Negotiable paper taken in payment of an antecedent debt is taken for a valuable consideration, within the meaning of the law merchant. Brush v. Scribner,11 Conn. 388, 392. This is equally true where the paper is taken as security for an antecedent debt. Bridgeport City Bank v. Welch, 29 Conn. 475, 476; Roberts v. Hall, 37 Conn. 205,212.
The defendant claims that the principle does not apply when the antecedent debt is not payable at the time the security is given, so that there is no consideration by way of forbearance. But forbearance is not the only consideration. There may be obligations imposed in respect to the collection of the note given as security. The creditor assumes the duties and responsibilities of a holder. There may be promises of further advances. The question of consideration, however, is not so much one between the creditor and the debtor, as between the creditor and maker of the note. Has the note been received "for value in the due course of business" within the meaning of the law which, on grounds of public policy, makes the payer in such case directly responsible to the holder, irrespective of intervening equities? The "value" indicated is one involved in a valid transfer of the note "in the due course of business." And so the maker's liability to the holder depends mainly upon whether the note was validly acquired according to the known usual course of trade in dealing with negotiable instruments. Swift v. Tyson, 16 Pet. 1; Brooklyn City N. R. Co. v. National Bank,102 U.S. 14; Blanchard v. Stevens, 3 Cush. 162.
In this case the trial court has found that the obligation *Page 582 of Risley to the plaintiff was a continuing one, extending over a period of several years, witnessed by a promissory note renewed at short intervals and secured by the transfer of collateral; that shortly after one of the renewal notes had been given and before it fell due, Risley in response to a notice from the plaintiff that the collateral held had become insufficient, and a request for additional security, delivered the bonds in suit to the plaintiff as additional collateral security, and in consideration thereof the plaintiff continued to discount said note. We think the bonds so delivered were acquired in the usual course of business and for value, within the meaning of the law merchant.
The plaintiff, therefore, acted in good faith and is admittedly a bona fide holder, unless some of the facts in the record show that at the time of the negotiation it had knowledge of the defect in Risley's title. The trial court finds that the plaintiff had in fact no suspicion of any defect. The defendant claims that the conclusion is erroneous because, upon the special facts found, the plaintiff is in law charged with knowledge of the defect. Knowledge of facts fully consistent with a valid title, although they may be capable of supporting a suspicion of some unknown defect, would not of itself put upon the bank any duty of inquiry. The policy of the law gives to the purchaser of such instruments in the due course of business a security analogous to that enjoyed under the common law of England by a purchaser in market overt. This is demanded by the necessities of commerce. A purchaser under such circumstances acquires a valid title, notwithstanding defects in the title of the vendor, unless he has knowledge of those defects, that is, knowledge of facts which of themselves impeach the title. Credit Co. v. Howe MachineCo., 54 Conn. 357, 384; Arnold v. Lane, 71 id. 61, 63; StandardCement Co. v. Windham Nat. Bank, ibid. 668, 685.
The facts relied on by the defendant in the present case are these: Risley, a man so far as appears of irreproachable business standing and personally well known to the plaintiff, offers for sale as his individual property bonds payable to bearer; the plaintiff knows that he is the treasurer of the *Page 583 corporation that issued the bonds and also of the corporation that holds a trust mortgage for security of the bondholders. It is idle to claim that such facts, as a matter of law, charge the plaintiff with knowledge that Risley in truth holds the bonds in a fiduciary capacity, or has obtained possession of them through a secret fraud.
The claim that the plaintiff was charged with constructive knowledge of the deed and contents of the deed releasing the trust mortgage, has no merit.
The bonds, however, although on their face still due and regular in form, had in fact been paid and surrendered to the defendant, who could not after such surrender be charged with liability to any one, unless it should reissue the bonds before maturity, or unless they should come into circulation by reason of its negligence. The defendant did not reissue them. The plaintiff claims, and the judgment of the court necessarily finds, that they were put into circulation through the defendant's negligence. That payment before maturity is not a defense, as against a bona fide holder, if the bonds, after such payment and while apparently still due, appeared in the market through the fault of the defendant, seems clear. The sale to the plaintiff, as valid, of bonds which bear allindicia of validity, but by reason of a secret defect known to the vendor are void, was an actionable wrong, and if the negligence of the defendant contributed directly to that wrong it should be liable for the damages the plaintiff thereby suffered. The bonds on their face bear the declaration of the defendant that they are unpaid; if the negligence of the defendant enabled Risley to sell them on the faith of that declaration, it should be estopped, as against an innocent purchaser, from any denial thereof. Such results are in accord with the analogies of well-settled principles of the law of negligence and estoppel.
But however this may be, the reasons of public policy which underlie the law, that he who puts his negotiable paper into circulation shall be liable to a bona fide holder thereof who has acquired the same for value in due course of business, whatever defense he may have if the paper were otherwise *Page 584 acquired, apply with equal force whether the paper is put into circulation through the intentional act or the negligence of the maker. Brush v. Scribner, supra, pp. 391, 393.
It was the duty of the defendant when the bonds of the first issue were surrendered and the mortgage securing them was released, either to cancel them or to take substantially equivalent precautionary measures against their coming into circulation before maturity. They were not cancelled. The defendant, for a period of three years after their surrender, took no step to guard against their reappearance in the market through accident or fraud, beyond that involved in leaving them in possession of their treasurer without special instructions and without oversight. The conclusion of the trial court in respect to the existence of negligence, under such circumstances, is final, as one of fact.
Whether or not the special facts found have such decisive probative force as to legally demand the conclusion of negligence, we think it clear that such conclusion by the court is not legally inconsistent with any fact appearing in the record, and may fairly be reached without violation of that sound reason which must control in the determination of an ultimate fact from ascertained subordinate facts. Nolan v. NewYork, N. H. H.R. Co., 70 Conn. 159, 175. The conclusion of the trial court on this point is therefore final.
There is no error in the judgment of the Superior Court.
In this opinion the other judges concurred.