•  
  •  

Home > Journals > Michigan Law Review > MLR > Volume 25 > Issue 4 (1927)

 

Abstract

Authorities are unanimous that the issuance of negotiable instruments as consideration in the purchase of notes constitutes sufficient value to enable the purchaser to sue as a holder in due course, when the instruments issued have found their way into the hands of a due course holder, or have been paid, before the purchaser acquires knowledge of any defenses. But when, at the time the purchaser is notified of defenses, his notes are still in the possession of the payee, the decisions are not in accord as to his standing. The Wyoming court, in a recent opinion, held a bank to be a holder in due course, where it had given its own negotiable certificates of deposit as consideration for the notes sued upon. The notes had been obtained from the defendant by fraud, but the plaintiff bank was ignorant of this at the time it purchased them. Though it does not definitely appear as to when the bank received notice of the fraud, the court seems to assume that such notice was given before the certificates had been negotiated by the defrauding payee. But in the recent Michigan case of Cartier v. Morrison, which was very similar to this one, the plaintiff was denied the position of a holder in due course. The reason given was that it had failed to prove that the bank to which its certificates of deposit had been negotiated was a due course holder, and as the plaintiff was not legally liable to anyone but a holder in due course, such proof was necessary to establish the fact that it had given value. The Wyoming court, in its decision, cites this case and disagreeing with it, reasons that the bank holding the certificates is presumed to be a holder in due course, in the absence of any evidence to the contrary. It bases its conclusion on sec. 59 of the Negotiable Instruments Law: "Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course.'' As laid down by the court, the defense to the certificates would not be a defective title in the payee, but failure of consideration, which does not render the title defective. The reasons prompting the Michigan court in its decision are clear and not unreasonable, for until the certificates of deposit are in the hands of a good faith purchaser the issuing bank has a good defense against any attempt at collection. But the Wyoming decision seems to be more consistent with the language of the Negotiable Instruments Law, and with the trend of authorities."

Download

Share

COinS