The cashier of a bank is not presumed to have power to bind it as an accommodation indorser on his individual note, and the payee cannot, unless he proves authority to make the indorsement, recover against the bank. West St. Louis Bank v. Shawnee Bank, 95 U. S. 557, 24 L. Ed. 490. It is conceded that such are the rules. But here, as already stated, the notes were not presented for discount by an officer of the Troy & Cohoes Shirt Company, or his agent, or for discount in payment of a debt of such an officer, or for the benefit of such an officer, but by the agent of an independent business company, which was carrying on a business independently of such shirt company. It was payable to the order of the maker, but this was not a suspicious circumstance.

In Collins v. Gilbert, 94 U. S. 753, 24 L. Ed. 170, the draft in question for $8,000 was drawn by P. F. Collins & Co. on Thomas Collins to their own order, and by them indorsed in blank, and without consideration accepted by said Thomas Collins. Thomas Collins was not a member of the firm. P. F. Collins & Co., having possession of the accepted draft, delivered it to one Barnes, a contractor, with whom P. F. Collins & Co. were subcontractors. Barnes discounted the draft with Gilbert & Gay, the plaintiffs. It was held that this draft, although payable to the order of the drawer, carried no notice of any defect. The headnotes are:

"(1) A negotiable instrument, payable to bearer, or indorsed in blank, produced by a transferee suing to recover its contents, is, when received in evidence, clothed with the prima facie presumption that he became the holder of it for value at its date in the usual course of business, without notice of any thing to impeach his title.

(2) The title of a bona fide holder for value of an accepted draft, indorsed in blank, is not affected by the fact that the party from whom he received it before its maturity had possession of it for certain purposes, and misappropriated it."

And in that case, at page 758 of 94 U. S. (24 L. Ed. 170) the court said:

"Where the supposed defect or infirmity in the title of the instrument appears on its face at the time of the transfer, the question whether the party who took it had notice or not is, in general, a question of construction, and must be determined by the court as matter of law. Andrews v. Pond, 13 Pet. 65 [10 L. Ed. 61]: Fowler v. Brantly, 14 Pet. 318 [10 L. Ed. 473]; Brown v. Davis, 3 T. R. 86."

In the Chemical National Bank v. Colwell (Sup.) 9 N. Y. Supp. 285, a note of the New York Lumber Company was drawn to its own order and indorsed exactly as signed. It was presented for discount by a director 20 days after made. The director who discounted the note in fact used the proceeds for his own benefit, but the bank did not know this fact. It was held that:

"The fact that Jones was a director of the company, and that the proceeds of the note were applied by him to his own use, does not show that the note was made for his accommodation, nor did the possession of the note by him naturally give rise to the question as to whether he was not confederating with the president of the company to make an improper use of the credit and the paper of the company. The note was signed: 'New York Lumber Company, Limited, D. C. Wheeler, Pres.,' and was drawn to the order of

'New York Lumber Co., Lim.,' and it was indorsed exactly as it was signed. Such a note, so indorsed, though presented for discount by a director of the company twenty days after it bore date, did not, upon its face, suggest that it was an accommodation note; nor did the possession of it by a director argue that it was used for a dishonest purpose. If, in point of fact, the proceeds of the note went into the company business; or if the note, after having been used in the business of the company, had found its way into the hands of a director (and the bank had nothing before it to show that either state of affairs was unlikely), what reason was there why it should not be discounted?"

The second headnote is as follows:

"A note of such company, drawn to its own order, and signed and indorsed by the president when presented for discount, although so presented by a director some time after its date, does not, on its face, suggest that it was an accommodation note, nor does the possession of it by the director tend to show that it was used for a dishonest purpose."

It is well settled that the fact that a note is presented for discount by the maker is notice to the institution making the discount that the indorsement thereon is an accommodation indorsement. National Park Bank of New York v. Remsen (C. C.) 43 Fed. 226; The Bank of the Monongahela Valley v. Weston et al., 159 N. Y. 201, 54 N. E. 40, 45 L. R. A. 547; Smith v. Weston et al., 159 N. Y. 194, 54 N. E. 38.

In the Bank of the Monongahela Valley v. Weston et al., 159 N. Y. 201, 54 N. E. 40, 45 L. R. A. 547, it was held:

"When a promissory note was not received by the holder from any party prior in order of liability or possession to the indorser, it is not within the rule that when a note is presented by the maker the purchaser has, from that fact, notice that the indorsements were not made in the ordinary course of business."

In Cheever v. The Pittsburg, Shenango & Lake Erie Railroad Company, 150 N. Y. 59, 44 N. E. 701, 34 L. R. A. 69, 55 Am. St. Rep. 646, the first three headnotes are as follows:

"The rights of a holder of wrongfully diverted negotiable paper, acquired by him for value before due, cannot be defeated without proof of actual notice of the defect in title, or bad faith on his part, evidenced by circumstances."

"One who takes negotiable paper for value before due, without actual notice of any defect therein, has the right to assume that the relations to the paper of every party whose name appears on it are precisely what they appear to be."

"The principle that, where an officer or agent of a corporation makes a corporate obligation payable to himself, it bears upon its face sufficient notice of his incapacity to issue it, when he attempts to deal with it for his own benefit, does not apply where an officer or agent deals with a corporate note, executed by himself as such officer or agent, but originally payable to a third party, and which, so far as appears upon its face, has been regularly issued to the original payee, and by him transferred to a firm of which the officer is a member, and for which he acted in dealing with the note."

In that case the railroad company, by its president and secretary, made its note dated February 24, 1888, in the words and figures following, with the indorsements appearing thereon when same was discounted:

$5,000.

Greenville, Pa., Feb'y., 24th, 1888. "Four months after date the Pittsburg, Shenango and Lake Erie Railroad Company promises to pay to the order of John T. Bruen five thousand dollars, at the American Exchange National Bank, New York City. "Value received.

"Attest:

"The Pittsburg, Shenango & Lake Erie Railroad Company. "By M. S. Frost, President.

"E. S. Templeton, Secretary."

"Indorsed:

"Pay to the order of M. S. Frost & Son.

John T. Bruen,
"M. S. Frost & Son."

The note and name of the corporation signed thereto was in the handwriting of Templeton, the secretary. The president signed his own name. The indorsers signed their own names in the order appearing. Bruen was the private secretary of M. S. Frost, the president. M. S. Frost was a member of the firm of M. S. Frost & Son, the last indorser. There was no consideration for the making of the note, and Bruen, the payee, had no interest whatever in it. He indorsed it because requested to do so by Frost, the president. M. S. Frost & Son paid nothing for the note, and there was no consideration for the indorsement of that company. One Brooks, of Boston, had business with Frost, and in March, 1888, took the note of M. S. Frost & Son for $30,000 as security for a loan of that amount. Frost gave Brooks, as collateral security for said $30,000 note, certain certificates representing bonds, and also this note in question and another of the same character. Brooks held these notes as collateral merely until long after they were due, when he became the absolute owner through the foreclosure of his collateral. Thereafter Brooks transferred them to the plaintiff. It is perfectly plain that in this case Frost, the president of the company, fraudulently diverted the note of the corporation to his own use. Brooks knew that Frost was the president of the corporation, the maker of the note; and he also knew that Frost, the president of the corporation, was a member of the firm of M. S. Frost & Son. He therefore knew that M. S. Frost, who had made the note of the corporation as president, had probably passed it first to Bruen, and that then it had come to the firm or company of which said Frost was a member, M. S. Frost & Son. These facts appeared upon the note itself when Brooks took it. Brooks knew that the president of the company was using this note, thus indorsed, for the benefit of M. S. Frost & Son, and to an extent, therefore, for his own individual benefit. Brooks in fact had no actual knowledge of the facts surrounding the origin of the note, or of the diversion of it by the president. The court said as to the knowledge of Brooks:

"He knew nothing, so far as appears, outside of the paper itself, except the fact that the party presenting it was defendant's president, and that he was proposing to pledge the notes for his own debt, or rather for the debt of his firm, which, for all the purposes of the question, may be assumed to be the same thing. The question in the case is therefore reduced to a very narrow inquiry, and that is whether Brooks, standing in all other respects in the position and sustaining the character of a bona fide purchaser of negotiable paper, is deprived of that character and the benefits of that posi

tion by reason of anything appearing upon the face of the notes themselves. The mind, at the threshold of the inquiry, encounters two principles that point in opposite directions and lead to different conclusions, as the one or the other is allowed to preponderate in the mental process of determining the legal rights of the parties. On the one hand is the principle which protects a bona fide holder of commercial paper from existing antecedent equities between the parties, and on the other the principle which protects a corporation from the unauthorized and fraudulent acts of its own officers. There is not much difficulty in stating the rule of law defining the duties and obligations of a party to whom negotiable paper is presented for discount or sale before due. He is not bound at his peril to be on the alert for circumstances which might possibly excite the suspicion of wary vigilance. He does not owe to the party who puts the paper afloat the duty of active inquiry in order to avert the imputation of bad faith. The rights of the holder are to be determined by the simple test of honesty and good faith, and not by a speculative issue as to his diligence or negligence. The holder's rights cannot be defected without proof of actual notice of the defect in title or bad faith on his part, evidenced by circumstances. Though he may have been negligent in taking the paper, and omitted precautions which a prudent man would have taken, nevertheless, unless he acted mala fide, his title, according to settled doctrine, will prevail. Magee v. Badger, 34 N. Y. 249, 90 Am. Dec. 691; Am. Ex. Nat. Bank v. N. Y. Belting, etc., Co., 148 N. Y. 705, 43 N. E. 168; Knox v. Eden Musee Am. Co., 148 N. Y. 454, 42 N. E. 988, 31 L. R. A. 779, 51 Am. St. Rep. 700; Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 202, 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; Jarvis v. Manhattan Beach Co., 148 N. Y. 652, 43 N. E. 68, 31 L. R. A. 776, 51 Am. St. Rep. 727. Applying these rules to the conceded facts of the case, it seems to me to be impossible to impute bad faith to Brooks in the transaction. He advanced a large sum of money on the faith of the paper, without any actual knowledge that the relations of the party with whom he dealt to the paper were different from what they appeared to be on the face of it. The question now is, not what the facts were, but what they appeared to be, and what he had the right, from the notes themselves, to assume. He had the right to assume that the relations to the paper of every party whose name appeared on it were precisely what they appeared to be. Hoge v. Lansing, 35 N. Y, 136. He had the right to believe that the notes had been issued by the defendant to Bruen for value, in the regular course of business, and were by him transferred to Frost & Son in like manner. There was nothing to suggest to him that Frost was dealing with paper that belonged to the railroad for his own benefit. The appearances were that the defendant had put the notes in circulation by delivery to Bruen, and that they came to Frost's firm in the regular course of business, for value, and were then the property of the firm. It is quite true that all these appearances were deceptive, and that the actual facts were otherwise. But how was a banker or business man in Boston to know or suspect that Bruen was only the nominal payee and a mere instrument in the transaction to enable the president to divert the paper to his own use? The name of the party who presented it and had it in his possession appeared on the face of the paper to have signed it as president. The name of another officer of the corporation was upon it also, attesting its regularity, and everything was in his handwriting except the signature of the president and the indorsement of the payee. So far as Brooks was concerned, the paper showed that it had been issued to a stranger in the regular course of business, and, through his indorsement, had come to the hands of a mercantile firm of which the president of the corporation was a member. If this were the fact, there is no doubt as to his right to use it in the business of the firm. The holder of a note who has no actual knowledge or notice of a defect in the title, or other equities between the parties, when circumstances come to his knowledge sufficient to put him upon inquiry, is chargeable with knowledge of all the facts that such inquiry would have revealed. The difficulty in this case is to find the circumstance which can be said to be sufficient to put Brooks upon the inquiry. There was absolutely nothing on the face of the paper except the signature, as

president, of the party who was dealing with it; and that, we think, was not sufficient, in view of the fact that the appearances were that he was a purchaser from a third party. The principle that applies in a case where an officer of a corporation makes the corporate obligation payable to himself, and then attempts to deal with it for his own benefit, does not aid in solving the question in this case. When paper of that character is presented by the officer or agent of the corporation, it bears upon its face sufficient notice of the incapacity of the officer or agent to issue it. Hanover Bank v. Am. Dock & T. Co., 148 N. Y. 612, 43 N. E. 72, 51 Am. St. Rep. 721; Bank of N. Y., etc., v. Am. Dock & T. Co., 143 N. Y. 559, 38 N. E. 713; Wilson v. M. E. R. Co., 120 N. Y. 145, 24 N. E. 384, 17 Am. St. Rep. 625; Gerard v. McCormick, 130 N. Y. 261, 29 N. E. 115, 14 L. R. A. 234. There are numerous cases that belong to that class cited by the learned counsel for the defendant on his brief. There is a manifest distinction between them and the case at bar. Here the officer was not dealing with the corporate notes payable to himself, but with notes that had been regularly issued, so far as appeared from their face, to a stranger, and by him transferred to a firm of which the officer was a member, and for which he acted as agent in procuring the loan from Brooks and pledging them as security. The presence of Frost's name upon the paper as one of the agents who issued it was not naturally or reasonably calculated, under the circumstances, to arouse suspicion in the mind of Brooks, or to lead him to believe that the president was attempting to defraud the corporation in disposing of the notes. None of the cases cited by the learned counsel for the defendant sustain the proposition that such a circumstance is sufficient to put the purchaser of negotiable paper upon inquiry, or charge him with knowledge of the fact in case he fails to make it, and there are many cases that tend to support the contrary view. Am. Ex. Nat. Bank v. N. Y. B. & P. Co., 148 N. Y. 698, 43 N. E. 168; Miller v. Consolidation Bank, 48 Pa. 514, 88 Am. Dec. 475; Walker v. Kee, 14 S. C. 142."

It would seem that in the case at bar the question is reduced to this: Was the fact that the notes in question were indorsed by the maker, Troy & Cohoes Shirt Company, by its president and treasurer and secretary, to such president, Frederick Beiermeister, Jr., individually, and by him to the secretary and treasurer, John M. Beiermeister, individually, and by him to C. F. Beiermeister, and by him to Beiermeister Bros. & Co., such notice of defect of title as to charge the International Trust Company with notice of the fact that this was an accommodation note, or with notice of the fact that Beiermeister Bros. & Co. had no title or right to have same discounted, notwithstanding the fact that the agent of Beiermeister Bros. & Co. stated to the trust company, when the discount was made, that the notes were given by the maker for advances? In other words, did the indorsements give notice to the trust company of the fact that in the hands of Beiermeister Bros. & Co. the notes were invalid and uncollectible? This would seem to depend upon two questions, viz.: Did the indorsement by the Troy & Cohoes Shirt Company to Frederick Beiermeister, Jr., individually, show or indicate that he had used or was using such notes or their proceeds for his own individual benefit, or did this indorsement to him and his indorsement to John M. Beiermeister show or indicate that they together had used the note or its proceeds for their individual benefit or purposes, and, if so, was the discounter, International Trust Company, thus put upon inquiry, protected in accepting and relying upon the statement of the agent of Beiermeister Bros. & Co. that the notes were given for advances made by his firm to the maker?