55

And so it is that knowledge of the fraud or wrong suffered by prior parties brought home to the purchaser after the transfer to him for a valuable consideration cannot shake the title he has acquired on his purchase.54 And this rule goes to the extent that if a valuable consideration is partly paid and partly unpaid, the purchaser is to be protected to the amount which he has in good faith paid, because his equity is to that extent superior to that of the prior party. The reason for the second rule is that the purchaser for value without notice, when he transfers the instrument, transfers without reservation all the rights he has in it. The transferee acquires all these rights. And if such a transferror could have maintained an action upon the bill or note, the purchaser from him is not affected by notice of the defenses of prior parties. And subsequent notice of the defect to the transferee cannot affect the right of action upon the paper any more than subsequent notice of any equity to the transferror.58

sippi Valley Trust Co., 144 Mo. App. 640, 129 S. W. 407 (N. I. L.); Murchison v. Nies, 87 Kan. 77, 123 Pac. 750 (date of instrument does not appear-no reference to N. I. L.).

54 Hoge v. Lansing, 35 N. Y. 136; Howard Banking Co. v. Welchman, 6 Bosw. (N. Y.) 280; Perkins v. White, 36 Ohio St. 530; Woodworth v. Huntoon, 40 Ill. 131, 89 Am. Dec. 340, Johns. Cas. Bills & N. 150.

55 Dows v. Kidder, 84 N. Y. 121; Dresser v. Missouri & I. R. Const. Co., 93 U. S. 93, 23 L. Ed. 815, Johns. Cas. Bills & N. 187. This was a case where partial payment only had been made when notice of fraud was given, and payment prohibited. It was held by Justice Hunt that: "The case before us is governed by the rule that the portion of an unperformed contract which is completed after notice of a fraud is. not within the principle which protects a bona fide purchaser." Hubbard v. Chapin, 2 Allen (Mass.) 328; Lay v. Wissman, 36 Iowa, 309; N. I. L. § 54. For an attempted explanation of this rule, see note 6, supra.

56 Northampton Nat. Bank v. Kidder, 106 N. Y. 221, 12 N. E. 577, 60 Am. Rep. 443; Miller v. Talcott, 54 N. Y. 114; Farmers' & Citizens' Nat. Bank v. Noxon, 45 N. Y. 762; Chalmers v. Lanion, 1 Camp. 383. This was an action by the second indorsee against the acceptor of a bill of exchange. It was held that if the person who indorsed the bill to the plaintiff could himself have maintained an action upon it, the defendant cannot give in evidence that it was accepted for a debt contracted in smuggling, although it was indorsed to the plain

PRESUMPTION AND BURDEN OF PROOF-
ORDER OF PROOF

128. The holder of a bill or note is, in the first instance, presumed to be a holder for value and without notice; but, if it is proved on the trial that the bill or note, in its issue or negotiation, was affected by the defenses hereinafter specified, it is incumbent for the holder to prove that he is such a purchaser.

tiff after it had become due. Masters v. Ibberson, 8 C. B. 100; May v. Chapman, 16 Mees. & W. 355; Commissioners of Marion County v. Clark, 94 U. S. 278, 24 L. Ed. 59; Porter v. Pittsburg Bessemer Steel Co., 122 U. S. 267, 7 Sup. Ct. 1206, 30 L. Ed. 1210; Scotland County v. Hill, 132 U. S. 117, 10 Sup. Ct. 26, 33 L. Ed. 261; Verbeck v. Scott, 71 Wis. 63, 36 N. W. 600; Shaw v. Clark, 49 Mich. 384, 13 N. W. 786, 43 Am. Rep. 474; Suffolk Sav. Bank v. City of Boston, 149 Mass. 365, 21 N. E. 665, 4 L. R. A. 516; Riley v. Shawacker, 50 Ind. 592; Mornyer v. Cooper, 35 Iowa, 257; Hascall v. Whitmore, 19 Me. 102, 36 Am. Rep. 738; Woodworth v. Huntoon, 40 Ill. 131, 89 Am. Dec. 340; Bassett v. Avery, 15 Ohio St. 299; N. I. L. § 58; Comstock v. Buckley, 141 Wis. 228, 124 N. W. 414, 135 Am. St. Rep. 34 (N. I. L.); Unaka Nat. Bank v. Butler, 113 Tenn. 574, 83 S. W. 655 (N. I. L.); R. T. & B. F. Camp Lumber Co. v. State Sav. Bank, 59 Fla. 455, 51 South. 543 (N. I. L.); Moyses v. Bell, 62 Wash. 534, 114 Pac. 193 (N. I. L.). In Horan v. Mason, 141 App. Div. 89, 125 N. Y. Supp. 668 (N. I. L.), it appeared that notes were made by the defendant to a corporation and indorsed by the corporation to the plaintiff, the president of such corporation, for value; the plaintiff indorsed the notes to a bank for full value; at maturity, the defendant not having paid the notes, the plaintiff paid their amounts to the bank and received back the notes. There was evidence that the plaintiff, when the notes were negotiated to him, knew such facts that he had either actual or constructive notice of the fraud of the payee corporation in inducing the defendant to make the notes. The appellate court held that it was error for the trial court not to have directed a verdict for the plaintiff, on the ground that he acquired the title of the bank. This conclusion seems unsound, since, if the plaintiff had actual or constructive notice of the fraud before he negotiated the instrument to the bank, he was guilty of a breach of a constructive trust in negotiating the instrument to the bank. The court relied upon section 58, N. I. L., and said (141 App. Div. at page 92, 125 N. Y. Supp. at page 670): "In the case at bar the plaintiff was not the payee of the note and the exception to the general rule cannot apply as against him, as he did not personally participate in any fraud connected with the making

129. The usual order of proof on a trial is:

(a) To produce the paper sued on.

(b) To prove the signatures of the defendant and of all persons whose indorsement is necessary to establish the plaintiff's title.

(c) To prove, as against the drawer or indorsers, presentment, demand, dishonor, and notice of dishonor to them, or circumstances to excuse these acts.

130. Upon proof of the facts specified in the foregoing section, the holder may rest for his recovery until evidence is adduced showing:

(a) That the holder when he took the paper had notice of the equities.

(b) Or that there was fraud, duress, or illegality in the issue or subsequent negotiation of the instrument.

and delivery of the note, even though he might be chargeable with actual or constructive notice of it." See Central Nat. Bank v. Ericson, 92 Neb. 396, 138 N. W. 563 (N. I. L.); Berenson v. Conant, 214 Mass. 127, 101 N. E. 60 (N. I. L.); Bute v. Williams (Tex. Civ. App.) 162 S. W. 989. Section 26, N. I. L., provides: "Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time." Since section 58 provides that a holder deriving title from a holder in due course is a holder in due course, unless he was a party to the fraud or illegality affecting the instrument, section 26 seems unnecessary, except perhaps to cure the effect of a literal construction of section 29, which implicitly provides that an accommodation party is liable only to a holder for value. See Lehrenkrauss v. Bonnell, 199 N. Y. 240, 92 N. E. 637 (N. I. L.). Section 26 was referred to, but not interpreted, in Petrie v. Miller, 57 App. Div. 17. 67 N. Y. Supp. 1042 (N. I. L.); Rogers v. Morton, 46 Misc. Rep. 494, 95 N. Y. Supp. 49 (N. I. L.); Hover v. Magley, 48 Misc. Rep. 430, 96 N. Y. Supp. 925 (N. I. L.); Re Hopper-Morgan Co. (D. C.) 154 Fed. 249 (N. I. L.); Campbell v. Fourth Nat. Bank of Cincinnati, 137 Ky. 555, 126 S. W. 114 (N. I. L.); National Bank of Commerce in St. Louis v. Morris, 156 Mo. App. 43, 135 S. W. 1008 (N. I. L.). Certainly section 26 should not be literally construed so as to reach this result: A plaintiff, innocent as to fraud in the inception of the instrument, receives the instrument as a gift from an indorsee who acquired the instrument for value, but with notice of the fraud. If the plaintiff must be deemed a holder for value as to parties prior to his indorsee who paid value, he must be deemed a holder in due

course.

131. Upon proof of facts specified last above, the purchaser must show that he or some person under whom he claims was a purchaser for value without notice.

It is the purpose of this section to show the application of the rules set forth in this and the foregoing chapter in their actual administration in courts of law. These two chapters have attempted to show that, where negotiable instruments are negotiated to a third person, certain defenses will not be allowed to be interposed against him in his action upon the instrument, provided he is a purchaser for value and without notice. In asserting the instrument as a legal right, and enforcing it in court, these principles take the form of presumptions of evidence.57 This may be made clearer, perhaps, if the meaning of a presumption is elaborated by showing its application. It must be kept in mind that a court is, so to speak, an invention or machine

57 The burden and order of proof must, of course, depend upon the pleadings and the issue raised. Ordinarily, the declaration or complaint is upon the instrument itself, varying in form according to the parties by or against whom the action is brought. The declaration describes the instrument, and sets forth in substance how the defendant became a party, and his contract, the mode by which the plaintiff derived his interest in and right of action on the instrument, and the breach of the defendant's contract. Chit. Bills (8th Ed.) 578. At common law, in an action between immediate parties, it was usual to declare not only on the instrument itself, but also on the original consideration; the practice being to declare on the money counts, and give the instrument in evidence under them, if adapted to the consideration. But this did not apply where there was no privity between the plaintiff and the defendant, as between indorsee and acceptor or maker. Chit. Bills (8th Ed.) 593, 594. Whitwell v. Bennett, 3 Bos. & P. 559; Waynam v. Bend, 1 Camp. 175; Eales v. Dicker, Moody & M. 324; Pierce v. Crafts, 12 Johns. (N. Y.) 90. In the United States the doctrine has been extended to suits between other than immediate parties, and it has frequently been held that under the counts for money lent, money paid, and money had and received the holder might recover against the acceptor or a remote indorser. Ellsworth v. Brewer, 11 Pick. (Mass.) 316; Pierce v. Crafts, supra; Penn v. Flack, 3 Gill & J. (Md.) 369; Tenney v. Sanborn, 5 N. H. 557; Howes v. Austin, 35 Ill. 396; Edw. Bills & N. (3d Ed.) § 933; 2 Ames Cas. Bills & N. 539, note 1, 874. It seems that the form of action did not affect the rights of the parties, nor lessen the proof required to establish the plaintiff's right to recovery. Cruger v. Armstrong, 3 Johns. Cas. (N. Y.) 5, 2 Am. Dec. 126; Harker v. Anderson, 21 Wend. (N. Y.) 372; Edw. Bills & N. (3d Ed.) § 934.

for administering justice; and that to put this machine in motion it is necessary to bring the facts constituting a wrong to the notice of a judge and jury by written evidence or the sworn testimony of persons who have seen or known the facts to be proved. If these facts are undenied, or controverted and proved, the court then administers a remedy. But this the court of law can only do, and the machinery of justice can only be set in motion, when the facts constituting a violated right are brought before it by competent evidence. Until that time the courts sit idly by, awaiting facts demonstrating affirmatively that some one has been wronged. These facts must be proved in extenso by the person prosecuting the remedy, or the plaintiff. In case of negotiable bills and notes, most of the affirmative proof necessary to establish other kinds of contracts is unnecessary, because the court, upon the production of the instrument, assumes certain facts as proved sufficiently to entitle the plaintiff to judgment, unless the defendant. seeks to disprove them. So that in the first stage of the plaintiff's case the court, upon production of the instrument, assumes as proved and acts upon the following facts

as true:

(1) That there was a sufficient consideration for the promise or order or transfer, whether the receipt of a consideration was stated or not.58

(2) That there was such a delivery of the instrument as is necessary to its legal inception.59

(3) That the written terms of the instrument state the facts as therein set forth, the date showing the time of execution and fixing the time of payment; 61 the terms of payment 62 both as to its amount 63 and as to its place.

58 Olsen v. Ensign, 7 Misc. Rep. 682, 28 N. Y. Supp. 38; Bottum v. Scott, 11 N. Y. St. Rep. 514; Anthony v. Harrison, 14 Hun (N. Y.) 198, affirmed 74 N. Y. 613; Andrews v. Chadbourne, 19 Barb. (N. Y.) 147. 59 Sawyer v. Warner, 15 Barb. (N. Y.) 282.

Go Breck v. Cole, 4 Sandf. (N. Y.) 80; Germania Bank v. Distler, 4 Hun (N. Y.) 633; 1 Pars. Bills & N. 41.

61 Joseph v. Bigelow, 4 Cush. (Mass.) 82-84.

62 Walker v. Clay, 21 Ala. 797; Blakemore v. Wood, 3 Sneed (Tenn.) 470.

63 Norwich Bank v. Hyde, 13 Conn. 282. Pars. Bills & N. 333-338; Abb. Tr. Ev. 411.