Goodman v. Simonds.

nary diligence he might have ascertained that the drawer had no interest in the bill, or authority to use it for his own benefit. The plaintiff must therefore be held to have taken the bill subject to all the defences which the defendant had against the drawer. (Peacock v. Rhodes, Douglass, 633; Down v. Halling, 4 B. and C., 330; 2 Car. and P., 11; Snow v. Peacock, 3 Bing., 406; 2 C. and P., 215; Slater v. West, 3 Car. and P., 325; Solomans v. Bank of England, 13 East, 135; Gill v. Cubitt, 4 Barn. and C., 466; De La Chaumette v. Bank of England, 9 Barn. and C., 208; Haynes v. Foster, 4th Tyrw., 65; Hatch v. Searles, 31 Eng. L. and E. R., 219; Ayer v. Hutchins, 4 Mass., 370; Cone v. Baldwin, 12 Pick., 545; Hall v. Hale, 8 Con., 336; Beltzhoover v. Blackstock, 3 Watts, 25; McKeeson v. Stansbury, 3 Ohio N. S.; Russell v. Haddock, 3 Gil. Ills., 233; Nicholson v. Patton, 13 La. R., 216; Lapice v. Clifton, 17 ib., 152; L'Anfear v. Blosman, 1 La. An. R., 156; La. State Bank v. N. O. Nav. Co., 3 La. An., 294; Fowler v. Brantly, 14 Pet., 318; Andrews v. Pond, 13 Pet., 79.)

Mr. Geyer then proceeded to review the cases and elementary authorities in an elaborate argument, which would doubtless be interesting to the profession, if the reporter had room to insert it. But he can only find space for the concluding part, which was as follows:

This review of the adjudged cases in England exhibits the concurrent authority of all the decisions in bank in support of the doctrine that the holder of a negotiable instrument, who has taken it without reasonable caution, and under circumstances which ought to have excited the suspicion of a prudent and careful man that it was not good, is not protected against the defences of prior parties. It is claimed, however, that this doctrine has been overruled by more recent decisions. (Crook v. Jadis, 5 Bar. and Ad., 909; Backhouse v. Harrison, ib., 1098; and Goodman v. Harvey, 4 Ad. and E., 870.) And it must be conceded that they do in terms repudiate that doctrine, so long and so firmly established; but it may well be questioned whether they are of sufficient authority to overturn it and change the law in England, or induce the American courts to abandon it.

The case of Crook v. Jadis was an action by an endorsee against the drawer of an accommodation bill; it was tried at the Middlesex sittings, after Michaelmas term, 1833, before Denman, Ch. J., who told the jury to find for the plaintiff, if they thought he had not been guilty of gross negligence in taking the bill under the circumstances given in evidence. The jury having found for the plaintiff, the counsel for the defendant moved for a new trial, citing Down v. Halling. The motion

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was disposed of in a very summary way by the court in bank. Denman, Ch. J., said: "I used the expression gross negligence advisedly, because I thought nothing less ought to have prevented the plaintiff recovering on the bill." Littledale, J., who had approved the existing doctrine in Rothschild v. Corney et al., 9 B. and C., 388, said: "There must be gross negligence at least, in a case like the present, to deprive the party of his right to recover on a bill of exchange." Taunton, J., said: I think the case was properly submitted to the jury. I cannot estimate the degree of care which a prudent man should take. The question put by the Lord Chief Justice, whether the plaintiff was guilty of gross negligence, was more definite and appropriate.' Patteson, J., said: "I never could understand what is meant by a party's taking a bill under circumstances which ought to have excited the suspicion of a prudent man." In Backhouse v. Harrison, decided at the same term, the same doctrine was held, on the authority of Crook v. Jadis; no additional reasons are given for the opinion, except that Patteson, J., had "no hesitation in saying that the doctrine first laid down in Gill v. Cubitt, and acted upon in other cases, has gone too far, and ought to be restricted." In Goodman v. Harvey, decided in 1836, a non-suit was taken, and the case came before the court in bank, on a rule nisi for a new trial. The only opinion reported was by Lord Denman, Ch. J., who said: "The question I offered to submit to the jury was, whether the plaintiff had been guilty of gross negligence or not. I believe we are all of opinion that gross negligence only would not be a sufficient answer, where the party has given consideration for the bill. Gross negligence may be evidence of mala fides, but it is not the same thing. We have shaken off the last remnant of the contrary doctrine. Where the bill has passed to the plaintiff without any proof of bad faith in him, there is no objection to his title."

The ruling in the last case is at variance with the decisions in the two preceding, made by the same court only two years before, and is coincident with the doctrine urged by Mr. Denman, as counsel in Down v. Halling, without success. In all of them it is assumed that the holder is not affected by constructive notice of the defect or infirmity in the title. In neither of them is the decision placed upon principle or authority, or sustained by any intelligible judicial reasoning. Decisions so arbitrary and inconsistent cannot be regarded as of sufficient authority to overturn the doctrine established by an uninterrupted series of decisions by the Courts of King's Bench, Common Pleas, and Exchequer, and founded on principle as well as authority.

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The more recent cases cited in support of the doctrine of Lord Denman are, Stevens v. Foster, 1 Crom. Mer. and R., 849; Uther v. Rich, 10 Ad. and E., 784; Arbouin v. Anderson, 1 Ad. and E., N. S., 498; and Masters v. Ibberson, 1 Com. and B., 100. In the first of these cases, the question was not made, but the case was considered by the court in bank, together with Foster v. Pearson, arising out of the same transaction; and it was in reference to the direction given to the jury at the trial of the latter case, (as in Gill v. Cubitt,) that Baron Park, in delivering the judgment of the court, expressed a doubt of its propriety, especially since the decisions of the King's Bench, in Crook v. Jadis. and Backhouse v. Harrison, but said it was unnecessary to decide the question then, and, assuming the direction to be correct, decided the case on other grounds.

In the other cases, the questions arose on the pleadings, under the new rules. In Uther v. Rich, decided in 1839, the sole question was, whether mala fules is alleged by an averment in a plea that the plaintiff was not a bona fide holder of the bill. Lord Denman said: "That the court adhered to the decision in Goodman v. Harvey, from which it followed that in pleading, mala fides must be distinctly averred." In Arbouin v. Anderson, decided in 1841, Lord Denman took occasion to say that, "acting upon the case of Goodman v. Harvey, which gives the law now prevailing on the subject, we must hold that the owner of a bill is entitled to recover upon it, if he has come by it honestly, and that the fact is implied by possession; and that, to meet the inference so raised, fraud, felony, or some such matter, must be proved." In Masters v. Ibberson, decided in 1849, (an action by the second endorsee against the maker of a note,) the defendant pleaded that the note was obtained from him by a person-not a party-and others in collusion with him, by fraud, and that there never was any value or consideration for either of the endorsements. This plea was held bad on special demurrer, because it did not allege that the payee was a party to the fraud, or had given no consideration for the note.

It does not appear that the doctrine in the case of Goodman v. Harvey has been held by any court except the King's Bench; and in the case of Hatch . Searles, decided in 1854, (31 Eng. Law and Eq. Rep., 219,) the doctrine repudiated by the King's Bench was distinctly asserted. In a suit for the administration of the estate of a deceased person, a claim was made by the holder of a bill of exchange to be admitted as creditor; but it being proved that the holder, who was endorsee of the bill, was aware of the fact of the acceptance being in blank, it was held that he must be taken to have had as full knowledge

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of the circumstances of the origin of the bill as he might have acquired if he had made proper inquiry; that is, the facts and circumstances known to the holder at the time of the transfer amount to constructive notice of the defect or infirmity of the title, and this is no doubt the true ground. It is agreed on all sides that express notice is not indispensable, and constructive notice will have the same effect, and the facts and circumstances which will amount to actual or constructive notice may not be sufficient to prove fraud or mala fides in the holder.

The American courts do not appear to have had much difficulty at any time in determining what facts and circumstances would amount to actual or constructive notice of any defect or infirmity in a bill. In every case in which the question was presented, (with the exception of one in Georgia,) the language of the judges as to the necessity of caution on the part of the holder, and of inquiry when he had cause to suspect the title to a bill, has been explicit. Before the decision of the case of Gill v. Cubitt, the doctrine it recognises had been held in two of the States, by courts of as high authority on questions of commercial law as any of the courts of England or any other country.

As early as 1808, the Supreme Court of Massachusetts held, in Ayer v. Hutchins, (4 Mass. R., 470,) that "where the endorsee receives the note under circumstances which might reasonably excite suspicion, he ought, before he takes it, to inquire into its validity, and if he does not, he takes it subject to any legal defence that could defeat a recovery by the payee. In 1815, the Supreme Court of New York, in Wiggin v. Bush, (12 John. R., 305,) where the note sued on was dated 24th May, and it appeared by an endorsement that it was in fact made 22d April, held that by the endorsement on the note of the real date, the plaintiff (endorsee) had information which ought to have led to inquiry into the manner in which the note had been obtained by the payee; the past dating a note which was endorsed, was an extraordinary circumstance, and ought to have excited suspicion, and that their neglect to make the inquiry subjected them to all the consequences of the transaction between the immediate parties.

In the next case in order of time, Brown v. Tabor, (5 Wend., 566,) decided in 1830 by the Supreme Court of New York, the defendant was an endorser for the accommodation of the maker of a note of sixty days, with a view to obtain a discount at the bank, which being refused, the maker passed the note, with the bank marks upon it, to the plaintiff, for lottery tickets; held that the circumstances combined were sufficient to put the plaintiff upon the inquiry, and that he was chargeable with

Goodman v. Simonds.

notice of the misapplication of the note, and that the endorser was not liable. În Hall v. Hale, (8 Conn., 336,) decided by the Supreme Court of Connecticut in 1881, the actual good faith of the plaintiff was not impeached, and the case turned upon the question whether he had exercised due caution in receiving the transfer. Hosmer, Chief Justice, delivering the opinion of the court, said: "That the law was well settled, that if an indorsee take a bill without due caution, and under circumstances which ought to have excited the suspicions of a prudent and careful man, the maker, acceptor, or prior endorser, may be let into his defence;" and he cited Gill v. Cubitt, among other cases, as authority. The verdict, however, was set aside, because the judge at the trial had misled the jury by requiring the utmost possible caution. In Cone v. Baldwin, (12 Pick., 545,) the court upon the whole case gave judgment for plaintiff, endorsee, against the maker of the note. But Wilde, J., delivering the opinion of the court, said: "It is not necessary for the defendant, in order to set up his defence, to prove that the plaintiff had full knowledge of the want or failure of consideration. If the circumstances attending the transfer are such as to put him upon his guard, he is bound to make inquiry, and if he does not, he purchases at his peril."

The Supreme Court of Tennessee, in Hunt v. Sanford, (6 Yerg., 387,) held that the endorsee or purchaser of a bill or promissory note must exercise due caution; and if he takes it under circumstances which might reasonably create suspicion that it was not good, he takes it at his peril; therefore, where a note of a solvent maker is sold at a very great discount, with an agreement on the part of the purchaser to pay a further sum if the note is collected without suit, the purchaser is subject to the same defence as the party from whom he purchased. In Beltzhoover v. Blackstock, (3 Watts Pa. R., 25,) Sergeant, J., said: "I concur in the position, that if an endorsee take a note heedlessly, and under circumstances which ought to have excited the suspicions of a prudent and careful man, the maker or prior endorsee may be let in to his defence." In Nicholson v. Patton, (13 La. R., 216,) the Supreme Court of Louisiana, (in 1839,) three years after the decision in Goodman v. Harvey, took the rule in Gill v. Cubitt as their guide, and held that where a note is taken by a broker, under circumstances affording reasonable ground of suspicion, questions must be asked and inquiries made, whether the party from whom it is received came by it honestly; and if he take it without such inquiry, with a view to profit, it is at his own risk. The same doctrine was held in Lapice v. Clifton, (17 La. R., 152.)

In Andrews v. Pond et al., (13 Pet., 65,) an action on a bill