b. Presumption as to nonnegotiable instruments. It is generally held that negotiability is not an essential characteristic of a promissory note or bill of exchange; there are many cases to the effect that nonnegotiable notes and bills import a consideration, in the same manner and to the same extent as if they were negotiable.65 There are cases, however, holding that promissory notes, not negotiable and not purporting to be for value received, do not imply a consideration.66 The question would seem to be controlled in every instance by the statutes of the State, or upon the view held by the courts therein, as to the status of such instruments at common law." 67

65. Payne v. Noelke, 53 How. Pr. (N. Y.) 273. In the case of Carnwright v. Gray, 127 N. Y. 92, 27 In Durland v. Pitcairn, 51 Ind. 426, N. E. 835, 24 Am. St. Rep. 424, 12 it was held that a written promise to L. R. A. 845, it was held that a prom- pay money, whether it be a promisissory note whether negotiable or not sory note negotiable by the law merimports a consideration. And in this chant, or a note payable upon condi case the court cites the New York tion, and therefore assignable only unstatute upon the subject and remarks der the statute, imports a sufficient that such statute was a substantial consideration, and in a complaint

68

c. Expressed consideration. The words "value received" in a negotiable instrument import, or are prima facie evidence of consideration, not only between the parties but also as against third persons." Where such words are included in a negotiable instrument, it does not affect the right of the maker or other persons to defend on the ground of want, failure, or illegality of the consideration. 69 Where an indorsement upon a note is to the effect that it was indorsed by the payee for value received, the presumption is that the indorsee paid the apparent value of the note to the indorser.70 We have already seen that it is unnecessary to insert such words in a negotiable instrument, and that the character of such instrument is not affected by the omission.71

d. Burden of proof.- Where there is a presumption of consideration, or where the consideration is expressed, the burden of proving want, failure, or illegality of consideration is upon the defendant."2 But if in an action on a bill or note it is admitted or proved that the consideration for the instrument or for its acceptance, indorsement, or subsequent negotiation is tainted with fraud or illegality, the burden of proof is shifted, and the pre

thereon, consideration need not be averred.

66

In the case of Louisville, E. & St. L. R. Co. v. Caldwell, 98 Ind. 245, it was held that words of negotiability, such as "payable to order" or bearer," are rot essential to the validity of a bill f exchange, or written order for the payment of money, which possesses the other requisites of such an instrument. And in an action upon such a bill or order, it is not necessary to aver in the complaint, or prove upon the trial, consideration thereof, because the instrument itself imports consideration."

68. Mandeville v. Welsh, 5 Wheat. (U. S.) 277, 5 L. Ed. 87. See also Bourne v. Ward, 51 Me. 191; Parish v. Stone, 14 Pick. (Mass.) 198; Ganwell v. Moseley, 11 Gray (Mass.), 173; Parsons v. Frost, 55 Mich. 230; Sawyer v. McLouth, 46 Barb. (N. Y.) 350; Holliday v. Lewis, 14 Hun (N. Y.), 478; Howell v. Wright, 41 Hun (N. Y.), 167; Stronach v. Bledsoe, 85 N. C. 473.

69. Bruyn v. Russell, 60 Hun (N. Y.), 280; Rice v. Rice, 43 App. Div. (N. Y.) 458, 60 N. Y. Supp. 97.

70. Waldrip v. Black, 74 Cal. 409, 16 Pac. 226.

V.

71. See ante, § 42 (c), p. 242. 72. United States.- Packwood Clark, Fed. Cas. 10,656, 2 Sawy. 546; Lipsmeier v. Vehslage, 29 Fed. 175.

Alabama.- Martin v. Foster, 83 Ala. 213, 3 South. 422.

Georgia.- Rowland v. Harris, 55 Ga. 141.

Indiana.- Beeson V. Howard. 44 Ind. 413.

Iowa.-Smith v. Griswold, 95 Iowa, 684, 64 N. W. 624.

Maine.- Sawyer v. Vaughn, 25 Me.

336.

New York.- Raubitschek v. Blank, 80 N. Y. 478; Howell v. Wright, 41 Hun, 167.

Ohio.- Dalrymple v. Wyker, 60 Ohio St. 108, 53 N. E. 713.

Oregon.- Flint v. Phipps, 16 Ore. 437, 19 Pac. 543; Sayre v. Mohney, 35 Ore. 141, 56 Pac. 526.

Pennsylvania.- Conmey v. Macfarlane, 97 Pa. St. 361.

Texas.- Newton v. Newton, 77 Tex. 508, 14 S. W. 157.

For other cases see Cent. Dig., Vol. 7, Bills and Notes, § 1654.

sumption in favor of the validity of the consideration ceases unless the holder can prove that subsequent to the alleged fraud or illegality he, or some other person from whom he derived title, gave value in good faith for the bill or note.73 Notwithstanding that the consideration in a note is expressed, if there is equally strong evidence adduced by the defendant that there was no consideration to that on behalf of the plaintiff that there was such consideration, the plaintiff must fail.74

73. Byles on Bills (16th ed.), p. 141.

74. Bruyn v. Russell, 60 Hun (N. Y.), 280, 14 N. Y. Supp. 591; Small v. Clewley, 62 Me. 155, 16 Am. Rep. 410; Perley v. Perley, 144 Mass. 104, 10 N. E. 726; Smith v. Edgeworth, 3 Allen (Mass.), 233; Manistee Nat. Bank v. Seymour, 54 Mich. 59, 31 N. W. 140; Bogie v. Nolan, 96 Mo. 85, 9 S. W. 14.

This rule was applied in the case of Delano v. Bartlett, 6 Cush. (Mass.) 364, 367, where the court says: "Apply this rule to the present case and it is quite clear that the instruction to the jury was entirely correct. It was incompetent upon the plaintiff to prove a consideration for the note, which was the foundation of the suit. That was a part of her case, and the burden was on her to establish that Rule as to burden of proof. In the fact. But the note itself was prima case of Powers v. Russell, 13 Pick. facie evidence of a consideration; so (Mass.) 69. 96, the chief justice says: that by producing the note, the plain"It was stated here that the plaintiff tiff made a prima facie case. That had made out a prima facie case and evidence, if not rebutted, would be therefore the burden of proof was sufficient to maintain the plaintiff's shifted and placed upon the defend- case. But it was competent for the ant. In a certain sense this is true. defendants to rebut this evidence on When the party having the burden of the part of the plaintiff, and thus to proof establishes a prima facie case avoid the prima facie case made by and no proof to the contrary is of her. Accordingly the defendants did fered he will prevail. Therefore, the offer evidence to rebut the evidence other party, if he would avoid the on the part of the plaintiff, and to effect of the prima facie case, must show that there was no consideration. produce evidence of equal or greater The evidence on both sides applied to weight to balance or control, or he the affirmative or negative of the same will fail. Still, the proof upon both issue or proposition of fact, a consides applies to the affirmative or neg- sideration for the note, and the plainative of one and the same proposition tiff's case requiring her to establish or issue of fact, and the party, whose that fact, the burden of proof was all case requires the proof of that fact, along on her to satisfy the jury, upon has all along the burden of proof. It the whole evidence in the case, and does not shift, though the weight in the fact of the consideration for the either scale may at times preponder- note." See also other Massachusetts ate. But when the party having the cases above cited. burden of proof gives competent Illegality of consideration.-The burprima facie evidence of a fact, and the adverse party, instead of producing proof which would go to negative the same proposition of fact, proposes to show another and distinct proposition, which avoids the effect of it, then the burden of proof shifts and rests upon the party proposing to show the latter fact."

den of proving illegality of the consideration for the note or bill is upon the maker who sets up such defense. Pixley v. Boynton, 79 Ill. 351; Emery v. Estes, 31 Me. 155; Hapgood v. Needham, 51 Me. 442; Pratt v. Langdon, 97 Mass. 97, 93 Am. Dec. 61; Wyman v. Fiske, 3 Allen (Mass.), 238, 80 Am. Dec. 66.

$54. Holder for value.

a. Statutory provision.— The Negotiable Instruments Law provides that: "Where value has at any time been given for an in"strument, the holder is deemed a holder for value in respect to all parties who become such prior to that time." 75 This provision appears to have been derived from the English Bills of Exchange Act, where substantially the same language is used.76 The statute is declaratory of the existing rule. Story says: "Every person

is, in the sense of the rule, treated as a bona fide holder for value, not only when he has advanced money or other value for it, but when he has received it in payment of a pre-existing debt, or when he has a lien on it, or has taken it as collateral security for a precedent debt, or for future as well as past advances." 77

b. Necessity of payment of value.— A negotiable instrument in the hands of one who has not parted with value therefor is subject to all the equities and defenses existing between the original parties.78 To constitute an indorsee of negotiable paper a holder for value, so as to exclude the equities of antecedent parties, he must have relinquished some right, incurred some responsibility, or parted with value upon the credit of the paper at the time of the transfer. 79

c. What constitutes value. As a general rule, if upon the faith of receiving a negotiable instrument, a person gives up any right or remedy, as the doing of an act which would prevent him from attaching the property of his debtor, he will become a holder for value.80 A creditor who takes a note to collect, with directions to apply the proceeds upon a debt due to him by the payee of the note, is not a holder for value, but is the agent of the payee, and the note is in his hands subject to all the defenses and equities existing between the original parties.81 The giving of a negotiable instrument in payment for another similar instrument is a pur

75. Neg. Inst. L. (N. Y.), § 52. For same section in statutes of other States see Appendix. Section cited and applied in Petrie v. Miller, 57 App. Div. (N. Y.) 17, 67 N. Y. Supp. 1042; Brooks v. Sullivan, 129 N. C. 190, 39 S. E. 822.

76. English Bills of Exchange Act, 1882, § 27 (2).

77. Story on Promissory Notes (7th ed.), § 195.

78. Sturgis v. Miller, 80 Ill. 241; Martindale v. Hudson, 25 Mo. 422;

chase for value and constitutes the purchaser a bona fide holder in the same manner as though he had paid money.82 And the fact that a purchaser gives less for a note than its face value does not change his rights as a holder for value.83 And the holder of commercial paper, acquired on a usurious consideration, is not a bona fide holder, and is not protected against the infirmities of the paper, nor against transactions between the makers or indorsers and third persons, dealing with them without notice, in good faith on a valuable consideration.84 A bank by merely discounting a bill or note and placing the proceeds to the credit of the payee does not become a holder for value;85 but where the

82. Mickles v. Calvin, 4 Barb. (N. 627, 16 L. R. A. 223; Oppenheimer v. Y.) 304. In the case of Harrington Farmers & Merchants' Bank, 97 v. Johnson, 7 Colo. App. 483, 44 Pac. Tenn. 19, 36 S. W. 705. But see 368, the purchaser of a promissory McDonald v. Johnson, 64 Hun, 637, note gave his check in payment there- 19 N. Y. Supp. 443; Whedon v. Hogan, for; it was held that, in the absence 8 Misc. 323, 28 N. Y. Supp. 554. of any specific acceptance of the check as complete payment, or proof of subsequent payment of the check, the purchaser did not become such a holder for value as to be entitled to protection as an innocent holder. But see Bird v. Harville, 33 Ga. 459; Greenwood v. Lowe, 7 La. Ann. 197; Adams v. Soule, 33 Vt. 538.

83. Purchase for less than face value. Miller v. Crayton, 3 T. & C. (N. Y.) 360; Harger v. Wilson, 63 Barb. (N. Y.) 237; Webster v. Cobb, 17 Ill. 459; Sully v. Goldsmith, 32 Iowa, 397; Citizens' Bank v. Ryman, 12 Neb. 541, 11 N. W. 850; U. S. Nat. Bank v. McNair, 116 N. C. 550, 21 S. E. 389; Kitchen v. Loudenback, 48 Ohio St. 177, 26 N. E. 979.

But where a person for only $5 purchased, shortly before its maturity, a promissory note for $300 and interest for six months, knowing that the maker was in fair credit and able to respond, he is not a bona fide holder. De Witt v. Perkins, 22 Wis. 473.

The rule seems to be settled, that a promissory note to be the subject of sale must be an existing valid note in the hands of the payee, and given for some actual consideration, so that it can be enforced between the original parties; and if not valid in the hands of the payee, cannot be rendered valid by a sale to a bona fide purchaser at a rate of interest in excess of the legal rate. Sweet v. Chapman, 7 Hun (N. Y.), 579.

85. Thompson v. Sioux Falls Nat. Bank, 150 U. S. 231, 14 Sup. Ct. 94, 37 L. Ed. 1063; First Nat. Bank v. Nelson, 105 Ala. 180, 16 South. 707.

A bank which discounts a note for a customer, crediting the proceeds thereof to his account, is not a bona fide purchaser for value, unless such credit was drawn upon before the maturity of the note, and before notice of facts invalidating it in the hands of the payee. Drovers' Nat. Bank v. Blue, 110 Mich. 31, 67 N. W. 1105.

In New York the rule is as stated in the text. Central Nat. Bank v. Valentine, 18 Hun (N. Y.), 417; Dykeman v. Northbridge, 80 Hun (N. Y.), 258, 30 N. Y. Supp. 164, where

it was held that evidence

84. Usurious rate of discount, etc.Hart v. Adler, 109 Ala. 467, 19 South. 894; Carlisle v. Hill, 16 Ala. 398. But a party who purchases notes at a large discount of a broker to whom that the proceeds of a note by they are made payable is not affected the cashier of a bank, against an acby usury, if he is ignorant of the fact commodation indorser, were deposited that they were sold to raise money to the "cashier account," is insuffifor the maker. Sherman v. Blackman, cient to constitute the bank a holder 24 Ill. 347; Nicholson v. Nat. Bank for value, the money being still in the of New Castle, 92 Ky. 251, 17 S. W. possession of the bank.