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New v. Walker.

It is inconceivable that the vendor of personal property, whether it be intangible property like a patent right or not, can acquire any rights from acts performed in direct violation of law, since enforceable legal rights only spring from transactions which violate no principle of law or equity. A legal right cannot arise out of a wrong, so as to benefit the wrong-doer.

In our opinion a promissory note, executed in direct violation of a mandatory statute, is inoperative as between the parties and those who buy with notice. Where a statute, in imperative terms, forbids the performance of an act, no rights can be acquired by persons who violate the statute, nor by those who know that the act on which they ground their claim was done in violation of law. A promissory note, executed in a transaction forbidden by statute, is at least illegal as between the parties and those who have knowledge that the law was violated. It is an elementary rule that what the law prohibits, under a penalty, is illegal, and it cannot, therefore, be the foundation of a right as between the immediate parties. Wilson v. Joseph, 107 Ind. 490; Hedderich v. State, 101 Ind. 571; s. c., 51 Am. Rep. 768; Case v. Johnson, 91 Ind. 477.

This rule also applies to those who assume to purchase from one of the parties to the transaction, but purchase with full knowledge that the law has been transgressed.

A man who assumes to transfer a right which the law forbids him from transferring, unless he does certain prescribed acts, cannot yield a valid consideration to the person with whom he deals. Where one assumes to transfer what the law prohibits him from transferring, he parts with no rights which, as to him, at least, will constitute a sufficient consideration for another's promise. If the question were between the immediate parties, we should have no hesitation in declaring, that if the promissory note sued on was executed for a patent right. transferred in violation of the statute, there could be no recovery. Nor do we think there is any doubt that the rule should be applied where the holder of the note purchased with full knowledge of the character of the transaction.

The contention of the appellant, that the statute applies only to the sale of the patent right itself, and not to the sale of the right to use and to manufacture for sale and use the patented article, cannot prevail. It is a sale of the patented right to sell the exclusive right to use and manufacture for sale and use the thing patented, for such a sale carries with it an interest in the patented right it

New v. Walker.

self. Where the vendor sells a right to use and to manufacture for sale and use during the existence of the patent, he parts with all substantial rights in the patent in the territory embraced in the assignment. Curtis Patents, § 181; Walker Patents, § 296.

Where it is evident that the intention of an instrument is to vest in the assignee the whole and exclusive interest in a patent right for a designated territory, no ingenuity in framing the instrument will carry the transaction beyond the reach of the statute. Schemes, however cunningly contrived, or subterfuges, however ingeniously devised, will not enable the vendor of the patent right to evade the statute. Here, as elsewhere in jurisprudence, the inquiry which rules is, what was the substance of the transaction? and as that appears so will be the judgment of the court.

In the case before us, there was a grant of all the beneficial interest that the patentee possessed, and the case is therefore within the statute.

The answer avers that the appellant had knowledge of the consideration for which the note was executed, and we think she was bound to know that the note was inoperative unless the vendor of the patent right had obeyed the law. She knew, as the answer avers, that the note was given for a patent right, and she was bound to know, as matter of law, that unless the vendor had obeyed the law he could not yield a valid consideration to the maker of the note. On the face of the note it appeared that the statute had not been complied with, and this, joined to her knowledge of the consideration yielded for the note, gave her such notice as at least put her on inquiry. 1 Dan. Neg. Inst., § 198. It became her duty, with the knowledge she possessed, to ascertain whether the vendor had complied with the statute, for upon his compliance with the statute depended the validity of the note. If there was a violation of the law there could not be, as she must have known, any consideration for the promise of the purchaser of the patent right. The case is a peculiar one, for a statute so limits the powers of a vendor of patent rights that he cannot vield a consideration for a promise to pay for the assignment of a patent right, unless he has performed the duties imposed upon him. His right to secure a valid promise is restricted by the law, for if he transgresses the law by making a transfer which it forbids, his contract is illegal, and cannot constitute a valid consideration for the promise of the person with whom he deals. It seems

New v. Walker.

very clear therefore that one who has knowledge of the consideration of the promise, and finds the note not such as the statute requires, should ascertain whether the acts essential to give the vendor capacity to make a legal contract have been performed. There is a well defined and fully recognized distinction between promissory notes made illegal by statute, and those made inoperative between the immediate parties, because the consideration is one that the general rules of law condemn. It is indeed generally held that a promissory note expressly declared by statute to be void when given for a vicious consideration, is ineffective even in the hands of a bona fide holder. 1 Pars. Notes and Bills, 276; 1 Dan. Neg. Inst., § 197. We do not hold, or mean to hold, that knowledge of the consideration of a promissory note will in ordinary cases put a purchaser upon inquiry; on the contrary, we understand the law to be that in ordinary cases knowledge of the consideration, even when imparted by the note itself, will not prejudice the rights of a goodfaith purchaser, unless the consideration is such as invalidates the note or is legally insufficient. Hereth v. Merchants' Nat'l Bank, 34 Ind. 380; Doherty v. Perry, 38 Ind. 15; Bank of Commerce v. Barrett, 38 Ga. 126; Heard v. Dubuque Co. Bank, 8 Neb. 10; s. c., 30 Am. Rep. 811; Stevenson v. O'Neal, 71 Ill. 314. Here however the purchaser of a note given for a patent right is chargeable with knowledge of the law if he knows the consideration for which the note was executed to be a patent right, for the statute, in express terms, prescribes who shall have authority to vend such rights, and the transfer by one who has no such authority, but who transgresses the law in making the transfer, is not a valid consideration for the promise contained in the note.

Where it appears, as it does in the answer before us, that the note was given for a patent right, that this fact was known to the purchaser of the note before its purchase, and that the clause required by the statute was not in the note, the burden is upon the holder of the note to show that his indorser took the note without notice as to the nature of the consideration. 1 Dan. Neg. Inst., § 198.

The transfer of a patent right could not, as we have said, be a valid consideration as against the original parties or those who bought with notice of the character of the consideration, and it is therefore incumbent upon one who buys with the notice to show. either compliance with the law, or that his indorser was, in all essential particulars, a good-faith purchaser of the note. We do

New v. Walker.

not impugn the general doctrine that one who buys from a goodfaith purchaser will secure a valid right although he may himself have notice of the infirmity in the consideration, for that we regard as well settled law; but we hold that where the person who buys a note not containing the words required by statute, and knows that it was executed for a patent right, must at least affirmatively show that his indorser was a purchaser in good faith in all that the term implies. The case is closely analogous to those which hold that if a promissory note is obtained by fraud, it devolves upon the holder to prove that he was a purchaser in good faith. Eichelberger v. Old Nat'l Bank, 103 Ind. 401; Mitchell v. Tomlinson, 91 Ind. 167; Baldwin v. Fagan, 83 Ind. 447; Hinkley v. Fourth Nat'l Bank, 77 Ind. 475; Zook v. Simonson, 72 Ind. 83; Harbison v. Bank, etc., 28 Ind. 133.

The logical result of this reasoning is that the appellee's answer exhibits a complete defense to the appellant's cause of action. The reply of the appellant alleges, in substance, that the note was purchased by George W. New before maturity; that he paid $400 for it; that when he purchased the note he had no knowledge that it was given for a patent right; that at the time the appellant purchased the note from George W. New, she had no knowledge or information that it was executed for a patent right, and that she purchased the note before maturity and paid full value for it.

A material question involved in a consideration of the sufficiency of this reply is the character of the promissory note on which the complaint is based, but we think there is no serious difficulty in solving this question, material as it is, for we have no doubt that it is a commercial note, negotiable by the law merchant. A note payable to bearer is negotiable as commercial paper, if as does this one, it possesses the other essential requisites of such negotiable instruments. Melton v. Gibson, 97 Ind. 158; Hall v. Allen, 37 Ind. 541; Riley v. Schawacker, 50 Ind. 592; Dan. Neg. Inst., § 663.

Having determined that the promissory note on which the action is founded is negotiable as commercial paper, the next question is, what are the rights of the appellant as the bona fide holder of the paper? For there can be no doubt under the confessed allegations of the reply that she is such a holder. She is such in the strongest light, for she purchased from a good-faith owner, and is herself free from fault and innocent of wrong. Hereth v. Merchants' Nat'l Bank, supra; Newcome v. Dunham, 27 Ind. 285.

New v. Walker.

The decisions agree, that where the statute in direct terms declares that a note given in violation of its provisions shall be void, it is so no matter into whose hands it may pass. The rule is thus stated by the court in Vallett v. Parker, 6 Wend. 515: "Wherever the statute declares notes void, they are and must be so, in the hands of every holder; but where they are adjudged by the court to be so, for failure, or the illegality of the consideration, they are void only in the hands of the original parties, or those who are chargeable with, or have had notice of the consideration."

197.

It is said by a late writer in stating the same general rule, that "when a statute, expressly or by necessary implication, declares the instrument absolutely void, it gathers no vitality by its circulation in respect to the parties executing it." 1 Dan. Neg. Inst., § We regard this author's statement as substantially expressing the general rule; and accepting it as correct, the pivotal question is whether our statute does expressly, or by necessary implication, declare that notes given to vendors of patent rights who have disobeyed the law shall be void? There is certainly no express declaration in the statute that such notes shall be void, nor do we think that there is any necessary implication that they shall be void. A man may be guilty of a misdemeanor, and yet notes taken by him in the transaction which creates his guilt may not be void in the hands of an innocent holder. A familiar illustration of this principle is afforded by those cases which declare that a note given in consideration of the suppression of a criminal prosecution is inoperative as between the immediate parties, but valid in the hands of a bona fide purchaser. This is the settled law, although the compounding of a felony is made a crime by statute. Our opinion is, that a statute making it a crime to take promissory notes in a prohibited transaction does not make the notes void in the hands of innocent purchasers, although the person who violates the statute commits a crime. This conclusion is well sustained by authority. Anderson v. Etter, 102 Ind. 115; Vallett v. Parker, supra; Taylor v. Beck, 3 Rand. (Va.) 316; Glenn v. Farmer's Bank, 70 N. C. 191; Smith v. Columbus State Bank, 9 Neb. 31; Haskell v. Jones, supra; Palmer v. Minar, 8 Hun, 342; Cook v. Weirman, 51 Iowa, 561.

A party who executes a promissory note, negotiable as commercial paper, fair on its face and complete in all its parts, puts in circulation an instrument which he knows is the subject of barter and

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