Case Name: Lawson Henderson, assignee, &c. v. William Shannon
Court: Supreme Court of North Carolina
Jurisdiction: North Carolina
Decision Date: 1827-06
Citations: 1 Dev. 147
Docket Number: 
Parties: Lawson Henderson, assignee, &c. v. William Shannon.
Judges: 
Reporter: North Carolina Reports
Volume: 12
Pages: 147–151

Head Matter:
Lawson Henderson, assignee, &c. v. William Shannon.
From Lincoln.
yvhere securities are declared void by statute, they cannot be en» forced even by an assignee for value and without notice ; but a bo-nd, though void at commou law for turpitude of consideration, being assignable, may be enforced by such assignee, and there is no distinction between considerations malum inse mail malum prohi-bitum.
Debt upon a sealed note, or single bill, tried before Danier Judge. On the trial, the case was that Shannon had been arrested upon a charge of burning a house belonging to one Caldwell, and after ids arrest he gave, his bond, with the other defendant as his surety, payable to Caldwell, for the purpose of compounding the prosecution, upon which the warrant was dismissed. After-wards, and before (he bond fell due, Caldwell assigned the same by endorsement to the Plaintiff for a valuable, consideration, and without any notice to the Plaintiff of the consideration on which it was given.
The/presiding Judge, upon these facts, directed a ver-diet for the Defendants; and from the judgment thereon . o a the Plaintiff appealed.
In this Court, no Counsel appeared for the Defendants, and Wilson, for the appellant, argued as followsr
The general rule is, that where'the maker is not at liberty to object the want of consideration against an indorsee, neither is ho at liberty to object against him the illegality of the consideration. \Stiers v. Lashley, 6 'Term lit 61. Brown v. Turner, 7 Term 626. Sehvyn’s ¿V*. P. 244. Chitty on Bills, 52.) -
The case of notes and bills founded on usurious or gaming considerations is an exception from the rule, founded on the express words of the statutes. (Peacock v. Rhodes. Boug. 683).
No other exception is established by an adjudged case, or supported by a respectable opinion, and our case is left within the operation of the general rule — -a rule demanded in a commercial country for Hie security of credit and the diffusion of trade, and entitled here to a particularly, liberal contruction, for our Legislature has declared in favor of the most extended negotiability of se-. curiiies. filer. 541).
Should it be said, that the general rule applies only tef considerations merely malum prohibitum, we answer4 first, that to avoid punishment by a pecuniary recoin* pence to the party injured, has in itself no moral turpitude, and in a natural state, is not only allowable but praiseworthy. The policy which forbids it, is the mere creature of society, which paving established a public right of prosecution, must of course prohibit any private interference; and hence, even this restricted rule embraces our case. But, secondly, we answer, that the law recognizes no such distinction between malum, in se and malum prohibitum. This is expressly declared by ■the Court, in .Hubert v. Maze, 2 Bos. & Ful, 371.

Opinion:
Tayior, Chief-Justice.
If this were a question between the original parties to the bond, I should have no doubt that the defence could be available for the Defend» ant, since the consideration of the bond is illegal; and I should be willing to make a similar decision as against an assignee; for the rule of Jaw which avoids the bond, though founded on evident justice and policy, may be eluded in every instance, if an assignee without notice can recover. But this is a consideration for the Legislature, and they have not left us at liberty to decide according to our individual perceptions of justice, but have established a rule which we are bound to follow'.
The act of 1796, makes bonds " negotiable, in the same manner, and under the same rules and regulations as notes called promissory, or negotiable notes have heretofore been." This refers us to the existing law relative to promissory notes, which must furnish the rule for the decision in this case. The cases which are familiarly known, concur in establishing the position, that independently of positive enactments, where a negotiable Instrument is voidable, as between the original parties, either because it is founded on a consideration prohibited by the common law, or where it was without consideration at its commencement, it is nevertheless good in the hands of an indorsee for valuable consideration without notice, either express or implied, of the defect or failure of the consideration, as regards any other person than bis own immediate indorsee. An indorsee so described, is not affected by fraud or other transactions between the original parties. (3 Caines 279. 4 Mass. 161).
.But notice, in legal understanding, is not confined to the positive knowledge of a fact, but the Saw implies if whenever such circumstances of suspicion exist, as ought in reason to put a man upon enquiry into the transaction between the parties to whose contract he is about to succeed. Thus, an indorsee who takes a note after the time of payment has elapsed, may, in an action against the maker, be repelled by any defence of which the maker could have availed himself in an action by the payee, sucli as fraud, want of consideration, payment, release, set-off, &c. (3 Term Rep. 80. 1 H. Bl. 89, note a.)
But I. have met with no case, excepting those provided for by statute, wherein an indorsee without notice, and for valuable consideration, can be affected by the illegality or defect of the consideration when he sues the maker. Here, the bond was indorsed before it became, due, and for a valuable consideration ; for which reasons, I think, the judgment below wrong, and that there ought to be a'hew trial.
Ham. Judge.
This is not a rontest between the obli-gee and the obligors, as was the case in Collins v. Blantum. (2 Wits. 347). There, the bond was given to'stifle a prosecution for perjury, and both Plaintiff and Defendant were privy to the unlawful consideration, for which reason the bond vías held to bo. void : nor is it the case of a bond declared to be void by statute on account of the illegality of the consideration on which it was given, as was the case in Lowe & others v. Waller. Doug. 736. where a bill of exchange given upon an usurious consideration, was held to be void in the hands of an indorsee for a valuable consideration without notice of the usury. The present case, is one where the bond is given upon a consideration which, avoids it at common law, but assigned to the Plaintiff before it became due, and without notice of the consideration on which it was given. T had doubted whether the purpose, to stifle a prosecution, for which this bond was given, was not ot so criminal a, nature as to make it void in the hands of an indorsee ; but it is said by two Judges, in Aubert v. Maze (2 Bos. & Pull. 371) that there is no distinction betw een cases that are malum prohibitum and malum in se j and I atn not aware that any adjudged case contradicts this position. Taking ifc then, that there is no such distinction, the case of Steers v. Lashley (6 Term 61) must be considered an authority for the Plaintiff. There, A was employed as a broker in stock-jobbing transactions for B, and paid money for' him, for which he drew a bill on B, and indorsed it to C, after B had accepted it; but C liad a knowledge of the unlawful consideration on which it was drawn, and for that reason, it was held by the Court, that he could not recover. From which I am to infer, that had he been ignorant of the illegal consideration on which the bill was drawn, he would have been entitled to the judgment of the Court in his favor. So in the case of Brown v. Turner (7 Term 626) where a bill drawn upon an illegal consideration, having been indorsed after it became due, was held liable, in the hands of the indorser to every defence which existed against it in the hands of the original payee. Front which I infer, that had it been indorsed before it became due, and without notice of the consideration on which it was drawn, as in the present case, the Plaintiff would have been entitled to the judgment of the Court. Therefore I think, the law is in favor of the. Plaintiff, and that the rule for a new trial be made absolute.
Per Curiam, Judgment reversed, and new trial awarded.