and that he took such instrument before maturity, in good faith, for value, and without notice of any infirmity in the instrument or defect in the title of the person negotiating it.56 The presumption, however, does not arise in favor of a holder, where the instrument was payable to order, or was not indorsed.57 The possession of a nonnegotiable instrument is not prima facie evidence of the title of the holder, nor that it was transferred to him

56. Presumption as to good faith.— Missouri.- Famous Shoe & ClothThe holder of a negotiable instrument ing Co. v. Crosswhite, 124 Mo. 34, 27 is presumed to have taken it in good S. W. 397, 26 L. R. A. 568; Fitzgerald faith, before maturity and for value. v. Barker, 85 Mo. 13; Bastine V. See the following cases: Wilding, 45 Mo. 92, 100 Am. Dec. 347.

United States.- Collins v. Gilbert, 94 U. S. 753, 24 L. Ed. 170; Goodman v. Simonds, 20 How. 343, 15 L. Ed. 934; Swift v. Tyson, 16 Pet. 1, 10 L. Ed. 865; Atlas Nat. Bank v. Holm, 71 Fed. 489, 19 C. C. A. 94.

Ga. 225.

25

Illinois.- Hall v. First Nat. Bank, 133 Ill. 234, 24 N. E. 546; Cisne V. Chidester, 85 Ill. 523; Jewett v. Cook, 81 Ill. 260.

Iowa.- Rea v. Owens, 37 Iowa, 262; Bigelow v. Burnham, 90 Iowa, 300, 57 N. W. 865, 48 Am. St. Rep. 442.

Kansas.- Cobleskill First Nat.

Bank v. Emmett, 52 Kan. 603, 35 Pac. 213; First Nat. Bank v. Elliott, 46 Kan. 32, 26 Pac. 487.

Kentucky.- Hargis v. Trust Co., 30 S. W. 877; Alexander v. Springfield Bank, 2 Metc. 534.

Maine.-Webster v. Calden, 56 Me.

204.

Massachusetts.-Esterbrook v. Boyle, 1 Allen, 412; Balch v. Onion, 4 Cush. 559; McGee v. Prouty, 9 Metc. 547, 43 Am. Dec. 409.

Michigan.- Little v. Mills, 98 Mich. 423, 57 N. W. 266; Wright v. Irwin, 33 Mich. 32; Hovey v. Sebring, 24 Mich. 232, 9 Am. Rep. 1022.

Missouri.- Harrison V. Pike, 48 Miss. 46; Emanuel v. White, 34 Miss. 56, 49 Am. Dec. 385.

Montana.- Rossiter v. Loeber, 18 Mont. 372, 45 Pac. 560.

Nebraska.- Kelman v. Calhoun, 43 Neb. 157, 61 N. W. 615.

New York.-Langley v. Wadsworth, 99 N. Y. 161, 1 N. E. 106; Harger v. Worrall, 69 N. Y. 370; Nickerson v. Renger, 76 N. Y. 279; Hayes v. Hathorn, 74 N. Y. 486; Kidder v. Horro

bin, 72 N. Y. 159; Seybell v. National Currency Bank, 54 N. Y. 288, 13 Am. Rep. 583; Morton v. Rogers, 14 Wend. 575; Nelson v. Cowing, 6 Hill, 336; James v. Chalmers, 6 N. Y. 209; Strickland v. Henry, 66 App. Div. 23, 73 N. Y. Supp. 12; Flour City 34 N. Y. Supp. 496: Torne v. GerNat. Bank v. Grover, 88 Hun, 4 lach, 64 Hun, 635, 18 N. Y. Supp.

932;

National State Bank v. Richard

son, 50 Hun, 604, 2 N. Y. Supp. 804. North Carolina.- Tredwell Blount, 86 N. C. 53.

V.

Pennsylvania.- Battles v. Laudens4 Watts & S. 445, 39 Am. Dec. 99. lager, 84 Pa. St. 446; Knight v. Pugh,

Wisconsin.- Wayland University v. Boorman, 56 Wis. 657, 14 N. W. 819.

57. Ross v. Smith, 19 Tex. 171, 70 Am. Dec. 327; Thompson v. Olney, 96 N. C. 9; Quigley v. Mexico So. Bank, 80 Mo. 289, 50 Am. Rep. 503.

But in New York it has been held that where a promissory note is payable to order and not indorsed, the legal presumption is that it was delivered to the payee named, or some one authorized by him to receive it, and its possession by a third person will be deemed to be in trust; as between him and the payee the note furnishes at least prima facie evidence that the former has the legal title. Price v. Brown, 98 N. Y. 388.

before maturity.58 And where a note was executed by the president of a corporation in the name of the corporation, and made payable to him as executor of a decedent, there is no presumption that the holder is a bona fide holder for value, before maturity.59 Where a prior indorsee is in possession of a note, the burden of proof is on him to show his title. The presumption being in favor of the validity of the title of the holder of a note, one seeking to impeach such title assumes the burden of proof.

61

c. When burden of proof shifts.— The provision of the statute imposing upon the holder the burden of proving that he or some person under whom he claims acquired the title is a holder in due course, when it is shown that the title of any person who has negotiated the instrument is defective, is a legislative enactment of the general rule. This provision should be construed with the former section of the statute declaring when the title to an instrument is defective. It is an elementary rule that when the maker of a negotiable instrument shows that it has been obtained from him by fraud or duress, a subsequent transferee must, before he is entitled to recover on it, show that he is a bona fide holder. It

62

58. Barrick v. Austin, 21 Barb. (N. Y.) 241; Bircleback v. Wilkins, 22 Pa. St. 26.

59. Erie Boot & Shoe Co. v. Eichenlaub, 127 Pa. St. 164, 17 Atl. 889.

60. Mauldin v. Branch Bank, 2 Ala. 502; Palmer v. Whitney, 21 Ind. 61. 61. See cases cited under note 56, immediately ante.

62. See Neg. Inst. L. (N. Y.), § 94, See ante, § 76, p. 374.

63. Burden of proof when maker shows fraud, duress, etc.- In New York the following are controlling cases upon this proposition: Citizens' Nat. Bank v. Weston, 162 N. Y. 113, 56 N. E. 494, where it was held that proof that a promissory note was fraudulent as between the holder and makers, shifts to the transferee, suing thereon, the burden of proof, and it becomes necessary for him to show not only the payment of value by him, but the circumstances under which he became the holder of the note. See also Donai v. Lutjens, 165 N. Y. 622, 59 N. E. 1121; Smith v. Weston, 159 N. Y. 194, 54 N. E. 38; Joy v. Diefendorf, 130 N. Y. 6, 28 N. E. 602; Frane v. Dickinson, 125 N. Y. 710, 26 N. E. 250; Canajoharie Nat. Bank v. Diefendorf, 123 N. Y.

63

191, 25 N. E. 402, 10 L. R. A. 676; Vosburgh v. Diefendorf, 119 N. Y. 357, 23 N. E. 801, 16 Am. St. Rep. 836; First Nat. Bank v. Green, 43 N. Y. 298; Cahen v. Everitt, 67 App. Div. (N. Y.) 86, 73 N. Y. Supp. 549; Pelly v. Onderdonk, 61 Hun (N. Y.) 314, 15 N. Y. Supp. 915; Benson v. Gurlach, 58 Hun (N. Y.), 610, 12 N. Y. Supp. 595.

In other States the following cases are cited:

Alabama.- Holland v. Barnes, 53 Ala. 83, 25 Am. Rep. 595; Ross v. Drinkard, 35 Ala. 434.

Arkansas.- Bertrand v. Barkman, 13 Ark. 150; Taber v. Merchants' Nat. Bank, 48 Ark. 454, 3 S. W. 805.

California.- Eames v. Crosier, 101 Cal. 260, 35 Pac. 873; Jordan v. Grover, 99 Cal. 194, 33 Pac. 889.

Illinois. Hodson v. Eugene Glass Co., 156 Ill. 397, 40 N. E. 971.

Indiana.- First Nat. Bank v. Ruhl, 122 Ind. 279, 23 N. E. 766; Palmer v. Poor, 121 Ind. 135, 22 N. E. 984; Giberson v. Jolley, 120 Ind. 301, 22 N. E. 306.

Iowa.- Galbraith v. McLaughlin, 91 Iowa, 399, 59 N. W. 338; United States Nat. Bank v. Crosley, 86 Iowa, 633, 53 N. W. 352.

is not essential that the plaintiff sustain the burden so cast upon him by showing that he himself purchased the instrument for value, but he may avail himself of the position of any previous holder who was a holder for value. Where it is shown by the defendant that an instrument was given for a particular purpose, and was afterward unlawfully diverted therefrom, the burden of proving that he is a bona fide holder is imposed upon the plaintiff.65 The fraudulent diversion operating to change the burden

Kentucky.— Early v. McCart, 2 Dana, 414.

Maine.-Wing v. Martel, 95 Me. 535, 50 Atl. 705; Market & Fulton Nat. Bank v. Sargent, 85 Me. 349, 27 Atl. 192; Kellogg v. Curtis, 69 Me. 212, 31 Am. Rep. 273.

Maryland.- Cover v. Myers, 75 Md. 406, 23 Atl. 850; Williams v. Huntington, 68 Md. 590, 13 Atl. 336, 6 Am. St. Rep. 477.

V.

Texas.- Riche Planters' Nat. Bank, 84 Tex. 413, 19 S. W. 610; People's Nat. Bank v. Mulkey (Tex. Civ. App.), 61 S. W. 528.

64. Montclaire v. Ramsdell, 107 U. S. 147, 2 Sup. Ct. 391, 37 L. Ed. 431. See also preceding section as to rights of holders deriving title through holder in due course.

65. Unlawful diversion.- In the case of Smith v. Weston, 159 N. Y. Massachusetts.- Conant V. John- 194, 198, 54 N. E. 38, the court ston, 165 Mass. 450, 43 N. E. 192; said: Sullivan v. Langley, 120 Mass. 437; Tucker v. Morrill, 1 Allen, 528.

Michigan.- Drovers' Nat. Bank v. Blue, 110 Mich. 31, 67 N. W. 1105; French v. Talbot Pav. Co., 100 Mich. 443, 59 N. W. 163.

Minnesota.- First Nat. Bank v. Holan, 63 Minn. 525, 65 N. W. 952; Bank of Montreal v. Richter, 55 Minn. 362, 57 N. W. 61.

Missouri.- Campbell v. Hoff, 129 Mo. 317, 31 S. W. 603.

Nebraska.- Crosby v. Ritchey, 47 Neb. 924, 66 N. W. 1005; Fawcett v. Powell, 43 Neb. 437, 61 N. W. 586.

New Hampshire.- Perkins v. Prouty, 47 N. H. 387, 93 Am. Dec.

66

While upon the production of the note by the plaintiff, and proof of the signatures of the parties thereto, and of presentment and notice of dishonor, a prima facie case was established in his favor, as soon as it appeared that the note was indorsed outside of the firm business, and without authority of all the members, the burden of proof shifted, and in order to recover it was necessary for the plaintiff to show that he was a bona fide purchaser, or that the indorsement was authorized. It was not enough for him to prove simply that he had paid value for the note before maturity, but it was necessary for him to go further and show either that he had no nowledge, or notice equivalent to knowledge, that the indorsement was for the accommodation of the makers, or else that it was made with the authority of, or was ratified by, the other members of the firm." See also Farmers & Citizens' Nat. Bank v. Moxen, 45 N. Y. 762; Nickerson v.

North Dakota.- Ravicz v. Nickells, 9 N. Dak. 536, 84 N. W. 353. Oregon.- Owens v. Snell, etc., Co., Ruger, 76 N. Y. 279; Grocers' Bank 29 Ore. 483, 44 Pac. 827.

Pennsylvania.- Real Estate Co. v. Russell, 148 Pa. St. 496, 24 Atl. 59; Gere v. Unger, 125 Pa. St. 644, 17 Atl. 511; Reamer v. Bell, 79 Pa. St.

292.

Rhode Island.- Hazard v. Spenser, 17 R. I. 561, 23 Atl. 729.

v. Penfield, 69 N. Y. 502, 25 Am. Rep. 231; Western Nat. Bank v. Wood, 64 Hun (N. Y.), 635, 19 N. Y. Supp. 81; Hale v. Shannon, 57 Hun (N. Y.), 466, 11 N. Y. Supp. 129.

In the case of American Exchange Nat. Bank v. New York Belting, etc., Co., 74 Hun (N. Y.), 446, affd. in 148

of proof must be a fraud as against the defendant or maker, and not as against the payee or some intermediate holder. Where it is proved that negotiable paper was lost or stolen, the burden of proof is upon the purchaser to show that he is himself a bona fide purchaser, or that he has succeeded to the rights of a bona fide holder, before maturity.67 In the absence of proof of fraud or misappropriation, the presumption is that the indorsee of a negotiable bill or note is a bona fide holder for value, and this presumption is not repelled merely by proof that the bill or note, as between the immediate parties, was without consideration, and was made, indorsed, or accepted by one for the sole accommodation of the other; when no other proof is given, the holder is not bound to prove a valuable consideration.68 We have already considered, in the chapter on Consideration, the presumption of a valuable consideration, and the effect thereof on the rights of holders. The rule has been well stated by Paterson, J., as follows: "Upon proof by the defendant of fraud or illegality in the inception of the note, the burden is cast upon the indorsee to show that he is an innocent holder. This the latter may do by showing that he purchased the note before maturity, or from an innocent indorsee, for value, in the usual course of business. When this is done, unless the evidence shows that the note was taken by the plaintiff under circumstances creating the presumption that he knew the facts impeaching its validity, the burden is cast upon the defendant to show, if he would defeat the plaintiff in his action, that the latter took the instrument with notice of the defendant's equities." 70 The payment of value for negotiable paper is a circum

N. Y. 698, 43 N. E. 168, it was held that where it appears that the plaintiff paid full value for a note, in the usual course of business, and there are no circumstances to show that he had notice that the note had been diverted, it will be presumed that he acquired it in good faith, and without notice of the diversion.

See also in support of the proposition in the text: Sperry v. Spaulding, 45 Cal. 544; Union Nat. Bank v. Harber, 56 Iowa, 559, 9 N. W. 890; Aldrich v. Warren, 16 Me. 465; Perrin v. Noyes, 39 Minn. 384, 63 Am. Dec. 633; Williams v. Huntington, 68 Md. 590, 13 Atl. 336, 6 Am. St. Rep. 477; Davis v. Bartlett, 12 Ohio St. 534, 80 Am. Dec. 375; Union Trust

Co. v. McClellan, 40 W. Va. 405, 21
S. E. 1025.

66. Kinney v. Kruse, 28 Wis. 83.

67. Northampton Nat. Bank v. Kidder, 106 N. Y. 221, 12 N. E. 577, 60 Am. Rep. 443; Nickolson v. Patton, 13 Iowa, 213; Devlin v. Clark, 31 Mo. 22.

68. Harger v. Worrall, 69 N. Y. 370; Merchants & Traders' Bank v. Crow, 60 N. Y. 85; Ross v. Bedell, 5 Duer (N. Y.), 462.

69. See chap. IV, § 53, ante.

70. Eames v. Crosier, 101 Cal. 260, 35 Pac. 873. See also Dalrymple v. Hillenbrand, 62 N. Y. 5, 20 Am. Rep. 438. The effect of the decision in the latter case is that where in an action on a promissory note the defense

stance to be taken into account with other facts in determining the question of the bona fides of the transaction, and when full value is paid, it is entitled to great weight."1

It will be noticed that the statute provides that proof of a defective title shifts the burden of proof upon the holder; a title is defective where the instrument is obtained for an illegal consideration. It follows, therefore, that if the consideration be shown to be illegal; as for a gambling debt, an unlawful sale of commodities, or as being tainted with usury, the burden of proof will then rest upon the plaintiff to show that he was a holder in due course;"