Whether one who takes a negotiable instrument with knowledge of facts and circumstances which suggests suspicion and which would lead a reasonably prudent man to make inquiries, as a result of which he would have discovered defects or infirmities in the instrument, is a bona fide holder, and whether his failure to make the inquiries which a reasonable and prudent man would have made, would have prevented him from being a bona fide holder, is a question upon which there has been a conflict of authority and a vacillation in judicial opinion. The original English rule seems to have been that such acts did not prevent the person who took the instrument from being a bona fide holder.1 Subsequently, Lord Tenterden expressed the view that one who takes a negotiable instrument under circumstances that would arouse the suspicions of a reasonable and prudent man, can not be a technical bona fide holder.2 This decision had a depressing effect on the value of English paper on the continent, and after taking the intermediate position that gross negligence, and that alone, could operate to prevent one who took without notice from being a bona fide holder,3 the English courts adopted the original rule.4

It is now generally held that the mere fact that the circumstances are such as would suggest suspicion, and that if the holder had made such inquiries as a prudent man would have made, he would have learned of the defense, does not prevent him from being a bona fide holder.5 In order to prevent him from being a bona fide holder, the facts must create a " presumption that he knew facts impeaching its validity.6 It is said that the facts must be such as to show bad faith on the part of the holder,7 or to show that he believes that the instrument is defective,8 or to show guilty knowledge on his part.9 Lack of due diligence is not sufficient to establish notice of defects.10

7Munson v. DeTamble Motors Company, 88 Conn. 415, L. R. A. 1915A, 881, 01 Atl. 531.

8 Munson v. DeTamble Motors Company, 88 Conn. 415, L. R. A. 1915A, 881, 91 Atl. 531.

1 Peacock v. Rhodes, Douglass 633.

2 Gill v. Cubitt, 3 B. & C. 466.

Some of the earlier American decisions inclined to this rule. AdkinR v Blake, 25 Ky. (2 J. J. Mar.) 40; Merritt v. Duncan, 54 Tenn (7 Heisk.) 156, 19 Am. Rep. 612.

3 Crook v. Jadis, 5 B. & Ad. 909.

4 Goodman v. Harvey, 4 Ad. & El. 870.

5 United States. Swift v. Smith, 102 U. S. 442, 26 L. ed. 193; Brent v. Simpson, 238 Fed. 285, 151 C. C. A. 301.

Alabama. Sample v. Tennessee Valley Bank, - Ala. - , 76 So. 936.

Arizona. Ellis v. First National Bank, 19 Ariz. 464, 172 Pac. 281.

Colorado. Burnham Loan & Investment Co. v. Sethman, - Colo. - , 171 Pac. 884.

Connecticut. Credit Co. v. Machine Co., 54 Conn. 357, 1 Am. St. Rep. 123, 8 Atl. 472.

District of Columbia. Hazen v. Van Senden, 43 D. C. App. 161.

Georgia. Linderman v. Atkins, 143 Ga. 366, 85 S. E. 101; McManus v. Cash Grocery Co., 143 Ga. 623, 85 S. E. 858.

Illinois. Merritt v. Boyden, 191 111. 136, 60 N. E. 907.

Iowa. Richards v. Monroe, 85 Ia. 359, 39 Am. St. Rep. 301, 52 N. W. 339; Lundean v. Hamilton, - Ia. - , 169 N. W. 208.

* Kentucky. Citizens' State Bank v. Johnson County, 182 Ky. 531, 207 S. W. 8.

Massachusetts. International Trust Co. v. Wilson, 161 Mass. 80, 36 N. E. 589.

Minnesota. Rosemond v. Graham, 54 Minn. 323, 40 Am. St. Rep. 336, 56 N. W. 38.

Missouri. Borgess Investment Co. v. Vette, 142 Mo. 560, 64 Am. St. Rep. 567, 44 S. W. 754.

Montana. Harrington v. Butte and Boston Mining Co., 33 Mont. 330, 114 Am. St. Rep. 821, 83 Pac. 467.

New Mexico. First National Bank v. Stover, 21 N. M. 453, L. R. A. 1916D, 1280, 155 Pac. 905.

New York. Second National Bank v. Weston, 161 N. Y. 520, 76 Am. St. Rep. 283, 55 N. E. 1080.

Oklahoma. McPherrin v. Tittle, 36 Okla. 510, 44 L. R. A. (N.S.) 395, 129 Pac. 721; Security Trust & Savings Bank v. Gleichmann, 50 Okla. 441, L. R. A. 1915F, 1203, 150 Pac. 908; Voris v. Birdsall, - Okla. - , 162 Pac. 951;

Cline v. First National Bank, - Okla. - , 170 Pac. 472; State v. Emery, - Okla. - , 174 Pac. 770.

Pennyslvania. Phelan v. Moss, 67 Pa. St. 59, 5 Am. Rep. 402; Clarion Second National Bank v. Morgan, 165 Pa. St. 199, 44 Am. St. Rep. 652, 30 Atl. 957.

Virginia. Fleshman v. Bibb, 118 Va. 582, 88 S. E. 64.

Washington. Moore v. Burling, 93 Wash. 217, 160 Pac. 420; Citizens' Bank & Trust Co. v. Limpright, 93 Wash. 361, 160 Pac. 1046; Shultz v. Crewd-son, 95 Wash. 266, 163 Pac. 734; National City Bank v. Shelton Electric Co., 96 Wash. 74, 164 Pac. 933.

West Virginia. Marion National Bank v. Harden, - W. Va. - , 97 S. E. 600.

"The rights of the holder are to be determined by the simple test of honesty and good faith, and not by speculative views as to his diligence or negligence." Cheever v. R. R. 150 N. Y. 59, 55 Am. St. Rep. 646, 34 L. R. A. 69, 44 N. E. 701.

Contra, before the Negotiable Instruments Law, Boxell v. Bright National Bank, 184 Ind. 631, 112 N. E. 3.

6 Sinkier v. Siljan, 136 Cal. 356, 68 Pac. 1024.

. See also, Bank v. Beecher, 133 Minn. 81, 157 N. W. 1070; Slimmer v. State Bank, 134 Minn. 349, 159 N. W. 795; Voris v. Birdsall, - Okla. - , 162 Pac. 951.

7 Alabama. Sample v. Tennessee Valley Bank, - Ala. - , 76 So. 936.

Iowa. Lundean v. Hamilton, - Ia. - , 169 N. W. 208.

Kentucky. Citizens' State Bank v. Johnson County, 182 Ky. 531, 207 S. W. 8.

This rule has been enacted in the Negotiable Instruments Law, which provides: "To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith."11

If the transferee refrains from making inquiry because he believes that inquiry on his part will show that the instrument is defective, he is said not to be a bona fide holder.12 One who takes a negotiable instrument which discloses no defect on its face, is not bound to make active inquiries as to its validity.13 If a partner executes partnership paper and discounts it, the transferee is not bound to exercise ordinary care to learn whether the partner is applying the proceeds of such instrument to his personal debt or not.14 It is the bad faith of the holder and not the bad faith of the indorser, from whom he takes the instrument, that prevents him from being a bona fide holder.15

Minnesota. Bank v. Beecher. 133 Minn. 81, 157 N. W. 1070.

Montana. Harrington v. Butte and Boston Mining Co., 33 Mont. 330, 114 Am. St. Rep. 821, 83 Par. 467.

Nebraska. Benton v. Sikyta, 84 Neb. 808, 24 L. R. A. (N.S.) 1057. 122 N. W. 61.

Oklahoma. McPherrin v. Tittle, 36 Okla. 510, 44 L. R. A. (N.S.) 395, .129 Pac. 721; Security Trust & Savings Bank v. Gleichmann, 50 Okla. 441, L. R. A. 1915F, 1203, 150 Pac. 908; Cline v. First National Bank, - Okla. - , 170 Pac. 472.

Oregon. Everding v. Toft, 82 Or. 1, 150 Pac. 757, 160 Pac. 1160.

Washington. National City Bank v. Shelton Electric Co., 96 Wash. 74, 164 Pac. 933.

8 Benton v. Sikyta, 84 Neb. 808, 24 L. R. A. (N.S.) 1057, 122 N. W. 61; First National Bank v. Stover, 21 N.

M. 453, L. R. A. 1916D, 1280, 155 Pac. 905.

9 Hazen v. Van Senden, 43 D. C. App. 161.

10 Citizens' State Bank v. Johnson County, 182 Ky. 531, 207 S. W. 8.

11 Section 56 of the Negotiable Instruments Law.

12 Brent v. Simpson, 238 Fed. 285, 151 C. C. A. 301; Lundean v. Hamilton, - Ia. - , 169 N. W. 208; Everding v. Toft, 82 Or. 1, 150 Pac. 757, 160 Pac. 1160.

13 Gigoux v. Moore, - Kan. - , 184 Pac. 636; Citizens' Bank & Trust Co. v. Limpright, 93 Wash. 361, 160 Pac. 1046; Shultz v. Crewdson, 95 Wash. 266, 163 Pac. 734.

14 Bank v. Lowry, 81 W. Va. 578, 94 S. E. 985.

15 Shultz v. Crewdson, 95 Wash. 266, 163 Pac. 734.

The fact that default has been made in payment of interest,16 or in one of a series of notes,17 is not notice of defects. The fact that by oversight a note, issued while the War Revenue Act was in force, was unstamped, is not notice of defenses.18The fact that the indorsee required a very full guaranty from his indorser does not show as a matter of law that he had notice of defenses.19 The fact that one to whom a check is transferred knows that there are no funds on hand to meet it,20 or that the maker has requested a delay before the check is presented for payment,21 does not prevent him from being a bona fide holder. Since accommodation paper is intended as a loan of credit by the accommodation party, one who takes such paper with notice that it is accommodation paper is not thereby charged with notice of defects,22 unless the accommodation maker is acting in excess of its legal power, as where it is a corporation.23

One who buys the assets of a bank is bound to use due diligence to ascertain the true ownership of the negotiable instruments which have been indorsed to such bank.24

16 Indiana. Cooper v. Bank, 21 Ind. App. 358, 69 Am. St. Rep. 365, 50 N. E. 775.

Iowa. Higby v. Bahrenfuss, 180 Ia. 316, 163 N. W. 247.

Oklahoma. McPherrin v. Tittle, 36 Okla. 510, 44 L. R. A. (N.S.) 395, 129 Pac. 721.

Oregon. United States National Bank v. Floss, 38 Or. 68, 84 Am. St. Rep. 752, 62 Pac. 751.

Washington. Shultz v. Crewdson, 95 Wash. 266, 163 Pac. 734.

Contra, First National Bank v. Forsyth, 67 Minn. 257, 64 Am. St. Rep. 415, 69 N. W. 909. The fact that the transferee knows that interest is overdue is a fact to be considered in determining whether or not he took in good faith although it is not of itself notice. McPherrin v. Tittle, 36 Okla. 510, 44 L. R. A (N.S.) 395, 129 Pac. 721; Shultz v. Crewdson, 95 Wash. 266, 163 Pac. 734.

17Bank v. Mfg. Co., 52 Fed. 98, 18 L. R. A. 201.

Contra, Harrell v. Broxton, 78 Ga. 129, 3 S. E. 5.

18Ebert v. Gitt, 95 Md. 186, 52 Atl 900; Burson v. Huntington, 21 Mich. 415, 4 Am. Rep. 497.

19 Cover v. Myers, 75 Md. 406, 32 Am. St. Rep. 394, 23 Atl. 850.

20 Johnson v. Harrison, 177 Ind. 240, 39 L. R. A. (N.S.) 1207, 97 N. E. 930.

21 Matlock v. Scheuerman, 51 Or. 49, 17 L. R. A. (N.S.) 747, 93 Pac. 823.

22 Evans v. Hardware Co., 65 Ark. 204, 67 Am. St. Rep. 919, 45 S. W. 370; New Haven Bank Nat. Banking Asso elation v. Jordan Co. (Conn.), 104 AtL 392; Bass v. Geiger (Fla.), 73 So. 796; Baker v. Bank, 63 Neb. 801, 93 Am. St. Rep. 484, 89 N. W. 269.

See as to suretyship of wife for husband. Birmingham Trust & Savings Co. v. Howell (Ala.), 79 So. 377.

23 Cook v. American Tubing & Webbing Co., 28 R. I. 41, 9 L. R. A. (N.S.) 193, 65 Atl. 641. See |2356.

24 Stockyards National Bank v. First National Bank, 249 Fed. 421; Bank v. Jordan (Ala.), 75 So. 930.

See as to married woman as accommodation maker for her husband. Wil-bour v. Hawkins, 38 R. I. 116, 94 Atl. 856.