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railroad. Hutchinson & Ingersoll were indebted to the bank, and, in breach of trust, delivered the note to their creditor, which took it in good faith as security for the debt. The bank's claim against Hutchinson & Ingersoll was neither extinguished nor suspended. The bank sued the railroad, which set up as a defense the fraud of its agents in pledging the note for their personal debt, but the court held that the bank was a holder for value and could recover. Mr. Justice Harlan in his opinion said:

Our conclusion, therefore, is that the transfer, before maturity, of negotiable paper, as security for an antecedent debt merely, without other circumstances, if the paper be so indorsed that the holder becomes a party to the instrument, although the transfer is without express agreement by the creditor for indulgence, is not an improper use of such paper, and is as much in the usual course of commercial business as its transfer in payment of such debt. In either case, the bona fide holder is unaffected by equities or defenses between prior parties, of which he had no notice. This conclusion is abundantly sustained by authority. A different determination by this court would, we apprehend, greatly surprise both the legal profession and the commercial world.” The N. I. L. (24) expressly enacts that “an antecedent or pre-existing debt constitutes value."

$ 114. Amount of value necessary. How much money or how valuable property did the holder give for the bill or note? is generally not a material inquiry. If he gave value, whatever the amount or quantity of it, he is entitled

(24) Sec. 25.

to the position of a holder for value. Thus in Lay v. Wissman (25) it appeared that Cory and Stone had by fraud induced the defendant to make a promissory note for $150, payable to them. They indorsed “without recourse” to the plaintiff, who, in good faith and without notice of the fraud, paid $80 for the instrument. It was held that the plaintiff was a holder in due course and entitled to recover the face value of the note.

There are several apparent but not real exceptio to this rule. For example, where the purchaser paid only $5 for a $300 note of a solvent maker, it was held that the small amount was evidence of bad faith and notice, and the purchaser was not allowed to recover for that reason (26). Again, if A fraudulently induces B to make a note for $100 payable to A, and A indorses the note to C, who does not buy the paper but takes it as security for $50 advanced to A, C can only recover from B the amount actually advanced (27). The reason is that if C recovered $100 from B, C would be obliged to return $50 to A, the wrongdoer, because, as between A and C, he held the note as security only. The effect of this decision is stated in the N. I. L. in this form:

Sec. 27. Where the holder has a lien on the instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.

$ 115. Same: Judicial explanation. In its opinion in Lay v. Wisman, the court stated the rule and explained

(25) 36 Iowa, 305.
(26) DeWitt v. Perkins, 22 Wis. 473.
(27) Allaire v. Hartshorne, 21 N. J, L. 665.

the apparent exceptions to it: “It is an elementary principle that the equities existing between the maker and the payee cannot be set up against the indorsee, in the ordinary course of business, for a valuable consideration, in good faith, and before maturity. There is some confusion and uncertainty in the authorities as to whether one who purchases a note for less than its face can be considered a bona fide holder. In this state, however, the rule is settled that one who purchases a note at a discount may be a bona fide holder and entitled to recover thereon, And this view has the support of both principle and authority. The amount of the consideration paid may become important in determining whether the holder is a bona fide indorsee. Where a note for $300, on a responsible person, and nearly due, was sold for $5, it was held that the indorsee was not a holder in good faith for value, and that he could not recover thereon, the note being without consideration. The amount of consideration paid becomes an important element, in connection with the responsibility of the maker, the rate of interest, the time of maturity, and the circumstance of the transfer, in determining the bona fides of the holder. And, if he is not a purchaser in good faith, he takes the note subject to the equities growing out of the note existing between the maker and the payee. When, however, the consideration paid, and the other circumstances of the purchase, show that the indorsee is a bona fide holder, in the usual course of business, there is no logical principle upon which his recovery from the maker can be reduced below the amount of the note.

"The defense that a note has been obtained fraudulently or without consideration does not avail against a bona fide holder. If, however, the recovery of such holder may be limited to the amount paid, it is apparent that the defense does avail, for without such defense, he would recover the amount evidenced by the note. There is a class of cases in which the holder has been allowed to recover only the amount advanced upon the note. But it is believed that they will nearly, if not quite all, be found to be cases in which the holder is not a purchaser in the ordinary course of business. Thus, in Allaire v. Hartshorne (note 27, above), the note was deposited with the holder as collateral security for a pre-existing debt. The plaintiff was the owner of the note only to the extent of the debt secured. If he had recovered more, he would have held the surplus in trust for the payee. But the payee was not entitled to recover the note, as between him and the maker it being invalid. Hence, it was held, and very properly, that the holder could recover only the amount of his debt."

§ 116. Notice to purchaser before he has parted with value. In a case where the payee of a note, who has secured it from the maker by fraud or other unconscientious means, indorses it to X, who in good faith and without notice agrees to pay a fair price, but receives notice of the maker's defense before he has actually paid the price to the payee, it is clear that the purchaser should not be protected, if he pays after notice. To protect him under such circumstances would be just as inequitable as to protect one who has received the instrument as a gift. The law will not protect the purchaser from his own folly or assist him in a fraud upon the maker as the case may be. The courts have applied the same reasoning to cases where the purchaser has paid part but not all of the agreed price before he receives notice, and treat such a purchaser as a holder for value only to the amount he has paid before notice. An example of this rule is the case of Dresser v. Missouri Construction Company (28). One Irwin, by means of fraud, induced the Construction Company to make and deliver to him as payee three promissory notes aggregating $10,000. Irwin sold and indorsed the instruments to the plaintiff, who paid $500 in cash and promised to pay the balance of the purchase price. Before he had done so he received notice of the maker's defense. It was conceded that the plaintiff was entitled to recover from the Construction Company the $500 paid before notice, but the plaintiff claimed the face of the notes. His claim was disallowed, the court saying:

“The argument of the plaintiff in error is that negotiable paper may be sold for such sum as the parties may agree upon, and that, whether such sum is large or small, the title to the entire paper passes to the purchaser. This is true; and if the plaintiff had bought the notes in suit for $500, before maturity and without notice of any defense, and had paid that sum, or given his negotiable note therefor, the authorities cited show that the whole interest in the notes would have passed to him, and he could have recovered the full amount due upon them.

The N. I. L. states the rule as follows:

(28) 93 U. S. 92.

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