Where an accepted and endorsed bill of exchange was placed by
the drawer as collateral security for his own debt in the hands of
his creditor, and when the creditor came to sue the acceptor, the
court instructed the jury
"That if such facts and circumstances were known to the
plaintiff as caused him to suspect, or that would have caused one
of ordinary prudence to suspect, that the drawer had no interest in
the bill and no authority to use the same for his own benefit, and
by ordinary, diligence he could have ascertained these facts,"
then the jury would find for the defendant -- this instruction
was erroneous.
The facts of the case examined to ascertain whether or not there
was sufficient evidence to go to the jury upon these points.
This Court again says that a
bona fide holder of a
negotiable instrument for a valuable consideration, without notice
of facts which impeach its validity between the antecedent parties,
if he takes it under an endorsement made before the same becomes
due, holds the title unaffected by these facts and may recover
thereon although, as between the antecedent parties, the
transaction may be without any legal validity.
Where a party is in possession of a negotiable instrument, the
presumption is that he holds it for value, and the burden of proof
is upon him who disputes it, an exception being where the defect
appears on the face of the instrument.
It is a question of fact for the jury whether or not the holder
had knowledge of defects existing antecedently to the transfer to
him.
The English and American cases examined.
Surrendering collateral securities previously given and
affording increased indulgence as to time furnish a sufficient
consideration for the transfer of new collaterals.
Goodman was a citizen of Ohio, and Simonds of Missouri.
The suit was brought by Goodman, upon the following bill of
exchange:
"
EXCHANGE FOR $5,000"
"CINCINNATI, O., Sept. 12, 1847"
"Four months after date of this, my first of exchange, second
unpaid, pay to the order of John Sigerson five thousand dollars,
value received, and charge the same to account."
"Your ob't serv't,"
"WALLACE SIGERSON"
"
Mr. John Simonds, St. Louis, Mo."
Upon the face of the bill was written, "Accepted, John Simonds,"
and endorsed upon the same was the following:
Page 61 U. S. 344
"Pay to T. S. Goodman & Co., or order; John Sigerson."
"Pay W. Nesbit & Co., or order; T. S. Goodman & Co."
"Pay Timothy S. Goodman, without recourse to W. Nesbit &
Co."
Two of these parties,
viz., John Sigerson and Simonds,
lived in St. Louis, and the other two,
viz., Goodman and
Wallace Sigerson, in Cincinnati. The bill of exchange was sent from
St. Louis to Wallace Sigerson, at Cincinnati, endorsed by John
Sigerson, and accepted by Simonds, but without date, and without
the signature of the drawer.
The narrative of the transactions which led to the possession of
the bill by Goodman is given in the opinion of the Court.
Upon the trial, there were several rulings of the court, but the
one upon which the case came up to this Court was the following,
viz.:
The defendant asked the court to give the following instruction
to the jury:
"The defendant moves the court to instruct:"
" If the jury find from the evidence in the cause that Wallace
Sigerson never had any interest in the bill sued on, nor in the
proceeds thereof, nor any authority to use the same for his own
benefit, and did dispose of the same for his own benefit to T. S.
Goodman & Co., and the plaintiff was at the time one of said
firm, and when the bill was so transferred to said firm such facts
and circumstances were known to the said Goodman as caused him to
suspect, or that would have caused one of ordinary prudence to
suspect, that said Wallace had no interest in the bill, and no
authority to use the same for his own benefit."
To the giving of which by the court the plaintiff objected, and
the court gave to the jury that instruction amended so as to read
as follows:
Same instruction, as amended by the court:
"And by ordinary diligence he could have ascertained that said
Wallace Sigerson had no interest in said bill, and no authority to
use the same for his own benefit, then they will find for the
defendant."
To the giving of which, as thus amended, the plaintiff objected,
and excepted then and there to the giving of the same to the
jury.
Under this instruction, the jury found a verdict for the
defendant, and the plaintiff brought the case up to this Court.
Page 61 U. S. 356
Mr. justice CLIFFORD delivered the opinion of the Court.
Timothy S. Goodman, a citizen of the State of Ohio, complained
in the court below of John Simonds, a citizen of the State of
Missouri, in a plea of trespass on the case upon promises. The
declaration was filed on the first day of March, 1854. It contained
two counts -- one upon a bill of exchange and the other upon an
account stated. At the April term following, the defendant appeared
and pleaded the general issue, which was joined, and several
special pleas in bar of the action. The special pleas were held bad
on demurrer, and at the October term, 1855, the parties went to
trial on the general issue. Robert M. Nesbit, a witness called for
the plaintiff, testified that he was a notary public of the County
of St. Louis and that, as such, on the fifteenth day of January,
1848, he presented the bill in suit for payment to John Simonds,
the acceptor, who refused to pay it, and that he afterwards gave
due notice of the presentment and refusal to both endorsers. And
the witness further testified, that he was well acquainted with the
signatures of all the parties to the bill except that of the
drawer, and that they were genuine. Whereupon the plaintiff read in
evidence the bill of exchange described in the first count of the
declaration, together with the endorsements thereon, as they appear
in the record. W. Nesbit & Co. were merely nominal holders
Page 61 U. S. 357
of the bill, never having had any interest in it, and only
endorsed it to the plaintiff for the greater convenience in
bringing the suit. Evidence was then introduced on the part of the
defendant, exhibiting substantially the following state of
facts:
On the twenty-first day of June, 1847, the defendant addressed a
letter to Wallace Sigerson, who resided at Cincinnati, informing
him that he wished to avail himself of banking facilities in that
place to carry on certain business, in which he and John Sigerson
had determined to engage, and asking his assistance, as a
correspondent, to negotiate discounts, enclosing at the same time
his letter of credit for ten thousand dollars, and two bills of
exchange, each for the sum of five thousand dollars, and suggesting
in the same letter that they should require some twenty to
twenty-five thousand dollars during the next four or five months,
in sums of about five thousand dollars, as the same could be used
from time to time. In the same letter also he instructed his
correspondent to negotiate five thousand dollars immediately,
authorizing him to use for that purpose either the letter of credit
or the bills of exchange. When those bills were transmitted to
Cincinnati, they were in all respects perfect bills of exchange
except that the name of the drawer was wanting, and they were
without date. They were both made payable to the order of John
Sigerson, and by him endorsed in blank, and were accepted by the
defendant. Soon after their receipt, Wallace Sigerson, as drawer,
procured one of the bills to be discounted according to his
instructions, and remitted the proceeds, or a part thereof, to the
defendant, and it also appeared that, during that season, he
procured other bills of the same kind, to be discounted for the
same parties to the amount of twenty-five thousand dollars. The
other bill forwarded at that time is the one now in suit. Wallace
Sigerson had also large transactions of his own, the same season,
amounting to four hundred thousand dollars. Many of his own
transactions were with his brother, John Sigerson, who was the
payee and endorser of this bill and was jointly engaged in the same
business with the defendant. He and his brother interchanged
accommodation paper, and some of their acceptances were regularly
discounted in bank, and it did not appear that any complaint was
made, either by the acceptor or endorser, that this bill had not
been accounted for or returned. There were dealings also the same
season between T. S. Goodman & Co. and Wallace Sigerson. They
made a settlement on the twelfth day of October, 1847, when it was
ascertained that the amount due to T. S. Goodman & Co. was
about five thousand six hundred dollars, arising principally from
notes discounted, secured by bills of exchange as collaterals, on
which nothing
Page 61 U. S. 358
had been realized. At the settlement, the debt was divided into
two notes, one having sixty and the other seventy-five days to run,
and Wallace Sigerson testified that he gave his two notes in
payment of the debt, and left this bill as collateral security to
the notes, fixing the dates so that the notes would mature twelve
or fifteen days before the bill.
Two drafts on Ravisess, Bulock & Co., previously held as
collaterals, were embraced in the settlement, and formed a part of
the indebtedness for which the notes were given, and McDonald, who
was the bookkeeper of the plaintiff's firm, and a witness for the
defendant, testified he knew of no other collateral security than
this bill, which the firm held for those notes. It would seem,
therefore, that all the prior collaterals were surrendered to the
defendant at the settlement. There is some confusion, and perhaps
uncertainty, in the evidence reported respecting the history of the
bill from the time it went into the possession of Wallace Sigerson
till it was thus placed in the hands of T. S. Goodman & Co. as
collateral security to the above-mentioned notes. It may, however,
be gathered from the testimony of Wallace Sigerson that he first
offered it for discount to the Ohio Life and Trust Company, and
shortly afterward to the plaintiff for the same purpose, and that
the plaintiff declined to discount it, but soon after took it as
collateral security for temporary loans. How long the bill remained
in the possession of the plaintiff as collateral security for
temporary loans does not appear, nor for whose benefit the money
was obtained. When the settlement took place, Wallace Sigerson told
the plaintiff that he had a right to use the bill, and the
plaintiff agreed that it should not be sent to St. Louis for
collection till after the maturity of the notes to which it was
collateral. Nothing of the kind was agreed when it was left as
collateral security for temporary loans. Wallace Sigerson became
the drawer of this bill, as he had previously done with respect to
the other, which was sent him at the same time, and filled up the
date, but whether at the time of the settlement, or previously, was
not entirely certain. He failed in business in November, 1847, and
on the twentieth day of the same month, T. S. Goodman & Co.
addressed a letter to C. W. Clark & Brothers, enclosing this
bill and requesting them to pass it at the least rate, not
exceeding twelve percent interest, saying, "We do not endorse it,
as we are selling it for another;" and when L. C. Clark, one of
that firm, a few days afterward offered the bill for sale to the
defendant, "he said it was a forgery of his name; that Wallace
Sigerson had no authority to use it." At the trial, the court, on
the prayer of the plaintiff, instructed the jury to the effect that
if the plaintiff acquired the bill of Wallace Sigerson as
Page 61 U. S. 359
collateral security without notice of his want of authority to
transfer it, that the plaintiff was unaffected by such abuse of
trust, and that the defendant was precluded from setting it up as a
defense in this suit, to which no exceptions were taken.
We pass over the first instruction given to the jury on the
prayer of the defendant for the same reason that it was not
excepted to, and proceed to examine the second, as amended by the
court, which presents the principal subject of controversy at the
present time. It was to the effect that
"If such facts and circumstances were known to the plaintiff as
caused him to suspect, or that would have caused one of ordinary
prudence to suspect, that Wallace Sigerson had no interest in the
bill and no authority to use the same for his own benefit, and by
ordinary diligence he could have ascertained these facts, then the
jury will find for the defendant."
I. The general question which the bill of exceptions presents,
arising upon that instruction, is certainly one of very
considerable importance, especially to the mercantile community, as
it affects the transfer and free circulation of bills of exchange
and promissory notes, which, by virtue of their negotiable quality,
constitute the principal medium for the transaction of their
business affairs. There is, however, some reason to doubt whether
the evidence at the trial furnished any proper basis for the
application of the instruction in this case, even supposing the
principle announced to be correct as an abstract proposition, and
this gives rise to a preliminary question, which will be first
considered, whether the instruction ought not to be regarded as
objectionable on that account. When a prayer for instruction is
presented to the court and there is no evidence in the case for the
consideration of the jury, it ought always to be withheld, and as a
general rule, if it is given under such circumstances, it will be
error in the court for the reason that its tendency may be and
often is to mislead the jury by withdrawing their attention from
the legitimate points of inquiry involved in the issue. All that
was shown at the trial, in addition to the description of the bill,
was the refusal of the plaintiff to discount it when it was offered
for that purpose, his possession and control of it shortly after,
as a pledge for temporary loans, and the subsequent transfer of the
bill to him as collateral security at the settlement, together with
the circumstances of that transaction and what appeared in the
letter of T. S. Goodman & Co. transmitting the bill to St.
Louis for sale. Other circumstances are adverted to in the printed
argument for the defendant, but as they do not appear to be
sustained by the evidence in the case, they are omitted.
Nothing transpired when the bill was offered for discount more
than
Page 61 U. S. 360
what occurs on similar occasions in the daily transactions among
businessmen. It was offered and declined, and that was the whole
transaction so far as it was disclosed in the evidence. No reasons
were assigned by the plaintiff for declining, and none was asked
for by the holder, who offered the bill. Mere speculative
inferences are never allowable and cannot be regarded as evidence.
The refusal to discount the bill might have been for the reason
supposed in the instruction, and so also it might have been for a
very different reason, such as a prior obligation to other
customers, want of available funds, or from a desire for farther
information as to the pecuniary standing of the parties to this
bill, and whether it was for any one of the reasons suggested or
some other, in the absence of any explanation, was a mere naked
conjecture. Another answer may also be given to this suggestion
which is equally decisive, and that is the subsequent conduct of
the plaintiff in taking the bill as a pledge for temporary loans,
which seems to negative the supposition altogether that the
previous refusal to discount it was on account of any suspicion he
entertained, either as to the genuineness of the paper or of the
authority the authority of the holder to pass it. Some time
elapsed, after the bill was offered for discount before it was
finally transferred to the plaintiff, and that fact undoubtedly was
well known to the plaintiff at the time of the transfer, and so
also was the more important one in this investigation, that during
all that time the bill remained in the custody or under the control
of Wallace Sigerson as the ostensible owner, and that he claimed
and exercised over it all the rights of a holder for value. If
these circumstances are taken in connection with each other, as
they unquestionably should be, there can be no doubt they were far
better suited to inspire confidence in the title of the holder than
to excite suspicion in regard to his authority to pass the bill,
and if they had that effect, it was plainly the fault of the
defendant in executing and forwarding the bill to his
correspondent, and in entrusting it to his control, and suffering
it to remain in his custody without inquiry or complaint.
The want of date to the bill at the time it was offered for
discount, under the circumstances disclosed in the evidence, was
entirely an immaterial consideration. When the defendant sent the
bill to Wallace Sigerson, endorsed in blank and without date, and
entrusted it to his care and discretion, to be used for his own
benefit, he thereby empowered him to fill the blank, as a necessary
incident to the trust conferred, just as effectually as if the
authority had been expressly delegated by the terms of the letter
in which it was sent. Nor was it of any consequence that it was
antedated as compared with the time
Page 61 U. S. 361
when it was passed to the plaintiff, inasmuch as it was filled
up by his own correspondent, before he parted with its possession
and control, and was actually made to bear date subsequent to the
time when it was received from the defendant. In filling it up, he
but carried into effect one of the purposes for which it had been
forwarded, as is plainly indicated from the general scope and
design of the letter. He was authorized to use the bill to raise
money for the benefit of the defendant, and in order to use the
bill for that purpose, it must have been expected that he would
become the drawer, and fill up the date at his discretion.
Independently, however, of the terms of the letter, it may be
asserted as a general principle that where a party to a negotiable
bill of exchange or promissory note entrusts it to the custody of
another when it is without date, whether it be for the purpose to
accommodate the person to whom it was entrusted or to be used for
his own benefit, such bill or note carries on its face an implied
authority to fill up the blank, and as between such party to the
bill or note and innocent third parties, the person to whom it was
so entrusted must be deemed the agent of the party who committed
such bill or note to his custody, and as acting under his
authority, and with his approbation.
Mitchel v. Carver, 10
Wend. 336, and note
The general doctrine on this subject, and the reasons on which
it is founded, are stated by Shaw, C.J., in
Androscoggin Bank
v. Kimball, 10 Cush. 373, as follows:
"The rule is very clear that if one party, intending to
accommodate another, signs his name to a blank paper, he authorizes
the other to whom he delivers it and for whose accommodation it was
made to fill up the blank, and the filling up, being done by his
authority, is his act, and he is bound by it; and we concur in the
principle and think it applies with even more force when it was
done for his own benefit, as in this case."
Violet v.
Patton, 5 Cranch 142;
Russell v.
Langstaffe, 2 Doug. 514;
Collis v. Emmet, 1 H.Back
313;
Montague v. Perkins, 22 Eng.L. & Eq. 516.
The circumstances thus far considered, we think, afforded no
ground of inference whatever to support the theory of fact assumed
in the instruction. But it is more difficult to dispose of those
that follow in the same way, on account of the extremely indefinite
nature of the inquiry arising under the instruction. One man is
more readily influenced to suspect fraud in matters of business
than another, and the same individual may be differently impressed
by similar transactions occurring at different times under
precisely similar circumstances, so that in some cases, where the
evidences to excite suspicion were
Page 61 U. S. 362
slight, it might be impossible to determine whether they were or
were not of a character to be regarded as tending to support an
issue like the one presented under the first branch of the
instruction, without first ascertaining the general characteristics
of the mind of the individual who was the subject of the inquiry,
and his usual habit in conducting his business affairs.
A striking illustration of the difficulty attending the
investigation is to be found in the instruction itself, assuming
for the present that it must be understood according to the usual
import of the language employed. Under its first branch it was
necessary, in order to relieve the defendant, that the jury should
find that such facts and circumstances were known to the plaintiff
as caused him to suspect the title or authority of the holder to
transfer the bill. But the jury might come to the conclusion that
the plaintiff was thoughtless, confiding, or inattentive on the
occasion, and that he in fact took the bill without any such
suspicion, and to guard against the effect of such a finding, the
second branch of the instruction was framed, and under that it was
of no consequence whether the plaintiff himself suspected the title
of the holder or not, as the defendant was nevertheless to be fully
exonerated if the jury found that such facts and circumstances were
known to him as would have caused one of ordinary prudence to
suspect, and by ordinary diligence he could have ascertained, the
true state of the title.
Here was an attempt to prescribe a standard in the
investigation, by which the degree of suspicion intended to be
required to defeat the claim of the plaintiff could be ascertained
and measured by the jury; but under the first branch of the
instruction no such attempt was made, and no other criterion was
furnished to guide the jury in their deliberations, than mere naked
suspicion, and consequently, if the jury believed from the evidence
in the case that the plaintiff at the time of the transfer
suspected the title or authority of the holder to pass the bill, no
matter how slight his suspicions were, they were directed to return
their verdict for the defendant. With this explanation as to the
nature of the present inquiry, we will proceed to notice the
remaining circumstances relied on as evidence in the case to
support the instruction. They consist of the knowledge that the
plaintiff is supposed to have acquired at the settlement, that
Wallace Sigerson was embarrassed in his business affairs, and of
the subsequent conduct of his firm, in forwarding the bill to St.
Louis before the maturity of the notes, and the remark in their
letter that they did not endorse the bill, as they were selling it
for another. These circumstances are consistent with the
proposition of fact assumed in the instruction, and though they are
susceptible of an entirely
Page 61 U. S. 363
different explanation, yet perhaps it would be going too far to
say as matter of law that they afforded no ground of inference in
the direction supposed by the defendant.
We think therefore that the judgment ought not to be reversed on
the ground that there was no evidence in the case to authorize the
instruction. We say so, however, in reference to the peculiar issue
arising under that instruction and the form of the questions
submitted to the jury, and not in respect to any different issue
which may properly arise hereafter in cases of this description.
There is a wide difference between suspicion and knowledge in
respect to the subject matter under consideration, and even as
between the evidences of suspicion, and such as would show gross
negligence on the part of a banker or businessman when discounting
or purchasing negotiable paper transferable by delivery. A person
may often suspect in matters of business what in fact he does not
believe, and experience teaches that he will sometimes suspect what
he has no reason to believe, and that too when the evidences to
excite suspicion are so slight that he himself would scorn to
acknowledge them as the basis of his action in the premises.
Evidence merely tending to show, as in this case, that a party, in
acquiring a negotiable bill of exchange or promissory note,
suspected the title of the holder at the time of the delivery,
would clearly be insufficient to authorize the conclusion that he
was guilty of gross negligence when the transfer was made, and it
would hardly constitute an approach towards proof that he had
knowledge that such holder, who was known to be dealing in such
paper, and claimed the right to use it, was guilty of any breach of
trust in passing it.
II. The more important question whether the instruction was
correct remains to be considered, and in approaching that question
it becomes necessary in the first place to ascertain what the
instruction was and to deduce from it the principle of commercial
law which was applied to the case. It was somewhat peculiar in its
language, and in fact contained two distinct propositions,
differing essentially in certain aspects and not entirely
reconcilable with each other, and yet we cannot doubt that the
circuit court, in giving the instruction to the jury, intended to
apply the doctrine to the case that the title of the holder of a
negotiable bill of exchange acquired before maturity is not
protected against prior equities of the antecedent parties to the
bill, where it was taken without inquiry and under circumstances
which ought to have excited the suspicions of a prudent and careful
man. Such was certainly the general scope of the instruction,
especially its second proposition, and such, it may be presumed,
was the general
Page 61 U. S. 364
principle intended to be embodied in the questions submitted to
the jury. They have been so treated here in the oral argument for
the plaintiff, and were treated in the same way in the printed
argument filed for the defendant. Whether either or both of the
questions, in the form in which they were submitted, were
objectionable as involving a departure from the doctrine intended
to be applied it will not become necessary to inquire. One thing is
certain -- if the general principle cannot be sustained, there is
nothing in the features of the departure from it or the particular
phraseology of the questions submitted, to benefit the defendant.
Undoubtedly the same general idea pervaded the instruction, though
the questions were submitted to the jury in different forms, in
order to meet the different aspects of the evidence in the case. It
was to the effect that if the plaintiff had acquired the bill under
the circumstances described in either branch of the instruction,
then he had acted without due caution, and was not entitled to
recover. All the other grounds of defense had been provided for in
other prayers for instruction. This one was obviously prepared to
raise the single question, whether the plaintiff had acted with due
caution in acquiring the bill, and consequently assumed all the
other requisites of a good title in favor of the plaintiff. The
only question, therefore, arising under the instruction, is whether
the rule of commercial law applied to the case was correct. Bills
of exchange are commercial paper in the strictest sense, and must
ever be regarded as favored instruments, as well on account of
their negotiable quality as their universal convenience in
mercantile affairs. They may be transferred by endorsement; or when
endorsed in blank, or made payable to bearer, they are transferable
by mere delivery. The law encourages their use as a safe and
convenient medium for the settlement of balances among mercantile
men; and any course of judicial decision calculated to restrain or
impede their free and unembarrassed circulation, would be contrary
to the soundest principles of public policy. Mercantile law is a
system of jurisprudence acknowledged by all commercial nations; and
upon no subject is it of more importance that there should be, as
far as practicable, uniformity of decision throughout the
world.
A well defined and correct exposition of the rights of a
bona fide holder of a negotiable instrument was given by
this Court in
Swift v. Tyson,
16 Pet. 1, as long ago as 1842, and we adopt that exposition
relative to the point under consideration on the present occasion
as one accurately defining the nature and character of the title to
those instruments which such holder acquires when they are
transferred to him for a valuable consideration. This Court then
said, and we
Page 61 U. S. 365
now repeat, that a
bona fide holder of a negotiable
instrument for a valuable consideration, without notice of facts
which impeach its validity between the antecedent parties, if he
takes it under an endorsement made before the same becomes due,
holds the title unaffected by these facts, and may recover thereon
although, as between the antecedent parties, the transaction may be
without any legal validity.
That question was not one of new impression at the date of that
decision, nor was it so regarded either by the Court or the learned
judge who gave the opinion; on the contrary, it was declared to be
a doctrine so long and so well established, and so essential to the
security of negotiable paper, that it was laid up among the
fundamentals of the law, and required no authority or reasoning to
be brought out in its support, and the opinion on that point was
fully approved by every member of the Court, and we see no reason
to qualify or change it in any respect.
Such being the settled law in this Court, it would seem to
follow as a necessary consequence from the proposition as stated
that if a bill of exchange endorsed in blank, so as to be
transferable by delivery, be misappropriated by one to whom it was
entrusted, or even if it be lost or stolen and afterwards
negotiated to one having no knowledge of these facts, for a
valuable consideration and in the usual course of business, his
title would be good, and that he would be entitled to recover the
amount. The law was thus framed and has been so administered in
order to encourage the free circulation of negotiable paper by
giving confidence and security to those who receive it for value,
and this principle is so comprehensive in respect to bills of
exchange and promissory notes, which pass by delivery, that the
title and possession are considered as one and inseparable, and in
the absence of any explanation, the law presumes that a party in
possession holds the instrument for value until the contrary is
made to appear, and the burden of proof is on the party attempting
to impeach the title.
These principles are certainly in accordance with the general
current of authorities, and are believed to correspond with the
general understanding of those engaged in mercantile pursuits. The
word "notice," as used by this Court on the occasion referred to,
we think must be understood in the same sense as "knowledge," and
indeed that is one of its usual and appropriate significations.
Where the supposed defect or infirmity in the title of the
instrument appears on its face at the time of the transfer, the
question whether a party who took it had notice or not is in
general a question of construction, and must be determined by the
court as matter of law, and so it was understood by this Court in
Andrews v.
Pond, 13 Pet. 65, where it is said that:
Page 61 U. S. 366
"A person who takes a bill which upon the face of it was
dishonored cannot be allowed to claim the privileges which belong
to a
bona fide holder. If he chooses to receive it under
such circumstances, he takes it with all the infirmities belonging
to it, and is in no better condition than the person from whom he
received it."
And the same doctrine was adopted and enforced in
Fowler v.
Brantly, 14 Pet. 318, where, in speaking of a
promissory note, so marked as to show for whose benefit it was to
be discounted, this Court held that all those dealing in paper
"with such marks on its face, must be
presumed to have
knowledge of what it imported."
See Brown v.
Davis, 3 Term. 80.
Other cases of like character, where the defect appears on the
face of the instrument, are referred to in the printed argument for
the defendant as affording a support to the instruction under
consideration, but it is so obvious that they can have no such
tendency that we forbear to pursue the subject.
Ayer v.
Hutchins, 4 Mass. 270;
Wiggin v. Bush, 12 John. 305;
Cone v. Baldwin, 12 Pick. 545;
Borwn v. Tabor, 5
Wend. 566.
But it is a very different matter when it is proposed to impeach
the title of a holder for value by proof of any facts and
circumstances outside of the instrument itself. He is then to be
affected, if at all, by what has occurred between other parties,
and he may well claim an exemption from any consequences flowing
from their acts, unless it be first shown that he had knowledge of
such facts and circumstances at the time the transfer was made.
Nothing less than proof of knowledge of such facts and
circumstances can meet the exigencies of such a defense, else the
proposition as stated is not true that a party who acquires
commercial paper in the usual course of business, for value and
without notice of any defect in the title, may hold it free of all
equities between the antecedent parties to the instrument. Admit
the proposition and the conclusion follows. And the question
whether the party had such knowledge or not is a question of fact
for the jury, and, like other disputed questions of
scienter, must be submitted to their determination under
the instructions of the court, and the proper inquiry is did the
party seeking to enforce the payment have knowledge at the time of
the transfer of the facts and circumstances which impeach the
title, as between the antecedent parties to the instrument?, and if
the jury find shat he did not, then he is entitled to recover
unless the transaction was attended by bad faith, even though the
instrument had been lost or stolen. Everyone must conduct himself
honestly in respect to the antecedent parties when he takes
negotiable
Page 61 U. S. 367
paper in order to acquire a title which will shield him against
prior equities. While he is not obliged to make inquiries, he must
not willfully shut his eyes to the means of knowledge which he
knows are at hand, as was plainly intimated by Baron Parke in
May v. Chapman, 16 Mee. & Wels. 355, for the reason
that such conduct, whether equivalent to notice or not, would be
plenary evidence of bad faith. Mere want of care and caution, which
was the criterion assumed in the instruction, falls so far below
the true standard required by law -- which is knowledge of the
facts and circumstances that impeach the title -- that we feel
indisposed to pursue the general discussion, and proceed to confirm
the views we have advanced as to what the law is by referring to
some of the decisions in the English courts, from which, as an
important source of commercial law, most of our own rules upon the
subject have been derived.
The leading case, among the more modern decisions in that
country, is that of
Goodman v. Harvey, 4 Ad. & Ell.
870. That was a case in bank on a rule
nisi which was made
absolute. Lord Denman, in delivering judgment, said:
"We are all of opinion that gross negligence only would not be a
sufficient answer where a party has given consideration for the
bill; gross negligence may be evidence of
mala fides, but
it is not the same thing. Where the bill has passed to the
plaintiff without any proof of bad faith in him, there is no
objection to his title."
That case was followed by
Uther v. Rich, 10 Ad. &
Ell. 784, which was also argued before a full court, and the same
learned judge held that the only proper mode of implicating the
plaintiff in the alleged fraud by pleading was to aver that
he
had notice of it, leaving the circumstances by which that
notice was to be proved, directly or indirectly, to be established
in evidence, and he further held that an averment that the
plaintiff was not a
bona fide holder was not equivalent.
According to the rule laid down in
Goodman v. Harvey,
which indubitably is the settled law in all the English courts,
proof that the plaintiff had been guilty of gross negligence in
acquiring the bill ought not to defeat his right to recover, and if
not it serves to exemplify the magnitude of the error assumed in
the instruction that any facts and circumstances which would excite
the suspicion of a careful and prudent man were sufficient to
destroy the title. It is clear that one or the other of these rules
must be incorrect; both cannot be upheld. Gross negligence is
defined to consist of the omission of that care which even
inattentive and thoughtless men never fail to take of their own
property, and if such neglect would not defeat the right to recover
-- and clearly it would
Page 61 U. S. 368
not, unless attended by bad faith -- it cannot require any
farther reasoning to demonstrate that the instruction was
erroneous. Several cases have been decided in England upon the same
subject and to the same effect, and the rule laid down in
Goodman v. Harvey is now adopted and sanctioned by the
most approved elementary treatises upon commercial law.
Raphael
v. Bank of England, 33 Eng.L. & Eq. 276;
Stephens v.
Foster, 1 Cromp., Mee. & Wels. 849;
Palmer v.
Richards, 1 Eng.L. & Eq. 529;
Arbouin v.
Anderson, 1 Ad. & Ell.N.S. 498;
May v. Chapman,
16 Mee. & Wels. 355; Chitty on Bills, 12th ed., 257; Story on
Bills, 3d ed., sec. 416; Byles on Bills, 4th Am. ed., 121 to 126;
Smith's Mer.Law, ed. 1857, 255; Edwards on Bills 309; 1 Saun.Plea.
& Ev. 591;
Wheeler v. Guild, 20 Pick. 545;
Brush
v. Scribner, 11 Conn. 368;
Backhouse v. Harrison, 5
Barn. & Ad. 1098;
Gwynn v. Lee, 9 Gill. 138
These cases, beyond controversy, confirm the rule laid down by
this Court in
Swift v. Tyson, and they also furnish the
fullest evidence, by their harmony each with the other as well as
by their entire consistency with the principal case, that the law
has been uniform since the decision in
Goodman v. Harvey,
which was decided in 1836, and we think it will appear, upon an
examination, that it has always been the same, at least from a very
early period in the history of English jurisprudence down to the
present time, except for an interval of about twelve years, while
the doctrine prevailed which is now invoked in support of the
instruction in this case. That doctrine had its origin in
Gill
v. Cubitt, 3 Barn. & Cress. 466, and it was followed by
the other cases referred to in the printed argument for defendant.
It was decided in 1824, and it is true, as the cases cited
abundantly show, that it was acquiesced in for a time as a correct
exposition of the commercial law upon the subject under
consideration. At the same time it is proper to remark that there
is not wanting respectable authority that it had been much
disapproved of before it was directly questioned. and it is
certain, that nearly two years before it was finally overruled,
Parke, Baron, in delivering judgment in
Foster v. Pearson,
regarded it as mere "
dicta, rather than the decision of
the judges of the King's Bench."
See Raphael v. Bank of
England, per Cresswell. The reasons assigned for that
departure from the long established rule upon the subject are as
remarkable and unsatisfactory as the change was sudden and radical,
and yet their particular examination at this time is unnecessary.
It is a sufficient answer to the case to say that it has been
distinctly overruled in the tribunal where it was decided, and has
not been considered an authority in that court
Page 61 U. S. 369
for more than twenty years. The doctrine, says Mr. Chitty in his
treatise on bills, is now completely exploded, and the old rule of
law that the holder of bills of exchange, endorsed in blank and
transferable by delivery, can give a title which he does not
possess to a person taking them
bona fide for value, is
again reestablished in its fullest extent. It was not, however,
accomplished at a single blow, but the error, so to speak, was
literally broken up and destroyed by installments. The foundation
of the superstructure was severely shaken in
Crook v.
Jadis, 5 Barn. & Ad. 909, when the full bench first came
to the conclusion that want of due care and caution were
insufficient to constitute a defense, and that gross negligence,
at least, must be shown, to defeat a recovery. But it was
left to the case of
Goodman v. Harvey to announce a
complete correction of the error, when Lord Denman declared, we
have shaken off the last remnant of the contrary doctrine.
A brief reference to some of the earlier cases will be
sufficient to show that the decision in
Gill v. Cubitt was
a departure from the well known and long established rule upon the
subject under consideration. One of the earliest cases usually
referred to is that of
Hinton's Case, reported in 2 Show
247. It was an action of the case against the drawer upon a bill of
exchange payable to bearer. The court ruled that the holder must
entitle himself to it on a consideration, "for if he come to be
bearer by
casualty or
knavery, he shall not have
the benefit of it," and so, in
Anonymous, 1 Salk. 126,
where a bank note payable to A or bearer was lost, and found by a
stranger, and by him transferred to C, for value. Holt, Ch.J., held
that "A might have trover against the stranger, for he had no title
to it, but not against C, by reason of the course of trade, which
creates a property in the bearer." And again in
Miller v.
Race, 1 Burr, 462, where an inn-keeper received a bank note
from his lodger in the course of business and paid the balance,
Lord Mansfield held he might retain it, as he came by it
fairly and
bona fide, and for value, and
without knowledge that it had been stolen. And on a second
occasion, in
Grant v. Vaughan, 3 Burr 1516, where a bill
payable to bearer was lost, and the finder passed it to the
plaintiff, the same court left it to the jury to find whether he
came to the possession
fairly and
bona fide. But
a still stronger case is that of
Peacock v. Rhodes, 2
Doug. 633, where a bill of exchange, endorsed in blank, was stolen
and passed to the plaintiff by a man not known. It was argued for
the defendant that a holder should not
in prudence take a
bill unless he knew the person. Lord Mansfield answered
"that the law is well settled that a holder coming
fairly by a bill has nothing to do with the transaction
between
Page 61 U. S. 370
the original parties. . . . The question of
mala fides
was for the consideration of the jury."
And lastly, and to the same effect, is
Lawson v.
Weston, 4 Esp. 56, where a bill of exchange for �500 was lost
or stolen, and was discounted by plaintiff for a stranger. It was
insisted for the defendant, that "a banker or any other person
should not discount a bill for one unknown, without
using
diligence to inquire into the circumstances." Lord Kenyon
replied, that
"to adopt the principles of the defense would be to paralyze the
circulation of all the paper in the country, and with it all its
commerce; that the circumstance of the bill having been lost, might
have been material
if they could bring knowledge of that fact
home to the plaintiff."
The cases cited, commencing in 1694 and ending in 1801, are
sufficient to show what the state of the law was in 1824, when
Gill v. Cubitt was decided, especially as the judges of
the King's Bench, in giving their opinions on that occasion, did
not pretend that there were any later decisions in which it had
been modified.
III. But assuming that the instruction was erroneous, it is
still insisted by the course of the argument for the defendant that
it was immaterial, and the argument proceeds upon the ground that
the case, as made in the bill of exceptions, shows that the
plaintiff was not the holder of the bill for a valuable
consideration in the usual course of business. On the contrary, it
is insisted that he held it merely as a collateral security for a
preexisting debt, without any present consideration at the time of
the transfer, and that a party who takes negotiable paper under
such circumstances does not acquire it in the usual course of
business, and consequently takes it subject to prior equities.
Whatever may be our impressions in a case like the one supposed, we
think the question does not arise in the present record, assuming
the facts to be as they are exhibited in the bill of exceptions,
and the answer to the argument will be based entirely upon that
assumption, without prejudice to what may hereafter appear. When
the settlement was made, the new notes were given in payment of the
prior indebtedness, and the collaterals previously held were
surrendered to the defendant, and the time of payment was extended
and definitively fixed by the terms of the notes, showing an
agreement to give time for the payment of a debt already overdue,
and a forbearance to enforce remedies for its recovery; and the
implication is very strong, that the delay secured by the
arrangement constituted the principal inducement to the transfer of
the bill. Such a suspension of an existing demand is frequently of
the utmost importance to a debtor, and it constitutes one of the
oldest titles of the law under the head of forbearance, and
Page 61 U. S. 371
has always been considered a sufficient and valid consideration.
Elting v. Vanderlyn, 4 John. 237;
Morton v. Burn,
7 Ad. & El. 19;
Baker v. Walker, 14 Mee. & Wels.
465;
Jennison v. Stafford, 1 Cush. 168;
Walton v.
Mascall, 13 Mee. & Wels. 453; Com.Dig., action assumpsit,
B. 1;
Wheeler v. Slocum, 16 Pick. 62; Story on Prom.Notes,
sec. 186, and cases cited. The surrender of other instruments,
although held as collateral security is also a good consideration,
and this as well as the former proposition is now generally
admitted, and is not open to dispute.
Dupeau v.
Waddington, 6 Whar. 220;
Hornblower v. Proud, 2 Barn.
& Ald. 327;
Rideout v. Bristow, 1 Cromp. & Jer.
231;
Bank of Salina v. Babcock, 21 Wend. 499;
Youngs
v. Lee, 2 Ker. 551. It seems now to be agreed that if there
was a present consideration at the time of the transfer,
independent of the previous indebtedness, that a party acquiring a
negotiable instrument before its maturity as a collateral security
to a preexisting debt, without knowledge of the facts which impeach
the title as between the antecedent parties, thereby becomes a
holder in the usual course of business, and that his title is
complete, so that it will be unaffected by any prior equities
between other parties, at least to the extent of the previous debt,
for which it is held as collateral.
White v. Springfield
Bank, 3 Sand.S.C. 222;
New York M. Iron Works v.
Smith, 4 Duer 362. And the better opinion seems to be in
respect to parol contracts, as a general rule, that there is but
one measure of the sufficiency of a consideration, and consequently
whatever would have given validity to the bill as between the
original parties is sufficient to uphold a transfer like the one in
this case. We are not aware that the principle, as thus limited and
qualified, is now the subject of serious dispute anywhere, and that
is amply sufficient for the decision of this cause. Whether the
same conclusion ought to follow where the transfer was without any
other consideration than what flows from the nature of the contract
at the time of the delivery, and such as may be inferred from the
relation of debtor and creditor in respect to the preexisting debt,
is still the subject of earnest discussion, and has given rise to
no small diversity of judicial decision. It seems it is regarded as
sufficient in England according to a recent case.
Poirier v.
Morris, 20 Eng.L. & Eq. 103; Byles on Bills 96 and 127. A
contrary rule prevails in New York, as appears by several
decisions.
Coddington v. Bay, 20 John. 637;
Stalker v.
McDonald, 6 Hill 93; and also in Tennessee,
Napier v.
Elam, 5 Yerg. 108. It is settled that it is a sufficient
consideration in Massachusetts, Vermont, and New Jersey, and such
was the opinion of the late Justice Story, as appears from his
remarks
Page 61 U. S. 372
in
Swift v. Tyson and in his valuable treatise on Bills
of Exchange.
Stoddard v. Kimball, 6 Cush. 469; Story on
Bills, sec. 192;
Chicopee Bank v. Chapin, 8 Met. 40;
Blanchard v. Stevens, 3 Cush. 162;
Atkinson v.
Brooks, 26 Vt. 569;
Allaire v. Hartshorne, 1 Zab.
665. We think, however, that the point does not arise in this case
for the reasons before stated, and consequently forbear to express
any opinion upon the subject.
The judgment of the circuit court is reversed and the cause
remanded for further proceedings with directions to issue a new
venire.