Court Opinion

ID: 6243935
Source: CourtListenerOpinion
Date Created: 2022-02-17 20:52:40.769531+00
Date Added: 2024-06-11T08:59:14.420014
License: Public Domain

Opinion by
Mr. Justice Fell,
The maker or indorser of a negotiable note cannot defend against a bona fide holder without notice on the ground that there was fraud in the procurement or use of the note, and the mere fact that the note was acquired under suspicious circumstances will not invalidate it in the hands of the holder unless the circumstances are such that bad faith on his part can be reasonably inferred. The test of liability is not whether the note was taken under circumstances which would give rise to suspicion, but whether it was taken in good faith. It was held in Phelan v. Moss, 67 Pa. 59, that the existence of suspicious circumstances alone would not defeat the right to recover, but that bad faith must be proved. In Moorehead v. Gilmore, 77 Pa. 118, it was said by Shabswood, J., “ The latest decisions both in England and this country have set strongly in favor of the principle that nothing but clear evidence of knowledge or notice, fraud or mala fides, can impeach the prima facie title of a holder of negotiable paper taken before maturity. ... It is of the utmost importance to the commerce of the country that it should be sternly adhered to, however hard it may be in its *98application in particular cases.” Phelan v. Moss, has been approved and followed in State Bank v. McCoy, 69 Pa. 204; McSparran v. Neeley, 91 Pa. 17, and the more recent case of National Bank v. Morgan, 165 Pa. 199.
The defendant relied upon proof that he had indorsed the note in suit at the request of the maker, Henry Binkley, to take up a note held by the Columbia National Bank on winch they were both liable; that Binkley in violation of the agreement as to the use of the note had transferred it to E. H. Kauffman, who presented it to the plaintiff, the Lancaster County National Bank, for discount; and that it was discounted with the understanding that the proceeds together with a small sum paid by Kauffman should be used in payment of an overdue note held by the bank. The overdue note was signed by Binkley as maker and by the defendant Garber and E. H. Kauffman as indorsers. The proof as to this note was that it had been indorsed by the defendant for the accommodation of the maker, and by him altered from a note at six to a note at sixty days and transferred to Kauffman in payment of a debt then due. The bank had discounted it without notice of the alteration or misuse, but had been subsequently notified by the defendant that it was an altered note and that he would not hold himself liable as indorser. The note bore no evidence of alteration. It was discounted in the ordinary course of business, and the entire good faith of the plaintiff in regard to it has not been questioned.
The learned judge instructed the jury that it was the duty of the plaintiff under the circumstances to make inquiry before discounting the second note, and that having failed to do so it was not an innocent holder for value without notice; and the right to recover was made to depend upon the alteration of the first note and notice thereof. The error of this instruction is that it raised an issue as to the wrong note, and made the existence of circumstances which the judge considered sufficient to excite suspicion conclusive against the plaintiff’s right to recover. The issue was as to the last note, and the test of the plaintiff’s right to recover was whether it had been taken in good faith. This was a question of fact for the jury.
The first, second, third and fourth assignments of error are sustained, and the judgment is reversed with a venire facias de novo.