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16. Condition of holder who is shewn not to be a bona fide endorsee for value.

A party takes a bill subject to the equities and disabilities attaching on it in the hands of the person from whom he took it, if he takes it without consideration, Wilson v. Holmes, 5 Mass. 543; or with full knowledge of all the facts, Herrick v. Carman, 11 Johns. 160.

Actual notice of fraud in obtaining a note, or of bad faith in putting it in circulation, being brought home to the knowledge of the endorsee at the time he took the note, this shews that he is not a bona fide holder, and gives the defendant the same ground of defence as he would have had against the endorser. Fisher v. Leland &c. 4 Cush. 456; Brown v. Taber, 5 Wend. 566.

If it appear that the note sued on was delivered to the plaintiffs, in violation of the agreement on which the defendant endorsed it, the plaintiffs are not entitled to recover unless they received it bona fide and upon a valuable consideration. Both are necessary. It must have been received in good faith, without notice of the arrangement on which the endorsement had been made, and the transfer must have been upon what the law regards as a valuable consideration. Small &c. v. Smith, 1 Denio 586.

A plaintiff took a bill, with notice that it was drawn by if not upon one of those institutions which came into existence under the New York general banking act of 1838. Sess. Acts, p. 245. There was enough on the face of the bill to put him on enquiry. If he took the bill in good faith, it was considered at least necessary to shew the fact. As it was, the plaintiff could not escape the character of a mala fide holder of paper issued contrary to public policy. Safford v. Wyckoff,

1 Hill 11.

17. Right of one who is a bona fide endorsee for value.

By the law-merchant, every person having possession of a bill has (notwithstanding any fraud on his part, either in acquiring or transferring it) full authority to transfer such bill, but with this limitation, that to make such transfer valid, there must be a delivery, either by him or some subsequent holder of the bill, to some one who receives such bill bona fide and for value, and who is either himself the holder of it or a person through whom the holder claims. Peacock v. Rhodes, Dougl. 632. Anything, therefore, which shews that this restriction applies, shews that the party making the transfer

had no authority, and that the transfer is not valid.

Alderson,

B. in Marston v. Allen, 8 M. & W. 503, 4; Barber v. Richards, 6 W. H. & G. 62, 1 Eng. Law & Eq. 529.

A promissory note, like a bill of exchange, is a contract of a peculiar nature; a party who has himself no good title may transfer a good title to another. Masters v. Ibberson, 8 Man. Gr. & Scott 111, 65 Eng. Com. Law Rep. 111.

If the holder of negotiable paper has obtained it for value in the course of business, and with perfect fairness, then he cannot be affected by fraud or collusion between the drawer and endorser of which he had no notice. Ridgway v. Farmers Bank, 12 S. & R. 266.

An endorsee for value recovered, notwithstanding the fraud on the maker, in Thurston v. McKown, 6 Mass. 428, and notwithstanding the fraud on the maker and first endorser in Robertson &c. v. Williams &c. 5 Munf. 381. In this case the note was originally signed in blank, and endorsed in blank by the first endorser, and was sent to the second endorser to be filled up for a given sum, and discounted at bank for the accommodation of the maker. The second endorser having failed to obtain the desired accommodation, filled up the note with a larger amount than was intended, then obtained a third endorser upon it and got a broker to discount the note for his own use. The note was protested as to the drawer, and two first endorsers and was retired from bank by the third endorser. He had endorsed it without consideration, paid the full amount of the note when he retired it from bank, and had no knowledge of the fraud of the second endorser until after it was so retired. It was held, that he might recover against the drawer and previous endorsers.

If a party make or endorse a note, for the purpose of its being used in a particular way, he takes the risk of its being used in a different way, and cannot refuse to pay it to any bona fide holder into whose hands it may come. Byles on Bills, 2d Am. edi. 143 (113); Sweetser v. French &c. 2 Cush. 313; Stoddard &c. v. Kimball, 6 Id. 470.

When negotiable paper is endorsed before it is payable, with intent to make it the absolute property of the endorsee, and the endorsee is a bona fide holder for full and valuable consideration, he will not be affected by any equity of the acceptor or maker against the other parties of which he, the endorsee, was without notice at the time of becoming such holder. McNiel &c. v. Baird, 6 Munf. 316; Lomax v. Picot, 2 Rand. 247. It matters not that the endorsee purchased with notice of the consideration for which the note was given, and that, after the purchase, the consideration failed. S. C. He may

have known, at the time he took the bill, that it was given as part of the price for a mill, and that the mill had been defectively constructed; yet if he knew that the defendant, on the promise of the builders to make the necessary repairs, had agreed to accept the bill unconditionally, and had accepted it accordingly, he had a right to conclude that the defendant looked to this undertaking for indemnity and not to any conditional liability upon the acceptance. Arthurs &c. v. Hart, 17 How. 16.

If the promiser makes a payment which is not endorsed on the note, and the note is afterwards transferred to an endorsee for value without notice, the payment will not avail the promiser against the endorsee unless the note appear to have been transferred after it became due. Wilbour v. Turner, 5 Pick. 526; Pinkerton v. Bailey, 8 Wend. 600.

Still less can the endorsee be affected by a payment made to the endorser after the endorsement. Even though there were no consideration for the endorsement, yet if it was made before the paper became due, the endorsee may, notwithstanding payment afterwards to the endorser, sue the acceptor in like manner as if that payment had not been made. Milnes

v. Dawson, 5 W. H. & G. 948, 3 Eng. Law & Eq. 530.

18. Whether if negotiable paper be received by a person to pay or secure a pre-existing debt, he may nevertheless be regarded a holder for value.

It has been the doctrine in New York, that where the holder of a negotiable note received it for an antecedent debt, either as a nominal payment or as a security for payment, without giving up any security for such debt which he previously had, or paying any money or giving any new consideration, he is not a holder of the note for a valuable consideration so as to give him any equitable right to detain it from its lawful owner. Bay v. Coddington, 5 Johns. C. R. 54; Coddington v. Bay, 20 Johns. 637. The cases of Wardell v. Howell, 9 Wend. 170, Rosa v. Brotherson, 10 Id. 85, Ontario Bank v. Worthington, 12 Id. 593, Payne v. Cutler, 13 Id. 605, and Francia v. Joseph, 3 Edw. Ch. Rep. 182, follow the decision in Coddington v. Bay This strong column of decisions, Mr. Justice Story thought, was greatly shaken, if not entirely overthrown, by the cases of the Bank of Salina v. Babcock, 21 Wend. 499, and Bank of Sandusky v. Scoville, 24 Id. 115. But the judges of New York take a different view of these cases. On a re-examination of the doctrine of Coddington v. Bay, they have again affirmed that doctrine. Stalker v. McDonald &c. 6 Hill 93.

However the doctrine may be in New York, Judge Story had no difficulty in saying that, according to the principles established in the general commercial law, a pre-existing debt does constitute a valuable consideration in the sense of the general rule applicable to negotiable instruments. 16 How. 18, 19. The question has been several times before the supreme court of the United States, and this court has uniformly held that it makes no difference as to the rights of the holder, whether the debt for which the negotiable instrument is transferred to him is a pre-existing debt, or is contracted at the time of the transfer. Coolidge v. Payson, 2 Wheat. 66, 70, 73; Townsley v. Sumrall, 2 Peters 170, 182; Swift v. Tyson, 16 Peters 20.

Judge Story considers this the established doctrine in England. Pillans &c. v. Van Mierop, 3 Burr. 1663; Abbott, C. J. in Smith v. De Witt, 6 Dow. & Ry. 120; De La Chaumette v. Bank of England, 9 Barn. & Cress. 209; Bosanquet v. Dudman, 1 Starkie 1; Ex parte Bloxham, 8 Ves. 531; Heywood v. Watson, 4 Bingh. 496; Bramah v. Roberts, 1 Bingh. N. C. 469; Perceival v. Frampton, 2 C. M. & R. 180. Chancellor Walworth thinks the question did not arise and was not decided in Pillans &c. v. Van Mierop; and according to his understanding of the other English cases, cited by Judge Story, only two of them, and these by impli cation merely, conflict with the New York decisions. The two cases to which he alludes, it may be inferred, are Bramah v. Roberts and Perceival v. Frampton, in the last of which Baron Parke expresses the opinion that if the note had been given to the plaintiffs as security for a previous debt, and they held it as such, they might be properly stated to be holders for valuable consideration; from which Chancellor Walworth infers that the Baron's opinion corresponds with that of the supreme court of the United States.

Of the decisions in the state courts, Judge Story refers to Bush v. Scribner, 11 Conn. 388, as supporting the position that a pre-existing debt is a valuable consideration sufficient to convey a valid title to a bona fide holder against all the antecedent parties to a negotiable note; and Chancellor Walworth refers to Homes v. Smyth, 4 Shepl. 177, Norton v. Warte, 2 Appl. 175, and Petrie v. Clark, 11 S. & R. 377, the last of which appears to him to be in accordance with what he understands to be the opinion of Judge Shepley in the first, that a party who takes a note or bill as collateral security for the payment of such a debt, and not in absolute payment and discharge of the same, will not be entitled to protection against the rightful owner. Stalker v. McDonald, 6

Hill 111. In this case the notes not having been received in payment or discharge of a debt, but as mere collateral security for the payment thereof, the plaintiff was held not entitled to protection as a bona fide holder for valuable consideration.

Judge Story, in his treatise on promissory notes, p. 215, § 292, continues to sustain Swift v. Tyson; and Chancellor Kent is inclined to concur in that decision. 3 Kent's Com. 80. There have been opinions one way in Ohio, Carlisle v. Wishart, 11 Ohio 172; and North Carolina, Reddick v. Jones, 6 Iredell 110; and the tendency is the other way in New Hampshire, Jenness v. Bean, 10 New Hamp. 246; Williams v. Little, 11 Id. 66; and Tennessee, Kembro v. Lytle, 10 Yerg. 428; Nichol v. Bale, Id. 429; Wormley v. Lowry, 1 Humph. 468.

The doctrine of Petrie v. Clark, 11 S. & R. 377, has been adhered to in Pennsylvania. Walker v. Geisse, 4 Whart. 256; Depeau v. Waddington, 6 Whart. 232, 3; Appleton v. Donaldson, 3 Barr 387. The rule there is, that though the holder of a negotiable instrument received in payment of a pre-existing debt, before maturity, cannot be subjected to equities which might have furnished a defence as between the original parties, and of which he had no notice, yet if the paper be taken as collateral security merely, for the payment of a debt, or for protection against previously assumed liabilities, the defendant may aver any ground of defence which would have been competent between antecedent parties to the bill or note; unless indeed there was some new and distinct consideration moving between the parties to the transfer; such as giving up some other available security; releasing another party, drawer or endorser; conceding further time for payment and the like. Kirkpatrick v. Muirhead, 4 Harris 123.

The subject has been much considered in Massachusetts. Wheeler v. Guild, 20 Pick. 545; Chicopee Bank v. Chapin, 8 Metcalf 40. In two cases (decided in 1849) the court distinctly recognizes the principle that the receiving of a negotiable note in payment of a pre-existing debt will exclude all the equities between the original parties; and that when the case is one of a note taken as collateral security, there is no sound reason for a different result. Blanchard &c. v. Stevens, 3 Cush. 168; Stoddard &c. v. Kimball, 4 Id. 604.

19. How far a bona fide endorsee for value may be affected by the endorsement to him being made after the paper became due.

There is no doubt a distinction between bills and notes en

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