by such knowledge or notice as his agent obtains in negotiating the particular transaction is everywhere conceded. Constructive notice to an agent is not to be extended.1

SECTION VI.

WHEN PURCHASER OR HOLDER STANDS ON SAME FOOTING AS HIS TRANSFERRER.

802a. There are two aspects in which the rule applies that the purchaser must stand on the title possessed by the transferrer. (1). The one is presented when the transferrer has a good title, in which case as a general rule he may transfer it. (2). The second arises when he has a bad title, and there are some cases of that kind in which he can not by a transfer create a good title.

§ 803. (I). Holder with good title may transfer instrument to party having notice of infirmity.-We have seen under what circumstances the purchaser of a negotiable instrument may acquire a better right and title than his transferrer. It is to be observed further, that, as a general rule, the purchaser can never be placed on a worse footing than his transferrer, although he himself could not in the first instance have acquired the vantage ground occupied by such transferrer. And, therefore, even if he have notice that there was fraud in the inception of the paper, or that it was lost or stolen, or that the consideration has failed between some anterior parties, or the paper be overdue and dishonored, he is, nevertheless, entitled to recover, provided his immediate indorser was a bona fide holder for value unaffected by any of these defences. As soon as the paper comes into the hands of a holder, unaffected by any defect, its character as a negotiable security is estab

lished; and the power of transferring it to others, with the same immunity which attaches in his own hands, is incident to his legal right, and necessary to sustain the character and value of the instrument as property, and to protect the bona fide holder in its enjoyment. To prohibit him from selling as good a right and title as he himself has, would destroy the very object for which they are secured to him-would indeed be paradoxical. And it has been justly said that this doctrine "is indispensable to the security and circulation of negotiable instruments, and is founded on the most comprehensive and liberal principles of public policy."2 Nor is it a hardship to the maker or acceptor of the instrument. For, as said by Beck, C. J., in Iowa: "The maker of the note would be liable to the transferrer; his condition is made no harder by the note coming into the hands of one having notice of its infirmities." 2 Like principles prevail in courts of equity in respect to parties acquiring defective titles to estates.*

§ 804. Illustrations of doctrine that purchaser with notice of defect may acquire title from holder without notice.. -As illustrations of this doctrine, it has been held in Louisiana, where the courts held that Confederate notes were an illegal consideration, that the purchaser for value of a

1 Commissioners v. Clark, 94 U. S. (4 Otto), 285; Riley v. Schawhacker, 50 Ind., 592; Cromwell v. County of Sac, 96 U. S. (6 Otto), 51; Hoffman v. Bank of Milwaukee, 12 Wall., 181; Hereth v. Merchants' National Bank, 34 Ind., 380; Kinney v. Kruse, 28 Wisc., 190; Mornyer v. Cooper, 35 Iowa, 257; Simonds v. Merritt, 33 Iowa, 537; Peabody v. Rees, 18 Iowa, 571; Howell v. Crane, 12 La. Ann., 126; Hascall v. Whitmore, 19 Me., 102; Smith v. Hiscock, 14 Me., 449; Woodman v. Churchill, 52 Me., 58; Roberts v. Lane, 64 Me., 108; Hogan v. Moore, 48 Ga., 156; Woodworth v. Huntoon, 40 Ill., 131; Cotton v. Sterling, 20 La. Ann., 282; Bassett v. Avery, 15 Ohio St., 299; Boyd v. McCann, 10 Md., 118; Watson v. Flanagan, 14 Tex., 354; Prentice v. Zane, 2 Grat., 262; Haly v. Lane, 2 Atk., 182; Booth v. Quin, 7 Price, 193; Robinson v. Reynolds, 2 Q. B., 196; Lickbarrow v. Mason, 2 T. R., 63; Chalmers v. Lanier, 1 Camp., 383; Cook v. Larkin, 10 La. Ann., 507; Masters v. Ibberson, 18 L. J. C. P., 348; 8 C. B., 100 (65 E. C. L. R.); Roscoe on Bills, § 111; Kyd, 277; Byles (Sharswood's ed.), 236, 255, Johnson on Bills, 80; see ante, §§ 726, 782, 786, 396a.

Story on Promissory Notes, § 191; see also Story on Bills, 188; 1 Parsons N. & B., 161. 'Story's Eq. Juris., §§ 409, 410.

3 Simonds v. Merritt, 33 Iowa, 537.

negotiable note given for a loan of Confederate money, could recover against the maker, notwithstanding he knew the nature of the consideration when he took it-the party who transferred it to him having acquired it bona fide, and without such notice.1 So in Indiana, the So in Indiana, the plaintiff, who knew when he acquired the note that the defendant was induced by fraud to give it for a worthless patent, was held entitled to recover, his immediate indorser not having possessed such knowledge when he acquired it."

805. Exception to general rule.-But this rule is subject to the single exception that if the note were invalid as between maker and payee, the payee could not himself by purchase from a bona fide holder become a successor to his rights; it not being essential to such bona fide holder's protection to extend the principle so far. And the like. exception is made by courts of equity in determining the rights of persons having defective titles to estates. If the payees of the note were the agents of the real party in in

'Cotton v. Sterling, 20 La. Ann., 282.

Hereth v. Merchants' National Bank, 34 Ind., 380.

'Tod v. Wick, 36 Ohio St., 387; Sawyer v. Wiswell, 9 Allen, 42; Kost v. Bender, 25 Mich., 516 (1872), Cooley, J.: “I am not aware that this rule has ever been applied to a purchase by the original payee, nor can I perceive that it is essential to the protection of the innocent indorsee, that it should be. It can not be very important to him, that there is one person incapable of succeeding to his equities, and who consequently would not be likely to become a purchaser. If he may sell to all the rest of the community, the market value of his security is not likely to be affected by the circumstance that a single individual can not compete for its purchase, especially when we consider that the nature of negotiable securities is such that their market value is very little influenced by competition. Nor do I perceive that any rule or principle of law would be violated by permitting the maker to set up this defence against the payee, when he becomes indorsee, with the same effect as he might have done before it had been sold at all, or that there is any valid reason against it." See ante, § 176.

In Story's Equity Jurisprudence, §§ 409, 410, it is said: "This doctrine in both of its branches has been settled for nearly a century and a half in England, and it arose in a case in which A. purchased an estate with notice of an incumbrance, and then sold it to B., who had no notice, and B. afterward sold it to C., who had notice, and the question was whether the incumbrance bound the estate in the hands of C. The then Master of Rolls thought that although the equity of incumbrance was gone while the estate was in the hands of B., yet it was revived upon the sale to C. But the Lord Keeper reversed the decision, and held that the estate in the hands of C. was discharged of the incumbrance, notwithstanding the notice of A. and C." Harrison v. Firth, Prec Ch., 61.

terest they could not become the owners of the note so as to be held purchasers without notice of the transaction in which the defence inhered.1

§ 806. (II). As to the defences against which a bona fide holder is not protected.—There are some defences which are as available against a bona fide holder for value, and without notice, as against any other party. They are those which go to show that the instrument was absolutely and utterly void, and not merely voidable, (1) by reason of the incapacity of the party assuming to contract; or, (2) by reason of some positive interdiction of law; or (3) by reason of the want of consent of the party sought to be bound to the particular contract.

§ 806a. Incapacity of maker. Thus (1) if the maker of the note were an infant, a married woman, a lunatic, or a person under guardianship, the signature would impart no validity to it, and the bona fide holder could not recover against him, or her, however ignorant of the incapacity when he took the paper.

§ 807. Statutory denunciation of instrument as void.— (2) So if the statute law pronounces the contract evidenced by the bill or note to be void, because made upon a gambling, usurious, or other illegal consideration, it is an absolute nullity; and, although in form negotiable, no currency in the market, and no degree of innocence or ignorance on the part of the holder can impart any validity to it. But although the party executing such bill or note can not be bound even to a bona fide holder, the indorser will be liable upon his indorsement, which warrants its validity, and is a separate and independent contract. And in many localities

1 Boit v. Whitehead, 50 Ga., 76.

'Town of Eagle v. Kohn, 84 Ill., 292; Hatch v. Burroughs, I Woods, 439; Bayley v. Taber, 5 Mass., 286; Aurora v. West, 22 Ind., 88; Vallett v. Parker, 6 Wend., 615; Taylor v. Beck, 3 Rand., 316; Weed v. Bond, 21 Ga., 195; Hall v. Wilson, 16 Barb., 548; Ramsdell v. Morgan, 16 Wend., 574; see ante, §§ 197.

* See ante, § 671 et seq.

negotiable instruments executed upon gaming or usurious considerations are upon the same footing as those executed for other illegal considerations-that is, void between the parties, but valid in the hands of a bona fide holder.

§ 808. Instances of instruments void only between original parties. Sometimes the statute declares a note void only as between original parties, and in such cases the bona fide purchaser is not affected by the illegality; and when the instrument was executed upon an illegal consideration, especially if illegal by statute (but not absolutely avoiding the instrument), it throws upon the holder the burden of proving bona fide ownership for value. But a failure of consideration does no throw this burden upon him. And in all cases where the statute does not declare the instrument void, bona fide ownership for value being proved, the holder is entitled to recover."

§ 809. When party has never consented to signature.(3) So where the party has never in fact signed the instrument as it then stands, as, for instance, where it was forged in its inception, and is not genuine, or was subsequently materially altered. In such cases the bona fide holder can not enforce it, for the defendant has only to say: "This is not my contract," "non hæc in fædra veni." So if executed by one acting as agent of the principal, but exceeding his authority, the bona fide holder can not recover unless the

1 Haight v. Joyce, 2 Cal., 64.

'Paton v. Coit, 5 Mich. (1 Cooley), 505; see ante, § 198.

Paton v. Coit, 5 Mich. (1 Cooley), 505; Wyat v. Campbell, 1 Mood. & M., 80; Bailey v. Bidwell, 13 Mees. & W., 74; Northam v. Latouche, 4 Car. & P., 140; Harvey v. Towers, 6 Exch., 656; Smith v. Braine, 16 Q. B., 201; Fitch v. Jones, 32 Eng. L. & Eq., 134; Vallett v. Parker, 6 Wend., 615; Story on Bills, § 193; Doe v. Burnham, 11 Fost., 426; Johnson v. Meeker, I Wis., 436; Norris v. Langley, 19 N. H., 423; Bottomley v. Goldsmith, 36 Mich., 27.

Wilson v. Lazier, 11 Grat., 478, and cases cited; see ante, §§ 165, 198, and post, § 810 et seq.

'Williams v. Cheney, 3 Gray, 215; Hubbard v. Chapin, 2 Allen, 328; Story on Promissory Notes, § 192.

See chapter XLII, on Forgery, vol 2.

'See chapter XLIII, on Alteration, vol. 2.