Coupon bonds, of the ordinary kind, payable to bearer, pass by
delivery, and a purchaser of them, in good faith, is unaffected by
want of title in the vendor. The burden of proof on a question of
such faith lies on the party who assails the possession. Gill
3 Barnewall & Cresswell 466, denied; Goodman
4 Adolphus & Ellis' 870, approved;
20 How. 343, affirmed.
Lardner was the owner of three bonds of the Camden & Amboy
Railroad Company, for $1,000 each. They were coupon bonds of the
ordinary kind, and payable to bearer.
He resided in the
country about nine miles from Philadelphia, but had an office in
that city where he went to transact business two days in the week,
Wednesdays and Saturdays. He kept the bonds in a fireproof in this
Page 69 U. S. 111
Murray was a broker of character engaged in the negotiation of
such bonds in New York.
On the night of Wednesday, the 23d February, 1859, Lardner's
fireproof was broken open and the three bonds stolen. The theft was
not discovered till Saturday, the 26th. Notices of the robbery
appeared in the Philadelphia Ledger (the newspaper of Philadelphia
having the largest circulation there) and in leading New York
papers on Monday, the 28th. In the meantime, however, on the
morning after the theft,
to-wit, on Thursday, the 24th, two
days before the discovery of it (Saturday, the 26th), and four days
before the first notices in New York (Monday, the 28th), these
bonds were negotiated to Murray at his office in Wall Street, New
York, for full value. The testimony of Parker -- a broker in that
city for the negotiation of loans, and a person, like Murray, of
unquestionable character -- presented the history of the
transaction, in substance, thus:
"On the 24th of February, 1859, a man came into my office and
proposed to borrow $2,000 on the three bonds in question. I did not
know him. He was quite gentlemanly in appearance; very well
dressed; manners unexceptionable; quite intelligent; answered
questions without hesitation. Applications of this sort --
applications, I mean, from strangers -- are not unusual; they occur
often, though not every day. I asked the person who he was, and he
said that he was Dr. A. D. Bates, of Milford, Sussex County, New
Jersey. After some conversation with him, I took the bonds to
effect a loan, and went to Mr. Murray, who I knew dealt in this
particular species of security, and proposed to borrow from him
$2,000 on the three bonds for Bates. Mr. Murray and I had some
conversation as to the terms of the loan and as to his charge for
brokerage. At this interview, I said to Mr. Murray that Bates was a
stranger to me. Murray said to this that he would have to satisfy
himself how Bates came by the bonds before he could make the loan,
and asked me whether Bates had any city references. I told him that
I had already asked Bates that same question; that he had no city
references, but knew only physicians. I stated to Murray that Bates
had told me that he had bought the bonds for investment, and now
wanted the money to pay for some
Page 69 U. S. 112
which he had purchased. After a while, Bates came
to my office again. I then went with him to Mr. Murray's office,
where I introduced him to Murray. This was towards three o'clock.
Murray asked him of whom he got the bonds. He said of Mr. Lardner,
of Philadelphia; nothing else. Neither Murray nor I knew Mr.
Lardner. Murray asked him if he was acquainted in the city. He
replied that he supposed, if he had time, that he could find a
dozen people in the city that knew him; ladies and gentlemen.
Murray asked him if he knew any physicians. He said that he knew
Dr. Mott and Dr. Parker, very well known men in New York; he may
have mentioned others. In reply to a question from Murray whether
he knew Dr. Hosack, the family physician of Murray, he answered
that he did not; that Dr. Hosack was of the old school, and he,
Bates, was of the new. Murray asked him if he knew Dr. Riggs, a
physician of New Jersey, with whom he, Murray, had had some
dealings. Bates said that he did by reputation. He told Murray what
he wanted the money for. Murray told him he would lend him the
money on the terms which he had named to me. The loan was
accordingly made without further inquiry, Murray taking the bonds
and paying the money, and Bates executing what is called a stock
The testimony of Murray was in the main corroborative of this so
far as it related to himself, particularly as to the inquiries
which he, Murray, had made of Bates as to his acquaintance with
medical men, Drs. Hosack, Riggs &c. He stated, however, that he
had no remembrance of Parker's telling him that he did not know
Bates, which, if it had been said, Murray thought would have
awakened his suspicion. Murray admitted, however, that it was
always his custom to know from whom securities came before dealing,
and that it was the custom of brokers generally,
but he added
that he did not think it necessary to inquire about Bates, "he
being introduced by Parker."
"Dr. A. D. Bates, of Milford, Sussex County, New Jersey," was
never seen nor could be heard of after the interviews above
described. Neither could any such place as "Milford, Sussex County,
New Jersey," from which place he stated that he came, be found on
the maps of that state.
Page 69 U. S. 113
On detinue brought by Lardner for the three bonds in the Circuit
Court for the Southern District of New York, the defendant's
counsel asked the court to charge
"That there were no such suspicious circumstances attending the
transaction between Bates and Murray as to put Murray on inquiry,
and that Murray was not chargeable with bad faith by any omission
on his part to inform himself in regard to the bonds and Bates'
title to them further than he did."
The court refused so to charge, and charged as follows:
"It will be for you, gentlemen of the jury, to say whether the
defendant has made out -- as the burden lies upon the defendant --
whether he has made out that he received the paper in good faith,
without any notice of the defect of the title -- in other words, of
the theft from the plaintiff -- or whether there were such
circumstances of the character which I have described to you as
would warrant the inference that there was ground of suspicion and
that he should have made further inquiry as to the character of the
The instruction was excepted to, and the jury having found for
the plaintiff, Lardner, the correctness of the law, as thus given
to them in charge, was the question before this Court in error.
Page 69 U. S. 118
MR. JUSTICE SWAYNE delivered the opinion of the Court.
The question presented by the instruction excepted to is not a
new one either in commercial jurisprudence or in this Court.
The general rule of the common law is that, except by a sale in
market overt, no one can give a better title to personal property
than he has himself. The exemption from this principle of
securities, transferable by delivery, was established at an early
period. It is founded upon principles of commercial policy, and is
now as firmly fixed as the rule to which it is an exception. It was
applied by Lord Holt to a bank bill in Anon,
126. This is the earliest reported case upon the subject. He held
that the action must fail "by reason of the course of trade, which
creates a property in the assignee or bearer."
The leading case upon the subject is Miller v. Race,
] decided by Lord
Mansfield. The question in that case also related to a bank note.
The right of the bona fide
holder for a valuable
consideration was held to be paramount against the loser. He put
the decision upon the grounds of the course of business, the
interests of trade, and especially that bank notes pass from hand
to hand in all respects like coin. The same principle was applied
by that distinguished judge in Grant v. Vaughan
] to a merchant's draft upon
his banker. He there said: in
"Miller v. Race,
31 Geo. II B.R., the holder of a bank
note recovered against the cashier of a bank though the mail had
been robbed of it, and payment had been stopped, it appearing that
he came by it fairly and bona fide,
and upon a valuable
consideration, and there is no distinction between a bank note and
such a note as this is."
In Peacock v. Rhodes,
] he said:
"The law is settled that a holder coming fairly by a bill or
note has nothing to do with the transaction between the original
parties, unless perhaps, in the single case, which is a hard one,
but has been determined, of a note for money won at play."
The question has since been considered no longer an open one in
Page 69 U. S. 119
English law as to any class of securities within the category
What state of facts should be deemed inconsistent with the good
faith required was not settled by the earlier cases. In Lawson
Lord Kenyon said:
"If there was any fraud in the transaction or if a bona
consideration had not been paid for the bill by the
plaintiffs, to be sure they could not recover, but to adopt the
principle of the defense to the full extent stated would be at once
to paralyze the circulation of all the paper in the country, and
with it all its commerce. The circumstance of the bill's having
been lost might have been material if they could bring knowledge of
that fact home to the plaintiffs. The plaintiffs might or might not
have seen the advertisement, and it would be going a great length
to say that a banker was bound to make inquiry concerning every
bill brought to him to discount; it would apply as well to a bill
for �10 as for �10,000."
In the later case of Gill v. Cubitt,
] Abbott, Chief Justice, upon the
trial, instructed the jury
"That there were two questions for their consideration: first,
whether the plaintiff had given value for the bill, of which there
could be no doubt, and secondly whether he took it under
circumstances which ought to have excited the suspicion of a
prudent and careful man. If they thought he had taken the bill
under such circumstances, then, notwithstanding he had given the
full value for it, they ought to find a verdict for the
The jury found for the defendant and a rule nisi
new trial was granted. The question presented was fully argued. The
instruction given was unanimously approved by the court. The rule
was discharged and judgment was entered upon the verdict. This case
clearly overruled the prior case of Lawson v. Weston,
it controlled a large series of later cases.
In Crook v. Jadis,
] the action was brought by the endorsee
Page 69 U. S. 120
of a bill against the drawer. It was held that it was
"no defense that the plaintiff took the bill under circumstances
which ought to have excited the suspicion of a prudent man that it
had not been fairly obtained; the defendant must show that the
plaintiff was guilty of gross negligence."
In Backhouse v. Harrison,
] the same doctrine was affirmed, and Gill
was earnestly assailed by one of the judges.
Patterson, Justice, said:
"I have no hesitation in saying that the doctrine laid down in
Gill v. Cubitt
and acted upon in other cases that a party
who takes a bill under circumstances which ought to have excited
the suspicion of a prudent man cannot recover has gone too far, and
ought to be restricted. I can perfectly understand that a party who
takes a bill fraudulently, or under such circumstances that he must
know that the person offering it to him has no right to it, will
acquire no title, but I never could understand that a party who
takes a bill bona fide,
but under the circumstances
mentioned in Gill v. Cubitt,
does not acquire a property
in it. I think the fact found by the jury here that the plaintiff
took the bills bona fide,
but under circumstances that a
reasonably cautious man would not have taken them, was no
In Goodman v. Harvey,
] the subject again came under consideration.
Lord Denman, speaking for the court, held this language:
"I believe we are all of opinion that gross negligence only
would not be a sufficient answer where the party has given a
consideration for the bill. Gross negligence may be evidence of
but is not the same thing. We have shaken off
the last remnant of the contrary doctrine. Where the bill has
passed to the plaintiff without any proof of bad faith in him,
there is no objection to his title."
A final blow was thus given to the doctrine of Gill v.
The rule established in this case has ever since
obtained in the English courts, and may now be considered as
fundamental in the commercial jurisprudence of that country.
In this country, there has been the same contrariety of
Page 69 U. S. 121
decisions as in the English courts, but there is a large and
constantly increasing preponderance on the side of the rule laid
down in Goodman v. Harvey.
The question first came before this Court in Swift v.
Goodman v. Harvey
and the class of cases to which it
belongs were followed. The Court assumed the proposition which they
maintain to be too clear to require argument or authority to
support it. The ruling in that case was followed in Goodman v.
and again in the Bank of Pittsburgh v. Neal.
] the subject was
elaborately and exhaustively examined both upon principle and
authority. That case affirmed the following propositions:
The possession of such paper carries the title with it to the
holder: "The possession and title are one and inseparable."
The party who takes it before due for a valuable consideration,
without knowledge of any defect of title and in good faith holds it
by a title valid against all the world.
Suspicion of defect of title or the knowledge or circumstances
which would excite such suspicion in the mind of a prudent man or
gross negligence on the part of the taker, at the time of the
transfer will not defeat his title. That result can be produced
only by bad faith on his part.
The burden of proof lies on the person who assails the right
claimed by the party in possession.
Such is the settled law of this Court, and we feel no
disposition to depart from it. The rule may perhaps be said to
resolve itself into a question of honesty or dishonesty, for guilty
knowledge and willful ignorance alike involve the result of bad
faith. They are the same in effect. Where there is no fraud, there
can be no question. The circumstances mentioned and others of a
kindred character, while inconclusive in themselves, are admissible
in evidence, and fraud established, whether by direct or
circumstantial evidence, is fatal to the title of the holder.
The rule laid down in the class of cases of which Gill
Page 69 U. S. 122
is the antetype, is hard to comprehend and
difficult to apply. One innocent holder may be more or less
suspicious under similar circumstances at one time than at another,
and the same remark applies to prudent men. One prudent man may
also suspect where another would not, and the standard of the jury
may be higher or lower than that of other men equally prudent in
the management of their affairs. The rule established by the other
line of decisions has the advantage of greater clearness and
directness. A careful judge may readily so submit a case under it
to the jury that they can hardly fail to reach the right
We are well aware of the importance of the principle involved in
this inquiry. These securities are found in the channels of
commerce everywhere, and their volume is constantly increasing.
They represent a large part of the wealth of the commercial word.
The interest of the community at large in the subject is
deep-rooted and wide-branching. It ramifies in every direction, and
its fruits enter daily into the affairs of persons in all
conditions of life. While courts should be careful not so to shape
or apply the rule as to invite aggression or give an easy triumph
to fraud, they should not forget the considerations of equal
importance which lie in the other direction. In Miller v.
Lord Mansfield placed his judgment mainly on the ground
that there was no difference in principle between bank notes and
money. In Grant v. Vaughan,
he held that there was no
distinction between bank notes and any other commercial paper. At
that early period, his far-reaching sagacity saw the importance and
the bearings of the subject.
The instruction under consideration in the case before us is in
conflict with the settled adjudications of this Court.
Judgment reversed and the case remanded for further
proceedings in conformity to this opinion.
1 Burrow 452.
2 Douglass 633.
4 Espinasse 56.
Barnewall & Cresswell 466.
5 Barnewall & Adolphus 909.
5 Barnewall & Adolphus 1098.
4 Adolphus & Ellis 870
41 U. S. 16
61 U. S. 20
63 U. S. 22