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transfer vests in the transferee such title as the transferor had therein, and the transferee acquires, in addition, the right to have the indorsement of the transferor. But, for the purpose of determining whether the transferee is a holder in due course, the negotiation takes effect as of the time when the indorsement is actually made.



$ 100. In general. We have already discussed many cases where the legal holder of a perfectly valid negotiable instrument cannot enforce the instrument. They are cases where the means by which the holder secured his legal rights were such that it would be the grossest injustice to allow him to enforce them. Such, for example, are cases where a thief steals a note payable to bearer, and by his mere acquisition of the instrument becomes the owner thereof (1); or where the payee named in a note obtains the instrument by force from the maker (2); or where the payee by means of false statements induces the maker to deliver him a note in exchange for worthless property (3); or when the payee by threats of force, or duress, secures the instrument from the maker (4); or where the maker delivers the instrument as part of a transaction declared illegal by statute, as in the case of usury.

We have also seen, that, if in any of the instances given, the fraudulent payee or holder transfers the instrument to another who purchases it in good faith and for value, there is no reason why the purchaser, who has become the owner

(1) Greeser v. Sugarman, 76 N. Y. Supp. 922.
(2) Clarke v. Johnson, 54 Ill. 296.
(3) Miller v. Finley, 26 Mich. 249.
(4) Clark v. Pease, 41 N. H. 414,

of a perfectly valid instrument for value and without notice of the wrongdoing of his transferor, should be deprived of the rights of an owner and be prevented from enforcing the instrument. The only defence which the makers had, in the various instances cited, was the injustice of allowing the wrongdoer to enforce the legal rights he had obtained by his fraud or imposition. Certainly this defence cannot be used against one who has acquired those legal rights without fraud or imposition, i. e., one who has paid value for them without notice of the wrongdoing. In consequence, the innocent purchaser from the wrongdoer is allowed to recover on the instrument. The doctrine may be stated as follows: One who has acquired the ownership of a negotiable instrument, in good faith and for value, is entitled to exercise all the rights incident to ownership, and may enforce the instrument, notwithstanding the defenses which the parties liable on the instrument may have had against the person from whom he purchased it. One entitled to the benefit of this doctrine was called, before the N. I. L., a “bona fide purchaser for value without notice.” The N. I. L. terms him a “holder in due course" of business. To be a holder in due course, according to our statement of the rule, the holder must have (1) acquired an existing instrument; (2) in good faith and without notice of any defenses thereto; and (3) for value paid by him therefor.

$ 101. Holder in due course must have acquired an existing instrument: Assent lacking. Unless the holder can show there is a valid bill or note in existence, he has failed to show that he has acquired a negotiable instrument, and the doctrine of purchase for value does not assist him. For example, we have seen (5) that a bill or note has no legal inception and does not become the obligation of the maker, drawer, acceptor or indorser, until it has been signed by him with the intention of being bound on the instrument. Applying this rule, it was held (6) that a German, who could not read English, was not bound, even to an innocent purchaser, by his signature to an instrument in the form of a promissory note, which he signed supposing it was an agency contract. The instrument, although in form a complete promissory note, was not a valid instrument. The fact that the holder of the "paper" parted with value innocently, is not of the slightest consequence, because he had acquired absolutely nothing but a piece of

paper which was, in spite of its form, not the note of anyone. For the same reason, one who has innocently parted with value for an instrument in the form of a bill, which, although signed by the defendant, was stolen from him before it was completed, may not recover from the defendant (7). Under the law the bill had had no inception as his obligation (8). A forged instrument is another example. If A's signature as maker is forged on an instrument in the form of a note, he is liable to no one thereon, no matter how innocent the purchaser or how great the value paid.

§ 102. Same: Illegality and other defects. Again, , even though the instrument is intentionally made and de

(5) $$ 45-47, above.
(6) Walker v. Ebert, 29 Wis. 194.
(7) Baxendale v. Bennett, L. R. 3 Q. B. D. 525.
(8) See § 53, above.

livered, it may be absolutely void by statute. In such a case the innocent purchaser acquires nothing by his purchase. Alexander v. Hazelrigg (9) is an illustration. Hazelrigg made his note payable to Lucas or order, and delivered it to Lucas for a gambling debt. The Kentucky statutes declared gambling contracts absolutely void. Alexander, knowing nothing of the origin of the note, purchased it from Lucas for a fair price. It was held that Alexander could not recover from the maker, Hazelrigg. Negotiable instruments made by infants and insane persons are further illustrations. All contracts of infants and insane persons are by law void or voidable. In consequence, one who purchases a note made by one of either of those classes of persons purchases a voidable instrument only, and neither the completeness of his innocence, nor the amount of value given, can give him any thing more than a voidable instrument, i. e., an instrument against which the maker may plead his infancy or insanity (10).

§ 103. Same: Reasons stated. Chief Justice Dixon of Wisconsin, in one of the cases (11) cited above, stated the true nature of the various kinds of defenses which prevail against a holder in due course as follows:

“The inquiry in such cases goes back of all questions of negotiability, or of the transfer of the supposed paper to a purchaser for value, before maturity, and without notice. It challenges the origin or existence of the paper itself; and the proposition is to show that it is not in law or in fact what it purports to be, namely, the promissory note

(9) 123 Ky. 677.
(10) Re Soltykoff (1891) , 1 Q. B. 413.
(11) Walker v. Ebert, 29 Wis. 194.

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