it has been held that if an accommodation bill be negotiated when over- Sec. 28. due, the holder cannot recover, for the bill is in terms a credit for a limited time, and to negotiate it after that time is a breach of faith : Chester v. Dorr, 41 N. Y. 279. Where an accommodation bill is taken by a person after it has been dishonored, inasmuch as the drawer cannot recover, neither can the holder from such drawer do so: Re Overend, Gurney & Co., L. R. 6 Eq. 344.

ILLUSTRATIONS.

An accommodation bill is not issued until it is in the hands of some per son who is entitled to treat it as a security available in law: Downes v. Richardson, 5 B. & A. 674.

An accommodation acceptor of a bill of exchange, is a surety, as to the drawer, but a principal as to the holder, although the holder knew him to be an accommodation acceptor: Bank of Toronto v. Hunter, 4 Bosw. (N. Y.) 646.

Accommodation indorsers, after the note on which they were liable had matured, may obtain a relief in equity against the holder and maker to enforce payment by the latter; and the maker will be ordered to pay the costs both of the plaintiff and of the holder of the note: Cunningham v. Lyster, 13 Grant 575.

The maker of a note being indebted to the payee, procured A. to indorse it as surety to the payee, who had previously indorsed it in blank, and afterwards "without recourse. The note was sued by the plaintiff on behalf of the payee ;-Held, that the plaintiff was entitled to recover against A Smith v. Richardson, 16 U. C. C. P. 210.

Where a corporation having a debt to pay, raised money upon an accommodation note of an individual, and applied the money to the payment of the debt, the accommodation maker is entitled to relief against the corporation. And if the maker had been compelled to pay the debt he would be entitled to stand in the place of the corporation creditor : Burnham v. Peterborough, 8 Grant 366.

D. indorsed a promissory note for the accommodation of W., who discounted it, and gave D. a mortgage on certain land to indemnify him against his liability as indorser on the note. W. during the currency of the note absconded, after obtaining from M. by false pretences a cheque for a large sum, which he cashed, and gave part of the proceeds to D. to take up the note, which D. did before maturity. W. told D. that he had got the money from M. with whom he had had dealings, as D. knew, but Ď. had no notice of any wrong doing in connection with the money ;Held, that the mortgage ceased to be an incumbrance on the land when the note was retired; and that M. could not follow his money into the note held by D., nor the security held by him: Jack v. Jack, 10 Ont. R. 1; 12 App. R. 476.

2 But any such accommodation party being merely a surety, may be released by the holder giving time to the principal debtor on such bill or note. The surety has the right as soon as his obligation to pay has become absolute to be exonerated by his principal. And where the principal debtor has a good defence at law or in equity against the creditor, the surety has also a right to set up a similar defence: Bechervaise v. Lewis, L. R. 7 C. P. 373.

Much confusion often arises from a common practice

Sec. 28. in this country of taking notes to a bank for discount; not, as in the proper course of business, from the party whose name appears last thereon as indorser, and who is legally held to be the holder under prior parties, but taking them from the maker, who brings them to the bank with one or two names on the back as indorsers, and tries to have them discounted. The experience of years has proved too clearly that persons will always be ready to borrow money upon any terms, and afterwards to refuse payment on any ground, with or without merits, that ingenuity may suggest : Per Hagarty, J., in Bank of Montreal v. Reynolds, 25 U. C. Q. B. 361. As to the rights and equities of accommodation parties, inter se, as cosureties, see note to s. 59 (3) post.

ILLUSTRATIONS.

Although the holder of a bill had notice when he took it that the acceptor had only accepted it for accommodation of the drawer, yet the acceptor is bound to pay it, and nothing can discharge him but payment, or a release: Bank of Ireland v. Beresford, 6 Dow 237.

In an action by the indorsee against the acceptor, it is competent to the acceptor to shew that the acceptance was for the accommodation of the indorsee, and that he has received no consideration from the drawer, and that it was agreed that the bill, when due, should be taken up by such indorsee: Thompson v. Clubley, 1 M. & W. 212.

A note was given by A. for £30 for the accommodation of the payee, but the holder advanced only £20 10s., to secure which it was transferred to him. The holder claimed that the sum advanced was to be paid at a particular time, but if not so paid, he was to hold the note for the whole sum secured by it;-Held, as A. was only an accommodation maker he could not be charged with more than the holder had advanced on the note: Strathy v. Nicholls, 1 U. C. Q. B. 32. See also Greenwood v. Perry, 19 U. C. C. P. 403.

Where the holder of a bill or note sues the drawers, acceptors, and indorsers, in one action, he may discharge the drawers, or indorsers, or accommodation acceptors, after, as well as before, judgment, without losing his remedies against the other parties liable in priority to those discharged: Holcomb v. Hamilton, 2 E. & A. 230. See also Hamilton v. Holcomb, 12 U. C. C. P. 38; 11 U. C. C. P. 93.

The payee of a note indorsed for the accommodation of the maker, having obtained judgment against the maker and indorser, may release the maker, reserving all his rights against the indorsers, may inforce such judgment against the accommodation indorsers: Bell v. Manning, 11 Grant 142.

The holder of an accommodation bill for value, after becoming aware of its being an accommodation bill, may release the drawer without releasing the accommodation acceptor: City of Glasgow Bank v. Murdock, 11 U. C. C. P. 138.

A security given to an accommodation indorser, does not enure to the benefit of the second indorser: Smith v. Fralick, 5 Grant 612.

A note was given by S. to M. & Co., and R. as accommodation indorser indorsed to M. & Co. The note was so treated to enable S. to obtain goods on credit from M. & Co. At the trial M. & Co. indorsed the note above R's. name, adding "without recourse ";--Held, that M. & Co., could recover: Moffatt v. Rees, 15 U. C. Q. B. 527. See also Gunn v. McPherson, 18 U. C. Q. B. 244.

The receipt by the holder of an accommodation bill, of composition Sec. 28. notes of the acceptor, in pursuance of an arrangement in bankruptcy, is not equivalent to payment, and does not suspend his right of action against the accommodation drawer and indorser during the currency of such notes: Provincial Bank of Ireland v. Dunne, 2 Ir. L. R. 21.

The holder of an accommodation note may compromise with and release the accommodation maker, and may then hold the indorsers liable: Sifton v. Anderson, 5 U. C. Q. B. 305.

The holders of accommodation paper may rank upon the estate of and discharge the indorsers, even knowing the same to be accommodation paper, and may afterwards recover from the maker: Lyman v. Dion, 13 L. C. J. 166.

due course

29. A holder in due course 1 is a holder who has taken Holder in a bill, complete and regular on the face of it, 2 under the defined. following conditions, namely:

(a) That he became the holder of it before it was overdue and without notice that it had been previously dishonored, if such was the fact ; 3

(b) That he took the bill in good faith and for value, 4 and that at the time the bill was negotiated to him he had no notice of any defect in the title of the person who negotiated it: 5

tive in cases

duress, or

other unlaw

ful means.

2, In particular, the title of a person who negotiates a Title defec bill is defective within the meaning of this Act when he of fraud, obtained the bill, or the acceptance thereof, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud: 6

er under

course.

3. A holder, whether for value or not, who derives his Title of holdtitle to a bill through a holder in due course, and who is holder in due not himself a party to any fraud or illegality affecting it, has all the rights of that holder in due course as regards the acceptor and all parties to the bill prior to that holder. 7

1 By the interpretation clause s. 2, a "holder" is defined to mean "the payee or indorsee of a bill or note who is in possession of it, or the bearer of it ;" and by the same section "bearer" is defined to mean "the person in possession of a bill or note which is payable to bearer." Though the Act generally has adopted the term "holder in due course," the old expression "holder for value," appears in ss. 27, 28 and 58.

Sec. 29.

2 "A bill complete and regular on the face of it," i. e., having all the requisites herein before prescribed by the Act to make such bill a valid and negotiable security; and that there is nothing on the face of it indicating that it is incomplete or invalid in any respect (other than as indicated in s. 2 (4), ante); or that it is a suspicious, or doubtful, security requiring or inviting explanation or investigation. Any indication leading to any such conclusion, may convey to a business man of ordinary prudence a warning, which, if wilfully disregarded, may lead to loss of the security, or an expensive litigation. The maxim caveat emptor, would then give the warning: "let the purchaser who ought not to be ignorant of the amount and nature of the interest which he is about to buy, exercise proper caution:" Broom's Legal Maxims, 605. The law-merchant in regard to the negotiability of bills and notes has made the despotic, but necessary, principle and rules of the common law, bend to the exigencies of commerce, and the usage of merchants. "The general rule of law is undoubted that no one can transfer to another a better title than he himself possesses nemo dat quod non habet. To this there are some exceptions, one of which arises out of the rules of the law-merchant as to negotiable instruments. These being part of the negotiable currency of the country, are subject to the same rules as money; and if such an instrument is transfered in good faith, and for value, before it is overdue, it becomes available in the hands of the holder, notwithstanding fraud which would have rendered it inavailable in the hands of a previous holder:" Whistler v. Forster, 14 C. B. N. S. 257. But the negotiator for the purchase or pledge of bills of exchange or promissory notes has, notwithstanding the above enactment, and the old and well recognized rule of law in harmony with it, to make such purchase, or take such pledge, subject to the risk of forgery, and of his own carefulness or negligence in guarding against the defects in title defined by s. 29; or if he acquires the bill or note without the indorsement of the transferor, then only with the warranty defined in s. 58 (3). See notes to ss. 20, 22, 24, 24, 54, and 55.

Notice of the previous dishonor may be, either the overdue date, or the notarial protest, or such other evidence as the bill, or marks on it, may present, or as may be inferred from the circumstances of the holder's acquisition of the bill.

4 "Good faith" is defined by s. 89 to mean where a thing is in fact done honestly, whether it is done negligently or not. "Value" is defined by s. 2 to mean " valuable consideration," which by s. 27, is further and more fully defined. A total, or partial, failure of consideration is a good defence against the "immediate parties" of the bill, or against a party who is not a holder for value, unless he derives his title from a holder in due course. See notes to s. 27, and note 7, p. 125.

5 This section does not speak of "actual notice of the prior holder's defect of title," although such notice would be conclusive. Constructive notice which is knowledge imputed to the parties from the facts proved,

may, therefore, be sufficient; the presumption that the knowledge must Sec. 29. havebeen communicated is held to be too strong to be rebutted: Hewitt v. Loosemore, 9 Hare 449. And where a party has the means of knowing a fact, he is bound to show that he exercised reasonable diligence to ascertain it Heathorn v. Darling, 1 Moo. P. C. C. 5. But vague and indefinite rumor or suspicion, is quite too loose and inconvenient in practice to be admitted to be sufficient to put a party on enquiry. But each case must depend upon its own circumstances. At one time the doctrine prevailed that if the holder took the bill under suspicious circumstances, or without due caution or inquiry, although he gave value for it, yet he was not deemed a holder for value without notice: Gill v. Cubitt, 3 B. & C. 466. But this doctrine has since been abandoned, upon the ground of its inconvenience, and obstruction to the free circulation and negotiation of bills and notes : Goodman v. Harvey, 4 A. & E. 870; Uther v. Rich, 10 A. & E. 784. See further, note 1 to s. 39.

ILLUSTRATIONS.

Where a person, at a heavy discount, negotiated a bill drawn by a partner in fraud of his firm, from another who had taken it from the the fraudulent drawer with knowledge of the fraud, the bill having on it a name which made it perfectly good ;-Held, that from these facts the jury might presume that the plaintiff took the bill mala fide : Dailey v. DeFries, 11 W. R. 376.

A person who takes a bill under circumstances calculated to excite suspicion, and having the means of knowledge, but wilfully abstains from making any inquiries, must be considered to be a holder with notice of fraud, if any exists: Jones v. Gordon, 2 App. Cas. 616.

Where a person without any express notice of any circumstance of suspicion, took the bill, not in the ordinary course of business, and not relying on the security; but required evidence of title from the drawer who deceived him, he has no better title in the bill than the drawer had Hatch v. Searles, 2 Sm. & Gif. 147; 24 L. J. Ch. 22. See also Colson v. Arnot, 54 N. Y. 253.

6 Bills or notes so drawn or made, are voidable. Such bills or notes are generally "regular on the face;" and the facts necessary to bring them within the operation of this clause, have to be proved. As to the term "other unlawful means," it must be interpreted to include only such means as are ejusdem generis with those described. The general rule for the construction of statutes is that where several words, preceding a general word, point to a confined meaning, such general word shall not receive such a meaning as to extend its effect beyond subjects which are ejusdem generis: Regina v. Nevill, 8 Q. B. 463.

ILLUSTRATIONS.

A son having acknowledged to have stolen $25, his mother was induced to sign a promissory note, under threats of having her son arrested;-Held, that she was not liable on the note: Macfarlane v. Dewey, 15 L. C. J. 85.

A note given in consideration of the payee's for bearing to prosecute a charge against the maker of obtaining money by false pretences, is illegal : Clubb v. Hudson, 18 C. B. N. S. 414.