Opinion
July Term, 1827.
From Lincoln.
Where securities are declared void by statute, they cannot be enforced even by an assignee for value and without notice; but a bond, though void at common law for turpitude of consideration, being assignable, may be enforced by such assignee, and there is no distinction between consideration malum in se and malum prohibitum.
DEBT upon a sealed note, or single bill, tried before Daniel, Judge. On the trial the case was that Shannon had been arrested upon a charge of burning a house belonging to one Caldwell, and after his arrest he gave his bond, with the other defendant as his surety, payable to Caldwell, for the purpose of compounding the prosecution, upon which the warrant was dismissed. Afterwards, and before the bond fell due, Caldwell assigned the same by indorsement to the plaintiff for a valuable consideration and without any notice to the plaintiff of the consideration on which it was given.
(148) The presiding judge, upon these facts, directed a verdict for the defendants; and from the judgment thereon the plaintiff appealed.
No counsel for the defendants.
Wilson for the appellant.
If this were a question between the original parties to the bond, I should have no doubt that the defense could be available for the defendant, since the consideration of the bond is illegal; and I should be willing to make a similar decision as against an assignee; for the rule of law which avoids the bond, though founded on evident justice and policy, may be eluded in every instance, if an assignee without notice can recover. But this is a consideration for the Legislature, and they have not left us at liberty to decide according to our individual perceptions of justice, but have established a rule which we are bound to follow.
The act of 1796 makes bonds "negotiable in the same manner and under the same rules and regulations as notes called promissory or negotiable notes have heretofore been." This refers us to the existing law relative to promissory notes, which must furnish the rule for the decision in this case. The cases which are familiarly known concur in establishing the position that, independently of positive enactments, where a negotiable instrument is voidable as between the original parties, either because it is founded on a consideration prohibited by the common law or where it was without consideration at its commencement, it is nevertheless good in the hands of an indorsee for valuable consideration without notice, either express or implied, of the defect or failure of the consideration, as regards any other person than his own immediate indorsee. An indorsee so described is not affected by fraud or other transactions between the original parties. 3 Caines, 279; 4 Mass. 161.
But notice, in legal understanding, is not confined to the positive knowledge of a fact, but the law implies it whenever such circumstances of suspicion exist as ought in reason to put a man upon inquiry into the transaction between the parties to whose contract he is about to succeed. Thus, an indorsee who takes a note after the time of payment has elapsed may, in an action against the maker, be repelled by any defense (150) of which the maker could have availed himself in an action by the payee, such as fraud, want of consideration, payment, release, set-off, etc. 3 Term, 80; 1 H. Bl., 89, note a.
But I have met with no case, excepting those provided for by statute, wherein an indorsee without notice and for valuable consideration can be affected by the illegality or defect of the consideration when he sues the maker. Here the bond was indorsed before it became due, and for a valuable consideration; for which reasons I think the judgment below wrong, and that there ought to be a new trial.
This is not a contest between the obligee and the obligors, as was the case in Collins v. Blantum, 2 Wils., 347. There the bond was given to stifle a prosecution for perjury, and both plaintiff and defendant were privy to the unlawful consideration, for which reason the bond was held to be void; nor is it the case of a bond declared to be void by statute on account of the illegality of the consideration on which it was given, as was the case in Lowe v. Waller, Doug., 736, where a bill of exchange given upon an usurious consideration was held to be void in the hands of an indorsee for a valuable consideration without notice of the usury. The present case is one where the bond is given upon a consideration which avoids it at common law, but assigned to the plaintiff before it became due, and without notice of the consideration on which it was given. I had doubted whether the purpose to stifle a prosecution, for which this bond was given, was not of so criminal a nature as to make it void in the hands of an indorsee; but it is said by two judges, in Aubert v. Maze, 2 Bos. and Pull., 371, that there is no distinction between cases that are malum prohibitum and malum in se; and I am not aware that any adjudged (151) case contradicts this position. Taking it, then, that there is no such distinction, the case of Steers v. Lashley, 6 Term, 61, must be considered an authority for the plaintiff. There A was employed as a broker in stock-jobbing transactions for B, and paid money for him, for which he drew a bill on B, and indorsed it to C, after B had accepted it; but C had a knowledge of the unlawful consideration on which it was drawn, and for that reason it was held by the court that he could not recover. From which I am to infer that had he been ignorant of the illegal consideration on which the bill was drawn, he would have been entitled to the judgment of the court in his favor. So in the case of Brown v. Turner, 7 Term, 626, where a bill drawn upon an illegal consideration, having been indorsed after it became due, was held liable in the lands of the indorser to every defense which existed against it in the hands of the original payee. From which I infer that had it been indorsed before it became due, and without notice of the consideration on which it was drawn, as in the present case, the plaintiff would have been entitled to the judgment of the court. Therefore I think the law is in favor of the plaintiff, and that the rule for a new trial be made absolute.
PER CURIAM. Judgment reversed, and new trial awarded.
Approved: Coor v. Spicer, 65 N.C. 401; Bascom v. Smith, 66 N.C. 537; Weith v. Wilmington, 68 N.C. 24; Ward v. Sugg, 113 N.C. 494.
(152)