is undoubtedly liable upon it to a bona fide holder for value.(t) 2. Where the paper is taken after dishonor. We prefer this phrase to the more usual phrase "after maturity"; for dishonor and non-payment at maturity are not necessarily the same thing. For example, we shall see that a note on demand is mature and demandable at once. But it is not dishonored until a reasonable period of non-payment has elapsed. If negotiable paper be taken after dishonor, it loses a large part of its peculiar privileges, because only so long as it may be (q) Hascall v. Whitmore, 19 Maine, 102; Prentice v. Zane, 2 Grat. 262; Boyd v. McCann, 10 Md. 118; Howell v. Crane, 12 La. Ann 126; Watson v. Flanagan, 14 Texas, 354. (r) Adams v. Smith, 35 Maine, 324. See also Ferdon v. Jones, 2 E. D. Smith, 106; Davis v. McCready, 4 E. D Smith, 565. (s) Hopkins v. Boyd, 11 Md. 107. The original note in this case was signed by one partner in the firm name. It was given out of the course of the partnership business, and without the knowledge of the other partner. The plaintiff did not know this at the time he took the note; but he was informed of the fact before the note was renewed It was held that his knowledge was no detence to an action on the renewed note. (t) See cases rited p 230, note w; also, Webster v. Lee, 5 Mass. 334; Wheeler c. Guild, 20 Pick. 545; White v. Kibling, 11 Johns. 128; Brown v. Davies, 3 T. R. 80; Dod v. Edwards, 2 Car. & P. 602. regarded as certain to become so much money at a definite period, is it the representative or equivalent of money. It may still be transferred, either by mere delivery, or by indorsement and delivery, according to the character of the paper And if so transferred for value, the transferee acquires against all previous parties all the rights which his transferrer held against them. For it is still so far negotiable as to admit of this transfer,(u) but is not, after dishonor, so far negotiable, that equities of defence unknown to the taker will not defeat it in his hands. We will proceed to consider the question, What constitutes the dishonor of negotiable paper? And the general definition of this may be, the non-payment of negotiable paper when it should be paid.(v) It will follow from this definition, that the dishonor may come from non-payment at a time certain, if the paper is so payable. Or from a demand and refusal, if the paper were payable on demand. Or from such a lapse of time, if the paper were payable on demand, that the law considers that the paper ought to have been paid, and that every one is bound to suppose that the paper must have been demanded and refused somewhere within that time. If the makers of a negotiable instrument negotiate it after it is due, it would seem that they could not set up, in defence to an action by a bona fide holder, want or failure of consideration in the inception of the instrument. (w) When paper is payable at a certain time, and in the case of bills payable at sight where these have grace, the last day of grace is of course the time at which non-payment operates dishonor. The question may arise, on what part of the day does dishonor fall upon the note by non-payment. We should say, not until the close of business hours in our cities, and not until the close (u) "A note does not cease to be negotiable, because it is overdue. The promisee, by his indorsement, may still give a good title to the indorsee." Per Shaw, C. J., in Baxter v. Little, 6 Met. 7. See also Powers v. Nelson, 19 Misso. 190, and cases passim. (v) In Fitch v. Jones, 5 Ellis & B. 238, 32 Eng. L. & Eq. 134, a note bore date Jan. 1, 1854, payable in two months. Across the note was written, in the hand of the maker, "Due 4th March, 1855." The note was in fact made Jan. 1, 1855, and was indorsed to the plaintiff before March 1, 1855 Held, that the note was not at this time dishonored. (w) Boehm v. Sterling, 7 T. R. 423. |