Source: https://supreme.justia.com/cases/federal/us/61/343/
Timestamp: 2019-04-19 20:34:40+00:00

Document:
"That if such facts and circumstances were known to the plaintiff as caused him to suspect, or that would have caused one of ordinary prudence to suspect, that the drawer had no interest in the bill and no authority to use the same for his own benefit, and by ordinary, diligence he could have ascertained these facts,"
then the jury would find for the defendant -- this instruction was erroneous.
The facts of the case examined to ascertain whether or not there was sufficient evidence to go to the jury upon these points.
This Court again says that a bona fide holder of a negotiable instrument for a valuable consideration, without notice of facts which impeach its validity between the antecedent parties, if he takes it under an endorsement made before the same becomes due, holds the title unaffected by these facts and may recover thereon although, as between the antecedent parties, the transaction may be without any legal validity.
Where a party is in possession of a negotiable instrument, the presumption is that he holds it for value, and the burden of proof is upon him who disputes it, an exception being where the defect appears on the face of the instrument.
It is a question of fact for the jury whether or not the holder had knowledge of defects existing antecedently to the transfer to him.
The English and American cases examined.
Surrendering collateral securities previously given and affording increased indulgence as to time furnish a sufficient consideration for the transfer of new collaterals.
Goodman was a citizen of Ohio, and Simonds of Missouri.
"CINCINNATI, O., Sept. 12, 1847"
"Four months after date of this, my first of exchange, second unpaid, pay to the order of John Sigerson five thousand dollars, value received, and charge the same to account."
"Mr. John Simonds, St. Louis, Mo."
"Pay to T. S. Goodman & Co., or order; John Sigerson."
"Pay W. Nesbit & Co., or order; T. S. Goodman & Co."
"Pay Timothy S. Goodman, without recourse to W. Nesbit & Co."
Two of these parties, viz., John Sigerson and Simonds, lived in St. Louis, and the other two, viz., Goodman and Wallace Sigerson, in Cincinnati. The bill of exchange was sent from St. Louis to Wallace Sigerson, at Cincinnati, endorsed by John Sigerson, and accepted by Simonds, but without date, and without the signature of the drawer.
The narrative of the transactions which led to the possession of the bill by Goodman is given in the opinion of the Court.
"The defendant moves the court to instruct:"
" If the jury find from the evidence in the cause that Wallace Sigerson never had any interest in the bill sued on, nor in the proceeds thereof, nor any authority to use the same for his own benefit, and did dispose of the same for his own benefit to T. S. Goodman & Co., and the plaintiff was at the time one of said firm, and when the bill was so transferred to said firm such facts and circumstances were known to the said Goodman as caused him to suspect, or that would have caused one of ordinary prudence to suspect, that said Wallace had no interest in the bill, and no authority to use the same for his own benefit."
"And by ordinary diligence he could have ascertained that said Wallace Sigerson had no interest in said bill, and no authority to use the same for his own benefit, then they will find for the defendant."
To the giving of which, as thus amended, the plaintiff objected, and excepted then and there to the giving of the same to the jury.
Under this instruction, the jury found a verdict for the defendant, and the plaintiff brought the case up to this Court.
had been realized. At the settlement, the debt was divided into two notes, one having sixty and the other seventy-five days to run, and Wallace Sigerson testified that he gave his two notes in payment of the debt, and left this bill as collateral security to the notes, fixing the dates so that the notes would mature twelve or fifteen days before the bill.
collateral security without notice of his want of authority to transfer it, that the plaintiff was unaffected by such abuse of trust, and that the defendant was precluded from setting it up as a defense in this suit, to which no exceptions were taken.
"If such facts and circumstances were known to the plaintiff as caused him to suspect, or that would have caused one of ordinary prudence to suspect, that Wallace Sigerson had no interest in the bill and no authority to use the same for his own benefit, and by ordinary diligence he could have ascertained these facts, then the jury will find for the defendant."
I. The general question which the bill of exceptions presents, arising upon that instruction, is certainly one of very considerable importance, especially to the mercantile community, as it affects the transfer and free circulation of bills of exchange and promissory notes, which, by virtue of their negotiable quality, constitute the principal medium for the transaction of their business affairs. There is, however, some reason to doubt whether the evidence at the trial furnished any proper basis for the application of the instruction in this case, even supposing the principle announced to be correct as an abstract proposition, and this gives rise to a preliminary question, which will be first considered, whether the instruction ought not to be regarded as objectionable on that account. When a prayer for instruction is presented to the court and there is no evidence in the case for the consideration of the jury, it ought always to be withheld, and as a general rule, if it is given under such circumstances, it will be error in the court for the reason that its tendency may be and often is to mislead the jury by withdrawing their attention from the legitimate points of inquiry involved in the issue. All that was shown at the trial, in addition to the description of the bill, was the refusal of the plaintiff to discount it when it was offered for that purpose, his possession and control of it shortly after, as a pledge for temporary loans, and the subsequent transfer of the bill to him as collateral security at the settlement, together with the circumstances of that transaction and what appeared in the letter of T. S. Goodman & Co. transmitting the bill to St. Louis for sale. Other circumstances are adverted to in the printed argument for the defendant, but as they do not appear to be sustained by the evidence in the case, they are omitted.
what occurs on similar occasions in the daily transactions among businessmen. It was offered and declined, and that was the whole transaction so far as it was disclosed in the evidence. No reasons were assigned by the plaintiff for declining, and none was asked for by the holder, who offered the bill. Mere speculative inferences are never allowable and cannot be regarded as evidence. The refusal to discount the bill might have been for the reason supposed in the instruction, and so also it might have been for a very different reason, such as a prior obligation to other customers, want of available funds, or from a desire for farther information as to the pecuniary standing of the parties to this bill, and whether it was for any one of the reasons suggested or some other, in the absence of any explanation, was a mere naked conjecture. Another answer may also be given to this suggestion which is equally decisive, and that is the subsequent conduct of the plaintiff in taking the bill as a pledge for temporary loans, which seems to negative the supposition altogether that the previous refusal to discount it was on account of any suspicion he entertained, either as to the genuineness of the paper or of the authority the authority of the holder to pass it. Some time elapsed, after the bill was offered for discount before it was finally transferred to the plaintiff, and that fact undoubtedly was well known to the plaintiff at the time of the transfer, and so also was the more important one in this investigation, that during all that time the bill remained in the custody or under the control of Wallace Sigerson as the ostensible owner, and that he claimed and exercised over it all the rights of a holder for value. If these circumstances are taken in connection with each other, as they unquestionably should be, there can be no doubt they were far better suited to inspire confidence in the title of the holder than to excite suspicion in regard to his authority to pass the bill, and if they had that effect, it was plainly the fault of the defendant in executing and forwarding the bill to his correspondent, and in entrusting it to his control, and suffering it to remain in his custody without inquiry or complaint.
"The rule is very clear that if one party, intending to accommodate another, signs his name to a blank paper, he authorizes the other to whom he delivers it and for whose accommodation it was made to fill up the blank, and the filling up, being done by his authority, is his act, and he is bound by it; and we concur in the principle and think it applies with even more force when it was done for his own benefit, as in this case."
Violet v. Patton, 5 Cranch 142; Russell v. Langstaffe, 2 Doug. 514; Collis v. Emmet, 1 H.Back 313; Montague v. Perkins, 22 Eng.L. & Eq. 516.
slight, it might be impossible to determine whether they were or were not of a character to be regarded as tending to support an issue like the one presented under the first branch of the instruction, without first ascertaining the general characteristics of the mind of the individual who was the subject of the inquiry, and his usual habit in conducting his business affairs.
A striking illustration of the difficulty attending the investigation is to be found in the instruction itself, assuming for the present that it must be understood according to the usual import of the language employed. Under its first branch it was necessary, in order to relieve the defendant, that the jury should find that such facts and circumstances were known to the plaintiff as caused him to suspect the title or authority of the holder to transfer the bill. But the jury might come to the conclusion that the plaintiff was thoughtless, confiding, or inattentive on the occasion, and that he in fact took the bill without any such suspicion, and to guard against the effect of such a finding, the second branch of the instruction was framed, and under that it was of no consequence whether the plaintiff himself suspected the title of the holder or not, as the defendant was nevertheless to be fully exonerated if the jury found that such facts and circumstances were known to him as would have caused one of ordinary prudence to suspect, and by ordinary diligence he could have ascertained, the true state of the title.
different explanation, yet perhaps it would be going too far to say as matter of law that they afforded no ground of inference in the direction supposed by the defendant.
We think therefore that the judgment ought not to be reversed on the ground that there was no evidence in the case to authorize the instruction. We say so, however, in reference to the peculiar issue arising under that instruction and the form of the questions submitted to the jury, and not in respect to any different issue which may properly arise hereafter in cases of this description. There is a wide difference between suspicion and knowledge in respect to the subject matter under consideration, and even as between the evidences of suspicion, and such as would show gross negligence on the part of a banker or businessman when discounting or purchasing negotiable paper transferable by delivery. A person may often suspect in matters of business what in fact he does not believe, and experience teaches that he will sometimes suspect what he has no reason to believe, and that too when the evidences to excite suspicion are so slight that he himself would scorn to acknowledge them as the basis of his action in the premises. Evidence merely tending to show, as in this case, that a party, in acquiring a negotiable bill of exchange or promissory note, suspected the title of the holder at the time of the delivery, would clearly be insufficient to authorize the conclusion that he was guilty of gross negligence when the transfer was made, and it would hardly constitute an approach towards proof that he had knowledge that such holder, who was known to be dealing in such paper, and claimed the right to use it, was guilty of any breach of trust in passing it.
principle intended to be embodied in the questions submitted to the jury. They have been so treated here in the oral argument for the plaintiff, and were treated in the same way in the printed argument filed for the defendant. Whether either or both of the questions, in the form in which they were submitted, were objectionable as involving a departure from the doctrine intended to be applied it will not become necessary to inquire. One thing is certain -- if the general principle cannot be sustained, there is nothing in the features of the departure from it or the particular phraseology of the questions submitted, to benefit the defendant. Undoubtedly the same general idea pervaded the instruction, though the questions were submitted to the jury in different forms, in order to meet the different aspects of the evidence in the case. It was to the effect that if the plaintiff had acquired the bill under the circumstances described in either branch of the instruction, then he had acted without due caution, and was not entitled to recover. All the other grounds of defense had been provided for in other prayers for instruction. This one was obviously prepared to raise the single question, whether the plaintiff had acted with due caution in acquiring the bill, and consequently assumed all the other requisites of a good title in favor of the plaintiff. The only question, therefore, arising under the instruction, is whether the rule of commercial law applied to the case was correct. Bills of exchange are commercial paper in the strictest sense, and must ever be regarded as favored instruments, as well on account of their negotiable quality as their universal convenience in mercantile affairs. They may be transferred by endorsement; or when endorsed in blank, or made payable to bearer, they are transferable by mere delivery. The law encourages their use as a safe and convenient medium for the settlement of balances among mercantile men; and any course of judicial decision calculated to restrain or impede their free and unembarrassed circulation, would be contrary to the soundest principles of public policy. Mercantile law is a system of jurisprudence acknowledged by all commercial nations; and upon no subject is it of more importance that there should be, as far as practicable, uniformity of decision throughout the world.
now repeat, that a bona fide holder of a negotiable instrument for a valuable consideration, without notice of facts which impeach its validity between the antecedent parties, if he takes it under an endorsement made before the same becomes due, holds the title unaffected by these facts, and may recover thereon although, as between the antecedent parties, the transaction may be without any legal validity.
That question was not one of new impression at the date of that decision, nor was it so regarded either by the Court or the learned judge who gave the opinion; on the contrary, it was declared to be a doctrine so long and so well established, and so essential to the security of negotiable paper, that it was laid up among the fundamentals of the law, and required no authority or reasoning to be brought out in its support, and the opinion on that point was fully approved by every member of the Court, and we see no reason to qualify or change it in any respect.
Such being the settled law in this Court, it would seem to follow as a necessary consequence from the proposition as stated that if a bill of exchange endorsed in blank, so as to be transferable by delivery, be misappropriated by one to whom it was entrusted, or even if it be lost or stolen and afterwards negotiated to one having no knowledge of these facts, for a valuable consideration and in the usual course of business, his title would be good, and that he would be entitled to recover the amount. The law was thus framed and has been so administered in order to encourage the free circulation of negotiable paper by giving confidence and security to those who receive it for value, and this principle is so comprehensive in respect to bills of exchange and promissory notes, which pass by delivery, that the title and possession are considered as one and inseparable, and in the absence of any explanation, the law presumes that a party in possession holds the instrument for value until the contrary is made to appear, and the burden of proof is on the party attempting to impeach the title.
"A person who takes a bill which upon the face of it was dishonored cannot be allowed to claim the privileges which belong to a bona fide holder. If he chooses to receive it under such circumstances, he takes it with all the infirmities belonging to it, and is in no better condition than the person from whom he received it."
And the same doctrine was adopted and enforced in Fowler v. Brantly, 14 Pet. 318, where, in speaking of a promissory note, so marked as to show for whose benefit it was to be discounted, this Court held that all those dealing in paper "with such marks on its face, must be presumed to have knowledge of what it imported." See Brown v. Davis, 3 Term. 80.
Other cases of like character, where the defect appears on the face of the instrument, are referred to in the printed argument for the defendant as affording a support to the instruction under consideration, but it is so obvious that they can have no such tendency that we forbear to pursue the subject. Ayer v. Hutchins, 4 Mass. 270; Wiggin v. Bush, 12 John. 305; Cone v. Baldwin, 12 Pick. 545; Borwn v. Tabor, 5 Wend. 566.
paper in order to acquire a title which will shield him against prior equities. While he is not obliged to make inquiries, he must not willfully shut his eyes to the means of knowledge which he knows are at hand, as was plainly intimated by Baron Parke in May v. Chapman, 16 Mee. & Wels. 355, for the reason that such conduct, whether equivalent to notice or not, would be plenary evidence of bad faith. Mere want of care and caution, which was the criterion assumed in the instruction, falls so far below the true standard required by law -- which is knowledge of the facts and circumstances that impeach the title -- that we feel indisposed to pursue the general discussion, and proceed to confirm the views we have advanced as to what the law is by referring to some of the decisions in the English courts, from which, as an important source of commercial law, most of our own rules upon the subject have been derived.
"We are all of opinion that gross negligence only would not be a sufficient answer where a party has given consideration for the bill; gross negligence may be evidence of mala fides, but it is not the same thing. Where the bill has passed to the plaintiff without any proof of bad faith in him, there is no objection to his title."
for more than twenty years. The doctrine, says Mr. Chitty in his treatise on bills, is now completely exploded, and the old rule of law that the holder of bills of exchange, endorsed in blank and transferable by delivery, can give a title which he does not possess to a person taking them bona fide for value, is again reestablished in its fullest extent. It was not, however, accomplished at a single blow, but the error, so to speak, was literally broken up and destroyed by installments. The foundation of the superstructure was severely shaken in Crook v. Jadis, 5 Barn. & Ad. 909, when the full bench first came to the conclusion that want of due care and caution were insufficient to constitute a defense, and that gross negligence, at least, must be shown, to defeat a recovery. But it was left to the case of Goodman v. Harvey to announce a complete correction of the error, when Lord Denman declared, we have shaken off the last remnant of the contrary doctrine.
the original parties. . . . The question of mala fides was for the consideration of the jury."
"to adopt the principles of the defense would be to paralyze the circulation of all the paper in the country, and with it all its commerce; that the circumstance of the bill having been lost, might have been material if they could bring knowledge of that fact home to the plaintiff."
The cases cited, commencing in 1694 and ending in 1801, are sufficient to show what the state of the law was in 1824, when Gill v. Cubitt was decided, especially as the judges of the King's Bench, in giving their opinions on that occasion, did not pretend that there were any later decisions in which it had been modified.
in Swift v. Tyson and in his valuable treatise on Bills of Exchange. Stoddard v. Kimball, 6 Cush. 469; Story on Bills, sec. 192; Chicopee Bank v. Chapin, 8 Met. 40; Blanchard v. Stevens, 3 Cush. 162; Atkinson v. Brooks, 26 Vt. 569; Allaire v. Hartshorne, 1 Zab. 665. We think, however, that the point does not arise in this case for the reasons before stated, and consequently forbear to express any opinion upon the subject.
The judgment of the circuit court is reversed and the cause remanded for further proceedings with directions to issue a new venire.

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