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so executed have been held to be void even in the hands of a bona fide holder. But the weight of authority in most of the States is clearly opposed to this doctrine in its fullest extent; the general rule is that false representations as to the character or contents of an instrument, which is afterward transferred in due course as a negotiable instrument, will afford no defense to the maker as against a holder in due course unless it appear that such maker was unable to read, or blind, or otherwise so physically incapacitated that he could not read and the instrument was falsely read to him. This rule is based upon the negligence of the person

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ment or signature was so procured Bish, 44 Ind. 70; Soper v. Peck, 51 from a person who did not know the Mich. 563, 17 N. W. 57; Gibbs v. nature of the instrument and could Linabury, 22 Mich. 479; Butler V. not have attained such knowledge by Carns, 37 Wis. 61; Bowers v. Thomas, the use of ordinary care.” See Acts 62 Wis. 480, 22 N. W. 710. But in of 1899, chap. 356. This seems to be some of these cases the absence of negdeclaratory of the law as it existed in ligence was deemed a controlling facthat State, and was probably inserted tor. As in the case of Green v. Wilso that no change in this respect kie, 98 Iowa, 74, 66 N. W. 1046, it should be made in existing rules. See was held that a party who is ignorant Butler v. Carns, 37 Wis. 61; Kellogg of the contents of a written instruv. Steiner, 29 Wis. 626; Walker v. ment from inability to read, who Ebert, 29 Wis. 194. As to use of signs it without intent to do so, and ordinary care, see Keller v. Schmidt, is chargeable with no negligence in 104 Wis. 596, 80 N. W. 935.

not ascertaining its character, is not 6. Fraud in procuring instrument to bound by it in the hands of a bona fide be executed.- In the case of Cline v. purchaser. Guthrie, 42 Ind. 227, it was held that, 7. When misrepresentation as to where the maker of a promissory note character of instrument not effectual payable at a bank was induced by as defense.- In the case of Chapman fraud and circumvention of the payee v. Rose, 56 N. Y. 137, it appeared that to sign his name thereto, when he the signature of the defendant to a honestly supposed and believed he was promissory note was procured by the writing his name on a blank piece of false representation that the instrupaper, to enable the payee to see how ment for the delivery of his name was spelled or written, and hay fork and two grappling pulsuch payee, before its maturity and leys. It also appeared that there for value, assigned it to a bona fide was no physical obstacle to the purchaser, such facts, pleaded in an defendant's reading the paper before answer, constitute a complete defense he signed it. It was held that where to an action upon the note of the as- one having the opportunity and the signee; and the court said: “It is power to ascertain with certainty the well settled by authority and on prin. exact obligation he is assuming, yet ciple that the party whose signature chooses to rely upon the statements is obtained by fraud as to the char- of the person with whom he is deal. acter of the paper itself, who is igno- ing, and executes a negotiable instrurant of such character, and has no ment without reading or examination, intention of signing it, and who is as against a bona fide holder for value, guilty of no negligence in affixing his he is bound by his act, and is estopped signature, or in not ascertaining the from claiming that he intended to character of the instrument, is no sign an entirely different obligation, more bound by it than if it were a and that the statements upon which total forgery, the signature included.” he relied were false; to avoid liabilSee also Lindley v. Hofman, 22 Ind. ity he must show that he was guilty App. 237, 53 N. E. 471; Detwiler v. of no laches or negligence in signing.



imposed upon. If a person can read or has means at his command whereby he can ascertain the contents and the character of the instrument to which he attaches his signature, he is guilty of negligence if he fails to satisfy himself as to the obligation which he thus assumes, and will not, however great the fraud practiced upon him, be permitted to impeach the title of an innocent holder for value.

Ordinarily duress is a good defense in an action on a negotiable instrument but not as against a bona fide holder for value;o there are cases, however, which maintain that a note executed under duress practiced upon the maker avoids the note even as against a bona fide holder for value. 10


See also Page v. Kreky, 137 N. Y. 307, himself, is estopped by his own nego 33 N. E. 311, 21 L. R. A. 404; Carey ligence from setting up the invalidity v. Miller, 25 Hun (N. Y.), 28; Shirts of the note against a bona fide holder v. Overjohn, 60 Mo. 305; Citizens' thereof. See also Ward v. Johnson, Nat. Bank v. Smith, 55 N. H. 593; 51 Minn. 480, 53 N. W. 766, 38 Am. Baldwin v. Barrows, 86 Ind. 351; St. Rep. 515; Yellow Medicine County Boynton v. McDaniel, 97 Ga. 400, 23 Bank v. Tagley, 57 Minn. 391, 59 S. E. 824.

N. W. 486; Boynton v. MeDaniel, 97 Inability to read. In the case of Ga. 400, 23 S. E. 824; Nichols v. National Exchange Bank v. Veneman, Baker, 75 Me. 334; First Nat. Bank 43 Hun (N. Y.), 241, it appeared that v. Stanley, 46 Mo. App. 440; Keller neither the defendant nor his wife v. Schmidt, 104 Wis. 596, 80 N. W. could read English, and that there 935. But there are cases holding that was no other person within half a mile a bona fide holder may recover against of the place where the instrument was the maker, although the maker was inexecuted whom the defendant could duced to sign on a false representacall upon to read the instrument. His tion as to the character of the instrusignature was affixed to the instru- ment, without regard to his negligence ment under the belief that he was or care. First Nat. Bank v. Johns, 22 executing a valid contract of agency W. Va. 520, 46 Am. Rep. 506; Leonfor the sale of certain agricultural ard v. Dougherty, 22 W. Va. 536; machinery in his locality. It was held Rowland v. Fowler, 47 Conn. 347. that defendant was not guilty of neg. 9. Veach v. Thompson, 15 Iowa, ligence in omitting to ascertain the 380; Farmers & Mechanics' Bank of true nature and import of the instru- Grand Rapids v. Butler, 48 Mich. 192, ment, and that there could be no re- 12 N. W. 36; Mundy v. Whitmore, 15 covery although the holder was an Neb. 647, 19 N. W. 694. innocent purchaser for value and be- 10. Note void for duress. In fore maturity. See also Green v. Wil- New York a arose where the kie, 98 Iowa, 74, 66 N. W. 1046. signature of a married woman was

8. Negligence of party signing note obtained to a promissory note by is controlling upon the question of duress. It purported in terms to his liability to a bona fide holder for charge the separate estate, stating value. As in the case of Kellogg v. that the consideration therefor was Curtis, 65 Me. 59, it was held that a for the benefit of her separate estate. person who voluntarily signs as maker This statement was not true, nor was a negotiable promissory note, suppos- the note given in the course of any ing he is binding himself to some other separate business carried on by her. contract, and relying on the represen- It was held that the note could not be tations of the payee as to the contents enforced against her even in the hands of the paper, without examining it of a bona fide holder. Loomis v. Ruck, sufficiently to ascertain the fact for 56 N. Y. 462. See also Hall v. Wil


C. Illegal consideration; usury.— An illegal consideration is sufficient to avoid a contract, and a court of law or of equity will not entertain any suit brought in relation to such contract, but will leave the parties thereto as it finds them. We have already considered the illegality of consideration as affecting the validity of negotiable instruments in a previous chapter to which reference is made."1 Illegality of consideration is a good defense as against the payee of the note and in favor of the maker, but it will not avoid it as against a holder in due course,12 unless the statute which declares the consideration to be illegal expressly provides that the contract is void.13 Where statutes are enacted which provide that a negotiable instrument given for a gambling debt is void, it follows that such instrument is void in the hands of a bona fide holder for value. 14 If the consideration of an instrument is tainted



son, 16 Barb. (N. Y.) 548; Duncan v. New York.- Grimes v. Hillenbrand, Scott, 1 Campb. (Eng.) 100.

6 Thomp. & C. 620, 4 Hun, 354. 11. See ante, chap. IV, $ 51.

14. Statutes making gambling con12. Johnston v. Dickson, 1 Blackf. tracts void.- Under a statute mak(Ind.) 256; Payne v. Raubinek, 82 ing notes, etc., given for money Iowa, 587, 48 N. W. 995; Draper v.

lost upon any game abCowles, 27 Kan. 484; Vallett v. Par- solutely void and of no effect (Ohio ker, 6 Wend. (N. Y.) 615; Glenn v. R. S., § 4269), it was held that Farmers' Bank, etc., 70 N. C. 191. In the indorsee of a check given för the case of Devlin v. Brady, 36 N. Y. money lost at a game of cards can. 531, it was held that a note given to not recover on it against the drawer, induce an officer to violate his duty though a bona fide holder for value as such is void in the hands of either without notice of the defect in the the payee, or of any subsequent holder, consideration. Lagonda Nat. Bank v. with knowledge of its character. Portner, 46 Ohio St. 381, 21 N. E.

13. Instruments made void by stat. 634. To the same effect are: Ivey ute.—Aurora v. West, 22 Ind. 88, 85 v. Nicks, 14 Ala. 564; Hawley v. Bibb, Am. Dec. 413, where it is held that 69 Ala. 52; Haight v. Joyce, 2 Cal. mercantile paper, made void ab initio 64, 56 Am. Dec. 311; Williams v. Judy, by statute, is void in the hands of a 8 Ill. 282, 44 Am. Dec. 699; Traders' bona fide holder. See also, to the Bank v. Alsop, 64 Iowa, 98, 19 N. W. same effect, Bayley v. Taber, 5 Mass. 863; Early v. McCart, 2 Dana (Ky.), 286, 4 Am. Dec. 57.

414; Maine Mile Track Assn. See, generally, the following cases : Hammond (Mich.), 87 N. W. 135;

United States. Hatch Bur- Harper v. Young, 112 Pa. St. 419, roughs, Fed. Cas. No. 6,203, 1 Woods, 3 Atl. 670; Mordecai v. Dawkins, 439.

9 Rich. L. (S. C.) 262. In the case Alabama.- Bozeman v. Allen, 48 of Sondheim v. Gilbert, 117 Ind. 71, Ala. 512.

18 N. E. 687, 10 Am. St. Rep. 23, 5 Georgia.- Poe v. The Justices, Dud- L. R. A. 432, it was said: “The prinley, 249.

ciple may be considered as well estabIllinois. Eagle v. Kohn, 84 Ill. lished that when a statute in express 292.

terms pronounces contracts, notes, Maryland.— Gwyn v. Lee, 1 Md. Ch. bills, securities, and the like, result445.

ing from or growing out of wagering Massachusetts. Smith v. Livingorganıbling transactions, which are ston, 111 Mass. 342.

prohibited by statute as absolutely Nebraska.— Kittle v. De Lameter, void, no recovery can be had thereon; 3 Neb. 325.

and the doctrine that transactions



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with usury and, therefore, illegal, it has been held in many jurisdictions that the defense is available in favor of the maker, even as against a bona fide holder;15 there are, however, a number of decisions holding contrary to this.16 But the rule which seems supported by the weight of authority is that where a note is void in its inception for usury it continues void forever, whatever its subsequent history may be; it is as void in the hands of an innocent holder for value as it was in the hands of those who made the usurious contract. No vitality can be given to it by sale or exchange, because that which the statute has declared to be void cannot be made valid by passing through the channels of trade. 17 This would seem to be well established in New York and in all

which a statute in direct terms de- usury in the second transaction, the clares to be unlawful cannot acquire plea of usury to the substituted oblivalidity by the transfer of commercial gation cannot be sustained. But this paper based thereon, which is also case, and nearly every case holding under direct legislative denunciation, that a usurious bill or note is not is fully supported by authority.” affected with the taint in the hands of

15. Usury as defense.— See Union an innocent holder for value, is under Bank v. Gilbert, 83 Hun (N. Y.), 417, a statute which does not expressly de31 N. Y. Supp. 945, where it was held clare the contract void. In this case that if a promissory note is void for the court said: “It has long been the usury it cannot be rendered valid by settled law that where a statute by a sale thereof to another; and in Ro- its terms makes a note or bill absodecker v. Littauer, 59 Fed. 857, 8 lutely void, the instrument is invalid C. C. A. 320, it was held that no one in the hands of a bona fide holder for could become the bona fide holder of a value. But where a statute declares a note or bill which, by statute, is void contract not illegal, but only voidable, for usury. See also Faris v. King, l a negotiable note or bill founded upon Stew. (Ala.) 255; Pearson v. Bailey, such voidable contract is good in the 23 Ala. 537; Early v. McCart, 2 Dana hands of a bona fide holder.” See also (Ky.), 414; True v. Triplett, 4 Metc. Hamilton v. Fowler, 99 Fed. 18, 40 C. (Ky.) 57; Bridge v. Hubbard, 15 C. A. 47; Sherman v. Blackman, 24 Mass. 96, 8 Am. Dec. 86; Torrey v. Ill. 347; Conkling v. Underhill, 4 Ill. Grant, 18 Miss. 89; Clark v. Sisson, 388; Gross v. Funk, 20 Kan. 655; First 22 N. Y. 312; Claflin v. Boorum, 122 Nat. Bank v. Bentley, 27 Minn. 87, 6 N. Y. 385, 25 N. E. 360; Ward v. N. W. 422, which was under a statute Sugg, 113 N. C. 489, 18 S. E. 717, 24 protecting a bona fide purchaser from L. R. A. 280; Faison v. Grandy, 128 N. the defense of usury; Long v. Long, C. 438, 38 S. E. 897; Kendall v. Rob- 141 Mo. 352, 44 S. W. 341; Cheney v. ertson, 12 Cush. (Mass.) 156; Payne Jansent, 20 Neb. 128, 29 N. W. 289; v. Trezevant, 2 Bay (S. C.), 23; First Darst v. Backus, 18 Neb. 231, 24 N. Nat. Bank v. Ledbetter (Tex. Civ. W. 681; Young v. Berkely, 2 N. H. App.), 34 S. W. 1042.

410; Bradshaw v. Van Valkenburgh, 16. Statutes declaring usurious in- 97 Tenn. 316, 37 S. W. 88. struments illegal and voidable.— In 17. Claflin v. Boorum, 122 N. Y. the case of Palmer v. Call, 7 Fed. 737 385, 25 N. E. 360, citing Miller v. (Cir. Ct., Iowa), it was held that where Zeimer, 111 N. Y. 441, 444; Miller v. an usurious obligation is passed for Hull, 4 Den. (N. Y.) 104, 107; Benvalue to an innocent purchaser with- net v. Smith, 15 Johns. (N. Y.) 355, out notice of the usury, who afterward 357; Wilkie v. Roosevelt, 3. Johns. takes a new and substitute security Cas. (N. Y.) 206; Powell v. Waters, for the debt, there being no taint of 8 Cow. (N. Y.) 669.

other States where a usurious contract is declared void by statute. Where a note which was usurious in its inception is, upon its maturity, taken up and a new note or other negotiable instrument is given therefor, which of itself is not usurious, the new, instrument is valid in the hands of a bona fide holder for value. 18


$ 77. Rights of holder in due course.

a. Statutory provision.— The Negotiable Instruments Law provides that: “A holder in due course holds the instrument free “froin any defect of title of prior parties and free from defenses

available to prior parties among themselves, and may enforce

payment of the instrument for the full amount thereof against “all parties liable thereon.” 19 A similar provision is contained in the English Bills of Exchange Act.2

b. Effect of statute.- The statute provides in effect that the tiile of the holder of a negotiable instrument transferred before maturity in good faith and for value, and without notice of any defect, is absolute and unimpeachable by any of the prior parties thereto. There is apparently no exception to the rule as thus declared. It would seem to follow, therefore, that in all cases the holder in due course takes the instrument free from any defect of title, or other defenses. It has been suggested that this section

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18. New note given for one usu- he can obviate the necessity of using rious in its inception.- In New the contaminated security by procurYork the case most frequently cited ing a new one to be substituted for it on this question is that of Powell which is free from the taint, he should

Waters, 8 Cow. (N. Y.) 669, not be visited with the penalty of an 691. In this


con- offense which he never committed. See tended that a new security, taken in also Palmer v. Call, 7 Fed. 737; Mitchrenewal of a prior usurious contract ell v. McCullough, 59 Ala. 179; Masby a bona fide holder, is not avoided terson v. Grubbs, 70 Ala. 406; Smalley by the usury of the original transac- v. Doughty, 6 Bosw. (N. Y.) 66; tion. Jones, Ch., said: “That prin- Smith v. White (Tex. Civ. App.), 25 ciple applies to the case of an inno- S. W. 809; Faison v. Grandy, 128 cent holder of a usurious contract for N. C. 438, 38 S. E. 897; Ward v. which he has given a valuable con- Sugg, 113 N. C. 489, 18 S. E. 717, 24 sideration, without notice of the usury. L. R. A. 280. Thus in Cuthbert v. Haley, 8 T. R. 19. Neg. Inst. L. (N. Y.), § 96. (Eng.) 390, A, made a usurious note For same section in statutes of other to B., who transferred it to C. for a States see Appendix. valuable consideration, without notice 20. English Bills of Exchange Act, of the usury, and A. gave a bond to 1882, § 38(2), which provides that C. for the amount, and the bond was “where a holder is a holder in due held not to be affected by the usury. course, he holds the bill free from A new security taken by such a meri- any defect of title of prior parties, as torious holder of the usuri jus note well as from mere personal defenses has a just claim to protection. He available to prior parties among themis not implicated in the usury which selves, and may enforce payment vitiated the original contract, and if against all parties liable on the bill.”

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