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Vol. IV.]

Johnson v. WAY.

[No. 2.

sess exclusive jurisdiction in such cases, or a power to revise the judgment rendered in them by the state tribunals.

“ If the federal and state courts have concurrent jurisdiction in all cases arising under the Constitution, laws, and treaties of the United States, and if a case of this description brought in a state court cannot be removed before judgment, nor revised after judgment, then the construction of the Constitution, laws, and treaties of the United States is not confided particularly to their judicial department, but is confided equally to that department and to the state courts, however they may be constituted.”

See subject further discussed in 1 Kent's Com. 395, &c. ; Sergeant on the Constitution, 268; 2 Story on the Const. sec. 1748, &c.; 1 Curtis's Commentaries, secs. 119, 134, &c.

The case of Teal v. Felton was a suit brought in the state court of New York against a postmaster, for neglect of duty to deliver a newspaper under the postal laws of the United States. The action was sustained by both the supreme court and court of appeals of New York, and their decision was affirmed by this court. 1 Comstock, 537; 12 How. 292. We do not see why this case is not decisive of the very question under consideration.

Without discussing the subject further, it is sufficient to say, that we hold that the assignee in bankruptcy, under the Bankrupt Act of 1867, as it stood before the revision, had authority to bring a suit in the state courts, wherever those courts were invested with appropriate jurisdiction, suited to the nature of the case.

The judgment is affirmed.

SUPREME COURT COMMISSION OF OHIO.

(To appear in 27 Ohio St.)

BILLS AND NOTES. — EVIDENCE OF FRAUD IN TAKING PAPER AS

OPENING ANTECEDENT DEFENCES.

JOHNSON v. WAY.

A holder of negotiable paper, who takes it before maturity for a valuable consideration,

in the usual course of trade, without knowledge of facts which impeach its validity between antecedent parties, holds it by a good title; but circumstances tending to show bad faith or fraud in taking such paper are admissible in evidence, and the establishment of such bad faith or fraud, whether by direct or circumstantial evidence, subjects the holder of paper so taken to defences existing between antecedent parties.

ERROR to the district court of Portage County

The plaintiff brought suit in the court of common pleas of Portage County to recover of the defendant the amount of two promissory notes of seventy-five dollars each, of which the following is a copy :

Vol. IV.)

Johnson vi War.

[No. 2.

ess patent vir plaintiff first, except a

“ POST-OFFICE ADDRESS, SUFFIELD, COUNTY OF PORTAGE,

State of Ohio, July 29, 1869. “ Three months after date, I promise to pay to the order of L. A. Wilder seventy-five dollars, for value received, with use.

[Stamp.] “SOLOMON WAY.” “ Indorsed: I hereby certify that I am worth $8,000, consisting of personal property to the amount of $1,000 and one hundred and seventeen acres of land. I make this statement for the purpose of obtaining credit.

“ SOLOMON WAY.“ Indorsed, without recourse, to L. A.Wilder.” The second note is like the first, except due in four months after date.

On the trial, the plaintiff admitted that the notes were given for a worthless patent right metallic roofing cement, and were without consideration, as between the original parties.

The proof shows that one Lewis D. Joy bought the notes before maturity ; that Joy paid $100 cash for each $150 of notes, and received them indorsed “ without recourse;" that the plaintiff bought the notes of Joy before maturity, and paid the face thereof in coal stock of the Trumbull Coal Company (an incorporated mining company), at fifty cents on the dollar of its par value; that the coal stock was delivered to Joy, and the notes to Johnson before they matured, and without any actual notice of any defence.

On the trial the plaintiff asked the court to charge the jury as follows:

"1. Suspicion of defect of title, or fraudulent inception, or the knowledge of circumstances which would excite such suspicion in the mind of a prudent man, or gross negligence on the part of the taker at the time of the transfer, will not defeat his title ; that result can be produced only by bad faith on his part; mere want of caution and care is not enough.

“ 2. In brief, did the plaintiff or Joy buy the notes in good faith and without fraud, for value, before due ? If so, and without notice of any defect, plaintiff is entitled to recover. It is a question of good faith and fraud, and not of carelessness or negligence on the part of plaintiff or Joy, unless it amounts to fraud or want of good faith.

“ 3. That the law presumes primă facie in favor of every holder of negotiable paper, that, ist. He is the owner of it; 2d. That he took it for value ; 3d. Before due; 4th. In the regular course of trade; and plaintiff is entitled to recover, unless these presumptions of law are overcome by proof in the case.”

The court refused to charge as requested, but charged the jury upon the point in question as follows:

“ If the proof shows that both Johnson and Joy took these notes with notice of their infirmities, then plaintiff ought not to recover, and upon this proposition the burden of proof rests upon the defendant.

“ To constitute a sufficient notice, it is not essential that the party should have had actual positive notice of the defects of the notes, but if the circumstances and facts connected with, and surrounding the transfer, whether they appeared upon the notes themselves, or outside of them, were of such strong and pointed character as to put the purchaser on inVol. IV.]

Johnson v. WAY.

(No. 2.

quiry, then the law presumes that he did make those inquiries, or that if he did not he should bear the responsibility in the same manner as if he had made them, and they had led him to a full knowledge of the whole truth connected with giving the notes. The purchaser was not bound to make inquiries, unless there was something in the circumstances of the case that would have put an ordinarily careful and prudent man upon investigation. But while the purchaser was not bound to make inquiries from motives of mere curiosity and suspicion, yet he was not at liberty to shut his eyes to facts and circumstances that presented themselves to him, if those facts and circumstances would have attracted the attention of a man of common prudence. It was not enough if the facts and circumstances were merely sufficient to suggest inquiry by the most cautious; nor does the law require circumstances so startling as to awaken investigation on the part of the most dull and stolid. But if the defendant has shown you by testimony, to your satisfaction, that Joy and Johnson had actual notice at the time of the purchase of the notes of their defects and infirmities, or if they had such knowledge of facts and circumstances as to put a reasonable and prudent man upon inquiry, then the plaintiff cannot recover.”

To the refusal of the court to charge as requested, and to the charge as given, the plaintiff excepted. Judgment was rendered for the defendant, and on petition in error the judgment of the common pleas was affirmed by the district court. It is now sought to reverse the judgments of the courts below, for error in the charge given to the jury on the trial in the court of common pleas.

M. Stewart, for plaintiff in error. The court erred in its charge, which was, in substance, that “the plaintiff, having admitted that the notes were without consideration between the original parties, he is not entitled to recover, unless he proves (independent of any presumption of law) that he bought them before due, and paid value in the regular course of trade.” 1 Parsons on Notes & Bills, 185; Swift v. Tyson, 16 Pet. 16; Nixon v. De Wolf, 10 Gray, 318; Dumont v. Williamson, 18 Ohio St. 115; Davis v. Bartlett, 12 Ib. 544. And as to notice, Goodman v. Simons, 20 How. 365; Andrews v. Pond, 13 Pet. 65; Fowler v. Brantly, 14 Ib. 318; Bank of Pittsburg v. Neal, 22 How. 108; 2 Parsons on Con. 3, 4.

The indorsement furnished no evidence or ground of suspicion to put plaintiff on inquiry. Russell v. Ball, 2 Johns. 50; Goddard v. Lyman, 14 Pick. 268 ; Bisbing v. Graham, 14 P. S. 14; Epler v. Funk, 8 Barr, 468.

The purchaser of commercial paper before due, in good faith, for value, in the regular course of trade, holds it discharged of all prior equities. Circumstances of suspicion that would attract the attention of a man of common prudence, or even carelessness or gross negligence on his part, at the time of the purchase, will not defeat his title. That can only be effected by actual notice, or fraud on his part. Murray v. Lardner, 2 Wall. 121; Goodman v. Harvey, 4 Adol. & Ellis, 470.

The rule in England originally, for a long period, protected the holder against the fraud of antecedent parties, unless he was shown to have had actual notice, or was guilty of bad faith. It was first announced by Lord

were without considerappoves (independent on in the regular

Vol. IV.)

JOHNSON v. War.

[No. 2.

Mansfield, in 1758, in Miller v. Race, 1 Bur. King's Bench Rep. 452, and was reaffirmed by the same judge in Grant v. Vaughn, 3 Bur. 15, 16. In 1764, and through all the long period following it, not only in that, but the various other courts of that country, it remained the unquestionable law of the land down to 1824, when Gill v. Cubit, 3 Barn. & Cress. 466, changed the rule, and made the holder chargeable with knowledge, if the circumstances were such as ought to have excited the suspicions of a person of reasonable care and prudence. In 1834, in Crooks V. Jadis, 5 Barn. & Ad. 909, the court of king's bench again changed the law, and held that the owner should be protected unless guilty of gross negligence in the purchase. But in 1836, the law having been found not only unsatisfactory to commerce, but to the courts themselves, as being too variant and changeable, and depending upon the intelligence and capacity not only of the purchaser, but even of the jury who might try the question, that same court, in Goodman v. Harvey, rising above the erroneous precedents of the cases commencing with Gill v. Cubtt, and seeming to appreciate the increased and constantly increasing requirements of the business interests of the country and of trade, brushed away the uncertainty and changeableness attendant on the application of the rule, as held in Gill v. Cubit and Crooks V. Jadis, and returned to the original doctrine of Miller v. Race, which has ever since been the settled law of that country, affirmed by numerous decisions since then, so repeatedly and decidedly that no late jurist or elementary writer is found to dispute the proposition, “ that nothing short of actual notice, or bad faith (fraud), will defeat the title of the holder.” Raphael v. Bank of England, 84 English Com. Law, 161; Carlon v. Ireland, 85 Com. Law, 765.

For the law, as declared in this country: Swift v. Tyson, 16 Pet. 15; Goodman v. Simons, 20 How. 343; Bank of Pittsburg v. Neal, 22 Ib. 108; Murrag v. Lardner, 2 Wall. 110; Edwards on Bills & Notes, 318; Uther v. Rich, 10 Adol. & Ellis, 784; Steinbacker v. Boker, 34 Barb. 436; Magee v. Badger, 34 N. Y. 247; Belmont Bank v. Hodge, 35 Ib. 65; Brush v. Scribner, 11 Conn. 388; 10 Cush. 488; 4 Ga. 287 ; 13 Ala. 390.

S. P. Woolcott, for defendant in error.

DAY, J. The questions made in the case relate to the rights of indorsees of negotiable paper, and arise upon the charge of the court to the jury. Though other questions are made in argument, we do not deem it important to notice here but one of the grounds of exception.

The court charged the jury, that as the notes were conceded to be invalid as between the original parties, the plaintiff, though an indorsee of the notes for value before due, could not recover, if he had such knowledge of facts and circumstances as to put an ordinarily careful and prudent man upon inquiry as to the infirmities of the notes. The question, then, is, whether this rule is to be applied to a holder of negotiable paper, to whom it is indorsed in the usual course of trade, for value before due.

It was early the settled law in England, in regard to paper drawn in a form to pass from hand to hand in the course of business and trade, that the holder, who came by it fairly and honestly before due, for a valuable consideration, had a good title. Salk. 126 ; Miller v. Race, 1 Bur. 452; Peacock v. Rhodes, Doug. 633; Lawson v. Weston, 4 Esp. 26; Gorgier v. Mieville, 3 Barn. & Cress. 45.

The court chargine original parties, th recover, if he had suchand prude

adid as between reed the jury, the grounds of est, we do not det

Vol. IV.]
Johnson v. WAY.

[No. 2. In 1824, in Gill v. Cubit, 3 Barn. & Cress. 466, the court of king's bench added a new limitation to the title of the holder of negotiable paper, and held that he acquires no title as against the equities of antecedent parties, if he takes it under circumstances which would excite the suspicions of a prudent and careful man. This rule was followed for a number of years in England, and by many of the courts of this country.

But in 1834, in Crook v. Jadis, 5 Barn. & Ad. 909, this rule was so far shaken that an indorsee of a bill of exchange was permitted to recover against the drawer, unless he proved that the indorsee was guilty of gross negligence in taking the bill; and two years later, in Goodman v. Harvey, 4 Ad. & El. 870, it was decided that gross negligence is not alone enough to destroy the title of a holder for value, but that a case of bad faith in taking the security must be made against him, in order to defeat his claim.

Since 1836, the rule established in Goodman v. Harvey has been followed by the British courts, and may now be regarded as the settled law of that country. Raphael v. The Bank of England, 17 C. B. (84 E. C. L.) 161.

Although the rule declared in Gill v. Cubit has been followed by many of the courts of this country, it has been so generally repudiated by the more modern decisions, and that of Goodman v. Harvey approved, that the doctrine of the case may now be regarded to be the American, as well as English law upon the subject. Worcester County Bank v. Dorchester of Milton Bank, 10 Cush. 488; Smith v. Livingston, 111 Mass. 342; Matthews v. Poythress, 4 Geo. 287; Miller v. Finley, 26 Mich. 249; Phelan v. Mo88, 67 Penn. St. 59; Magee v. Badger, 34 N. Y. 247; Belmont Bank v. Hoge, 35 N. Y. 65; Goodman v. Simonds, 20 How. 343; Murray v. Lardner, 2 Wall. 110; Hotchkiss v. National Bank, 21 Wall. 354; 1 Smith's Lead. Cas. (7th Am. ed.) 825; Redfield & Bigelow's Lead. Cas.

Smith's "Lena Wall. 110; Loodman v. Simer, 34 N. Y. 24h: 249; Phei Mat

Ints & Notes, 256th Am. ed. - National How. 343 ; Mont Bank

In the case of The Belmont Bank v. Hoge, supra, the view of the New York court of appeals upon the question is stated as follows: “ One who, for full value, obtains from the apparent owner a transfer of negotiable paper before it matures, and who has no notice of any equities between the original parties, or of any defects in the title of the presumptive owner, is to be deemed a bonâ fide holder. He does not owe to the party who puts such paper in circulation the duty of active inquiry, to avert the imputation of bad faith. The rights of the holder are to be determined by the simple test of honesty and good faith, and not by mere speculation as to his probable diligence or negligence.”

In Smith v. Livingston, 111 Mass. 345, the court disapprove the rule of Gill v. Cubit, and say: "Circumstances which might excite the suspicions of one man might not attract the attention of another. It is a rule which business men cannot act upon in the ordinary affairs of life with any certainty that they are safe.”

In Murray v. Lardner, supra, the law in regard to negotiable paper, as settled by the supreme court of the United States, is summarized as follows: “ The party who takes it before due for a valuable consideration, without knowledge of any defect of title, and in good faith, holds it by a title valid against all the world. Suspicions of defect of title, or the

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