Page images

$ 30.

Illegal consideration.

affirmed the transaction, for fraud renders a contract voidable, not void.

Rule 6. Illegality of consideration, total or partial, is a defence against an immediate party, but not against a holder in due course.?

The consideration for a bill is illegal when it is wholly or in part immoral, contrary to public policy, or forbidden by statute. For example :

1. Bill accepted for value. The drawer indorses to C. for an illegal consideration, e.g., to stifle a prosecution for felony. C. can, it seems, sue the acceptor, but not the drawer.

2. X. embezzles the money of a building society. His wife and brother give promissory notes to the society for the amount, on the implied condition that he shall not be prosecuted. The notes are given on an illegal consideration, and cannot be enforced.5

3. Note made for value. The payee indorses it for an illegal consideration to D. D. can, it seems, sue the maker, but not the indorser. 6

4. Note made payable to an officer of an unregistered loan society, formed after the Companies Act, 1862, the consideration being a loan by the society. The officer indorses the note to his successor. The society consists of more than twenty members, and is therefore illegal. The indorsee cannot sue the maker.7

5. Note given by defendant to plaintiff in payment of a composition of 58. in the £. It appears that the plaintiff was induced to assent to the composition by the defendant, unknown to the other creditors, indorsing to him the acceptance of a third person. This fraudulent preference is a good defence to an action on the note.s

6. A promissory note given to secure the same sum as a bill of sale, and at the same time, may be valid, though the bill of sale may be void, for not referring to the note as a ground of defeasance."

7. Note given by defendant to C. in respect of gambling transactions on the Stock Exchange. C. indorses the note for value to the plaintiff, who has notice of the facts. The original consideration

· Dawes v. Harness (1875), L. R. 10 C. P. 166. So held in America, Proutz v. Roberts (1850), 69 Massachus. R. 19; Carrier v. Sears (1862), 86 Massachus. 336.

· Hay v. Ayling (1851), 16 Q. B. at p. 431.
3 Cf. Pitch v. Jones (1355), 5 E. & B. 238.
4 Plower v. Sadler (1882), 10 Q B. D. 572, C. A.
5 Jones v. Merionethshire Building Society, (1892) 1 Ch. 173, C. A.
6 Armstrong v. Gibson (1872), 11 Amer. R. 599.

7 Shaw v. Benson (1883), 11 Q. B. D. 563, C. A. As to a company or society formed before 1862, see Shaw v. Simmons (1883), 12 Q. B. D. 117 ; and as to effect of illegal society subsequently registering, see Ex parte Poppleton (1885), 14 Q. B. D. 379.

8 Howden v. Haigh (1840), 10 A. & E. 1033.
9 Monetary Advance Co. v. Cater (1888), 20 Q. B. D. 785.

being merely void under 8 & 9 Vict. c. 109, s. 18, aud]not illegal, § 30. the plaintiff can recover on the note.'

Although the party sued may in many instances set up the jus tertii, the cases cited served to show that he cannot set up the injuria tertii as a defence. A proceeding prohibited by statute must be distinguished from a proceeding which is merely unauthorized.?

When old cases are referred to it is important to notice whether the consideration was simply void, or illegal and void, or whether it was a consideration which by statute expressly made the bill void. Again, an illegal consideration must be distinguished from a merely void consideration 3

Rule 7. When a bill is given for a consideration which Bills void by by statute expressly makes it void, it is, as against the statute. party who gave it, void in the hands of all parties whether immediate or remote. For example:

A. draws a bill on B. payable to his own order. B. accepts it for a consideration which by statute avoids it. A. indorses it to C., who takes it for value and without notice. C. can sue A.,' but he cannot sue B.6

Most, if not all, the statutes which expressly avoided bills are now repealed, e.g., the laws relating to usury and stock-jobbing. By 5 & 6 Will

. 4, c. 41, § 1, bills and notes given for wagers or gaming are not to be void, but are to be deemed to be given for an illegal consideration; and see 8 & 9 Vict. c. 109. In many American States usury laws still prevail.

Lilley v. Rankin (1887), 56 L. J. Q. B. 248. 2 Re Coltman (1881), 19 Ch. D. 64, C. A.

3 Pitch v. Jones (1855), 5 E. & B. 238 ; and Belfast Banking Co. v. Doherty (1879), 4 Ir. L. R. Q. B. D. 124.

Edwards v. Dick (1821), 4 B. & Ald. 212 ; Shillito v. Theed (1831), 7 Bing. 405.

Edwards v. Dick (1821), 4 B. & Ald. 212.
6 Ibid. ; Reed v. Wiggins (1862), 13 C. B. N. 8. 220 ; 32 L. J. C. P. 131.

§ 31.

Negotiation defined.

Negotiation of Bills. 31. (1) A bill is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder of the bill.

See “holder" defined by sect. 2, ante, p. 5. See the negotiation of a bill or note distinguished from the sale of goods by Holroyd, J.,' the transfer of shares in a company by Byles, J., and the transfer of an assignable Scotch bond by Blackburn, J.;: and see note to sub-sect. (3).

(2) A bill payable to bearer is negotiated by delivery

See “ bearer” and “delivery" defined by sect. 2. As to delivery for a special purpose, see sect. 21, ante, p. 54. By sect. 8 (3), ante, p. 24, a bill is payable to bearer which is expressed to be so payable, or on which the only or last indorsement is an indorsement in blank.

Bill to bearer.

Bill to order.

(3) A bill payable to order is negotiated by the indorsement of the holder completed by delivery.

As to indorsement, see sect. 2 and sect. 32. By sect. 8 (4), ante, p. 25, a bill is payable to order which is expressed to be so payable, or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer, or indicating an intention that it should not be transferable. As to restrictive indorsements, see sect. 35, post, p. 112. An individual who personates the holder, or

Wookey v. Pole (1820), 4 B. & Ald. at p. 10, comparing them with money.

2 Swan v. N. B. Australasian Co. (1863), 2 H. & C. at pp. 184, 185 ; 32 L. J. Ex. 273.

3 Crouch v. Crédit Foncier (1873), L. R. 8 Q. B. at p. 381.

§ 31.

who makes title through a forged indorsement, is not the holder.1

The nature of negotiation is thus described by Lord (then Mr. Justice) Blackburn :-“ In the notes to Miller v. Race, where all the authorities are collected, the very learned author says: 'It may therefore be laid down as a safe rule that where an instrument is by the custom of trade transferable, like cash, by delivery, and is also capable of being sued upon by the person holding it pro tempore, then it is entitled to the name of a negotiable instrument, and the property in it passes to a bona fide transferee for value, though the transfer may not have taken place in market overt. But that if either of the above requisites be wanting, i.e., if it be either not accustomably transferable, or, though it be accustomably transferable, yet if its nature be such as to render it incapable of being put in suit by the party holding it pro tempore, it is not a negotiable instrument, nor will delivery of it pass the property of it to a vendee, however bona fide, if the transferor himself have not a good title to it, and the transfer be made out of market overt.' Bills of exchange and promissory notes, whether payable to order or to bearer, are by the law merchant negotiable in both senses of the word. The person who by a genuine indorsement, or, where it is

payable to bearer, by a delivery, becomes holder, may sue in his own name on the contract, and if he is a bona fide holder for value, he has a good title, notwithstanding any defect of title in the party (whether indorser or deliverer) from whom he took it." 3

In Scotland “indorsement carries the bill only, but leaves untransmitted the diligence which may have been raised on it, and has no effect in transferring dividends due on the bill out of a sequestrated estate, or any guarantee or other collateral obligation or security.” Bell's Principles, 9th ed. § 331.

(4) Where the holder of a bill payable to his Transfer of order transfers it for value without indorsing it, without


Sect. 24 ; cf. Smith v. Union Bank (1875), L. R. 10 Q. B. at pp. 295, 296 ; and see note, ante, p. 91.

3 1 Smith, L. C. 9th ed. p. 491.
s Crouch v. Crédit Poncier (1873), L. R. 8 Q. B. 374, at p. 381.

§ 31.

the transfer gives the transferee such title as the transferor had in the bill,' and the transferee in addition acquires the right to have the indorsement of the transferor.2


1. The holder of a bill payable to order transfers it to D. for value without indorsing it. D. cannot sue the acceptor in his own name, or negotiate the bill by indorsing it to E.3

2. The drawer of an accepted bill, payable to drawer's order, discounts it with C., but by mistake omits to indorse it. C. indorses the bill in blank in the drawer's name. He cannot recover from the acceptor, for he had no right to indorse.“

3. C., the holder of a bill payable to order, transfers it for value to D. without indorsing it. If C. becomes bankrupt, the Court will compel his trustee in bankruptcy to indorse the bill.If C. dies, the Court will compel his executor or administrator to indorse.

4. The drawer of an accepted bill payable to drawer's order, transfers it for value to C. without indorsing it. C. returns the bill to the drawer for his indorsement. The drawer destroys it. C. has no claim against the acceptor.?

It is to be noted that when indorsement is subsequently obtained, the transfer takes effect as a negotiation from the time when the indorsement is given. The scope of the rule is thus explained by Willes, J., who says: “The general rule of law is undoubted that no one can transfer 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 rule of the law merchant as to negotiable instruments. These being part of the currency, are subject

1 Whistler v. Forster (1863), 14 C. B. N. S. at p. 258 ; 32 L. J. C. P. at p. 163, per Willes, J. ; Ex parte Pike (1879), 40 L. T. N. S. 529.

2 Harrop v. Fisher (1861), 10 C. B. N. S. at p. 203 ; 30 L. J. C. P. at p. 286, per Byles, J. As to an express promise to indorse which was held not to create a mutual credit, see Rose v. Sims (1830), 1 B. & Ad. 521.

3 Harrop v. Fisher (1861), 10 C. B. N. S. at p. 203, Byles, J. ; and Cunliffe v. Whitehead (1837), 3 Bing. N. C. at p. 830.

4 Parrop v. Fisher (1861), 10 C. B. N. S. 196; 30 L. J. C. P. 283.

5 Ex parte Mowbray (1820), 1 Jac. & W. 428. Indorsement should negative personal liability. Indorsement by bankrupt is, it seems, equally good. Ex parte Rhodes (1837), 3 Mont. & Ayr. 217.

6 Cf. Watkins v. Maule (1820), 2 Jac. & W. 243. 7 Edge v. Bumford (1862), 31 L. J. Ch. 805.

8 Whistler v. Forster, supra ; see, too, Lancaster Bank v. Taylor (1869), 1 Amer. R. 71 ; Clark v. Whitaker (1871), 9 Amer. R. 286.

« PreviousContinue »