63 Mo. 167 | Mo. | 1876
delivered the opinion of the court.
Plaintiff brought his action on a negotiable promissory note executed by the defendant to one T. H. Cooley, and by Cooley assigned to plaintiff before maturity. Black was a mere surety, and made a formal answer of denial. The separate answer of the defendant, Marks, set up a conditional sale of a farm to him by Cooley ; that the conveyance was made to him for the purpose of making the sale to one Walker, and that the note was executed to secure Cooley in the faithful discharge by Marks of the trust; and that, in case no sale should be made to Walker before the note became due, the same was to be void.
Marks’ answer also set up a fraudulent conspiracy between Walker and Cooley, to sell the farm to him, and charged the plaintiff with notice of the fraud. It was also averred that no value was given in consideration of the assignment, etc.
There was a replication filed by the plaintiff, denying all the materia] allegations in the answer, and upon the issues thus formed the trial was had. Both parties gave evidence tending to establish their respective sides of the case. There was a verdict for the defendants, upon which judgment was rendered, and the plaintiff appealed.
In order to understand and determine upon what theory the case was tried, it will be necessary briefly to recur to the material •instructions given by the court. The nine propositions given on the request of the plaintiff, and the first two for the defendants cannot be subject to any contest, as they merely assert what has long been established as the law in reference to the rights and liabilities of parties to negotiable paper. But the remaining instructions given for the defendants constitute the principal matter of contention in the case, and are the ones to which plaintiff strenuously objects. By the third instruction the jury are told, that if they believe from the evidence that the note in suit was obtained by Cooley, the payee therein, by fraud practiced by him upon the defendant, Marks, or, if the circumstances appearing in proof
The main questions for inquiry arising on the record, according to the foregoing instructions, are, first, whether circumstances of suspicion sufficient to put a prudent man on inquiry, constitute notice in regard to negotiable paper, and whether negligence or want of care in the investigation of such circumstances can be
This case was previously in this court, on appeal from the Linn county court of common pleas (52 Me. 78), and the doctrine then announced was, that, in order to let in equitable defenses against a note assigned before maturity, express notice of the consideration before the assignment was made, was not indispensable ; but that it would be sufficient if the circumstances Avere of such a character as necessarily to cast a shade upon the transaction, and to put the holder upon inquiry. The instructions upon this point followed the rule laid down above, and the plaintiff’s counsel now zealously insists, that the principle declared is erroneous, and asks that it should be re-examined.
As a general proposition we should be unwilling to accede to the request. It is fit and proper that there should be an end to litigation, and when a rule has been adjudged upon mature deliberation, and after solemn argument, it ought to be considered as finally determined. When a case has once been in the appellate court and is sent back, if it is re-tried in conformity Avith the principles announced in the higher tribunal, and is again taken up, cogent and convincing reasons must exist to induce a re-examination of what ought to be considered as res judical a. But, in A'iew of the fact that subsequent decisions of this court, though not noticing or professing to overrule the decisions in this case, are, in my opinion, inconsistent with it, and considering the great importance of having some settled and stable rule in reference to a question which so vitally concerns the business transactions of the whole community, it is deemed advisable to depart from the usual practice and consider the question again.
When the case was here before, the judge who Avrote the opinion placed his chief reliance upon the authority of Pringle vs. Phillips(51 Sandf. 157), and the cases therein cited and reviewed by
As England was the great commercial nation of the world, the leading principles of mercantile or commercial law have been derived from her courts. The general rule of the common law was, that except by a sale in market overt, no one could give a better title to personal property than he himself had. But it was established at an early period, that securities transferable by delivery were exempt from this principle. In Lawson vs. Weston (4 Esp. 56), Lord Kenyon said : “If there was any fraud in the transaction, or if a bona fide consideration had not been paid for the bill by the plaintiffs, to be sure they could recover; but to adopt the principle of the defense to the full extent stated, would at once paralyze the circulation of all the paper in the country, and with it all its commerce. The circumstances of the bill having been lost might have been material, if they could bring knowledge of that fact home to the plaintiffs. The plaintiffs might, or might not, have seen the advertisement, and it would be going a great length to say that a banker was bound to make inquiry concerning every hill brought to him for discount. It would apply as well to a bill for £10 as for £10,000.” This doctrine of Lord Kenyon was not new. The same principle has been previously announced by Lord Holt, in Anon (1 Salk. 126); by Lord Mansfield in Miller vs. Race (1 Burr, 452); in Grant vs. Vaughan (3 Id. 1,516); and in Peacock vs. Rhodes (2 Doug. 633); and was considered the well settled law.
But in the later case of Gill vs. Cubitt (3 Barn. & Cress. 466), decided in 1824, Abbott, Ch. J., upon the trial instructed the
The jury found for the defendant, and after a full argument before the whole court, the charge was approved, and judgment was entered upon the verdict. The rule established in Gill vs. Cubitt created great dissatisfaction in mercantile and commercial circles, but it was adhered to for a period of twelve years, or as long as Chief Justice Abbott presided on the bench. He broke in upon the ancient rule and established the doctrine, but it died with his retirement.
In Crook vs. Jadis (6 Barn. & Ad. 909), the doctrine received a very material modification. The action was brought by the indorsee of the bill against the drawer. It was held that it was “no defense that the plaintiff took the bill under circumstances which ought to have excited the suspicions of a prudent man that it had not been fairly obtained. The defendant must show that the plaintiff was guilty of gross negligence.”
This last case was affirmed in Backhouse vs. Harrison (5 Barn. & Ad. 1098), and one of the judges (Patterson) earnestly assailed the case of Gill vs. Cubitt. Finally a step further was taken in Goodman vs. Harvey (4 Ad. & El. 870), and the rule in Gill vs. Cubitt was utterly rejected and repudiated. Lord Den-man, speaking for the whole court of King’s Bench, used the following language : “I believe we are all of opinion that gross negligence only would not be a sufficient answer where the party has given a consideration for the bill. Gross negligence may be evidence of mala fides, but it is not the same thing. We have shaken off the last remnant of the contrary doctrine. Where the bill has passed to the plaintiff without any proof of bad faith in him, there is no objection to his title.” This last case was decided in 1836. It was re-affirmed in Uther vs. Rich (10 Ad. &
The Supreme Court of the United States has adopted the rule announced in Goodman vs. Harvey, to its fullest extent. The question first came before that tribunal in Swift vs. Tyson (16 Pet. 1), and Goodman vs. Harvey, and the class to which it belongs, were followed. In the case of Goodman vs. Simonds (20 How. 343), Judge Clifford, writing the opinion of the whole court, gave the subject, both upon the authorities and upon principle, the most elaborate and exhaustive examination that is anywhere to be found in the books. From that case the following propositions are deducible: 1. The possession of negotiable paper carries the title with it to the holder. 2. 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. 3. Suspicion of defect of title, 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. 4. The burden of proof lies on the person who assails the right claimed by the party in possession. This case was followed by the Bank of Pittsburg vs. Neal (22 How. 96), and again in Murray vs. Lardner (2 Wall. 110), the question was considered, and the cases reviewed, and Goodman vs. Simonds was affirmed by the whole court.
In New York the same principle is fully adopted. (Magee vs. Badger, 34 N. Y. 247.) In the case of the Belmont Branch Bank vs. Hoge (35 N. Y. 65), Mr. Justice Porter, in giving the opinion of the court, says : “Upon the facts proved, it is manifest that the jury were right in finding that the defendants were bona fide holders of the paper in question. The instructions of the learned judge on this branch of the case were more favorable to the plaintiffs than the law would strictly justify. He gave them the benefit of the assumption that, though the defendants
“We had occasion to express our views on this question in the case of Magee vs. Badger (34 N. Y. 247). 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 defect 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 the mere speculation as to his probable diligence or negligence. The authority mainly relied on in the exceptional cases which have favored an opposite theory, is the decision in Gill vs. Cubitt (3 B. & C. 466). The doctrine of that case has been repeatedly overruled, as well in the English as in the American courts ; and it cannot be recognized as authority without sanctioning an unwise innovation in our system of commercial law.”
The question was again discussed in Seybel vs. Nat. Cur. Bk. (54 N. Y. 288), and the doctrine above announced was reiterated. The same principle is established in Pennsylvania. In Phelan vs. Moss (67 Penn. St. 59), after an elaborate discussion, it was held that a purchaser before due, and without notice,of a negotiable promissory note, fraudulent as between the original parties, obtained a title thereto, although he took it under circumstances which ought to have excited the suspicions of a prudent man. The case of Lake vs. Reed (29 Iowa, 258), is to the same effect.
In this State, in Horton vs. Bayne (52 Mo. 531), it.was held that an indorsee of negotiable paper before maturity was presumed to be the owner in good faith and for value, unless there were circumstances antecedent to, or attendant on, the act of transfer, amounting to either actual notice to the holder, of fraud, illegality or failure of consideration, or such a combination of suspicious circumstances, as would, in legal contemplation, afford ground for the presumption that the purchaser of the paper was aware, at the time of its acquisition, of some equity between the original parties which should have prevented its purchase. And in Merrick vs. Phillips (58 Mo. 436), it was decided that the consideration o£ a negotiable promissory note in the hands of an innocent holder for value, could not he inquired into, and before the consideration could be impeached it was necessary to show that the holder had notice of the lack of consideration.
It is conceded; that in the United States the decisions of the courts have varied. Formerly a good many of the courts followed the principle established in Gill vs. Cubitt, and a few of them still adhere to the rule therein declared, but by far the greater number now concur in the doctrine which has been firmly settled in England and the Supreme Court of the United States, and in the courts of all the leading commercial States of the Union. (Redf. & Big. Lead. Cas. 257; 1 Dan’l Nego. Instr. § 775.)
The rule that a purchaser is not an innocent holder if there are circumstances connected with the transfer sufficient to put an ordinarily prudent man on inquiry, is uncertain and void of uniformity. Suspicions assert themselves in different ways in different minds. In like manner, what is to be deemed prudence will be found to vary with different persons. One innocent holder may be more or less suspicious, under similar circumstances, at one time than at another. So, too, one prudent man may also suspect when another would not, and the standard of the jury may
In any view, therefore, both upon principle and authority, and from the experience of jurists and commercial men, and the interests of the affairs of business life, it is safe to say that the liberal doctrine which promotes the free circulation of negotiable instruments, is the be*st, and that the good faith of the transaction should be the decisive test of the holder’s rights. It follows that the court’s instruction upon the question of notice was wrong.
The next question is as to the burden of proof, in case it was found that the note had its inception in fraud. In the last edition of Story on Promissory Notes, it is laid down that if the maker prove that the note had been obtained from him by fraud or was fraudulently put in circulation by the payee, the holder must prove that he took it honestly, without knowledge of the fraud, and it may then be incumbent on him to show that he has given value for it. (Sto. Prom. Notes, 6 ed. § 196.) The rule is stated very distinctly and clearly by Greenleaf (2 Greenl. Ev. § 172), where he says : “Even in an action by the indorsee against an original party to a bill, if it be shown on the part of the defendant that the bill was made under duress, or that he was defrauded of it, or if a strong suspicion of fraud be raised, the plaintiff will then be required to show under what circumstances and for what value he became the holder. It is, however, only in such cases that this proof will be demanded of the holder ; it will not be required where the defendant shows nothing more than a mere want of consideration on his part.”
Eor the propositions above stated, the learned authors cite many cases. In Bailey vs. Bidwell (13 M. & W. 73), Baron Parke says: “It certainly has been, since the later cases, the universal understanding that, if the note were proved to have been obtained by fraud or affected by illegality, that afforded a presumption that the person who had been guilty of the illegality would dispose of it, and would place it in the hands of another person to sue upon it; and that such proof casts upon the plaintiff the burden of showing that he was a bona fide holder for
The same doctrine has received the unqualified assent and approbation of the Supreme Court of the United States. In the case of Smith vs. Sac County (11 Wall. 139), it is expressly decided, that in a suit on a negotiable security, when the defendant has shown strong circumstances of fraud in the origin of the instrument, this casts upon the holder the necessity of showing that he gave value for it before maturity. In Ohio (McKesson vs. Stanberry, 3 Ohio St. 156), the rule is stated to be, that where it is shown that the transaction on the part of the original holder was a positive fraud, then it devolves on the party claiming under such transaction to show that he acted honestly, without a knowledge of the fraud. Savage, C. J., in Vallett vs.
The latest elementary writer on this subject thus sums up the rule as the settled law: “There may be, at this juncture, a shifting of the burden of proof from the defendant to the plaintiff, for the principle is well established, that if the maker or acceptor, who is primarily liable for payment of the instrument, or any party bound by the original consideration, proves that there was fraud or illegality in the inception of the instrument; or, if the circumstances raise a strong presumption of fraud or illegality, the owner must then respond by showing that he acquired it bona ■fide for value, in the usual course of business while current, and under circumstances which create no suspicion that he knew the facts which impeach its validity. This principle is obviously salutary ; for the presumption is natural that an instrument so is
The reasoning by which the foregoing Tule is supported is, I think, unanswerable, and commends itself for its manifest justice. Where an instrument is procured by fraud, or is affected with illegality, the payee would undoubtedly be eager to transfer it, so that suit would be brought in the name of another, in order to prevent any valid defense if possible.
In such a case, it is justice to the defendant, and it is no hardship to the plaintiff, to require him to show, that in acquiring the note he acted honestly and in good faith, and that he gave’Value for it. On this point, therefore, in giving the third instruction for the defendant, I think the court decided rightly. There are no other questions in the record requiring attention, or to which any objection is perceived.
For the giving of the fourth, fifth and sixth instructions, on behalf of the defendants, in regard to the question of diligence and notice by the plaintiff, I think the judgment should be reversed and the cause remanded.