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merchant, which stands upon a footing of its own, to wit, custom; and hence whether there has been a valuable consideration according to the common law or not is an irrelevant question. The true question is, What is the custom of merchants? No rule touching the law merchant can permanently hold place which fetters or is opposed to custom; for it must rest upon essentially unsound theory.

Now transfer by a debtor to his creditor of a negotiable instrument, to pay or only to secure a prior debt, makes the creditor a holder for value by the custom. A debtor is justified so long as the debt lasts in making his creditor secure. The debtor's obligation to pay is an obligation which his property sooner or later must satisfy; and he is as much justified in putting his property-enough of it for the purpose-into his creditor's hands for security at the time of creating the debt, or afterwards, as well as by payment.

The situation is different where the security was passed to the creditor as a mere agent or bailee; such a distinction has well been taken.1 The debtor himself in such a case is to be considered still as the real holder, for he can withdraw the security at will; the creditor, therefore, though having the security in his hands, is not in the legal sense the holder. Hence we have put the case as security transferred by the debtor to his creditor with full title,' though still as security. The situation of a trustee or assignee may also be excepted; such a person, though in virtue of his office a party with full title, and bound to perform certain duties, is by the current of authority treated as standing in the position of him from whom he re.ceived the instrument. He is not, according to the current of authority, a holder for value in mere virtue of his office of trustee or assignee.2

1 See Austin v. Curtis, 31 Vt. 64; Oates v. First National Bank, 100 U. S. 239; Bigelow's L. C. Bills and Notes, 499, 500, 503.

2 Swan v. Crafts, 124 Mass. 453; Holland v. Cruft, 20 Pick. 321, 338; Palmer v. Thayer, 28 Conn. 238; Loos v. Wilkinson, 110 N. Y. 195; s. c. 113 N. Y. 485; Putnam v. Hubbell, 42 N. Y. 106, 114; Farrington v. Sexton, 43 Mich. 454; Main v. Lynch, 54 Md. 658; Eigenbrun v. Smith, 98 N. C. 207. But see Sipe v. Earman, 26 Gratt. 563; Olendorfer v. Myer, 88

It is admitted, even under the New York doctrine, that the holder of paper taken as collateral security for a pre-existing debt is a holder for value against an accommodation party to the security. That is a concession, so far, to the better doctrine.

Agreement to forbear.

The ground of the doctrine that transfer to a creditor imports value stands, it will be seen, without regard to the question whether there has been any undertaking, express or implied, for forbearance by the creditor; it stands, indeed, though it be plainly understood that there is no agreement for forbearance. If, however, there be an agreement, express or implied, to forbear, the case is by so much strengthened; and all the authorities, those of the unwritten New York rule as well as the rest, agree that the creditor in such a case is a holder for value. And such an agreement is deemed to be implied in a great many cases. Whether an implication of the kind arises depends somewhat upon the question whether the instrument taken as security is for the same amount as the original debt, or for a different sum, more or less. If the new security is for the same sum as the original debt, and is payable on time, there is a strong implication that the creditor agrees to forbear suit until the maturity of such security. And a like implication springs up where the new security is for a larger sum than the old debt."

Va. 384; Byrne v. Becker, 49 Mo. 548; Wilson v. Eifler, 7 Cold. 31. Of course an assignee or a trustee may be a holder for value, for he may be a creditor or he may have parted with something of special value; but in his office merely he will take subject to equities, by the better rule. See Bigelow, Fraud, ii. pp. 450-456.

1 Grocers' Bank v. Penfield, 69 N. Y. 502; Maitland v. Citizens' Bank, 40 Md. 540.

2 See Pratt v. Conan, 37 N. Y. 440; Moore v. Ryder, 65 N. Y. 438, 442; Burns v. Rowland, 40 Barb. 368; Oates v. First National Bank, 100 U. S. 239.

171.

3 See e. g. Stuart v. Lancaster, 84 Va. 772; Blair v. Hoge, 28 Gratt. 165,

Michigan Bank v. Leavenworth, 28 Vt. 209.

Atkinson v. Brooks, 26 Vt. 569. It should be observed that it is agreement for forbearance which is spoken of; mere forbearance does not affect the

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It is clear, too, that if the creditor parts in any other way with any right, his claim as a holder for value is still further strengthened. Thus, the plaintiff is everywhere a Parting with holder for value when he has parted with the de- right. fendant's note, upon receiving from him a new note, indorsed by a third person, or where the new security is transferred to the creditor upon his giving up an overdue note, or where the creditor receives the new security for the repayment of a loan of money upon another instrument, or where he receives it on account of the discontinuance of proceedings in execution against one of the parties to it and as security for the payment of the judgment in that case."

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Some authorities have professed to make a distinction between paper taken in conditional payment, and paper taken as collateral security, treating the holder as a holder for

Conditional value, if he took in the first way, but not if he took payment and security. in the second; but the distinction is not well taken, and has not found much favor.

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Instrument re

It has generally been agreed that if the creditor received the paper in absolute payment or satisfaction of the debt, he is a holder for value." But so unusual are cases of that kind that it appears to be required in some States ceived as paythat an express agreement should be shown to establish the fact that the paper was so taken. That, however, in so far as it means an agreement formulated in terms, is con

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ment.

1 Weaver v. Barden, 49 N. Y. 286, 293; Youngs v. Lee, 12 N. Y. 551;

Essex Bank v. Russell, 29 N. Y. 673.

2 Youngs v. Lee, supra.

8 Brown v. Leavitt, 31 N. Y. 113.

Bank of New York v. Vanderhorst, 32 N. Y. 553.

Boyd v. Cummings, 17 N. Y. 101.

Fletcher v. Chase, 16 N. H. 38; Rice v. Raitt, 17 N. H. 116; Nutter v. Stover, 48 Maine, 163; Austin v. Curtis, 31 Vt. 64 (overruling Atkinson v. Brooks, 26 Vt. 569, and Michigan Bank v. Leavenworth, 28 Vt. 209); Ryan v. Chew, 13 Iowa, 589.

7 Seymour v. Wilson, 19 N. Y. 417; Weaver v. Barden, 49 N. Y. 286, 294.

8 Brown v. Olmsted, 50 Cal. 162; Tobey v. Barber, 5 Johns. 68; James v Hackley, 16 Johns. 273. See Peters v. Beverly, 16 Peters, 532, 562.

trary to the analogies of the law, and the better authorities consider that sufficient evidence of any kind, otherwise proper, that the parties meant the transfer to operate as payment, may be received.1

Instrument

taken as secur

ity for debt

then created.

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As for paper taken to secure a debt created at the same time, there can be no place ordinarily for question; the creditor has always been deemed a holder for value by all the authorities. So too where any new credit or indulgence is given upon the faith of the new paper, that paper is held for value. Still even in such cases the situation will be changed if the security is not passed at the time to the credit of the creditor, but is only to be applied by him when paid, he in the meantime holding it only as agent of the debtor; for then, as we have already said, the debtor is the real holder.*

§ 4. EQUITIES: HOW SHOWN: THEIR NATURE. The cardinal rule we have now reached is that a bona fide holder for value takes free from equities, or as it has already been expressed, purchase for value without notice. Equities cut off. cuts off equities. It makes no difference from whom the paper, if capable of being passed, was taken; it may have been taken from a thief; enough that the holder took it bona fide and for valuable consideration.

The existence of equities is to be shown by the defendant and fixed upon the plaintiff, after the plaintiff has made a preFraud, illegal sumptive case; and that, as we have seen, the ity, etc.: how met by plain- plaintiff makes by producing the paper in evidence, duly indorsed when indorsement is necessary, and

tiff.

1 Thompson v. Briggs, 28 N. H. 40; Smith v. Smith, 27 N. H. 244; Johnson v. Cleaves, 15 N. H. 332; Jaffrey v. Cornish, 10 N. H. 505; Gibson v. Tobey, 46 N. Y. 637, 642.

2 See Stotts v. Byers, 17 Iowa, 303; Curtis v. Mohr, 18 Wis. 615; Logan v. Smith, 62 Mo. 455.

Housum v. Rogers, 40 Penn. St. 190; Washington Bank v. Krum, 15 Iowa, 53.

4 See Scott v. Ocean Bank, 23 N. Y. 289.

proving the signatures.1 In certain cases the defendant is helped out in his case by presumption; in others he is not.

If the defendant can show that the instrument was obtained from him by fraud or by duress, or if he can show that it was tainted in the hands of the party who took it from him, with illegality, he makes out his case by presumption against the plaintiff; for the law presumes on such a state of facts that the plaintiff is not the true holder, that the true holder is the man affected by the taint of fraud, duress, or illegality, and that he has merely turned the paper over to the plaintiff colorably for the purpose of suit.2

In other words, the law presumes, in such cases, that the plaintiff is at least not a holder for value; and the plaintiff is now put to his proofs to sustain his claim. For example: The plaintiff is indorsee of a promissory note made by the defendants, and now sued upon. The defendants offer to show that the payee of the note illegally arrested them, and that this note was given to procure their release from duress, upon the promise of the payee to set them at liberty, which was accordingly done. They offer no other evidence; nor does the plaintiff offer any evidence to meet it, and a verdict is taken for the defendants by consent, subject to the opinion of the court. The defendants' evidence is sufficient; proof of duress by the payee would be a good defence against him; and the presumption is that the payee, being guilty of illegal conduct, has placed the note in the hands of the plaintiff to sue upon it for him." Again: The plaintiff is indorsee, and the defendants are acceptors, of a bill of exchange now sued upon. The defendants offer to prove that the bill was accepted by them in payment of intoxicating liquor sold to them by the payees in violation of statute, and offer no other evidence. The plaintiff objects to the admissibility of the evidence, and the objection is sustained, and judgment rendered for the plaintiff. The ruling against

1 Ante, p. 198. Statute in many States dispenses with the necessity of proving signatures the genuineness of which is not expressly denied.

Grant v. Walsh, 145 N. Y. 502, 507. See notes to Bedell v. Herring 11 Am. St. Rep. 320.

• Clark v. Pease, 41 N. H. 414.

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