But these propositions are subject to the following limitations or qualifications: First. That when it was shown by the defendant that the instrument originated in fraud or illegality, the burden of proof will be shifted to the holder, and he must then show that he is a bona fide holder for value.1 Second. When it is shown that the instrument was given for a consideration which by statute is declared void, the original taint follows it, and it is void in the hands of every holder, however innocent. And Third. That no ? party can enforce a negotiable instrument if it be not genuine, or if it be executed by a party incapable of entering into the contract in which it was given.' Let us consider now these principles in their order. In some respects they are so interwoven with each other that it is impossible to sever and disconnect them. But we will endeavor to present as nearly as practicable, under separate heads, the several elements which must combine to panoply with the full protection of the law the party who acquires a negotiable instrument. And first we will endeavor more particularly to define who is a bona fide purchaser or holder for value. SECTION I. BONA FIDES AND GROSS NEGLIGENCE. § 770. In the first place, the holder, in order to be entitled to protection against offsets and equities and defences based upon frauds, pleaded by prior parties, must have acquired the paper in good faith from his predecessor. “ Fraud cuts down everything,” 4 and although the holder may pay value, yet, if his acquisition of the paper be in any respect faudulent—as where it is made or transferred to give him preference over other parties to a compromise of • Post, $ 807. See ante, $ 166. 2 See ante, $ 197, post, $ 807. creditors—he can not claim the position of a bona fide holder. In pleading, mala fides must be distinctly alleged, and an allegation that the party is not the bona fide holder is not sufficient. It is the bona fides of the holder alone that is to be considered, not that of his transferrer, and the fact that the payee had an interest to part with the paper, is not a circumstance which affects the rights of his indorsee. $ 771. Early English rule as to bona fides.The earlier English authorities regarded the bona fides of the acquisition of a negotiable instrument as the crucial test by which it was determined whether or not the party so acquiring it by purchase or discount was entitled to stand upon a better footing than his transferrer, and be entitled to full protection against equitable or other defences which would otherwise have been valid against him. In a case before Lord Kenyon, where it appeared that a bill had been lost, and advertised in the newspapers, and had been discounted for one who found it, and fraudulently offered it, it was contended that the banker could not recover without using due diligence in inquiring into the circumstances as well respecting the bill as of the person who offered to discount it. But Lord Kenyon said :4 “I think the point in this case has been settled by the case of Miller v. Race, in Burrow. If there was any fraud in the transaction, or if a bona fide consideration had not been paid for the bill by the plaintiffs, to be sure they could not recover ; but to adopt the principle of the defence to the full extent stated would be at once to paralyze the circulation of all the paper in the country, and with it all its commerce. The circumstance of the bill having been lost, might have been material, if they could bring knowledge of that fact home to the plain See chapter VII, on Consideration, ante, $ 193. • Uther v. Rich, 10 Ad. & El., 784. · Helmer v. Krolick, 36 Mich., 373. * Lawson v. Weston, 4 Esp., 56 (1801). tiffs. The plaintiffs might or might not have seen the ad vertisement, and it would be going great lengths to say that a banker was bound to make inquiry concerning every bill brought to him to discount; it would apply as well to a bill for £10 as for £10,000." 1 772. Change of rule in England. "Suspicious circumstances."-For a long period this doctrine remained the undoubted law of England, until, in the case of Gill v. Cubitt, Lord Chief-Justice Abbott (Lord Tenterden) laid down the principle that, although the holder had given value for the bill or note, yet, if he took it under circumstances which ought to have excited the suspicions of a prudent and careful man, he could not recover; and while professing "unfeigned reverence" for Lord Kenyon, from whom the previously accepted view had emanated, he declared that he could not regard it as the correct one.2 773. This cautious ruling (as observed by Read, J., in a well-considered case in Pennsylvania), although carped at and quarrelled with, remained the law for ten years, when, as it seems, the discredit of Bank of England bills on the European continent, and the complaints of the mercantile community, led to a modification of the doctrine of ChiefJustice Abbott. And Lord Denman, C. J., told the jury, in a case where it was contended that the plaintiff had not used due caution, and had taken the bill under circumstances that ought to have excited the suspicions of a prudent man, 1 See Miller v. Race, 1 Bur., 452. Gill v. Cubitt, 3 Barn. & Cres., 466 (1824), Bayley and Holroyd, JJ., concurring; Strange v. Wigney, 6 Bing., 677 (1830), 19 E. C. L. R.; Snow v. Peacock, 2 Car. & P., 215 (1825); Beckwith v. Corrall, 2 Car. & P., 259 (1826). 66 See Phelan v. Moss, 67 Penn. St., 63 (1870). Lord Campbell says in his "Lives of the Chief-Justices," vol. 3, 310 (quoted in 2 Parsons N. & B., 273), that Lord Tenterden's rule died with its author. It was soon much carped at; some judges said that fraud and gross negligence were terms known to the law, but of the circumstances which ought to excite suspicion, there was no definition in Coke or in Cowell'; and the complaint of bill brokers resounded from the Royal Exchange to Westminster Hall, that they could no longer carry on their trade with comfort or safety." to find for the plaintiff, if they thought that he had not been guilty of gross negligence.1 2 § 774. Restoration of early rule in England.-Gross negligence was thus established as the test of the holder's right to recover. But it did not long remain so. For, two years later, the Court of King's Bench, which seems to have been impatient under the restriction which even that test imposed on the circulation of negotiable instruments, decided that, while gross negligence might be evidence tending to show mala fides, and as such admissible, it did not in itself amount to proof of mala fides, and was not sufficient to deprive the holder of his right to recover. Thus the bona fides of the purchaser or holder was restored as the test of his right to recover, and, after a wide departure, the law re-established upon the original basis established by Lord Kenyon. And Lord Denman, C. J., said: "The question I offered to submit to the jury was whether the plaintiff had been guilty of gross negligence or not. I believe we are all of opinion that gross negligence only would not be a sufficient answer where the party has given consideration for the bill. Gross negligence may be evidence of mala fides, but it 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." The rule thus finally re-established in England has been 'Crook v. Jadis, 5 Barn. & Ad., 909 (27 E. C. L. R.) (1834), Lord Denman, C. J. "I used the expression gross negligence advisedly, because I thought nothing less ought to have prevented the plaintiff from recovery on the bill." Littledale, J.: There must be gross negligence, at least, in a case like the present, to deprive a party of his right to recover on a bill of exchange." Taunton, J.: I think the case was properly submitted to the jury. I can not estimate the degree of care which a prudent man should take. The question put by the Lord Chief-Justice, whether the plaintiff was guilty of gross negligence, was more definite and appropriate.' Patteson, J.: "I never could understand what is meant by a party's taking a bill under circumstances which ought to have excited the suspicion of a prudent man." Backhouse v. Harrison, 5 Barn. & Ad., 1098 (1834). Goodman v. Harvey, 4 Ad. &. El., 870 (1836). VOL. I.-46 followed and approved there in subsequent cases,1 and has met with the approbation of most all of the writers on negotiable instruments, on the ground that it relieves them of the clog which the contrary doctrine imposes on their negotiability, and presents at once the clear and intelligible question of bona fides for the consideration of the jury; whereas, to leave it to a jury to determine as to the degree of caution which a prudent man must exercise on taking such an instrument, would lead to much perplexity and to frequent injustice.2 3 § 775. American authorities.-In the United States the decisions of the courts have varied, some following the rule declared in Gill v. Cubitt, but by far the greater number concurring in the principle which has been finally established as the law of England. Chancellor Kent, in his Commen 'Raphael v. Bank of England, 33 Eng. L. & Eq., 278 (1855); Arbouin v. Anderson, I Ad. & El. N. S., 498 (1841); Uther v. Rich, 10 Ad. & El., 784 (1839); Easeley v. Crockford, 10 Bing., 243 (25 E. C. L. R. 116), (1833). Story on Notes, §§ 197, 382; Story on Bills, § 416; Edwards on Bills, 506; 2 Parsons N. & B., 277-279; see preface of Chitty & Hulme to Chitty on Bills. 'Hamilton v. Marks, 52 Mo., 81 (overruled), Adams, J., saying: "We think the old doctrine the better rule, and is supported by the weight of authority and reason both in England and America," 63 Mo., 167; Buckner v. Jones, i Mo. App., 538; Edwards v. Thomas, 2 Mo. App., 283 (overruled); Holbrook v. Mix, I E. D. Smith, 154 (1851); Pringle v. Phillips, 5 Sand., 157 (1851) (now overruled, see below); Beltzhoover v. Blackstock, 3 Watts, 20 (1834) (now overruled); Sanford v. Norton, 14 Vt., 234 (1842); Varin v. Hobson, 8 La., 50; Nicholson v. Patton, 13 La. O. S., 216 (1838); Lapice v. Clifton, 17 La., 152; Marsh v. Small, 3 La. An., 402; Lanfear v. Blosman, I La. An., 148; Ayer v. Hutchins, 4 Mass., 370 (1808), (overruled); Wiggins v. Bush, 12 Johns, 306 (1815), (overruled); Adkins v. Blake, 2 J. J. Marsh, 40 (1829); Hall v. Hale, 8 Conn., 336 (overruled); Hunt v. Sandford, 6 Yerg., 387; Cone v. Baldwin, 12 Pick., 545; Ryland v. Brown, 2 Head, 273; Merrill v. Duncan, 7 Heisk., 164; McConnell v. Hodson, 2 Gilm., 640; Russell v. Hadduck, 3 Gilm., 233 (1846). 'Phelan v Moss, 67 Penn. St., 62 (1870); McSparran v. Neely, 91 Penn. St., 17; Murray. Lardner, 2 Wall., 110 (1864); Shaw v. Railroad Co., 101 U. S. (11 Otto),564 (1879); Swift v. Smith, 102 U. S. (12 Otto), 444 (1880); Mabie v. Johnson, 15 N. Y. S. C., 309 (1876); Welsh v. Sage, 47 N. Y., 147 (1872); Belmont v. Hoge, 35 N. Y., 67 (1866); Magee v. Badger, 34 N. Y., 247 (1859); Birdsall v. Russell, 29 N. Y., 249; Hall v. Wilson, 16 Barb., 548 (1853); Seybel v. Nat'l Currency Bank, 54 N. Y., 288 (1873); Swift v. Tyson, 16 Pet., I (1842); Goodman v. Simonds, 20 How., 367 (1857); Bank of Pittsburgh v. Neal, 22 Id.; Citizens' Nat. Bank v. Hooper. 47 Md., 88; Maitland v. Citizens' Nat. Bank, 40 Md., 540; Commercial, etc., Nat. Bank v. First Nat. Bank, 30 Md., 11 (1868); Ellicot v. Martin, 6 Md., 509 (1854); Mathews v. Poythress, 4 Ga., 287 (1848) Rowland v. Fowler, 47 Conn., 347; Brush v. Scribner, II Conn., 388 (1836); Craft's Appeal, 42 Conn., 146, (but see Skidmore v. Clark, 47 Conn., 20, as to |