Opinion of the court.

of a bill against the drawer. It was held that it was "no defence that the plaintiff took the bill under circumɛtances which ought to have excited the suspicion of a prudent man that it had not been fairly obtained; the defendant must show that the plaintiff was guilty of gross negligence."

In Backhouse v. Harrison,* the same doctrine was affirmed, and Gill v. Cubitt was earnestly assailed by one of the judges. Patterson, Justice, said: "I have no hesitation in saying that the doctrine laid down in Gill v. Cubitt, and acted upon in other cases, that a party who takes a bill under circumstances which ought to have excited the suspicion of a prudent man cannot recover, has gone too far, and ought to be restricted. I can perfectly understand that a party who takes a bill fraudulently, or under such circumstances that he must know that the person offering it to him has no right to it, will acquire no title; but I never could understand that a party who takes a bill bona fide, but under the circumstances mentioned in Gill v. Cubitt, does not acquire a property in it. I think the fact found by the jury here that the plaintiff took the bills bona fide; but under circumstances that a reasonably cautious man would not have taken them, was no defence."

In Goodman v. Harvey,† the subject again came under cousideration. Lord Denman, speaking for the court, held this language: "I believe we are all of opinion that gross negligence only would not be a sufficient answer where the party has given a consideration for the bill, Gross negligence may be evidence of mala fides, but is not the same thing. We have shaken off the last remnant of the contrary doctrine. Where the bill has passed to the plaintiff, without any proof of bad faith in him, there is no objection to his title."

A final blow was thus given to the doctrine of Gill v. Cubitt The rule established in this case has ever since obtained in the English courts, and may now be considered as fundamental in the commercial jurisprudence of that country. In this country there has been the same contrariety of

* 5 Barnewall & Adolphus, 1098.

† 4 Adolphus & Ellis, 870.

Opinion of the court.

decisions as in the English courts, but there is a large and constantly increasing preponderance on the side of the rule laid down in Goodman v. Harvey.

The question first came before this court in Swift v. Tyson.* Goodman v. Harvey, and the class of cases to which it belongs were followed. The court assumed the proposition which they maintain, to be too clear to require argument or authority to support it. The ruling in that case was followed in Goodman v. Simonds,† and again in the Bank of Pittsburg v. Neal. In Goodman v. Simonds, the subject was elaborately and exhaustively examined both upon principle and authority. That case affirms the following propositions:

The possession of such paper carries the title with it to the holder: "The possession and title are one and inseparable."

The party who takes it before due for a valuable consideration, without knowledge of any defect of title, and in good faith, holds it by a title valid against all the world.

Suspicion of defect of title or the knowledge of circumstances which would excite such suspicion in the mind of a prudent man, or gross negligence on the part of the taker, at the time of the transfer, will not defeat his title. That result can be produced only by bad faith on his part.

The burden of proof lies on the person who assails the right claimed by the party in possession.

Such is the settled law of this court, and we feel no disposition to depart from it. The rule may perhaps be said to resolve itself into a question of honesty or dishonesty, for guilty knowledge and wilful ignorance alike involve the result of bad faith. They are the same in effect. Where there is no fraud there can be no question. The circumstances mentioned, and others of a kindred character, while inconclusive in themselves, are admissible in evidence, and fraud established, whether by direct or circumstantial evidence, is fatal to the title of the holder.

The rule laid down in the class of cases of which Gill v.

* 16 Peters, 1.

† 20 Howard, 343.

22 Id. 96.

Opinion of the court.

Cubitt is the antetype, is hard to comprehend and difficult to apply. One innocent holder may be more or less suspicious under similar circumstances at one time than at another, and the same remark applies to prudent men. One prudent man may also suspect where another would not, and the standard of the jury may be higher or lower than that of other men equally prudent in the management of their affairs. The rule established by the other line of decisions has the advantage of greater clearness and directness. A careful judge may readily so submit a case under it to the jury that they can hardly fail to reach the right conclusion. We are well aware of the importance of the principle involved in this inquiry. These securities are found in the channels of commerce everywhere, and their volume is constantly increasing. They represent a large part of the wealth of the commercial world. The interest of the community at large in the subject is deep-rooted and widebranching. It ramifies in every direction, and its fruits enter daily into the affairs of persons in all conditions of life. While courts should be careful not so to shape or apply the rule as to invite aggression or give an easy triumph to fraud, they should not forget the considerations of equal importance which lie in the other direction. In Miller v. Race, Lord Mansfield placed his judgment mainly on the ground that there was no difference in principle between bank notes and money. In Grant v. Vaughan, he held that there was no distinction between bank notes and any other commercial paper. At that early period his far-reaching sagacity saw the importance and the bearings of the subject.

The instruction under consideration in the case before us is in conflict with the settled adjudications of this court.

JUDGMENT REVERSED, and the case remanded for further proceedings in conformity to this opinion.

Statement of the case.

HECKERS v. FOWLER.

1. A declaration in covenant by a patentee, setting out a sealed contract by defendant to pay him a certain tariff in consideration of an exclusive right to use the patent within a certain district, is good.

2. The practice of referring pending actions under a rule of court to arbitrators appointed by the court with the consent of both parties, is a mode of prosecuting a suit to judgment, as well established and as fully warranted as a trial by jury.

8. A reference to hear and determine all the issues in a case, does not require the referee to report his finding in all. It is answered by his hearing and determining all and reporting the result.

4. A judgment in the Circuit Court, entered by the clerk without objection upon the report of the referee and pursuant to order of court and the agreement of parties, is valid and can be enforced.

JOHN FOWLER brought suit in the Circuit Court for the Southern District of New York, against John and George Hecker, to recover damages for a breach of covenant. The declaration alleged that the plaintiff, who was the patentee of an improvement in making flour, had granted to the Heckers the right to supply a particular district with such flour, &c., paying so much per barrel. Defence, that the patent was worthless, and that the plaintiff had failed to maintain its validity at his own cost, as he had agreed to do. Replication; issue, and joinder. While the case was thus pending, the attorneys of the parties agreed to refer it to a "referee, to hear and determine the same, and all issues therein, with the same powers as the court, and that an order be entered, making such reference; and that the report of said referee have the same force and effect as a - judgment of said court." One of the judges accordingly "ordered that the cause be referred to H. Cramm, Esq., to hear and determine all the issues herein, with the fullest powers ordinarily given to referees; and that on filing the report of the said referee with the clerk of the court, judg ment be entered in conformity therewith, the same as if the cause had been tried before the court." The referee heard the case, and without stating what his findings were upon any of the several issues presented in the pleadings, made

Argument for the plaintiff in error.

the finding, simply and generally, that there was due to plaintiff, John Fowler, from the defendants, John and George Hecker, the sum of $9500, besides costs, all which he "reported" to the court. On this, the attorneys of Fowler drew up the form of a judgment, and without the presence or action of the court, except the order of reference already alluded to, filed it with the clerk, who thereon entered judgment, as a judgment of the court, for the amount reported, with costs. The defendant took this writ of error.

It is necessary here to state that, by the code of New York,* a referee is clothed with the attributes of a judge. A trial by him is to be conducted in the same manner as a trial by the court; he may grant adjournments, allow amendments, compel the attendance of witnesses. His decisions may be excepted to and revised, as in cases of appeal from courts of record. It is also enacted, that "the report of the referees upon the whole issue shall stand as the decision of the court, and judgment may be entered thereon in the same manner as if the action had been tried by the court."

Mr. Norton, for the plaintiff in error: No objection, we think, can properly be taken to the right of this court to entertain the matters here presented; although it might be suggested that the facts in this case not having been found either by a general or special verdict, nor agreed upon in a case stated, and there being no bill of exceptions, there are no questions open to revision here, and hence that this court will affirm the judgment of the court below, of course. We apprehend it to be clear, however, that while this court will not review the judgment of inferior courts made without the intervention of juries, or on a case stated, it will, at the same time, exercise its superintending care in preventing the judgments of State judicial officers from being interpolated into the records of the courts of the United States, and being enforced by the process of those courts.

* 8 272.