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purchaser of a bill or note is charged with knowledge of everything appearing on the instrument itself. That is to say, regardless of his actual knowledge, he is treated as if he knew every fact and the legal consequences of every fact which the paper itself discloses. This is the doctrine of constructive notice.

§ 109. Purchase after maturity. The most important application of the doctrine of constructive notice is to instruments transferred after their maturity, i. e., after they are due. A bill or note does not lose its quality of negotiability at its maturity, but the fact that a mercantile obligation has not been paid when due is by itself enough to put all purchasers on inquiry as to its validity. Since, whether the instrument is due or not appears upon its face, a purchaser after maturity, under the rule of constructive notice, always takes the instrument subject to all defenses which the maker or acceptor had against his transferor. Brown v. Davies (15) illustrates this. Davies made a note payable to Sandal, or order, due on Nov. 13. The note was not paid at maturity, but some weeks later Davies paid the amount to Sandal, but did not receive the instrument from him. Sandal then transferred the note to the plaintiff, who paid value and had no notice of the payment. It was held that the defense was nevertheless available against the plaintiff, because he had received the instrument after its maturity. Justice Buller said:

“There is this distinction between bills endorsed before and after they become due. If a note endorsed be not due at the time, it carries no suspicion whatever on the face

(15) 3 Term Rep. 80.

of it, and the party receives it on its own intrinsic credit. But if it is overdue, though I do not say that by law it is not negotiable, yet certainly it is out of the common course of dealing, and does give rise to suspicion. Still stronger ought that suspicion to be when it appears on the face of the note to have been noted for nonpayment, which was the case here. But generally, when a note is due, the party receiving it takes it on the credit of the person who gives it to him. Upon this ground it was, that, in the case in Cornwall, I held that the defendant, who was the maker, was entitled to set up the same defense that he might have done against the original payee; and the same doctrine has been often ruled at Guildhall. A fair indorsee can never be injured by this rule; for, if the transaction be a fair one, he will still be entitled to recover. But it may be a useful rule to detect fraud whenever that has been practised."

Another of the judges said: “I think the rule laid down by my brother Buller, in the case of Cornwall, is a very safe and proper one: That where a note is overdue, that alone is such a suspicious circumstance as makes it incumbent on the party receiving it to satisfy himself that it is a good one, otherwise much mischief might arise."

$ 110. Purchase from partner, agent, or trustee. If one takes a negotiable instrument signed by one of the partners in the firm name, in payment of the personal debt of the partner who executed the instrument, the creditor must know from the face of the paper that it was signed by his debtor as agent for the other partners, and, in consequence, he is charged with constructive notice of the absence of authority, if such be the case, on the part of his

debtor to bind the other partners for his personal debts (16). Again, if the officer of a corporation draws a check against the corporation's bank account, in the name of the corporation, and delivers it in payment of his personal debt, the creditor who receives it cannot be a holder in due course, but is charged with constructive notice of the officer's breach of trust in using corporate funds to pay his own debts (17). But the constructive notice arises from what appears on the face of the paper. If that shows no irregularity, and the purchaser in fact acted in good faith, he is protected. Thus in Cheever v. Railroad Co. (18) it appeared that Frost, the president of the railroad, executed a promissory note in the following form:

$5,000

Greenville, Pa., Febʼy 24, 1888. Four months after date the Pittsburgh, Shenango and Lake Erie Railroad Company promises to pay to the order of John T. Bruen five thousand dollars at the American Exchange National Bank, New York City. Value re ceived.

Attest: E. S. Templeton, Secretary. The Pittsburgh, Shenango & Lake Erie Railroad Company,

By M. S. Frost, President."

Bruen, the payee named in the note, was Frost's private secretary, and immediately indorsed the instrument in blank and delivered it to Frost. Bruen acted merely as a “dummy" in the transaction. Frost transferred the note

(16) Leverson v. Lane, 13 C. B. (N. S.) 278.
(17) Rochester Road Co. v. Paviour, 164 N. Y. 281.
(18) 150 N. Y. 59.

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to the plaintiff, for a loan for the personal benefit of Frost. It was held that the plaintiff could recover on the note from the railroad. In its opinion the court said: “The principle that applies in a case where an officer of a corporation makes the corporate obligation payable to himself, and then attempts to deal with it for his own benefit, does not aid in solving the question in this case. When paper of that character is presented by the officer or agent of the corporation, it bears upon its face sufficient notice of the incapacity of the officer or agent to issue it. Here the officer was not dealing with corporate notes payable to himself, but with notes that had been regularly issued, so far as appeared from their face, to a stranger.'

$ 111. Transferee must part with value in exchange for the instrument. If the transferee of a bill or note, from a payee who has secured the instrument from the maker by fraud, or force, or other means which make it unjust for him to enforce the instrument against the maker, has not parted with money or something of value for the instrument, it is just as inequitable for the transferee, as it was for the payee, to enforce the obligation of the maker. If he has paid nothing, he will be in no worse position, if the maker is not compelled to pay, than he would have been had he never received the instrument. And this is equally true, though the transferee acted in perfect good faith in accepting the transfer. Whether he was innocent or not, to allow him to recover would be to enrich him unjustly at the expense of the defrauded maker. Therefore, the N. I. L. defines a holder in due course of a bill or note as one who “took it in good faith and for value."

$ 112. What constitutes value. “Value is any consideration sufficient to support a simple contract." ""Value' means valuable consideration” (19). We have already defined a “sufficient” consideration as the surrender of a legal right or a promise to surrender a legal right (20). Obvious examples of consideration are the payment of money, the surrender of property, or a promise to pay money or to surrender property.

§ 113. Pre-existing debt as value. A creditor, who receives a bill or note in payment of his debt, surrenders value in that he has given up and absolutely extinguished his original rights against the debtor in exchange for the bill or note (21). So also one who receives a negotiable instrument on account of, but not in payment of a debt, is a holder for value, because, by receiving the instrument, he has surrendered his right to sue his debtor until the paper is dishonored by non-payment (22). Even when the instrument is taken merely as collateral security for the debt, and the creditor's rights to proceed against his debtor is neither extinguished nor suspended for an instant, it is held that the creditor is a holder for value. This was held in the case of Railroad Co. v. Bank (23). The railroad, wishing to raise money, executed a promissory note payable to its treasurer, who indorsed in blank and delivered it to Hutchinson & Ingersoll, note brokers, for the purpose of having the instrument sold by them for the benefit of the

(19) Neg. Inst. Law, secs. 25, 191.
(20) See $ 57, above.
(21) Bank v. Scoville, 24 Wend. 115.
(22) Currie v. Misa, L. R. 10 Ex. Cas. 153.
(23) 102 U. S. 14.

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