[8] “The mere fact that a bond is purchased for less than its par value, or that an abnormally large discount is accepted, is never in itself sufficient to charge the buyer notification of existing shares, unless the consideration is only nominal or the discount rate is so high, that the finding requires that the lawsuit be fraudulent or illegal or otherwise unauthorized. 10 C.J.S. 824-825, Bills and Notes, § 327. And see Imperial Gypsum & Oil Corp. v. Chaplin, 4 Cal. App. 2d 109, 112-113 [40 p.2d 596]; Anderson v. Lee, 103 Cal. App.
2d 24, 27 [228 pp.2d 613].) Admittedly, there is a special obligation to ascertain whether an instrument is offered at a price less than half or one-third of its face value (Boyd v. Bearce, 48 Cal. App. 46, 51 [191 p. 560]; Jordan v. Grover, 99 Cal. 194, 195-196 [33 pp. 889]; Bernstein v Pacific States Savings & Loan Co., 19 Cal. 2d 679, 682 [66 P.2d 699]), “an offer to sell a covered bond for two-thirds of its value is not sufficient in itself to conclude that the instrument is tainted”.
(Anderson v. Lee, op. cit.) [9] Insufficient consideration may be considered evidence of bad faith and, where there are suspicious circumstances, may lead to a finding of bad faith. (10 C.J.S. 825, Bills and Notes, § 327; Imperial Gypsum & Oil Corp. v. Chaplin, op. cit. cit., p. 113; Anderson v.
Lee, op. cit. cit.) Nothing in Commercial Credit Corp. v. Orange County Machine Works, op. cit. cit., 34 Cal. 2d 766, or in similar cases in other legal systems footnote 1, imposes or supports even a position contrary to that taken in this case. Unlike the general weight of power, such cases constitute an exception to the usual rules applicable to the holder in good time. This exception, as in Commercial Credit Corp. v. Orange County Machine Works, op.
cit. 771, reads as follows: “If a financial company is actively involved from the outset in a transaction of this nature, advising and assisting the future seller-beneficiary, it cannot be considered in good time as the holder of the note given in the transaction, and the defence of non-consideration can be properly maintained.” [1] Under the California Negotiable Instruments Act of 1917, authorities in many countries, including California, have held that the simultaneous performance of a debenture and a contract under which the beneficiary has certain enforceable obligations does not in itself affect the negotiability and commercial value of the resulting obligation. (Commercial Credit Corp. v Orange County Machine Works, 34 Cal. 2d 766, 770 [214 P.2d 819] and cited cases. See also 44 A.L.R.2d 8, 57 ff. and the cases cited here.) This view exists if the bond is secured by a conditional purchase agreement (Commercial Credit Corp. v. Orange County Machine Works, loc. cit.; 44 A.L.R.2d 8, 58-59), even if the note refers to the contract or is physically linked to the contract at the time of its performance.
(Commercial Credit Corp. v. Orange County Machine Works, op. cit.; 44 A.L.R.2d 8, 59 et seq.) [2] Similarly, unless otherwise provided by law, it is generally accepted that the mere fact that a promissory note is secured by a movable hypothec does not affect the negotiability of the bill of exchange. (44 A.L.R.2d 8, 67 ff.) This view applies in California, where a debt obligation is secured by a mortgage on real or personal property, pursuant to Civil Code Section 3265, which provides in the relevant part that “. The negotiability of an otherwise negotiable promissory note secured by a mortgage or trust deed of immovable or personal property is not affected by a statement contained therein that it is so secured, or by the fact that such deed is so secured, or by the terms contained in the hypothec or trust deed securing it, be affected or reduced. (See also Hayward Lbr. & Inv. Co.
v. Naslund, 125 Cal. App. 34, 38-39 [13 P.2d 775]; Witzig v. Clinch, 207 Cal. 779, 785 [279 p. 797].) This High Court again decided the very issue in that case, in Coolidge v. Payson, 2 Wheat. 66-73, and in Townsley v. Sumrall, 2 Pet. 170-80.
The general rule for negotiable instruments is that, if they are not unlawful and void, the person to whom they are transferred, provided that they are current, in good and due form and who receives them in good faith and for valuable consideration, without knowledge of anything that would exempt the manufacturer or acceptor from paying it to whom, from which he receives it, may recover its amount from that producer or acceptor, although the party from which he received it cannot do so. 1 Ld. Raym. 738; 1 salk. 126; 3 Ibid. 71; Grant v. Vaughan, 3 Burr. 1516. But it is certain that the settlement of a just debt is a valuable consideration. 1 Com. Dig. (New York ed.
1824) 300, tit. “Action on the Case upon Assumpsit,” B. 3, “The forgiveness of a debt is a good consideration for making a hypothesis.” In Baker v. Arnold, 3 Caines 279, was held by the New York Supreme Court that in an application by the Indorseer for a note that is not void in its creation and that was incorporated before its expiry, the consideration cannot be examined, as between the parties preceding the note. In Russell v. Ball, 2 Johns. 50, a decision is taken on the basis of similar principles. Also cites Warren v. Lynch, 5 Johns. 239. This question has been referred to the Court on several occasions and it is settled case-law that the fact that the debt in respect of which the negotiable instrument is transferred to it is a pre-existing debt or that it arose at the time of the transfer makes no difference to the rights of the holder.
In any case, it pays equal tribute to the instrument. Coolidge v. Payson, 2 wheat. 66, 70, 73 and Townsley v. Sumrall, 2 Pet. 170, 182, are directly in point. In England, the same doctrine was uniformly applied. Already in Pillans v. Van Mierop, 3 Burr. In 1664, this very point was raised and the objection was rejected.
[4] It was unanimously decided that the “good faith” requirement imposed by the Negotiable Instruments Act generally means that the transaction was designed and executed honestly, without collusion, fraud, knowledge of fraud or intent to assist in the commission of fraud. (8 Cal.Jur.2d 405, Bills and Notes, § 81; 8 Am.Jur. 118 ff., Bills and Notes, § 383, and cited cases.) [5] The mere existence of suspicious circumstances that would be sufficient to induce a reasonably prudent person to ask the question has no bearing on the existence of good faith. (Goodale v. Thorn, 199 Cal. 307, 314 [249 p. 11]; Christian v. California Bank, 93 Cal. App. 2d 230, 232-233 [208 P.2d 784]; Sasner v.
Ornsten, 93 Cal. App. 2d 467, 471 [209 S.2d 44]; Howell v. Dowling, 52 Cal. App. 2d 487, 494 [126 P.2d 630]; Witzig v.