Perkins v. Challis

¶1At the present term that opinion was pronounced by

¶2It is well settled, as a general principle, that a note, though invalid between the original parties, is good in the hands of an endorsee.

¶3The exceptions to this principle belong to two classes. In one of them the endorsee is not implicated or privy to the original transaction ; and still the note cannot be rceov-ered, because executed by fraud (1) or for some consideration, which statutes in express terms declare shall render the contract “void to all intents and purposes” (2)

¶4*255In the other class the endorsee is implicated or privy to the original transaction(3); and, on that account, the prom-isor is permitted to set up any defence which would have availed him against the promisee ; because the holder’s knowledge of that part of the original transaction which would render the note invalid between the first parties to it prevents him from being defrauded, and makes him rely solely on the responsibility of the endorser. But this reliance is the consequence, and not, as hath been contended, the cause of the note being discredited. For were it the cause, any defence which was good between the original parties might always be interposed against the holder, when the maker, at the time of the endorsement, was poor, or his circumstances unknown, as exclusive reliance is there also placed upon the endorser’s credit.

¶5It is not pretended that this note is within the first class of cases. But the circulation of negotiable paper being a great facility to commerce, the evidence to defeat a suit on a note supposed to belong to the last class should not be ambiguous. It must clearly appear that the endorsee was apprised of such circumstances as would have avoided the note in the hands of the endorser. One species of such evidence, is that the note was endorsed after due; for the law presumes that, a note when due would, if valid, be collected rather than sold ; and, therefore, that a purchaser is thus warned, and takes it subject to any existing defence(4) But where the note is, as in the present action, endorsed before due, no such presumption arises, and other evidence must be offered of the above knowledge. This.evidenee may consist of express notice of all the circumstances, as in Steers.vs. Lashley (5) and in White vs. Kibling (6)Or it may consist of proof that the endorsement was colourable ; (7) for there the action is as if between the original parties. Or, that the endorsement was make by a person who, to appearance, as well as in reality, obtained the note from a former owner by fraud or theft. (8) But in the present case the evidence that the plaintiff knew the note was given for a certain machine, without proving that he also *256knew the machine was worthless, the patent for it void, or the sale fraudulent, showed nothing which would have invalidated the note in the hands of the promisee(9) Nor was the note rendered suspicions by being sold at a considerable discount : because the endorser was still holden for payment of the whole, and when the note became due such measures were taken as to fix his liability. Had testimony been offered that the discount was not only considerable, but much less than the customary rate, it might have indicated that the endorsement of the note was in trust. Yet no testimony was offered of the customary rate, nor, if offered, and favourable to the defendant, would it have been strengthened by the circumstance that the promisee after being notified agreed to indemnify the plaintiff against the costs of this action ; because, unless such an agreement be made by every prom-isee after notice, it would in general be inexpedient for the holder in the first instance to prosecute .the maker; for if he did, and failed to recover, the costs of that suit could not be obtained from the endorser(10) That a recovery against the maker would, in this case, be beneficial to the endorser, is most true ; but it is equally true in all other cases of common endorsements, and does not alter the absolute interest of the endorsee in the proceeds of the note.

¶6Under these circumstances, coupled with the positive evidence that the endorsement was, to appearance, unconditional and for a valuable consideration, we see no reason to be dissatisfied with our directions at the trial.

¶7If the defendant has suffered a wrong, his remedy against the promisee who committed it remains unimpaired.

¶8Let judgment be entered on the verdict.