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Holder in due course.
means of knowledge of that fact, of which means he neglected to avail himself, Raphael v. The Bank of England, 17 C. B. 161; see also Whistler v. Forster, 14 C. B. N. S. at 248. So in Currie v. Misa, L. R. 10 Ex. 153, it was held that the title of a creditor to a negotiable security given to him on account of a pre-existing debt, and received by him bonâ fide and without notice of any infirmity of title on the part of the debtor, is indefeasible. In Ex parte Richdale, In re Palmer, 19 Ch. D. 409 ; 51 L. J. Ch. D. 462; 46 L. T. N. S. 116; it was held that when a customer pays a cheque to his bankers with the intention that it shall be at once placed to his credit, and the bankers carry the amount to his credit accordingly, they become immediately holders of the cheque for value, even though the customer's account is not overdrawn.
(W) “ Notice of any defect," i.e. bonâ fide, which was construed as “without knowledge,” per Willes, J., in Raphael v. The Bank of England, 17 C. B. 174; again in Oakeley v. Ooddeen, 2 F. & F. 656, it was held that if a party suspects a fraud, and does not ask as to it, lest he should know it, he has sufficient notice. But one who takes a negotiable security bonâ fide, that is giving value for it, and having no notice at the time that the party from whom he takes it has no title, is entitled to recover upon it, even although he may at the time have had the means of knowledge of that fact, of which means he neglected to avail himself, and such negligence will not of itself amount to notice, though it may be evidence of it, Raphael v. The Bank of England, 17 C. B. 161; again, it has been decided that the question whether or not an indorsee was guilty of gross negligence is improper, and that gross negligence may be evidence of mala fides, but is not equivalent to it, Goodman v. Harvey, 4 A. & E. 870; see also Swan v. The North British Company, 2 H. & C. 184, where Mr. Justice Byles said, “ The object of the law merchant as to bills and notes made or become payable to bearer, is to secure their circulation as money ; therefore honest acquisition conveys title. To this despotic but necessary principle the ordinary rules of the common law are made to bend. The misapplication of a genuine signature written across a slip of stamped paper (which transaction being a forgery would in ordinary cases convey no title) may give a good title to any sum fraudulently inscribed within the limits of the stamp, and in America, where there are no stamp laws, to any sum whatsoever. Negligence in the maker of an instrument payable to bearer makes no difference in his liability to an honest holder for value; the instrument may be lost by the maker or stolen from him, still he must pay. The negligence of the holder, on the other hand, makes no difference in his title. However gross the holder's negligence, if it stop short of fraud, he has a title.” Again, it is not enough if the party charged had incautiously neglected to make inquiries, but he must have designedly abstained from so doing, per Wigram, V.C., in Jones v. Smith, 1 Hare, 55; see also the
Holder in due course.
observations of Lord Cranworth, L. C., in Ware v. Lord Egmont, 4 De G. M. & G. 473. But such indorsee must not wilfully shut” his eyes to the means of knowledge of which he might avail himself; per Willes, J., in May v. Chapman, 16 M. & W. 361 ; see also the observations of Parke, B., in The Bank of Ireland v. The Trustees of Evans' Charities, 5 H. L. Cas. 411; Stevens v. Foster, 1 C. M. & R. 849; see further sect. 90 of this Act and the notes thereto.
(v) “No contract,” says Patteson, J., in Campbell v. Fleming, 1 A. and E., p. 42, "can arise out of a fraud ; and an action brought upon a supposed contract, which is shown to have arisen from fraud, may be resisted.” But a contract obtained by fraud is only voidable, and not void, and hence can be ratified; or if not, it must be disaffirmed; White v. Garden, 10 C. B. 919; Hawes v. Harness, L. R. 10 C. P. 166; Hogan v. Healy, 11 Tr. R. C. L. 119. Fraud," said Wilde, B., in Rogers v. Hadley, 2 H. & C. 257, “does not vitiate a contract necessarily, but at the election of the party defrauded.”
“ Fraud generally consists either in the misrepresentation or in the concealment of a material fact. What does or does not amount to fraud, depends very much on the facts of each particular case, on the relative situation of the parties, and on their means of information. Where therefore one person misrepresents or conceals a material fact, that is, a fact which is substantially the consideration for the contract, and which is peculiarly within his own knowledge, or uses a device which is calculated to induce the other party to forego inquiry into a material fact, upon which the former has information, although such information be not exclusively within his reach, and such concealment or other deception is practised with respect to the particular transaction, such transaction will be voidable on the ground of fraud.” Chitty on Contracts (10th Edition), pp. 630 & 631. A misrepresentation as to the legal effect of an agreement does not avoid it, Lewis v. Jones, 4 B. & C. 509. But a fraudulent intention to break the contract, expressed at the time it was entered into, will not, if not carried out, affect it, Hemingway v. Hamilton, 4 M. & W. 115. If therefore a negotiable instrument be obtained by fraud it is void not only as between the immediate parties, but also between other parties, except bonâ fide holders for value without notice, Mills v. Oddy, 2 C. M. & R. 103; Whistler v. Forster, 14 C. B. N. S. 248; see further sub-sects. (2) and (3) of this section. It has been held that if a cheque is given on a verbal condition which the drawer finds to be broken or eluded, he has a right to stop the payment of the cheque, Wienholt v. Spitta, 3 Camp. 376; fraud in obtaining a cheque gives an option to the party defrauded to disaffirm the contract, Dawes v. Harness, L. R. 10 C. P. 166. If a horse be sold under a warranty and paid for by a cheque, and the horse afterwards turns out to be unsound, the breach of warranty is an answer to the action on the cheque, if the vendor knew of this unsoundness, and if the purchaser has tendered back the horse,
Holder in due course,
Lewis v. Cosgrave, 2 Taunt. 2; see also 1 Parsons on Bills, 205 ; Fleming v. Simpson, 1 Camp. 40. Mere inadequacy of consideration does not constitute fraud, unless there be evidence of other circumstances, Solomon v. Turner, 1 Stark. 51. A bill given by an insolvent debtor in fraud of his creditors is bad, Cockshott v. Bennett, 2 T. R. 763; Knight v. Hunt, 5 Bing. 432; Parsons on Bills, vol. 1, 216. If, however, a party to a contract has been deceived by the other party, but has received the benefit of it, he cannot afterwards get it set aside. Or, to use the words of Lord Chief Baron Pollock in Rogers v. Hadley, 32 L. J. Ex. 248, “the rule that applies to a case simply of fraud, where there has been a contract imposed upon a man by fraud, and which he may adopt or not as he pleases, is a very simple rule, and if he adopt it, he cannot afterwards repudiate it. It is at his option to say, I will not give my sanction to the contract, I repudiate it; but he cannot in the common phrase play fast and loose ; he cannot at one time say, “I will adopt it,' and then when he has done so, say, 'I will hark back and repudiate it.” And in Clarke v. Dixon, E. B. & E. 148, it was held that a person induced by fraud to enter into a contract under which he pays money, may, at his option, rescind the contract and recover back the price, as money had and received, if he can return what he has received under it. But when he can no longer place the parties in statu quo, as if he has become unable to return what he bas received in the same plight as that in which he received it, the right to rescind no longer exists; and his remedy must be by an action for deceit, and not for money had and received. Thus on a treaty of marriage a promissory note was given in consideration of the marriage, which was afterwards solemnised, and an action was subsequently brought by the indorsee against the makers of the note, it was held that as the marriage, the consideration for the note, could not be undone, it was not competent to the makers to avoid the note upon the ground of fraud practised during the marriage treaty, Hogan v. Healy, 11 Ir. R. C. L. 119. It would seem that it is no defence to an action on a bill by an indorsee against the acceptor for value that the bill was indorsed upon an illegal consideration; the acceptor must shew that it was indorsed in fraud of himself; Flower v. Sadler, 10 Q. B. D. 572.
“Duress may consist either in actual violence or in a threat thereof; any unlawful im onment or detention of a person in consequence of which he is obliged to enter into a contract, or in other words to give a bill or note, is duress; but not if the custody be lawful, e.g., under the regular process of a court of competent jurisdiction, and to constitute duress by threat or per minas there must be a threat of some serious personal injury, e.g., threat to murder, wound, or imprison.” Chitty on Contracts (10th Edit.), 186 and 187. A threat of trespass to lands or goods is not sufficient, Skeate v. Beale, 11 A. & E. 983. The duress must be suffered by the party who enters into the
Holder in due course,
contract, and the consent of his agent or counsel at the time will not bind him, Cumming v. Ince, 11 Q. B. 112.
(s) These are synonymous with duress. See note (t) hereto.
(r) Other unlawful means, i.e., ejusdem generis, as fraud, duress, or force and fear, the rule as to the construction of statutes being that where several words preceding a general word point to a confined meaning, the general word shall not have such a meaning as to extend its effect beyond subjects ejusdem generis, per Lord Denman, L. C. J., in Reg. v. Nevill, 8 Q. B. 463; see also Sandiman v. Breach, 7 B. & C. 96.
(2) Considerations are illegal either at Common Law or by Statute; Story on Bills, s. 186. Considerations which are illegal at Common Law are those which are against morality (A.), or are against public policy (B.). As an instance of class (A.) a contract to hire a carriage to a prostitute for the purposes of prostitution; Pearce v. Brooks, L. R. 1 Ex. 212. So also a contract to supply dresses to a prostitute for her calling, Bowry v. Bennett, 1 Camp. 348. So also an agreement made in consideration of future illicit cohabitation between the parties is void, Walker v. Perkins, 3 Burr. 1568; 1 W. Bl. 517; Rex v. Inhabitants of Northwingfield, 1 B. & Ad. 912. So also an agreement in consideration of past cohabitation unless it be under seal, Binnington v. Wallis, 4 B & Ald. 650; Nye v. Moseley, 6 B. & C. 133; so that a bill or note given in consideration of past cohabitation is void, as indeed was held in Robinson v. Cox, 9 Mad. 263. So also a bill or note given for the amount of the rent of rooms let to a prostitute for the purpose of receiving visitors there, Girardy v. Richardson, 1 Esp. 13; Jennings v. Throgmorton, Ry. & M. 251; but not if the woman merely lodges there and receives her visitors elsewhere, Appleton v. Campbell, 2 C. & P. 347. Other instances of class (A.) are contracts for the sale of obscene immoral or libellous pictures, see Forbes v. Johnes, 4 Esp. 97; Poplett v. Stockdale, Ry. & M. 337. Instances of class (B.) are contracts in restraint of trade, as to which see Hilton v. Eckersley, 6 E. & B. 47; Ward v. Byrne, 5 M. & W. 548. But an agreement in partial restraint of trade is not void, see Davis v. Mason, 5 T. R. 118; Homer v. Ashford, 3 Bing. 322; Wickens v. Evans, 3 Y. & J. 318; Pilkington v. Scott, 15 M. & W. 657; see also Mitchel v. Reynolds, 1 Smith's Leading Cases (8th edition), p. 417, and the cases cited therein. Another instance of class B. is a contract in restraint of marriage, as to which see Lowe v. Peers, 4 Burr. 2225; Baker v. White, 2 Vern. 215; Woodhouse v. Shepley, 2 Atk. 540; Cock v. Richards, 10 Ves. 429. Another instance is an agreement for compounding a prosecution for felony, or misdemeanor of a public nature, such as perjury, embezzlement, &c., as to which see Collins v. Blantern, 1 Smith's Leading Cases (8th Edition), p. 387; 2 Wils. 341; see also Kirwan v. Goodman, 9 Dowl. 330; Ward v. Lloyd, 6 M. & G. 785; Keir v. Leeman, 6 Q. B. 308; Gibbs v. Hume, 31 L. J. Ch. 37; and Brown v. Brine,
Holder in due course,
1 Ex. D. 5; even the prosecution be withdrawn, Ex parte Critchley, 3 D. & L. 527. But it seems that if no criminal proceedings have actually been commenced, or if there be no reasonable or probable cause for believing a criminal act to have been committed, the agreement, or bill, or note given for such a consideration is not invalid, Bourke v. Mealy, 14 Cox. C. C. 329. But a bill given on threat of prosecution is valid ; Fluwer v. Sadler, 10 Q. B. D. 572. A promissory note given for the amount of the penalty directed by a magistrate e.g., for a breach of the excise laws, is valid, Sugars v. Brinkworth, 4 Camp. 46; Pilkington v. Green, 2 B. & P. 151. And a promissory note given by a forger in lieu of a forged one is also valid unless there is an agreement to stifle a prosecution for forgery, Wallace v. Hardacre, 1 Camp. 45. Agreements of maintenance and champerty, Bradlaugh v. Newdigate, 11 Q. B. D. 1. There are also many other contracts which are illegal at Common Law, as to which see Chitty on Contracts (10th Edition), pp. 611-639; Addison on Contracts (7th edition), pp. 190–234. As to contracts illegal by statute the rule is that every contract made for or in respect of something the doing of which is punished by a penalty by any statute, or impliedly prohibited by the nature and objects of the statute, is void, as to which see Story on Bills, s. 186; and Byles on Bills (13th Edition) pp. 140–147; Chitty on Contracts (10th Edition), 639–655; Addison on Contracts (7th Edition), 209–224. But where a statute imposes a penalty merely for the purpose of revenue, as for instance a statute requiring a dealer in tobacco to have his name painted on his premises, the price of tobacco sold, by one who has not complied with the provisions of such a statute can be recovered, Smith v. Mawhood, 14 DI. & W. 452; or again the price of spirits of nitre distilled and sold by one without a licence, which is prohibited by statute, Bailey v. Harris, 12 Q. B. 905. Therefore a bill or note given for any illegal consideration is void except in the hands of a bona fide holder for value without notice. “ There is,” says Mr. Justice Story in his work on Bills, s. 187, “one peculiarity in cases of illegality of consideration, in which it is distinguishable from the want or failure of consideration. In the latter, if there be a partial want or failure of consideration, it avoids the bill only pro tanto; but where the consideration is illegal in part, it avoids the bill in toto."
(p) Thus in Wienholt v. Spitta, 3 Camp. 376, it was held that if a cheque is given on a verbal condition which the drawer finds is to be broken or eluded, he has a right to stop the payment of it; see also Lloyd v. Howard, 15 Q. B. 995.
(o) See note (v) to this section.
(n)“ An innocent party may transfer a title in the bill to a person who is no party to the original fraud, though he have knowledge of it,” per Pollock, L. C. B., in May v. Chapman, 16 M. & W. 355 ; a plea that the note was obtained from the defendant by D. (not the plaintiff