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4. (1) Every party whose signature appears on a bill is prima facie deemed to have become a party thereto for value.
(2) Every holder of a bill is prima facie deemed to be a holder in due course; but if in an action on a bill it is admitted or proved that the acceptance, issue, or subsequent negotiation of the bill is affected with fraud, duress, or force and fear, or illegality, the burden of proof is shifted, unless and until the holder proves that, subsequent to the alleged fraud or illegality, value has in good faith been given for the bill.
5. We have now to consider how far a fraud practised on the defendant is an answer to an action on the bill or note.
If the defendant has been defrauded of the bill or note, or it was given for an illegal consideration, he must state this in his plea, and also that the plaintiff gave no consideration for the bill; but there is an important difference between this case and the one above mentioned, namely, that when the defendant has proved the fraud or illegality, the plaintiff is then put upon proof of having, in ignorance of fraud or illegality, given value for the instrument. For there is a presumption that value was given for an accommodation bill, which was intended to raise money, but no such presumption with regard to bills tainted with fraud or illegality; and, besides, it would be manifestly unjust to place the defendant in an action on such bills under the necessity of proving that no consideration passed between the alleged defrauder and the plaintiff in the action; whereas nothing can be more fair than to leave the fact of consideration having passed to be proved by the plaintiff, who should know all about it.
Where a plaintiff is suing upon a bill which he himself has obtained from the defendant by fraud or on an illegal contract, the defendant upon proof of these facts, and, in case of fraud, of his having repudiated the contract upon discovery of the fraud, will have made out a valid defence. But where the plaintiff has not himself been guilty of the fraud or a party to the illegality, the proof of these facts on the part of the defendant will only constitute a defence subject to the conditions above stated, namely, if the plaintiff took the bill with notice of the fraud or illegality, or gave no consideration.
6. We will now proceed to consider what constitutes consideration, fraud, and illegality, respectively.
The payment of money amounts to a consideration, and, no matter how small the sum is, so that there is an absence of fraud, it will be sufficient to entitle the holder to recover against prior parties.
Any risk run at the request of the person who gives the bill or note, may be a consideration for it. If A has given B his acceptance, this may be a consideration for B's acceptance given to A. Cross acceptances may thus be considerations for each other.
A pre-existing debt due from the transferor to the transferee of a bill or note may be a consideration; at all events, if the bill be payable at a future day; for the previous debt cannot be sued for till the maturity of the bill or note, and this suspension of the right to sue amounts to a consideration, from the person taking the bill or note.
A fluctuating balance may be a consideration when it is in favour of the party to whom a bill or note is given, the consideration increasing or decreasing from time to time with the amount of the balance.
A debt due to another may be a consideration; thus, if A owe money to B, and C give B a bill or note for the amount, this will be a good consideration, and, of course, it will be equally so if C be jointly liable with A for the debt. Also if the bill C gave to B were for a debt which C owed to A, the consideration would · be good.
Where a bill is given for the debt of a third party, it is no defence to an action on the bill that such debt was without consideration.
A judgment debt may be a consideration for a note payable at a future day; for the person taking it thereby impliedly undertakes to suspend proceedings on the judgment till the maturity of the instrument.
Where a bankrupt gives a note to a creditor for a former debt, that debt is not a sufficient consideration to support the note, such securities given by him being illegal.
7. Where a consideration entirely fails after the bill or note is given, such failure has the same effect as if there had never been any consideration in contemplation at all. For instance, if you give a man a promissory note in consideration of his promising to be your executor, and he dies first, so that he cannot discharge
that office, his representative cannot recover against you on the bill. If, however, this bill has been indorsed to a third party for value without notice, he could, of course, recover, on the principles above stated and so could his gratuitous transferee. (See sec. 2.)
But to produce this effect there must be a total failure of that which was contemplated as being the consideration for the bill or note; and a separate and independent wrong, although it virtually renders worthless that which was the consideration for the instrument, will not prevent the person to whom the instrument was given from recovering upon it. For instance,if a bill be given for the price of goods sold and delivered, and the goods are never delivered, there is a defence to an action on the bill; but if, having delivered the goods, the vendor forcibly take them away again, he may recover upon the bill, and the forcible removal will be merely ground for cross-action. In the same way the worthlessness of the goods delivered, or the work done, could not be set up in answer to such a bill, unless it were so great as with other circumstances to amount to fraud. But, even then, as in the case mentioned in the last preceding paragraph, the bill is good in the hands of a holder for value without notice of the fraud.
8. Where the defendant insists on fraud as a defence, he must, on the discovery of the fraud, have entirely repudiated the contract, and retained no benefit under it.
Fraud is where a man is induced to do any act by means of an intentional material misrepresentation, though the party so deceiving him aim at no profit by the transaction. And where a man, in order to influence the conduct of another in business, makes a random assertion (not being a warranty), without knowing whether it be true or false, this is a fraud.
I say "material" misrepresentation, for it is not every assertion that a man may make (as for instance, in vending his goods) which, though intentionally false, will constitute fraud, or will amount to a warranty. Also, the false statement or the conduct (for fraud may be by act as well as words, or by both together) must be such as would be naturally calculated to lead a reasonable man astray.
I say "without being a warranty," for a random war
ranty of a fact which the warrantor did not know to exist, does not amount to fraud; though it does amount to fraud if he knew the warranty to be false.
The means and phases of fraud are so manifold that to attempt much more than a general definition of it would in these pages be impossible. Two instances may nevertheless be mentioned, which, though manifest acts of dishonesty, might not strike an unprofessional person as amounting to legal fraud.
Where a debtor is compounding with his creditors, and without their knowledge gives a bill or note to any creditor, either voluntarily or as an inducement to him to execute the deed of composition, this bill or note is void in the hands of the creditor, as being a fraud upon the body of the creditors. So also, if the deed contain a stipulation for the surrender of securities, no creditor holding a bill of the insolvent's will be allowed to keep the proceeds in fraud of the creditors, but must refund the money.
Another instance shall be mentioned from the law of suretyship. When one man proposes to give a bill or note in payment of a certain debt owed by another, and the creditor and the debtor have a secret understanding that the money is to be otherwise appropriated, (as by payment of a prior debt, or by placing part in the hands of the debtor himself), such a bill will be a fraud on the surety, and void in the hands of the creditor.
9. A plaintiff cannot recover upon a bill given for illegal consideration, if he is obliged to rely on the illegal transaction in making out his case.
Considerations which are illegal, are so either (1) at common law, i.e. by the general unwritten law of the land, or (2) by statute.
Considerations illegal at common law may be again divided into (1) such as are privately immoral, and (2) such as contravene public policy.
Under the former head come the consideration for bills, notes, or cheques given for future cohabitation, for the rent of apartments knowingly let for the purpose of prostitution, &c.
Under the latter are included the considerations for bills, &c., given upon a contract for the general restraint of trade or business; as if, upon a purchase of the goodwill of a medical practice, or a shoe-maker's shop, it were
bargained that the persons parting with the businesses should thenceforth altogether cease from curing wounds or making shoes respectively. Though there would be no objection to a partial restraint, as to do business only within fifty miles of London, or only with certain classes of customers, as wholesale or retail, &c.
So contracts in restraint of marriage (and it should seem though only in partial restraint) are likewise void; and so are contracts to procure a marriage, or to procure the separation of those already married; also contracts to injure the revenue, to compound a felony or a public misdemeanor, or to induce a person to infringe the law.
Contracts with a public enemy, as bills or notes in their favour, are also illegal, and all bills and notes are worthless in their hands; so also contracts for obtaining public offices, and all bills, &c., given in pursuance of such contracts are illegal at common law. These are also many of them illegal by statute, which is the other main division of illegality.
In treating of considerations illegal by statute, it may be convenient first to mention that the offence of usury has ceased to exist, and no contract can any longer be objectionable on that ground, and that gaming contracts, whether written or verbal, are not in general illegal, but are merely void; i. e. a man may make a wager or a bet if he pleases upon a lawful game, but having made it, he need not pay. Bills, notes, and cheques, therefore, given in pursuance of such bets or wagers, can only be recovered upon by an innocent indorsee or holder who has taken the bill for value, and in ignorance of the transaction out of which it originated.
As to horse-racing and gaming in general, see 8 & 9 Vict., c. 109.
If the loser by play or betting, having given a bill or note, has to pay the innocent holder, the former can recover the amount against the man to whom he lost the bet.
But if one man employs another to bet for him, the employer thereby authorises his agent to pay losses; the agent having done so, can recover the money from his principal. Therefore a bill drawn by the agent upon and accepted by the principal for the amount must be paid by him. In this case it will be observed the sum sued for is not money won at play, but a sum paid by