Sec. 56. Notice. Good faith. Title defective. Holder in due course. (a) That he became the holder of it before it was overdue and without notice that it had been previously dishonoured, if such was the fact; (b) That he took the bill in good faith and for value, 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 nego. tiated it. 2. In particular the title of a person who negotiates a bill is defective within the meaning of this Act when he obtained the bill, or the acceptance thereof, by fraud, duress or force and fear, or other unlawful means, or for an illegal consideration, cr when he negotiates it in breach of faith, or under such circumstances as amount to a fraud. 53 V., c. 33, s. 29. Eng. s. 29. endorsee of a bill or note "Bearer" is defined by sec. "Holder" means the payee or who is in possession of it (sec. 2). 2. The rights and powers of a holder are defined by sec. 74. As to negotiation, see secs. 60, et seq., and as to overdue or dishonoured bills, see secs. 70, et seq. The Act has substituted "holder in due course" for “bonâ fide holder for value without notice.' The French version substitutes "détenteur régulier" for the old expression "tiers porteur de bonne foi." Good faith and value. A thing is deemed to be done in good faith within the meaning of the Act, where it is in fact done honestly whether it is done negligently or not (sec. 3). Value means valuable consideration (sec. 2). The latter is defined by sec. 53. As to "holder for value, see sec. 54. There is a primâ facie presumption that value has been given by a party to a bill (sec. 58). Every holder of a bill is primâ facie deemed to be a holder in due course, but if in an action on a bill it is admitted or proved that the acceptance, issue or subsequent negotiation of the bill is affected with fraud, duress or force and fear, or illegality, the burden of proof that he is a holder in due course is on him, unless and until he proves that subsequent to the alleged fraud or illegality, value has in good faith been given for the bill by some other holder in due course (sec. 58). Notice. Notice means actual, though not formal notice, that is to say, either knowledge of the facts, or a suspicion of something wrong, combined with a wilful disregard of the means of knowledge (Raphael v. Bank of England, 1855, 17 C.B. at p. 174; cf. Ex parte Snowball, 1872, L.R. 7 Ch. at p. 549). As to notice of suspicious circumstances, cf. Swaisland v. Davidson, 1883, 3 O.R. 320; Reinhardt v. Shirley, 1894, Q.R. 6 S.C. 11. As regards the parties affected with notice, the ordinary rules of law apply to bills and notes. Notice to the principal is notice to the agent; and notice to the agent is notice to the principal (cf. Collinson v. Lister, 1855, 7 De G. M. & G. at p. 637, branch bank), subject to the proviso (1) that when the agent is himself a party to the fraud he is not to be taken to have disclosed it to his principal (Ex parte Oriental Bank, 1870, L. R. 5 Ch. 358; Commercial Bank v. Morrison, 1902, 32 S.C.R. 98); and (2) where a bill is negotiated to an agent, and notice is given to the principal, or vice versa, there must be a reasonable time for communication. (Cf. Willis v. Bank of England, 1835, 4 A. & E. at p. 39.) Complete and regular on the face of it. Sec. 56. Good faith and value. If the bill itself contains a warning, caveat emptor. The holder, however honest, can acquire no better title than the person from whom he took it had. Thus, if the holder takes a blank acceptance, or a bill wanting in any material particular, he takes it at his peril (Awde v. Dixon, 1851, 6 Ex. 869; cf. notes to sec. 32, supra); so also if the holder takes a bill which has been torn and the pieces of which have been pasted together, if the tears appear to shew an intention to cancel it. (Ingham v. Primrose, 1859, 7 C.B.N.S. 82; Chalmers, p. 92.) Holder in due course. Quare, whether the payee of a bill, being one of the immediate parties and not a person to whom the bill is "negotiated," can ever be a holder in due course; but see sec. 2 which defines "holder" as including "payee." (Herdman v. Wheeler, [1902] 1 K.B. at pp. 367, 371-2.) Sec. 56. Holder in A holder, whether for value or not, who derives his title to a bill through a holder in due course, and who is not himself a due course. 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 (sec. 57). C., the holder of a bill payable to his order, transfers it to D. for value but without endorsing it. C. has obtained this bill by fraud, but D. has no notice of this. D. is not a holder in due course. (Whistler v. Forster, 1863, 14 C.B.N.S. at p. 258; D. is not the holder as defined by sec. 2, until he obtains C.'s endorsement; cf. Jenkins v. Coomber, [1898] 2 Q.B. 168, cited in notes to sec. 131.) C., who resides abroad, transmits a bill for collection to his agent in England. C. has obtained this bill by fraud, but his agent does not know it. At the time the agent receives the bill, C. is indebted to him on the balance of account. The agent is not a holder in due course and cannot recover on the bill. Aliter, if the bill had been transmitted to the agent in payment of his debt. (De la Chaumette v. Bank of England, 1829, 9 B. & C. 208, as explained by Currie v. Misa, 1875, L.R. 10 Ex. at p. 164; and McLean v. Clydesdale Bank, 1883, 9 App. Cas. at p. 114.) C. endorses a bill to D. for value. D. suspects that C. stole the bill. As a fact he obtained it by false pretences. D. is not a holder in due course. (Cf. Jones v. Gordon, 1877, 2 App. Cas. at p. 628.) The manager of a bank steals negotiable securities from the bank, and pledges them with C. He afterwards obtains them back from C. by a fraud, and replaces them in the bank. The bank knows nothing of the transactions. The bank is the holder in due course of these securities, and is entitled to retain them against C. (London & County Bank v. River Plate Bank, 1888, 21 Q.B.D. 535; cf. London Bank v. Simmons, [1892] A.C. 201.) D., by false pretences, induces A. to draw a cheque in favour of C., who takes it in good faith and for value. C. is a holder in due course. (Watson v. Russell, 1862, 3 B. & S. 34.) Defective title. The list of defects in sub-sec. 2 may not be exhaustive. The words "force and fear" were inserted in the English bill in committee as the equivalent of the English technical term duress, which is unknown to Scotch law. Chalmers, p. 93. Sec. 56. A person whose title is defective must be distinguished from a person who has no title at all, and can give none, as, for in- Defective stance, a person making title through a forged or unauthorized title. endorsement (sec. 49). The ordinary rules of the law of contract in the province where the transaction takes place determine what constitutes fraud, duress, etc: cf. notes to sec. 10 as to the application of provincial law to cases relating to bills and notes. As to conflict of laws, see Chapter L., infra. The Act (secs. 56 and 57) provides only as to the extent to which fraud or illegality, which may be a defence as between the immediate parties, shall affect other parties. 57. A holder, whether for value or not, who derives his title Right of subsequent to a bill through a holder in due course, and who is not him- holder. self 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. 53 V., c. 33, s. 29. Eng. s. 29. See sec. 54 as to a holder for value. As to a holder in due course, see secs. 56 and 58. A partner in a firm fraudulently endorses a firm bill to D. in payment of a private debt. F. is cognizant of the fraud, but is not a party to it. D. endorses the bill to E., who takes it for value and without notice. E. endorses it to F. F. acquires E.'s rights. If he gave value to E., he can sue all the parties to the bill; if he did not give value, he can sue all parties except E. (May v. Chapman, 1847, 16 M. & W. 355; cf. Wallbridge v. Becket, 1855, 13 U.C.R. 395; Clarkson v. Lawson, 1856, 14 U. C.R. 67; Gauthier v. Reinhardt, 1904, Q.R. 26 S.C. 134.) C., by fraud, induces B. to make a note in his favour. C. endorses the note to D., who takes it for value and without notice. Subsequently D. endorses the note for value back to C. C. cannot sue B. (Cf. Sawyer v. Wisewell, 1864, 91 Mass. at p. 42.) 58. Every party whose signature appears on a bill is prima Presumpfacie deemed to have become a party thereto for value. tion of value. Sec. 58. 2. Every holder of a bill is prima facie deemed to be a holder Due course. in due course; but if, in an action on a bill it is admitted or proved that the acceptance, issue or subsequent negotiation of the bill is affected with fraud, duress or force and fear, or illegality, the burden of proof that he is such holder in due course shall be on him, unless and until he proves that, subsequent to the alleged fraud or illegality, value has in good faith been given for the bill by some other holder in due course. 53 V.. c. 33, s. 30. Eng. s. 30. Onus of proving value and good faith. As to a holder for value, see notes to sec. 54. As to fraud, etc., as between the immediate parties, see sec. 56, sub-sec. 2. The rule expressed in secs. 57 and 58 embodies the effect of the case of Jones v. Gordon, 1877, 2 App. Cas. 616, 627, 4 R. C. 415, 452, and particularly Lord Blackburn's judgment. Before the passing of the Act, it was uncertain how much the plaintiff had to prove when evidence of fraud had been given, i.e., whether the onus was shifted only to the extent of making it necessary for the plaintiff to prove that value was in fact given, or whether he also had to prove that it was given in good faith. Lord Blackburn in Jones v. Gordon, supra, says: "The language of the quotation from Mr. Baron Parke would seem to shew that the onus as to both is shifted, but I do not think that has ever been decided, nor do I think it is necessary to decide it in the present case. The Act has settled the law in accordance with the opinion expressed by Parke, B. A holder in due course must have taken the bill in good faith and for value and without notice of any defect in the title of the person who negotiated it (sec. 56). A holder is presumed to be a holder in due course until fraud, etc., is proved, but when that is proved, then the onus is shifted to the holder to prove that he is a holder in due course. prove not only that value has been given but that it given in good faith without notice of the fraud, etc. v. Haslar, 1889, 23 Q.B.D. 345; cf. Gibson v. Coates, West. L.R. 556.) He must has been (Tatam 1905, 1 As to value, see sec. 53, and as to good faith, see sec. 3. |