so executed have been held to be void even in the hands of a bona fide holder. But the weight of authority in most of the States is clearly opposed to this doctrine in its fullest extent; the general rule is that false representations as to the character or contents of an instrument, which is afterward transferred in due course as a negotiable instrument, will afford no defense to the maker as against a holder in due course unless it appear that such maker was unable to read, or blind, or otherwise so physically incapacitated that he could not read and the instrument was falsely read to him. This rule is based upon the negligence of the person

ment or signature was so procured Bish, 44 Ind. 70; Soper v. Peck, 51 from a person who did not know the nature of the instrument and could not have attained such knowledge by the use of ordinary care." See Acts of 1899, chap. 356. This seems to be declaratory of the law as it existed in that State, and was probably inserted so that no change in this respect should be made in existing rules. See Butler v. Carns, 37 Wis. 61; Kellogg v. Steiner, 29 Wis. 626; Walker v. Ebert, 29 Wis. 194. As to use of ordinary care, see Keller v. Schmidt, 104 Wis. 596, 80 N. W. 935.

Mich. 563, 17 N. W. 57; Gibbs v. Linabury, 22 Mich. 479; Butler v. Carns, 37 Wis. 61; Bowers v. Thomas, 62 Wis. 480, 22 N. W. 710. But in some of these cases the absence of negligence was deemed a controlling factor. As in the case of Green v. Wilkie, 98 Iowa, 74, 66 N. W. 1046, it was held that a party who is ignorant of the contents of a written instrument from inability to read, who signs it without intent to do so, and is chargeable with no negligence in not ascertaining its character, is not bound by it in the hands of a bona fide purchaser.

6. Fraud in procuring instrument to be executed. In the case of Cline v. Guthrie, 42 Ind. 227, it was held that, 7. When misrepresentation as to where the maker of a promissory note character of instrument not effectual payable at a bank was induced by as defense. In the case of Chapman fraud and circumvention of the payee v. Rose, 56 N. Y. 137, it appeared that to sign his name thereto, when he the signature of the defendant to a honestly supposed and believed he was promissory note was procured by the writing his name on a blank piece of false representation that the instrupaper, to enable the payee to see how ment was for the delivery of a his name was spelled or written, and hay fork and two grappling pulsuch payee, before its maturity and leys. It also appeared that there for value, assigned it to a bona fide was no physical obstacle to the purchaser, such facts, pleaded in an defendant's reading the paper before answer, constitute a complete defense he signed it. It was held that where to an action upon the note of the as- one having the opportunity and the signee; and the court said: "It is power to ascertain with certainty the well settled by authority and on prin- exact obligation he is assuming, yet ciple that the party whose signature chooses to rely upon the statements is obtained by fraud as to the char- of the person with whom he is dealacter of the paper itself, who is igno- ing, and executes a negotiable instrurant of such character, and has no ment without reading or examination, intention of signing it, and who is as against a bona fide holder for value, guilty of no negligence in affixing his he is bound by his act, and is estopped signature, or in not ascertaining the from claiming that he intended to character of the instrument, is no sign an entirely different obligation, more bound by it than if it were a and that the statements upon which total forgery, the signature included." he relied were false; to avoid liabilSee also Lindley v. Hofman, 22 Ind. ity he must show that he was guilty App. 237, 53 N. E. 471; Detwiler v. of no laches or negligence in signing.

imposed upon. If a person can read or has means at his command whereby he can ascertain the contents and the character of the instrument to which he attaches his signature, he is guilty of negligence if he fails to satisfy himself as to the obligation which he thus assumes, and will not, however great the fraud practiced upon him, be permitted to impeach the title of an innocent holder for value.8

Ordinarily duress is a good defense in an action on a negotiable instrument but not as against a bona fide holder for value; there are cases, however, which maintain that a note executed under duress practiced upon the maker avoids the note even as against a bona fide holder for value.10

c. Illegal consideration; usury.- An illegal consideration is sufficient to avoid a contract, and a court of law or of equity will not entertain any suit brought in relation to such contract, but will leave the parties thereto as it finds them. We have already considered the illegality of consideration as affecting the validity of negotiable instruments in a previous chapter to which reference is made.11 Illegality of consideration is a good defense as against the payee of the note and in favor of the maker, but it will not avoid it as against a holder in due course,12 unless the statute which declares the consideration to be illegal expressly provides that the contract is void.13 Where statutes are enacted which provide that a negotiable instrument given for a gambling debt is void, it follows that such instrument is void in the hands of a bona fide holder for value.14 If the consideration of an instrument is tainted

son, 16 Barb. (N. Y.) 548; Duncan v. Scott, Campb. (Eng.) 100.

11. See ante, chap. IV, § 51. 12. Johnston v. Dickson, 1 Blackf. (Ind.) 256; Payne v. Raubinek, 82 Iowa, 587, 48 N. W. 995; Draper v. Cowles, 27 Kan. 484; Vallett v. Parker, 6 Wend. (N. Y.) 615; Glenn v. Farmers' Bank, etc., 70 N. C. 191. In the case of Devlin v. Brady, 36 N. Y. 531, it was held that a note given to induce an officer to violate his duty as such is void in the hands of either the payee, or of any subsequent holder, with knowledge of its character.

13. Instruments made void by statute.-Aurora v. West, 22 Ind. 88, 85 Am. Dec. 413, where it is held that mercantile paper, made void ab initio by statute, is void in the hands of a bona fide holder. See also, to the same effect, Bayley v. Taber, 5 Mass. 286, 4 Am. Dec. 57.

New York.- Grimes v. Hillenbrand, 6 Thomp. & C. 620, 4 Hun, 354.

14. Statutes making gambling contracts void. Under a statute making notes, etc., given for money won or lost upon any game absolutely void and of no effect (Ohio R. S., § 4269), it was held that the indorsee of a check given for money lost at a game of cards cannot recover on it against the drawer, though a bona fide holder for value without notice of the defect in the consideration. Lagonda Nat. Bank v. Portner, 46 Ohio St. 381, 21 N. E. 634. To the same effect are: Ivey v. Nicks, 14 Ala. 564; Hawley v. Bibb, 69 Ala. 52; Haight v. Joyce, 2 Cal. 64, 56 Am. Dec. 311; Williams v. Judy, 8 Ill. 282, 44 Am. Dec. 699; Traders' Bank v. Alsop, 64 Iowa, 98, 19 N. W. 863; Early v. McCart, 2 Dana (Ky.), 414; Maine Mile Track Assn. V. Hammond (Mich.), 87 N. W. 135; Harper v. Young, 112 Pa. St. 419, 3 Atl. 670; Mordecai v. Dawkins, 9 Rich. L. (S. C.) 262. In the case of Sondheim v. Gilbert, 117 Ind. 71, 18 N. E. 687, 10 Am. St. Rep. 23, 5 L. R. A. 432, it was said: "The principle may be considered as well established that when a statute in express terms pronounces contracts, notes, bills, securities, and the like, resulting from or growing out of wagering or gambling transactions, which are prohibited by statute as absolutely void, no recovery can be had thereon; and the doctrine that transactions

with usury and, therefore, illegal, it has been held in many jurisdictions that the defense is available in favor of the maker, even as against a bona fide holder;15 there are, however, a number of decisions holding contrary to this.16 But the rule which seems supported by the weight of authority is that where a note is void in its inception for usury it continues void forever, whatever its subsequent history may be; it is as void in the hands of an innocent holder for value as it was in the hands of those who made the usurious contract. No vitality can be given to it by sale or exchange, because that which the statute has declared to be void cannot be made valid by passing through the channels of trade." This would seem to be well established in New York and in all

17

which a statute in direct terms de- usury in the second transaction, the clares to be unlawful cannot acquire plea of usury to the substituted oblivalidity by the transfer of commercial gation cannot be sustained. But this paper based thereon, which is also under direct legislative denunciation, is fully supported by authority."

15. Usury as defense. See Union Bank v. Gilbert, 83 Hun (N. Y.), 417, 31 N. Y. Supp. 945, where it was held that if a promissory note is void for usury it cannot be rendered valid by a sale thereof to another; and in Rodecker v. Littauer, 59 Fed. 857, 8 C. C. A. 320, it was held that no one could become the bona fide holder of a note or bill which, by statute, is void for usury. See also Faris v. King, 1 Stew. (Ala.) 255; Pearson v. Bailey, 23 Ala. 537; Early v. McCart, 2 Dana (Ky.), 414; True v. Triplett, 4 Metc. (Ky.) 57; Bridge v. Hubbard, 15 Mass. 96, 8 Am. Dec. 86; Torrey v. Grant, 18 Miss. 89; Clark v. Sisson, 22 N. Y. 312; Claflin v. Boorum, 122 N. Y. 385, 25 N. E. 360; Ward v. Sugg, 113 N. C. 489, 18 S. E. 717, 24 L. R. A. 280; Faison v. Grandy, 128 N. C. 438, 38 S. E. 897; Kendall v. Robertson, 12 Cush. (Mass.) 156; Payne v. Trezevant, 2 Bay (S. C.), 23; First Nat. Bank v. Ledbetter (Tex. Civ. App.), 34 S. W. 1042.

case, and nearly every case holding that a usurious bill or note is not affected with the taint in the hands of an innocent holder for value, is under a statute which does not expressly declare the contract void. In this case the court said: "It has long been the settled law that where a statute by its terms makes a note or bill absolutely void, the instrument is invalid in the hands of a bona fide holder for value. But where a statute declares a contract not illegal, but only voidable, a negotiable note or bill founded upon such voidable contract is good in the hands of a bona fide holder." See also Hamilton v. Fowler, 99 Fed. 18, 40 C. C. A. 47; Sherman v. Blackman, 24 Ill. 347; Conkling v. Underhill, 4 Ill. 388; Gross v. Funk, 20 Kan. 655; First Nat. Bank v. Bentley, 27 Minn. 87, 6 N. W. 422, which was under a statute protecting a bona fide purchaser from the defense of usury; Long v. Long, 141 Mo. 352, 44 S. W. 341; Cheney v. Jansent, 20 Neb. 128, 29 N. W. 289; Darst v. Backus, 18 Neb. 231, 24 N. W. 681; Young v. Berkely, 2 N. H. 410; Bradshaw v. Van Valkenburgh, 97 Tenn. 316, 37 S. W. 88.

16. Statutes declaring usurious instruments illegal and voidable.- In 17. Claflin v. Boorum, 122 N. Y. the case of Palmer v. Call, 7 Fed. 737 385, 25 N. E. 360, citing Miller v. (Cir. Ct., Iowa), it was held that where Zeimer, 111 N. Y. 441, 444; Miller v. an usurious obligation is passed for Hull, 4 Den. (N. Y.) 104, 107; Benvalue to an innocent purchaser with- net v. Smith, 15 Johns. (N. Y.) 355, out notice of the usury, who afterward 357; Wilkie v. Roosevelt, 3. Johns. takes a new and substitute security Cas. (N. Y.) 206; Powell v. Waters, for the debt, there being no taint of 8 Cow. (N. Y.) 669.

other States where a usurious contract is declared void by statute. Where a note which was usurious in its inception is, upon its maturity, taken up and a new note or other negotiable instrument is given therefor, which of itself is not usurious, the new instrument is valid in the hands of a bona fide holder for value.18

877. Rights of holder in due course.

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a. Statutory provision.- The Negotiable Instruments Law provides that: "A holder in due course holds the instrument free from any defect of title of prior parties and free from defenses "available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against "all parties liable thereon." 19 A similar provision is contained in the English Bills of Exchange Act.20

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b. Effect of statute. The statute provides in effect that the title of the holder of a negotiable instrument transferred before maturity in good faith and for value, and without notice of any defect, is absolute and unimpeachable by any of the prior parties thereto. There is apparently no exception to the rule as thus declared. It would seem to follow, therefore, that in all cases the holder in due course takes the instrument free from any defect of title, or other defenses. It has been suggested that this section

N. C. 438, 38 S. E. 897; Ward v.
Sugg, 113 N. C. 489, 18 S. E. 717, 24
L. R. A. 280.

18. New note given for one usu- he can obviate the necessity of using rious in its inception.-In New the contaminated security by procurYork the case most frequently cited ing a new one to be substituted for it on this question is that of Powell which is free from the taint, he should V. Waters, 8 Cow. (N. Y.) 669, not be visited with the penalty of an 691. In this case it was con- offense which he never committed. See tended that a new security, taken in also Palmer v. Call, 7 Fed. 737; Mitchrenewal of a prior usurious contract ell v. McCullough, 59 Ala. 179; Masby a bona fide holder, is not avoided terson v. Grubbs, 70 Ala. 406; Smalley by the usury of the original transac- v. Doughty, 6 Bosw. (N. Y.) 66; tion. Jones, Ch., said: "That prin- Smith v. White (Tex. Civ. App.), 25 ciple applies to the case of an inno- S. W. 809; Faison v. Grandy, 128 cent holder of a usurious contract for which he has given a valuable consideration, without notice of the usury. Thus in Cuthbert v. Haley, 8 T. R. (Eng.) 390, A. made a usurious note to B., who transferred it to C. for a valuable consideration, without notice of the usury, and A. gave a bond to C. for the amount, and the bond was held not to be affected by the usury. A new security taken by such a meritorious holder of the usuri us note has a just claim to protection. He is not implicated in the usury which vitiated the original contract, and if

19. Neg. Inst. L. (N. Y.), § 96. For same section in statutes of other States see Appendix.

20. English Bills of Exchange Act, 1882, § 38(2), which provides that "where a holder is a holder in due course, he holds the bill free from any defect of title of prior parties, as well as from mere personal defenses available to prior parties among themselves, and may enforce payment against all parties liable on the bill."