Page images
PDF
EPUB

Vol. IV.]

JOHNSON v. WAY.

[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.

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 & 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. Moss, 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. on Bills & Notes, 257.

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 bona 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

Vol. IV.]

JOHNSON v. WAY.

[No. 2.

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. The rule may perhaps be said to resolve itself into a question of honesty or dishonesty, for guilty knowledge and wilful ignorance alike involve the result of bad faith.

It was, moreover, settled in that case, that circumstances tending to show bad faith or fraud in taking such paper, though not conclusive in themselves, are admissible in evidence, and the establishment of bad faith or fraud, whether by direct or circumstantial evidence, is fatal to the title of the party so taking it.

The rule established in these cases neither restricts the usefulness of paper made to pass from hand to hand in commerce, nor does it relieve the party taking it from the obligations of good faith. This rule may be more readily applied than that laid down in Gill v. Cubit, for a rule based on good faith as a standard is more easily comprehended than one grounded upon speculations as to what ought to excite the suspicions of a prudent man. A prudent man, it has been well said, may be more or less suspicious under similar circumstances at one time than at another, and may also suspect where another equally prudent would not; and the standard of the jury may be higher or lower than that of other men who are prudent in the management of their affairs.

The point in controversy has not been directly determined by the supreme court of this state. The rules laid down in Davis v. Bartlett, 12 Ohio St. 534, which are stated in the syllabus, are, however, in harmony with that of Goodman v. Harvey; so is the decision in Bassett v. Avery, 15 Ohio St. 299, as well as the principle upon which the case was decided. But a remark upon a hypothetical case stated in the opinion delivered in Bassett v. Avery warrants the charge to the jury complained of in this case. Speaking of what might constitute a defence against an indorsee of a negotiable note, it is said: "If such circumstances of suspicion had been shown to exist as ought to have put Bassett upon inquiry before purchasing, he would be presumed to have either made the inquiry and ascertained the truth, or have been guilty of a degree of negligence equally fatal to his claim to be considered a bona fide purchaser. statement is made upon the authority of Williamson v. Brown, 15 N. Y. 354; but that case did not relate to negotiable paper; and we have seen, moreover, that a different rule now obtains in New York in reference to that kind of instruments.

This

In McKesson v. Stanbury, 3 Ohio St. 156, it was only necessary to determine upon which party the burden of proof rested, and the case, as explained, and upon the principles settled in Davis v. Bartlett, was decided right. The statement in the opinion in regard to the prudence required of an indorsee of negotiable paper was unnecessary to the decision of the case, and like that of a similar character in Bassett v. Avery, may be regarded only as a dictum. Without questioning the correctness of the decisive points of these cases, we do not feel bound to follow the dicta referred to. Although entitled to great weight as the utterances of able judges, and warranted by a line of decisions, they were, however, only incidental remarks in the cases in which they were made, and are not in

Vol. IV.]

RUMSEY V. BERRY.

[No. 2.

accordance with the rule as now settled by repeated decisions of the highest courts of England and America.

Guided by the leading authorities of both countries, we are brought to the following conclusions:

--

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.

To defeat his recovery thereon, it is not sufficient to show that he took it under circumstances that ought to excite suspicions in the mind of a prudent man.

To have that effect, it must be shown that he took the paper under circumstances showing bad faith or want of honesty on his part.

Circumstances tending to show bad faith or fraud in taking such paper, though not conclusive in themselves, 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. Judgment accordingly.

SCOTT, C. J., WRIGHT, JOHNSON, and ASHBURN, JJ., concurred.

SUPREME COURT OF MAINE.

(To appear in 65 Maine.)

CONTRACT TO DELIVER WHEAT AT FUTURE DATE BASED ON
GIN" NOT A WAGERING CONTRACT.

RUMSEY v. BERRY.

"MAR

A contract for the sale and purchase of wheat to be delivered in good faith at a future time is not void as a 66 wagering contract; " but when under such an agreement it is understood by the parties that no wheat is to be delivered, but only a payment at the time appointed of the difference between the contract and the market price, it thus becomes a wagering contract and the law will not enforce it. The plaintiffs in good faith, at the request and for the benefit of the defendant, made an agreement for the sale of wheat to be delivered within a certain time, at the option of the defendant, he to furnish sufficient "margin" to secure them against loss. The defendant failed to comply with his part of the contract, and a loss ensued. that under such a contract the law will give to the plaintiffs a remedy for their loss.

Held,

ASSUMPSIT. The writ was dated August 4, 1872, and contained a count upon an account annexed, and one for money paid, laid out, and expended. The action was brought to recover a balance alleged to be due from the defendant to the plaintiffs, under the following facts admitted or proved at the trial.

The defendant, a resident of Bangor, Maine, was in Chicago, Illinois, and there met the plaintiffs, who are and were in 1872, when the transactions took place, commission merchants, brokers, and members of the board of trade in Chicago, and authorized the plaintiffs, either personally

[blocks in formation]
[ocr errors]

[No. 2.

[ocr errors]

or by his agent, April 22, 1872, to sell for him, 10,000 bushels of wheat at $1.30 and $1.31 per bushel, to be delivered at any time he (Berry) pleased during the month of May following. The plaintiffs thereupon did, in their own name, according to said orders, contract to deliver said wheat to third parties. By custom and law at Chicago, so long as the defendant furnished to the plaintiffs sufficient " margin so called, to secure them against loss in the event of a rise in the price of wheat, the plaintiffs must carry said contract along open under the directions of the defendant, until the last day of May; but if upon demand for additional margins upon the rise in the price of wheat, said "margins" were not furnished within a reasonable time, then the plaintiffs had a right at any time to purchase in wheat at the market price, to fill said contract, or to settle on the best terms possible with the parties to whom they had contracted to deliver the wheat, and claim of the defendant reimbursement for any loss incurred. Soon after April 22d, wheat commenced to rise in price, and upon demand, the defendant furnished $700 as a "margin; but wheat continued to advance in price, and upon demand for further "margin," the defendant failed to furnish it, and the contract was cancelled by the plaintiffs with the parties with whom they had contracted to deliver, in one or the other of the months above described, at a loss of about $3,000, only $700 of which was covered by the margin deposited; and this suit was to recover the difference, and the verdict of the jury was the full amount claimed. The defendant testified at the trial, that at the time the plaintiffs and the defendant entered into this contract the defendant had no wheat, and that the plaintiffs knew it; but it was proved at the trial and admitted by the defendant, that in pursuance of the agreement of the plaintiffs to sell wheat for the defendant, that the plaintiffs did contract with certain persons in Chicago, and become personally responsible to deliver them 5,000 bushels of wheat at $1.31, and 5,000 bushels at $1.30 per bushel, on some day in May, at seller's option, and that they did either actually deliver the wheat or make satisfactory settlement with the parties, at a loss of about $3,000; hence the defendant claimed at the trial, and his counsel asked the presiding judge to instruct the jury, that said contract was merely betting upon the price of wheat during the balance of the month of April and the month of May, and therefore a "wagering contract," and therefore illegal and invalid as a foundation of the action. This instruction the presiding justice refused to give; but did instruct the jury that such a contract would be valid under the laws of this state, and, in the absence of proof to the contrary, would be presumed to be valid under the laws of Illinois, where the contract was made.

The verdict was for the plaintiffs for $2,305.62.

The defendant alleged exceptions.

J. F. Godfrey, for the plaintiffs.

F. A. Wilson & C. F. Woodard, for the defendant.

DANFORTH, J. The plaintiffs are, and were in 1872, brokers, commission merchants, and members of the board of trade in Chicago, and, at the request and for the benefit of the defendant, a resident of Bangor, contracted with third parties for the sale of a quantity of wheat.

This contract was entered into upon the 22d day of April, 1872, and

[blocks in formation]
« PreviousContinue »