the time of the maturity of the note might agree with the time the proceeds of the pepper would be received, and upon these representations the note was renewed, when in fact the payee, instead of having sold the pepper on account of the maker, had converted it to his own use, was held to be such fraud in the inception as to cast upon the holder the burden of showing his bona fides, in Hutchinson v. Boggs & Kirk (1857) 28 Pa. 294. Where a party executed an accommodation note for another, sending it to him in a letter through the mail, and was advised by the accommodated party that the letter had been received, but had been opened by some person and the note taken out, and requesting the maker to inclose another note, stating that if he got the first note in his possession he would return it, whereupon the maker inclosed another note for the same amount, payable in the same length of time, the second note having been negotiated by the payee, protested, suit brough, and judgment obtained thereon against the defendant, it was held to be clear that the first note had thrown around it a cloud of suspicion and fraud which called upon a holder thereof to show that he obtained it upon a valuable consideration, in the usual course of business, before maturity. Hoffman v. Foster (1862) 43 Pa. 137. The representation by a book agent that the books for which note was given were a special, limited, extra-illustrated edition, in reliance upon which the defendant executed the note, and which representation was entirely false and untrue, was held to constitute such fraud in the obtaining of the note as to cast upon the plaintiff the burden of showing his bona fides. Schultheis v. Sellers (1909) 223 Pa. 513, 22 L.R.A. (N.S.) 1210, 72 Atl. 887 (a case decided under the Negotiable Instruments Law). The representation by the payee of a note to the maker, who was illiterate, that it was a note for not over $300, when in fact it had been left blank in part, and was subsequently filled up for a note of $4,200, is such fraud as casts upon the plaintiff the burden of showing his bona

fides. Howie v. Lewis (1900) 14 Pa. Super. Ct. 232. An affidavit of defense saying that the payee of the note came to the maker and told him that he had purchased some merchandise, and that he was without sufficient funds with which to pay for the same, and requested the maker to purchase the merchandise, and offered to accept the note in question in payment therefor, saying that he would use the note for the payment to his vendor for the merchandise, and deliver it at once to the maker of the note, representations which were false, and upon which the maker relied in giving the note,—were held to constitute fraud in the inception, in Eliel v. Chamberlain (1912) 48 Pa. Super. Ct. 610. In City Deposit Bank v. Green (1908) 138 Iowa, 156, 115 N. W. 893, the fraud consisted in the representation by the payee of a joint and several note that all the subscribers thereto would be responsible, and the failure of the payee to obtain all responsible subscribers, but the acceptance of one who was insolvent.

See supra, as to representations as to title.

b. Fraud in the execution of partnership and corporate notes.

The execution by one partner of a note in the partnership name for the accommodation of a third person, the partnership receiving no benefit therefrom, is held to throw the burden of proving his bona fides upon a subsequent holder. First Nat. Bank v. Weston (1897) 24 App. Div. 230, 48 N. Y. Supp. 403; Porter v. Gunnison (1854) 2 Grant. Cas. (Pa.) 297. Such a note is fraudulent. Porter v. Gunnison (Pa.) supra. That such a note, executed after the dissolution of the firm, is fraudulent, is held in Albietz v. Mellon (1860) 37 Pa. 367. That such a note is fraudulent is held in Second Nat. Bank v. Weston (1898) 31 App. Div. 403, 52 N. Y. Supp. 315, reversed on other grounds in (1900) 161 N. Y. 520, 76 Am. St. Rep. 283, 55 N. E. 1080, s. c. on subsequent appeal in (1901) 62 App. Div. 621, 70 N. Y. Supp. 995, where it was executed after the dissolution of the firm, and antedated.

A partnership bill or note executed by a partner for his own private debt is a fraud upon the other partner which casts the burden of proving his bona fides upon the holder. Porter v. Gunnison (1854) 2 Grant, Cas. (Pa.) 297; Stevens v. McLachlan (1899) 120 Mich. 285, 79 N. W. 627; Real Estate Invest. Co. v. Russel (1892) 148 Pa. 496, 24 Atl. 59; Loeb v. Mellinger (1900) 12 Pa. Super. Ct. 592, 17 Lanc. L. Rev. 129; Bank v. Cunningham (1877) 4 W. N. C. (Pa.) 414; Heath v. Sansom (1831) 2 Barn. & Ad. 291, 109 Eng. Reprint, 1151, 9 L. J. K. B. 246; Hogg v. Skeen (1865) 18 C. B. N. S. 426, 144 Eng. Reprint, 510, 34 L. J. C. P. N. S. 153, 11 Jur. N. S. 244, 11 L. T. N. S. 709, 13 Week. Rep. 383; Oakley v. Boulton (1888) 5 Times L. R. 60; Fuller v. Alexander (1882) 47 L. T. N. S. (Eng.) 443, 52 L. J. Q. B. N. S. 103.

Musgrave v. Drake (1843) 5 Q. B. 185, 114 Eng. Reprint, 1218, Dar. & M. 347, 13 L. J. Q. B. N. S. 16, 7 Jur. 1015, in which it is held, apparently, that though the partners show that the signature was a fraudulent act on the part of the partner in signing the partnership name, yet, if the proof does not affect the plaintiff with knowledge of the fraud, the plaintiff is not put to give any explanation on account of the transaction, is distinguished in Hogg v. Skeen (Eng.) supra, and the decision in the Musgrave Case attributed, in part, at least, to the pleading.

It was held in Wright v. Brosseau (1874) 73 Ill. 381, that the jury were warranted in finding it to have been a fraudulent transaction for the members of a partnership to have executed the partnership note for a debt of the predecessor of the partnership in which a third member was not a partner, the note being executed without his knowledge or consent.

The execution of a partnership note by one who had formerly been a partner, but who at the time of the execution had retired from the firm, was held to be such fraud as to cast upon the holder the duty of showing his bona fides, in Charles v. Remick (1895) 156 Ill. 327, 40 N. E. 970.

In Citizens' Nat. Bank v. Weston (1900) 162 N. Y. 113, 56 N. E. 494, where the evidence showed that a note purporting to be executed by a partnership was in fact executed by one of the partners after the dissolution of the firm, and antedated so as to appear to have been executed before the dissolution, the payee having knowledge of the facts, it was held that the jury, jury, which which found in

favor of one of the members of the partnership who had no knowledge. of the note, and did not consent to its execution, will be presumed to have found, among other things, that the note was fraudulent as between the payee and the partnership. A similar decision appears in Second Nat. Bank v. Weston (1902) 172 N. Y. 250, 64 N. E. 949, and Second Nat. Bank v. Weston (1900) 161 N. Y. 520, 76 Am. St. Rep. 283, 55 N. E. 1080.

Proof in an action against a corporation on a corporate note that the note was given by an officer of the corporation in payment of his personal debt is held to render title of the payee defective, so as to cast upon a subsequent holder the burden of showing that he is the holder in due course. De Jonge & Co. v. Woodport Hotel & Land Co. (1909) 77 N. J. L. 233, 72 Atl. 439.

See Hodson v. Eugene Glass Co. (1895) 156 Ill. 397, 40 N. E. 971.

c. Illustrative cases of fraud. Fraudulent representations in the sale of horses-ordinarily stallions to companies organized for breeding purposes have been a common source of fraud casting upon the subsequent holder the burden of showing his bona fides.

Idaho. Winter v. Nobs (1910) 19 Idaho, 18, 112 Pac. 525, Ann. Cas. 1912C, 302; Park v. Johnson (1911) 20 Idaho, 548, 119 Pac. 52; Vaughn v. Johnson (1911) 20 Idaho, 669, 37 L.R.A. (N.S.) 816, 119 Pac. 879; Southwest Nat. Bank v. Lindsley (1916) 29 Idaho, 343, 158 Pac. 1082.

Co. v. Ellen (1913) 163 N. C. 45, 79 S. E. 263; Third Nat. Bank v. Exum (1913) 163 N. C. 199, 79 S. E. 498; Fidelity Trust Co. V. Whitehead (1914) 165 N. C. 74, 80 S. E. 1065, Ann. Cas. 1915D, 200; Merchants Nat. Bank v. Branson (1914) 165 N. C. 344, 81 S. E. 410; Wilson V. Lewis (1915) 170 N. C. 47, 86 S. E. 804; Dennison v. Spivey (1920) 180 N. C. 220, 104 S. E. 370; Hickman v. Sawyer (1914) 132 C. C. A. 425, 216 Fed. 281 (applying North Carolina rule).

South Dakota. Union Nat. Bank v. Mailloux (1911) 27 S. D. 543, 132 N. W. 168.

The fraudulent representations involved are illustrated by the following cases: A defense by the maker of a note, given upon the purchase of a stallion, that the horse was purchased for breeding purposes, and was represented by the vendors as being sound, good, and suitable therefor, and that defendant relied upon such representations, which were in fact untrue and known to be so by the vendors when made, and that he, upon discovering the defects, rescinded the contract and returned the horse, to the vendors, who accepted him and verbally promised to surrender to the defendant his notes given for the purchase price, was held to cast the burden of showing his bona fides upon a subsequent holder in Bennett State Bank v. Schloesser (1897) 101 Iowa, 571, 70 N. W. 705. The jury found specially that the notes were

obtained by false representations and the defense seems to be treated as one of fraud in the inception. The breach of a warranty, made upon the sale of a stallion, that the stallion with reasonable care would get with foal 60 per cent of the mares mated with him for a period of two years, and that, if he did not do so, he would be replaced with another of the same breed and price, and that the vendor would keep him insured for a period of two years, and that, in the event the stallion should die within the two years, the vendor would replace him with another, and that the makers need not pay notes given for the purchase price, last maturing, until they were satisfied that the stallion was as guaranteed, seems to have been treated as making the payee's title defective within the meaning of the Negotiable Instruments Law, in Peterson v. Nichols (1913) 71 Wash. 656, 129 Pac. 373. An allegation by the defendant in an action upon notes given for the purchase price of a stallion that the vendors warranted the horse to be sound in every particular, and a sure foal getter, when they well knew that the horse was not sound, and was not a reasonably sure foal getter, was held to be fraud casting the burden upon the subsequent holder to show that he was a holder in due course under the Negotiable Instruments Law, where the defendant further alleged that the notes were given upon the faith and credit of the warranty, and that without it, they would not have signed them, in Citizens' Nat. Bank v. Stein (1912) 21 Pa. Dist. R. 1070. False representations by the vendor of a horse to a number of persons that a certain person who joined in making the note had agreed to become a party to the purchase of the horse, and pay his equal share with the other purchasers, when, as it afterwards transpired, this person was in fact acting as a stool pigeon in the interest of the payee, and when the defendants' signatures were secured to the note was released from all liability thereon, without any consideration except his assistance in perpetrating the fraud, was held to be

such fraud as cast upon a subsequent holder the burden of showing his bona fides in Cox v. Cline (1908) 139 Iowa, 128, 117 N. W. 48, a case decided under the Negotiable Instruments Law. Such fraud as casts upon the holder the burden of proving that he was a holder in due course was held to exist in Jobes v. Wilson (1910) 140 Mo. App. 281, 124 S. W. 548, in the fact that, after an agent for the sale of a horse had received a large proportion of the purchase price in cash, he fraudulently represented to the purchasers of the horse that it was necessary for them to sign notes for the full amount of the purchase price, that the note sued on would be canceled and returned, and the second note for a like amount would also be canceled and returned, and that a credit of a certain amount would be placed upon a third note, where the makers, relying upon the false and fraudulent representations, were induced to sign the notes.

Fraudulent representations in the sale of corporate stock have also been common sources of fraud.

California.-Burns v. Bauer (1918) 37 Cal. App. 251, 174 Pac. 346.

Iowa. Stotts v. Fairfield (1914) 163 Iowa, 726, 145 N. W. 61; First Nat. Bank v. Wise (1915) 172 Iowa, 24, 151 N. W. 495; Farmers & M. State Bank v. Shaffer (1915) 172 Iowa, 173, 154 N. W. 485; City Nat. Bank v. Mason (1917) 181 Iowa, 824, 165 N. W. 103; German American Nat. Bank v. Kelley (1918) 183 Iowa, 269, 166 N. W. 1053. Kansas.-Beachy v. Jones (1921) 108 Kan. 236, 195 Pac. 184.

Louisiana. Appalachian Corp. v. Ayo (1919) 145 La. 201, 82 So. 89.

Maine.-Roberts v. Lane (1874) 64 Me. 108, 18 Am. Rep. 242.

Massachusetts.-Berenson v. Conant (1913) 214 Mass. 127, 101 N. E.

60.

patent for which it had refused an offer of $125,000, and had purchased ground for a factory site to which it was about to remove its plant. He also exhibited alleged pictures of the plant of the company at another place, where he stated it had property to the value of the issue of stock. On these representations the maker of the note swore that he relied in purchasing the stock, and further testified that upon subsequent investigation he found that the company had no property at the former place, and that the representations made to him concerning the property at the latter place were grossly exaggerated.

Evidence of a representation by one in charge of mines that ore which was scattered over a part of the mines represented their general condition, and would run 4 per cent mineral, which was false and known by the representative to be false, and which induced the purchase of stock in the mining company, was held to be sufficient to entitle the maker of a note given in payment thereof to go to the jury on the question of fraud, in Hill v. Dillon (1910) 151 Mo. App. 86, 131 S. W. 728, s. c. on second appeal in (1913) 176 Mo. App. 192, 161 S. W. 881. But see later appeal in (1916) Mo. App. -, 183 S. W. 1088.

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Fraud in obtaining the original note in a stock transaction seems to have been held to cast the burden upon the subsequent holder of a renewal note which was given, and which was the one in suit, in Barnard v. Tidrick (1915) 35 S. D. 403, 152 N. W. 690.

It is stated in State Bank v. Gates (1901) 114 Iowa, 323, 86 N. W. 311, that misrepresentations by a corporation in the sale of its stock, as to what * it would do in the future, do not establish fraud which will vitiate notes given for the stock. It is held in State Bank v. Cook (1904) 125 Iowa, 111, 100 N. W. 72, that the act of the promoters of a corporation in securing a prominent man of influence and reputation to subscribe, upon an inducement of stock at a much lower rate than that at which it was sold to others, concealing the fact from the other subscribers, and leading them to

believe that the person thus elected to head the subscription list was a bona fide investor of the amount set opposite his name, may constitute fraud justifying the rescission of the contract on the part of other subscribers. It had previously been held, in State Bank v. Gates (Iowa) supra, a case growing out of the same transaction, that the mere allegation that, by a secret agreement with the other stockholders, stock was transferred to him at a lower rate than that at which defendant's stock was sold to him, did not charge such fraud as would relieve defendant from liability on his note given for such stock, but it is added that such fact might, with others, tend to establish a fraudulent scheme.

The "Bohemian oats" and similar schemes have also furnished their quota of cases involving the question under annotation. Bowser v. Spiesshofer (1891) 4 Ind. App. 349, 30 N. E. 942; Kain v. Bare (1891) 4 Ind. App. 440, 31 N. E. 205; Cover v. Myers (1892) 75 Md. 406, 32 Am. St. Rep. 394, 23 Atl. 850; Mace v. Kennedy (1888) 68 Mich. 389, 36 N. W. 187; Ward v. Doane (1889) 77 Mich. 328, 43 N. W. 980; Gere v. Unger (1889) 125 Pa. 644, 17 Atl. 511. In Sanford v. Moss (1892) 63 Hun, 635, 45 N. Y. S. R. 710, 18 N. Y. Supp. 673, where rye was sold at a high price on the agreement that the vendor was to sell for the purchaser, from the crop raised, double the amount of the original sale at the same price per bushel, in pursuance of which a note was given for the purchase price, the court, in holding that a subsequent holder of the note had the burden of showing his bona fides, seems to rely upon false representations as to the responsibility and standing of the vendor company, although the court adds that it is quite doubtful if the false representation had any influence in inducing the defendant to enter into the contract and give the note. The agreement of the company to sell the

(1911) 36 App. D. C. 413 (sale of jewelry); State Nat. Bank v. Bennett (1893) 8 Ind. App. 679, 36 N. E. 551 (sale of patents); Kirby v. Berguin (1902) 15 S. D. 444, 90 N. W. 856 (sale of lightning rods); Underwood v. Leichtman (1920) 188 Iowa, 794, 176 N. W. 683 (sale of lands). False statements and representations as to the number of acres of land, exclusive of a lake which is situated on the premises, was held to constitute such fraud as to cast upon the holder of a note the burden of showing his bona fides, in Rinella v. Faylor (1921) Iowa, 180 N. W. 983. Notes given upon the sale of plans for a popularity contest, which contained many ele-. ments of fraud, were held to be given under such circumstances as to cast upon a subsequent holder the burden of showing his bona fides, in Commercial Secur. Co. v. Archer (1918) 179 Ky. 842, 201 S. W. 479, and Harrison v. Perry (1919) 184 Ky. 722, 212 S. W. 911.

d. Illustrative cases showing no fraud.

In many cases in which the payee of the note failed to keep a promise made at the time of securing the note, there has been held to be no fraud. The fact that the drawer of a bill, which had been accepted for his accommodation, failed to keep his promise to place in the accepter's hands funds or goods. to meet the bill upon its maturity, seems to have been regarded in Ellicott v. Martin (1854) 6 Md. 509, 61 Am. Dec. 327, as not to be such fraud as to cast upon a subsequent holder the burden of showing his bona fides. The only defense attempted in First Nat. Bank v. McNairy (1913) 122 Minn. 215, 142 N. W. 139, Ann. Cas. 1914D, 977, in an action by the holder of a note against the maker, was an offset to the note arising from the breach of an alleged warranty in the sale of an automobile, and the court holds that the evidence fails to show such fraud in the transaction leading to the execution of the note as to cast the burden upon the plaintiff to show his bona fides. In Kelman v. Calhoun (1895) 43 Neb. 157, 61 N. W. 615, an action by a subsequent holder of a