Law as to illegal consideration.
Bills and notes.
The general rule is that if A accepts a bill drawn upon him by B, or gives him a promissory note, for an illegal consideration, the instrument no doubt is entirely void as between A and B, so that the latter cannot sue the former upon it; still if B transfers the instrument by endorsement or otherwise to C, who takes without notice that it was originally given for an illegal consideration, and gives value for it, C may sue all the prior parties and recover upon it. The chief difference that such illegality makes to C is, that a presumption is raised that C is the agent for the original holder, i.e., that the indorsement to him is presumed to be merely a means of evading the law and enforcing the originally illegal contract.[[57]] |Burden of proof is on transferee.| Consequently the rule is that the burden of proof lies on the transferee of showing that he took the instrument bonâ fide, i.e., without notice of the illegality, and that he gave value for it. Moreover, the illegality would affect the interests of a transferee if at the time of the transfer the bill were overdue. Before the late Bill of Exchange Act, it was commonly said that an indorsee of an |Overdue bill.| overdue bill took it subject to all the equities attaching to the bill. Thus, if a bill were obtained from the acceptor by fraud or undue influence, or given for an illegal consideration, those were equities between the original parties which would prevent the instruments being enforced as between them; but would not affect a bonâ fide transferee for value. The fact, however, of a bill being overdue would be sufficient notice of the infirmity to prevent his being a bonâ fide holder. |45 & 46 Vict., c. 61.| The new Bill of Exchange Act[[58]] leaves the law practically unchanged, excepting in phraseology. |“Holder in due course.”| For “bonâ fide holder” is substituted the expression “holder in due course.”
By section 29, the holder in due course is defined to be (1) a person who takes a bill not overdue and without notice of dishonour, if any; (2) and takes it in good faith and for value, and at the time the bill was negotiated to him he had no notice of any defect of title of the person who negotiated it.
The expression “defect of title,” which occurs in this section, is substituted for the older and more cumbrous one of “equity attaching,” &c. By section 29, the title of a person who negotiates the bill is “defective” when he obtains the bill or acceptance thereof by fraud duress (“force or fear” in Scotland), or other unlawful means, or for an illegal consideration (which includes a gaming debt).
Defect of title shifts burden of proof.
By section 30, the holder is presumed to be a holder in due course until the contrary is proved; but in that event the burden of proving that value has been given for the bill and in good faith, is shifted on to the holder. See Tatham v. Hasler.[[59]]
Overdue bill.
By section 36, an overdue bill is negotiated subject to all defects of title affecting it.
The result of these enactments, stated in the language of the law at the present day, seems to be shortly as follows:—