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Cornell UniversityLibrary

The original of tiiis book is intine Cornell University Library.

There are no known copyright restrictions inthe United States on the use of the text.

http://www.archive.org/details/cu31924018846554


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NEGOTIABLEINSTRUMENTS

American Institute of BankingSection American Bankers Association

Five Nassau Street New York City


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y/a56f '07

CoDynght, 1922by

American Institute of Banking:


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PREFACEAS is stated in the preface to the text-book "CommercialLaw," the Institute courses in law are not intended tomake lawyers, but simply to impart to bankers suffi-cient knowledge of law to enable them to act in accordancewith established legal principles and to refer doubtful ques-tions, to a lawyer. Of all the topics embraced in these lawcourses, that of Negotiable Instruments is perhaps the mostimportant for the banker. This text-book is based on the ex-cellent work originally prepared fot the Institute by SamuelWilliston, Weld Professor of Law in Harvard Law School.The former text has been doubled in size and undergone cer-tain changes in arrangement. The Negotiable InstrumentsAct, the Bible of the law merchant, will now be found at theend of the book instead of distributed through the text as here-tofore. It is referred to so constantly by the student thatgreater ease in referring to sections by numbers is desirablethan was possible in earlier editions. Bankers may wonderwhy certain topics with which they are familiar are nottouched upon in this book. It must be remembered that thisis a text-book on law and not on banking practice, and thatfrequently common matters in banking practice have neverbeen brought before the courts for adjudication. The absenceof decisions on many such topics is thus explained. Several ofthe legal opinions contained in this book have been taken fromthe "Digest of Legal Opinions" of Thomas B. Paton, GeneralCounsel of the American Bankers Association, compiled byThomas B. Paton, Jr. The work of preparing "NegotiableInstruments" has been done jointly by Richard D. Currier,President of New Jersey Law School, and Richard W. Hill,Member of the New York Bar and Secretary of the AmericanInstitute of Banking. This book discusses each section of theAct separately and thoroughly, and is replete with practicalillustrations.


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INSTITUTE PLATFORMRESOLUTION adopted at the New Orleans Convention of

the American Institute of Banking, October 9, 1919:"Ours is an educational association organized for the

benefit of the banking fraternity of the country and within ourmembership may be found on an equal basis both employeesand employers; and in full appreciation of the opportunitieswhich our country and its established institutions afford, andespecially in appreciation of the fact that the profession ofbanking affords to its diligent and loyal members especial op-portunities for promotion to official and managerial positions,and that as a result of the establishment and maintenance ofthe merit system in most banks a large number of Institutemembers have through individual application achieved markedprofessional success, we at all times and under all circum-stances stand for the merit system and for the paying of sal-aries according to the value of the service rendered."We believe in the equitable cooperation of employees andemployers and are opposed to all attempts to limit individualinitiative and curtail production, and, insofar as our professionis concerned, are unalterably opposed to any plan purportingto promote the material welfare of our members, individuallyor collectively, on any other basis than that of efficiency, loy-alty and unadulterated Americanism."


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CONTENTS

Chapter PageIntroduction 7

I. Form and Interpretation 23II. Consideration 82III. The Holder in Due Course 95IV. Negotiation 105V. Delivery 139VI. Real and Personal Defences 152VII. Liability of Parties 173VIII. Presentment for Payment 187IX. Notice of Dishonor 225X- Protest 245XI. Discharge 255XII. Bills of Exchange 278XIII. Checks 314XIV. Quasi-Negotiable Documents 359XV. Miscellaneous 383

Negotiable Instruments Act 401


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WHO IS A BANKER?A SUCCESSFUL BANKER is^^ composed of about one-fifth

accountant, two-fifths lawyer, three-fifths political economist, and four-fifths gentleman and scholartotalten-fifthsdouble size. Any smallerperson may be a pawnbroker or apromoter, but not a banker.George E. Allen.


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Negotiable Instruments

INTRODUCTIONNEGOTIABLE PAPER DEFINED.By theterm "negotiable paper" we ordinarily meanpromissory notes, bills of exchange and

checks. Some writers mention the first two only, acheck being merely a form of a bill of exchange. Infact, the Negotiable Instruments Law defines a checkas a bill of exchange drawn on a bank. During thelast few years the principles of negotiability have beenapplied to a number of other documents and the stu-dent of commercial law should supplement his studyof the law of bills and notes by a brief considerationof them. For example, the Uniform Stock TransferAct applies the principles of negotiability to stock cer-tificates. The same is true of the Uniform Bills ofLading Act and the Uniform Warehouse ReceiptsAct. The trade acceptance, the use of which has beenrevived within the last few years, adds another docu-ment possessing the ordinary qualities of negotiabil-ity. We shall consider briefly all of these, after ourdiscussion of the general principles of the law of billsand notes.THE ORIGIN OF NEGOTIABILITY.Thelaw governing negotiable paper originated among thecustoms of merchants on the continent of Europe. Itwas gradually introduced into England and its prin-ciples grudgingly recognized by the common law

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8 NEGOTIABLE INSTRUMENTSjudges. It was not until 1666 that an English courtin the case of Woodward V. Rowe, 2 Keb. 105, 132,declared that "The law of merchants is the law of theland, and the custom is good enough generally for anyman, without naming him merchant." Lord Holt re-fused, however, to allow promissory notes the priv-ileges of negotiability and it was not until the Statuteof Anne (1704) that the full doctrine of negotiabilitybecame a part of the English law. This statute is thefirst great landmark in the Anglo-American law ofbills and notes, and we quote its most important sec-tion : "Whereas, it hath been held that notes in writ-ing, signed by the party who makes the same, where-by such party promises to pay unto any other person,or his order, any sum therein mentioned, are notassignable or indorsable over, within the custom ofmerchants, to any other person; and that the personto whom the sum of money mentioned in such noteis payable, cannot maintain an action by the customof merchants, against the person who first made andsigned the same; and that any person to whom suchnote shall be assigned, indorsed, or made payablecould not, within the said custom of merchants, main-tain any action upon such note against the personwho first drew and signed the same; therefore, to theintent to encourage trade and commerce, which willbe much advanced if such notes shall have the sameeffect as inland bills of exchange, and shall be nego-tiated in like manner ; be it enacted, that all notes inwriting whereby any person shall promise to pay toany other person, his order or unto bearer any sum


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NEGOTIABLE INSTRUMENTS 9of money mentioned in such note, shall be taken andconstrued to be due and payable to any such personto whom the same is made payable, and also everysuch note shall be assignable or indorsable over inthe same manner as inland bills of exchange are, ormay be, according to the custom of merchants; andthat the person towhom such sum of money is or shallbe by such note made payable, shall and may main-tain an action for the same as he might do upon aninland bill of exchange, made or drawn, according tothe custom of merchants; and that any person towhom such note is indorsed, or assigned, or the moneytherein mentioned ordered to be paid by indorsementthereon, shall and may maintain his action for suchsum of money, either against the person who signedthe note, or against any of the persons that indorsedthe same, iff like manner as in cases of inland bills ofexchange."VARIOUS NEGOTIABLE INSTRUMENTSACTS.Although the law of negotiability originatedon the continent of Europe, it has assumed a peculiarvariety of forms in the different countries. Even atthe present time there are no less than forty differentnegotiable instruments acts in countries outside ofthe Anglo-American group. The principal systemswhich have developed are classified into four groups,as follows : The French, the German, the Anglo-Amer-ican and Intermediate group between the French andthe German. The principal countries belonging tothese various groups are:

French group: Argentine Republic, Bolivia, Bra-


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10 NEGOTIABLE INSTRUMENTSzil, Chile, Colombia, Ecuador, Egypt, France, Greece,Guatemala, Hayti, Luxemburg, Monaco, Mexico,Netherlands, Nicaragua, Panama, Paraguay, PolishRussia, Serbia, Turkey, Uruguay.

German group: Austria-Hungary, Bulgaria, Den-mark, Germany, Italy, Japan, Norway, Peru, Portu-gal, Rumania, Russia (exclusive of Polish Russia),Salvador, Sweden, Switzerland, Venezuela.

Anglo-American group : Great Britain and UnitedStates.

Intermediate group: Belgium, Cuba, Honduras,Malta and Spain.DESIRABILITY OF UNIFORMITY.Thereis no branch of law where the desirability of uni-formity is greater, as negotiable documents pass fromhand to hand like money and travel from one Stateto another. The situation which was brought aboutby conflicting decisions and statutes in the variousStates was a source of great annoyance to the busi-ness world and interrupted the free circulation ofnegotiable paper. The American Bar Association,which is the spokesman for the lawyers of the coun-try, suggested about thirty years ago that the Statesshould appoint commissioners for the promotion ofuniformity of legislation throughout the UnitedStates. In 1895 twenty-seven States had acted uponthis suggestion. At a conference held in August ofthat year in Detroit, Michigan, at which representa-tives of nineteen States were present, a resolution wasadopted requesting the draft of a bill making uniformthe law of negotiable paper. Mr. John J. Crawford


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NEGOTIABLE INSTRUMENTS 11of the New York Bar was asked to make a draft ofthe proposed law, which he did, and this was sub-mitted to the commissioners at their meeting in Sara-toga in August, 1896. There was a heated contro-versy, familiar to every student of the law of com-mercial paper, known as the Ames-Brewster contro-versy. Professor James Barr Ames, Dean of theHarvard Law School, violently criticised twenty-three sections, and Judge Lyman D. Brewster, thePresident of the National Conference on UniformState Laws, strongly defended the Act. Time hassince shown the wisdom of the work of the commis-sioners. New York was the first State to pass theNegotiable Instruments Law in 1897. The law hassince been adopted by every State in the country,except Georgia, as well as by the District of Colum-bia, Alaska and the Philippines. The following listshows the date of enactment in the various jurisdic-tions :Alabama (1907) Illinois (1907)Alaska (1913) Indiana (1913)Arizona (1901) Iowa (1902)Arkansas (1913) Kansas (1905)California (1917) Kentucky (1904)Colorado (1897) Louisiana (1904)Connecticut (1897) Maine (1917)Delaware (1911) Maryland (1898)District of Columbia (1899) Massachusetts (1898)Florida (1897) Michigan (1905)Hawaii (1907) Minnesota (1913)Idaho (1903) Mississippi (1916)


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12 NEGOTIABLE INSTRUMENTSMissouri (1905) Philippines (1911)Montana (1903) Rhode Island (1899)Nebraska (1905) South Carolina (1914)Nevada (1907) South Dakota (1913)New Hampshire (1909) Tennessee (1899)New Jersey (1902) Texas (1919)New Mexico (1907) Utah (1899)New York (1897) Vermont (1912)North Carolina (1899) Virginia (1898)North Dakota (1899) Washington (1899)Ohio (1902) West Virginia (1907)Oklahoma (1909) Wisconsin (1899)Oregon (1899) Wyoming (1905)Pennsylvania (1901)

BASIS OF UNIFORM ACTS.The passage ofthe Negotiable Instruments Law began the series ofuniform acts which have since been drawn up by thesame commissioners and from time to time adoptedby the various States. The student of commerciallaw, during his studies, will have occasion to makeuse of the Uniform Sales Act, the Uniform Bills ofLading Act, the Uniform Warehouse Receipts Act,the Uniform Stock Transfer Act and perhaps others.COMMON LAW IMPORTANT.Even injurisdictions where the Negotiable Instruments Lawhas been enacted the common law is still importantin determining controversies on negotiable instru-ments. It is important in the first place as aidingthe interpretation of the language of the NegotiableInstruments Law. Unless that language clearly re-quires a different construction, courts presume that


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NEGOTIABLE INSTRUMENTS 13the statute restates the rule of the common law whichexisted prior to the enactment of the statute. In thesecond place, the common law is still important be-cause cases not infrequently arise which are notclearly covered by the statute, and section 196 of thestatute enacts that cases not provided for in thestatute shall be governed by the unwritten law previ-ously existing. That portion of the common lawwhich relates to negotiable instruments and to cer-tain other mercantile transactions is called the "lawmerchant." There is one interesting questionThaFsuggests itself. Have we reached a point where nonew principle of negotiability may hereafter be de-veloped because of the fact that the Negotiable In-struments Law codifies the law of bills and notes?Of course, as we have just seen, the Act itself pro-vides that the cases not covered by the statute shallbe governed by the rules of the common law. Butsuppose we are seeking to have the courts recognizea new principle of negotiability. Nothing in the com-mon law will probably be found as a precedent, andthe Negotiable Instruments Act is silent. Comment-ing on this situation, Mr. Justice Swayze, in the caseof Strickland v. National Salt Co., 79 N. J. Eq. 182, 81Atl. 828, 831, said: "We are not to be understood,however, as holding that no instrument can hereafteracquire the elements of negotiability unless it answersthe requirements of the statute (N. I. L.). Mr.Machen, in his work on corporations points out thedanger of holding that the Negotiable InstrumentsLaw stops further development of the law merchant,"


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14 NEGOTIABLE INSTRUMENTSAMENDMENTS AND VARIATIONS.In a

few States the Negotiable Instruments Law has beensomewhat amended. All important amendments areindicated by notes following the several sections ofthe Act. Unfortunately in the statute as passed inthe several States the section numbering adopted bythe Commissioners of Uniform Laws has not alwaysbeen followed. The references in this book are to thenumbers adopted by these commissioners. As theNegotiable Instruments Law, even in the few pas-sages where its terms are not wholly clear or satisfac-tory, is the ultimate authority on the subject, it isnecessary to be familiar with its language andarrangement. Each section of the Act should be readcarefully, but before the Act is studied, a few funda-mental principles in regard to negotiable instrumentsshould be understood.FORMS OF NEGOTIABLE INSTRUMENTS.The first essential is to carry in mind the customaryform of the negotiable instruments we have justmentioned. A promissory note is defined by theNegotiable Instruments Law as follows: "A nego-tiable promissory note within the meaning of this Actis an unconditional promise in writing made by oneperson to another, signed by the maker, engaging topay on demand, or at a fixed or determinable futuretime, a sum certain in money to order or to bearer."A bill of exchange is defined by the NegotiableInstruments Law as follows: "A bill of exchange is anunconditional order in writing addressed by one per-son to another, signed by the person giving it, requir-


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NEGOTIABLE INSTRUMENTS 15ing the person to whom it is addressed to pay on de-mand, or at a fixed or determinable future time, a sumcertain in money to order or to bearer."A rhprk is defined by Negotiable InstrumentsLaw as "a bill of exchange drawn on a bank payableon demand." Reference should be made to the formof these documents as set forth on pages 30 and 31.

Other documents may be negotiable in form,such as the orSTfiary bearer corporation bonds, libertybonds, certificates of stock, and bills of lading. Theprinciples discussed in this chapter would apply, or-dinarily, to these documents, and are discussed morein detail in the chapters devoted to them.WHAT IS NEGOTIABILITY?Negotiabilityhas been defined as that quality whereby a bill, note,or check, passes freely from hand to hand like cur-rency. In fact, all of these documents are substitutesfor currency^ and so far as is practicable, it is desirablethat they should pass as freely as currency. Nego-tiability applies only to this branch of law, while as-signability applies to ordinary cases of contract law.ILLUSTRATIONS.The following examplesillustrate the difference between the two: Jonesworked for the Baltimore & Ohio Railroad Co. Hepresented his bill of $100 to the proper official, anda check was issued by the railroad, payable to theorder of Jones for that amount. Jones took the check,indorsed it and with it paid his grocery bill. Thegrocery man deposited the check in his bank, and wasnotified shortly thereafter that payment had beenstopped on the check by the Baltimore & Ohio. They


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16 NEGOTIABLE INSTRUMENTSclaimed a fraud had been committed, that Jones wasoverpaid $50, and therefore, they refused to honor thecheck. The grocery man, having taken this check inthe usual course of business, is what we term a "holderin due course." The Negotiable Instruments Law de-fines a holder in due course thus:

Section 52. "A holder in due course is a holderwho has taken the instrument under the followingconditions

1. That It IS complete ana regular upon its face.2. That he became the holder of it before it was

overdue, and without notice that it had been previ-ously dishonored, if such was the fact.

3. That he took it in good faith and for value.4. That at the time it was negotiated to him he

had no notice of any infirmity in the instrument ordefect in the title of the person negotiating it."A holder in due course, then, would be entitled tocollect the full $100 from the Baltimore & Ohio. This$100 check is governed by the law of negotiabilitywith the result which we have just indicated. Nowchange the facts a trifle. Jones presented his bill tothe same officer of the Baltimore & Ohio as before.The officer said that checks were made out regularlyon the first of each month. It was the fifteenth andJones did not feel able to wait until the first of the nextmonth. He went to a friend and told him of his claimagainst the Baltimore & Ohio and said : "I will assignthis claim to you for $95, and then you can presentthe assignment, which I will draw up and sign, to theBaltimore & Ohio on the first of the month, and get


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NEGOTIABLE INSTRUMENTS 17the $100." His friend agreed and advanced themoney. When he presented the written assignmentto the proper officer on the first of the month, he wastold that the railroad had discovered that Jones' claimwas really good for only $50, and that was all theywould pay. Although his assignment read for $100,he could collect only $50. This illustration is gov-erned by the law of assignability, which applies topractically all contracts, apart from commercialpaper. Under the rules of assignability, a person canassign no better claim than he has, or, as is sometimessaid, the assignee stands in the shoes of the assignor.Jones really had a claim of only $50 against the Balti-more & Ohio, although he claimed it was $100. Hecould assign no more than he really had. Thesetwo illustrations show the great difference in theresult of the application of the two principles, nego-tiability and assignability. >^A NEGOTIABLE INSTRUMENT IS A CON-TRACT OR A SET OF CONTRACTS.A nego-tiable instrument is a contract or a collection of con-tracts. An unindorsed promissory note is a singlecontractcontract of the maker with the payee. Soan unaccepted and unmdorsed_check or bill of ex-change is simply a contract of the drawer with thegayee. When these instruments are indorsed, orwhen a bill of exchange is accepted, Lffi"liid3itional'contract is created. The study of the law governingnegotiable instruments aims to acquire a knowledgeof the terms and legal effect of the various obligationswhich may thus arise on negotiable paper.


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18 NEGOTIABLE INSTRUMENTSTHE CONTRACTS ON NEGOTIABLEINSTRUMENTS ARE FORMAL CONTRACTS.

To understand the law of negotiable instrumentssomej;I_ementary knowledge of the law of contractsjs^desirable. Contracts may be divided into simple con-tracts and formal contracts. Simple contracts owetheir validity to mutual assent of the parties, to theterms of a promise, or set of promises for which thepromisee gives consideration. The typical formalcontract of English and American law has been thecontract under seal which was enforceable though noconsideration was paid for it. For a detailed state-ment of what this implies, reference must be made tothe volume dealing with commercial law generally.Formal contracts depend for their validity on the form,in which they are made. The contracts on negotiableinstruments partake of the nature of simple contractsin requiring consideration in certain cases for theirvalidity, but they also partake of the nature of formalcontracts. No instrument and no contract on aninstrument which does not comply with certain rulesas to form is negotiable. Moreover, the instrumentitself is regarded as the obligation, not simply as evi-dence of it.THE TERMS OF THE CONTRACTS ONNEGOTIABLE INSTRUMENTSARE LARGELYIMPLIED.In an ordinary written contract theparties write out fully the terms of their agreement,but where the customs of business lead men to enterconstantly into contracts of the same sort, abbreviatedstatements of the terms of their contracts are likely


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NEGOTIABLE INSTRUMENTS 19to be employed. Thirty days, for instance, may beused in a contract for the sale of goods to mean thatthe price of goods sold is not duejor thirty: days, anda variety of illustrations might easily be given ofabbreviated mercantile memoranda in contracts. Soin bills of exchange and promissory notes, the termsof the contract are not fully expressed. The contractbetween the maker and payee of a promissory note isindeed stated with some fulness, but the contract of a^awer of j. bill of exchange^or of a check is not^tated. In form such a document is merely an orderon another to pay a certain sum in money, but by mer-cantile custom it is also in legal^ffect_anabbreyiatedpr-pmise-that_"If the drawee^fails to pay on demandat maturity, and I am promptly notified of his failure,I will pay." The contract of an indorser is similarlyto be understood from mercantile custom, not becauseof express language used. It is possible to write onnegotiable instruments contracts other than thosemade negotiable by the custom of merchants. Thusa guaranty may be written on a bill or note, but itseffect must be judged as a simple contract, as if it wereon a separate paper.ABSOLUTE AND PERSONAL DEFENCES.^The law distinguishes between a situation wherethere is only apparently, but not really, a negotiableobligation, and a case where there is an actual nego-tiable obligation, but which, for some reason in jus-tice, should not be enforced. If the signature of amaker to a negotiable instrument is fw^gedjjthoughhe has apparently entered into a negotiable obliga-


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20 NEGOTIABLE INSTRUMENTStion, in fact he has not. If, however, he has been in-duced by fraudulent misstatements to sign such aninstrument, he has actually entered into a negotiableobligation, though it is unjust to enforce it in favor ofthe fraudulent payee. On the forged note nobodycould recover against the apparent maker. On thefraudulent note the payee could not recover, but aholder in due course could. It may then be said thatforgery is an absolute or real defence while such fraudas that given in the illustration is a personal or equit-able defence, or, briefly, an equity. No equitable de-fence is available against a holder in due course, thatis, one who has paid value for the instrument "beforematurity in good faith without notice of the defence.Thisdistinction between absolute or real defences onthe one hand and personal defences or equities on theother hand, is fundamental in the law of negotiableinstruments, and it is essential to remember which de-fences fall under each of these headings,WHAT ARE REAL AND WHAT ARE PER-SONAL DEFENCES?The following defences toan obligation are absolute or real:

First^The lack of genuineness of the signature.This may be due to forgery or it may be due to lackof authority on the part of an agent who made thesignature on behalf of another.

SecondFraud of some kinds.ThirdLack of title, as where a holder claimsthrough a forged indorsement.FourthBankruptcy of the holder.FifthMaterial alteration of the instrument.


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NEGOTIABLE INSTRUMENTS :=^ ^ 21SixthLegal inca^city, as of a minor, an insane

person, and iiTsoniejurisdictionsas to some mattersa married woman.SeventhIllegality of certain kinds.EighthThe legal-d^eharge of the instrument or

the obligation in question.The following are personaijdefences. or equities

only, and are not available against a holder in duecourse

FirstIllegality of certain kinds.SecondFraud generally. ,, ' ,,JThirdDuress.FourthLack of delivery of the instrument.FifthLack of consideration.SixthFailure of consideration.SeventhDischarge of the instrument before ma-

turity.EighthA surety discharged by certain dealings

with his principal which are prejudicial to him.NinthSet-off.MEANING OF DEFENCES.The meaning ofthese various defences will not be understood withoutthe explanation of them hereafter giveij, but a list ofthem seems desirable in this place as a summary.There may be a defence to one obligation'on a nego-tiable instrument and no defence to another. Some-times all the obligations on an instrument are subjectto the same defence, as where the instrument is ma-terially altered after all the signatures have been putupon it. Sometimes there may be a defence of one kindto one obligation on the instrument, and a defence of


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22 NEGOTIABLE INSTRUMENTSanother kind to another obligation. The obligationof each person whose name appears on the instrumentfrequently must be considered separately.WHAT A STUDY OF THE NEGOTIABLEINSTRUMENTS LAW INCLUDES.The chiefprovisions of the Negotiable Instruments Law maybe classified under the following headings

FirstWhat is essential for the formation of anegotiable instrument or for a negotiable obligationon such an instrument?SecondWhat is the full meaning of each con-

tract which is briefly stated on such an instrument?That is, what does a maker, drawer, acceptor, indorserin legal effect promise to do?

ThirdWhat are the absolute and what the per-sonal defences which may excuse a promisor fromperforming his promise?

FourthWho is a holder in due course, and,therefore, not subject to personal defences or equities?EXAMINATION OF THE ACT.With thisintroduction we may take up the examination of thesetopics and of the language of the Act, with appropri-ate explanation and illustration, of the several sec-tions. The meaning of some is plain enough withoutcomment. Others, though perhaps plain to a lawyer,assume a general knowledge of law and legal phrase-ology which one who is not a lawyer cannot be ex-pected to possess.


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CHAPTER IForm and InterpretationFORM OF NEGOTIABLE INSTRUMENTS.We have outlined in the introductory chapter

the forms of negotiable instruments. We mustnow consider what variations may be made in theforms we have given without destroying negotiabil-ity. Any instruments to be negotiable must conformto the following requirements (Section 1):1. Must be in vyriting: and signed by the maker or

drawer.2. Must contain an unconditional promise or order to

pay a sum certain in money.3. Must be payable on demand, or at a fixed or deter-

ijiinable future time.4. Must be payable to order or to bearer.5. Where the instrument is addressed to a drawee, he

must be named or otherwise indicated therein withreasonable certainty.THE INSTRUMENT MUST BE WRITTENAND SIGNED AND MAY BE SEALED.As to

the material which must be used, it does not appearfrom the decisions that paper need necessarily be used.If it were clearly proved that a negotiable documentwritten upon metal or wood or even a piece of slatewere intended to be such, a court would undoubtedlyhold it valid. It is needless to say that a document insuch a form would not readily be accepted by a pur-chaser or honored by a bank, because it would excite

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24 NEGOTIABLE INSTRUMENTSsuspicion. Perhaps we may doubt whether therecould be a holder in due course of such a document.The body of any negotiable instrument may be typedor printed or written by a person other than the makeror drawer so that the signature will be in a differenthandwriting. In fact, this is frequently done in thecase of large corporations issuing a great number ofnegotiable instruments. This will have no effect onthe validity of the document. Legally, a person rnayprobably ^ign with a rubber stamp, but, as we havesaid before, a document authenticated in that waywould be difficult to pass or to have honored."Signed" does not necessarily mean subscribed at theend of the paper, although that is the usual and propermethod of signing. A note reading, "I, John Smith,promise to pay to the order of Thomas Brown, $100,"is just as much a promissory note if the name JohnSmith was written by him with the intention ofauthenticating the instrument, as it would be had hewritten it in the ordinary form: "I promise to pay tothe order of Thomas Brown" and signed it at the end"John Smith." It was held in the early common lawthat a seal on an instrument otherwise negotiabTe inform destroyed negotiability. This has been changedby Sj!ction_6 of the Negotiable Instruments Law,which provides that the validity and negotiable char-acter of an instrument is not affected by the fact thatit bears a seal.A PROMISSORY NOTE MUST CONTAINAN UNCONDITIONAL PROMISE.A promis-sory note must contain an unconditional promise and


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NEGOTIABLE INSTRUMENTS 25a bill of exchange or a check must contain an ^ncon-ditional order. As regards a note, the usual and ap-proved form is to have the document read. "I promiseto pay." It is not^Jhowever^absolut^^ thatthis set form be followed and anything which is theequivalent of this form will constitute a promissorynote if the other elements are present. The case ofHussey v. Winslow 59 Me. 170, illustrates this point.The note in that case read as follows:

"Nobleboro, Oct. 4, 1869.Nathaniel O. Winslow, Cr.

By labor 16 3/4 days at $4 per day . . $67.00Good to barer, Wm. Vannah."

The court said : "It would seem that the only pos-sible construction which can be given to this instru-ment is, substantially, this: Tn consideration of 16 3/4days' labor, performed by Nathaniel O. Winslow, at$4 per day, amounting to $67, I promise to pay him,or bearer, that sum on demand. [Signed] WilliamVannah.' Here we have every element of a negotiablepromissory note; a maker, a payee, a promise or en-gagement to pay a certain sum of money at a speci-fied time, absolutely and unconditionally, and theword 'bearer' to make it negotiable."DUE BILLS.There are certain documentswhich are merely :wTitten acknowledg2nents.of a debtwhich are commonly spoken'oTby the courts andtext


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26 NEGOTIABLE INSTRUMENTSbooks on negotiable paper as due bills. For Jonesmerely to acknowledge in writing that he owes Smith$100 does not constitute the writing of a negotiabledocument. The case of Currier v. Lockwood 40 Con-necticut 349 is one of the leading cases on this point.The plaintiffs offered in evidence the foUowing^writing17.14 Bridgeport, Jan. 22, 1863.Due Currier and Barker seventeen dollars andfourteen cents, value received.

Frederick Lockwood.At the time this note was given, the plaintiffs werepartners under the name of Currier and Barker. Indeciding whether this document was negotiable, thecourt states: "The writing given in evidence in thiscase is a ^ue bill, and nothing more. Such acknowl-edgments of debt are common, and pass under thename of due bills. They are informal memoranda,sometimes here, as in England, in the form of T QJJ.'They are not promissory notes which are classed withspecialties in the statute of limitations. The law im-plies indeed a promise to pay from such acknowledg-ments, but the promise is simply implied, and not ex-pressed. It is well said by Smith, J., in Smith v. Allen,5 Day 337, 'Where a writing contains nothing morethan a bare acknowledgment of a debt, it does not inlegal construction import an exp^^essrpromise to pay;but where a writing imports not only the acknowledg-ment of a debt but an agreement to pay it, thisamounts to an express contract.' In that case, thewords 'on demand' were held to import and to be an.


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NEGOTIABLE INSTRUMENTS 27express promise to pay. That case adopts the correct^ilHcipre7Tiamely; that to constitute a promissory notethere must be an express as contradistinguished froman implied promise. The words 'on demand' arehere wanting. The words 'value received' which arein the writing signed by the defendant, cannot be re-garded as equivalent^to the words 'on demand. Thecase of Smith v. Allen went to the~extreme limit inholding the writing there given to be a promissorynote, and we do not feel at liberty to go further in thatdirection than the court then went."VALUE RECEIVED.Suppose we vary slight-ly the form of the note just commented on so thatit shall read 'T)ue Currier and Barker $17.14 mijle-mand," or "Due Currier and Barker or bearer $17.14.""ItTias been held in both of theseTatteTtaTses that add-ing.words of negotiability or setting a certain time forpayment is the equivalent~of' a direct promise^and,,"therefore, that both of these latter documents arenegotiable. In the Currier and Lockwood note, thequestion may arise as to what effect the expression'J5ialue received" has. The court held that it had-noeffect on the promise and it is now provided by Sec-

~~ivon 6 of the Negotiable Instruments Law that thevalidity and negotiable character of an instrument isnot affected by the fact that it does not specify thevalue given or that any value has been given therefor.It is true that many of the prmtedforms of notes incommon use still have the expression "value received"on them somewhere, but this is simply a survival ofan old custom without adding any legal effect.


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28 NEGOTIABLE INSTRUMENTSA BILL OF EXCHANGE MUST CONTAINAN UNCONDITIONAL ORDER.The words "un-

conditional promise" refer to promissory notes; therequirement of an unconditional order relates to billsof exchange or checks. Suppose a draft in this forman order on the drawee to pay a specified sum on afixed day adding "charge the same to the $1,800 ac-count." Is that unconditional? Yes, but comparewith it the^ same case slightly changed: an order topay on a fixed day "out of the $1,800 due rne." Thatlast form is not an unconditional order because by itsterms the order depends on there being $1,800 duethe drawer. If there is nothing due him, nothingwould be payable under the terms of the order. Butin the instrument as we stated it at first there was anorder to pay and then a request to charge to a specialaccount. (See Section 3.) There is one form ofinstrument which under the statute is an uncondi-tional order though it might not seem to be. Makingan instrument payable^at a bank is an order on thebank to pay the instrumentpafid makes the instru-ment in effect a bill of exchange drawn on the bank.(Section 87.)CONDITIONAL ORDER.Suppose the notereads: "I promise to pay A. B. or order $100 on hiswedding day," and is properly signed. This wouldnot be a good promissory note, for although A. B. isengaged and the wedding date is set, still he maynever get married. The promise must not_be condi-tional and even if A. B. actually getsmarried, still thehappening of the event does not cure the defect.


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NEGOTIABLE INSTRUMENTS 29FORM OF INSTRUMENT.Reference to the

forms which we have given on pages 30 and 31 willshow that we use the imperative mood of the verb topay, and this is in compliance with the provisions of

^Theêction of the Negotiable Instruments Law whichwe are considering. As we found in the case of thepromissory note, it is also true here that the courts donot require the strictest observance as to the form, andit is not necessary that the words should be literally inthe imperativemood. In the two cases always givenas the authorities, the facts are as follows : In Little v,Slackford, Moody and M. 171 the document read:

"Mr. Little, please to let the bearer haveseven pounds^ and"piacît to my account, and youwill obligeYour humble servant, R. Slackford.

The court held this was not an unconditional orderand, therefore, that the document was not negotiable.In Ruff V. Webb, 1 Esp. 129, the form was:

"Mr. Nelson wiUjmuch oblige Mr. Webb bypaying to J. Ruff, or orderTtwenty guineas on hisaccount."

Th^s was held to be a bill of exchange and is an illus-tration of what is commonly held, that words ofpoliteness may_stillî3nstitutejLno^ In the previ-ous case, the court held that the expression^'Pleasetolet the bearei^-bav^'iamqunted^to ajrnererequest foFafavor. Although these two cases are the ones fre-quently cited, we must admit that the distinction be-tween the two forms of expression is slight, and thereare cases where expressions similar to those in Little


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30 NEGOTIABLE INSTRUMENTS

uV


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NEGOTIABLE INSTRUMENTS 31


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32 NEGOTIABLE INSTRUMENTSV. Slackford have been held to be equivalent to anorder. It is agreed that the word "authorize" is notequivalent to an order, and, therefore, in Hamilton v.Spottiswoode, 4 Exch. 200 where the words were : "Wehereby authorize you to pay on our account to theorder of C", the court said "these words do not im-port an absolute intention that the money shouldat all events be paid, but merely authorize the de-fendant to pay it."CONFLICT OF LAW.We made the statementin the introductory chapter that all of the Statesexcept one had passed the Negotiable InstrumentsLaw. The conclusion the student might draw fromthis is that the law of negotiable paper is now uniformthroughout the country. Of course, such is the pur-pose of having a uniform law. We shall, however,have occasion to point out in several instances thatthe law is not always uniform. The matter spoken ofin the last paragraph is an illustration. The Act re-quires that a bill shall contain an unconditional order.What is an unconditional order, however, is a matterof interpretation by the court. You can readily seethat two courts might differ in their interpretation ofthe same document. While in Little v. Slackford, theEnglish court held that the expression used did notconstitute an order, in a similar expression in Biesent-hall V. Williams, 62 Ky. 329, there was a contrary hold-ing. It will develop that in considering any uniformlaw, we must look for such occasional differences ofview ; and so even our plan of uniform legislation can-not produce absolutely uniform intei-pfetation^Fthat


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NEGOTIABLE INSTRUMENTS 33law throughout the country. Probably, when theoccasion arises, the commissioners of uniform lawswill again re-draft the sections of the present Actwhich have been differently interpreted in differentStates and propose that those sections be amended tocorrespond with the decisions entitled to the greatestrespect. As we take up the various sections of theAct, we shall point out the striking cases where therehas been a coniE^ct in the construction of a section byvarious courte. NEGOTIABLE INSTRUMENTS MUST BEPAYABLE IN A SUM CERTAIN IN MONEY.If negotiable paper is to be an effective substitute formoney, it follows that it should be payable in money.Hence, a note reading, "I promise to pay to the orderof John Jones $100 and deliver 50 Ibs^f tobacco'^snot^egotiable. nor wouTdTFbe negotiable if it read,"I promise to pay to the order of John Jones 10 ouncesin gold" although gold is the basis of our currency.In other words, by money, as we use that term innegotiable paper, we mean legal tender, except in so ftfar as the fifth subdivision of Section 6 relates to this ^matter. There is one variation in the form of a nego- -tiable document, which is suggested by the case of ^Hodges V. Shuler, 22 N. Y. 114. That note read:

"Rutland and Burlington Railroad Company.No. 253 $1,000Boston, April 1, 1850.

In four years from date, for value received,the Rutland and Burlington Railroad Companypromises to pay, in Boston, to Messrs. W. S. and


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34 NEGOTIABLE INSTRUMENTSD. W. Shuler, or order, $1,000, with interestthereon, payable semi-annually as per interestwarrants hereto attached, as the same shall be-come due; or upon the surrender o this note, to-gether with the interest warrants not due to thetreasurer, at^any time until six months of itsma-turity, he shall issue to the holder thereof tenshares in the capital stock in said company in ex-change therefor, in which case interest shall bepaid to the date to which a dividend of profitsshall have been previously declared, the holder notbeing entitled to both interest and accruing profitsduring the same period.

T. FoUett, President.Sam, Henshaw, Treasurer."The court said, in deciding the case : "The instru-

ment on which the action was brought has all theessential qualities of a negotiable' promissory note. Itis for the unconditional payment of a certain sum ofmoney, at a specified time, to the payee's order. It isnot an agreement in the alternative, to pay in moneyor railroad stock. It was not optional with the mak-ers^ to pay in money or^tocETand thus fulfill theirjpromise in either of two specified ways ; in such casethe promise would have been in the alternative. Thepossibility seems to have been contemplated that theowner of the notejnight, before its maturity, sur-render it in exchange for stock, thus canceling it andits money promise ; but that promise was neverthelessabsolute and unconditional, and was as lasting!^ thenote itself. In no event could the holder require'


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NEGOTIABLE INSTRUMENTS 35money and stock. It was^nj^Jip^MLa^surrwideroLtheôte:imtJie wastDjrejceive-stQck; and the money pay-ment did not mature until six! months after the hold-er's right to exchange the note for stock had expired.We are of the opinion that the instrument wantednone of the essential requisites of a negotiable promis-sory note. It was an absolute and unconditional en-gagement to pay money on a day fixed ; and althoughan ^ction was given to.^the_promisees, upon a sur-render of the instrument six months before its matur-ity, to exchange it for stock, this did not alter itschar-acter, or make the promise in the alternative, in thesense in which that word is used respecting promisesto pay. The engagement of the railroad company wasto pay the sum of $1,000 in four years from date, andits promise could only be fulfilled by the payment ofthe money, at the day named." ÎNTERPRETATION BY COURT.The îciding factprjilways is whether the option.JtQ_pax.the

|casE or deliver the stock is with the holder of the note 'or the maker. This would be a matter in which thecourt would determine what was actually meant. Asevery careful lawyer should seek to advise a client insuch a manner so as to prevent rather than invitelitigation, an attorney could always avoid any possi-ble question by suggesting the issuing of a note inthis form:"One year after date, the Smith Corporationpromises to pay the bearer $1,000 or deliver 10 [shares of the preferred stock of said corporation,at the option of the holder."


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36 NEGOTIABLE INSTRUMENTSIn this form, the holder would have an absolute

right to demand the cash if he wished it, and therewould be no litigation necessary to settle the questionof the negotiability of the note.INSTRUMENTS PAYABLE IN CUR-RENCY.An instrument is none the less nego-tiable because it "designates a particular kind of cur-rent money in which payment is to be made ;" that is,a negotiable instrument may be payable in any kindof current money, as in gold or in $1 bills or othercurrent money. But what does current money mean?Prior to the passage of the Negotiable InstrumentsLaw there was considerable litigation on the questionwhether an instrument payable in currency or in cur-rent funds was negotiable. Some courts held that cur-rency or current funds meant the money or legal ten-der that was current, and, therefore, that the instru-ment was negotiable, pther courts said that currencyor current funds meant what was current as money,that is, used as such ; whether, in fact, it was moneyor not. It seems probable that the latter meaning isreally the true sense of the words, and under thatmeaning if it is requisite that a negotiable instrumentshall be payable in money, an instrument payable incurrency or current funds is not negotiable. It isprobable that the Negotiable Instruments Law wasmeant to settle this controversy when it provided thatan instrument is negotiable though it designates a par-ticular kind of current money in which payment is tobe made ; but it cannot be said that those words dosettle the controversy. "Current money" as used in


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NEGOTIABLE INSTRUMENTS 37the statute does not seem the equivalent of "currency"or current funds," if the latter words are understoodto mean what is used as money whether it is reallymoney or not. The Supreme Court of Iowa, in DillV. White, 132 Iowa.327, has held that a check payablein current funds is not payable in money and is, there-fore, not riegoticTble] Dnthe other hand, where theoriginal owner of a certificate of deposit payable "incurrent funds" was held up by a thief and forced toindorse and part with the certificate, it has been heldthat the holder in due course is protected as againstthe original owner. This is true in many States.PROPOSED AMENDMENT TO SECTIONSIX OF THE NEGOTIABLE INSTRUMENTSLAW.In an article on "Some necessary amend-ments to the Negotiable Instruments Law" in 26 Har-vard Law Review, page 493, 588, Professor Brannansays: "The question whether an instrument payablein 'currency' or in 'current funds' is payable in moneyhas given rise to jnuch conflict of authority. On one 'side are the cases which construe the words 'currency'"of^currehtTiinds' to_ mean legaljender 0 such cur-rency^as, although not legal tender, yet circulates"actualiy and lawfully at par with coin, and, therefore,j:o make tfieTnstrument payable in money. On theother side are cases in which it is held that any cur-\fericy or current funds may be tendered in paymentwhether at par or not,^and that the instrument is, /thefeFore, not payable in money. If the former con-struction is put upon the words 'currency' or 'currentfunds,' no objection can be made to regarding the


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38 NEGOTIABLE INSTRUMENTSinstrument as payable in money, for the amount to bepaid is certain. The Negotiable Instruments Lawleaves the question unsolved, for in section 6-5 it issimply provided that the validity and negotiable char-acter of an instrument is not affected by the fact thatit 'designates a particular kind of current money inwhich payment is to be made.' What is meant by'current money' or rather, what is meant by 'money'?Does it include not only gold and silver coin, but alsobank notes, treasury notes and gold and silver certi-ficates? All of them are current and are popularlyspoken of as money, but they are not all legal tender.It has been suggested that the last paragraphof section 6, subdivision 5, migh^be^amended so as toread,

* * * is payable in currency or current funds ordesignates a particular kind of current money in whichpayment is to be made.' This amendment will makean instrument having the other required formal re-quisites, and payable in currency or current funds,negotiable in the States in which the Negotiable In-struments Law has been adopted. But it is submittedthat such an instrument may not have a uniformvalue in all such States. For the question still re-mains, what is meant by 'currency' or 'current funds,'and here the courts will decide as they have done inthe past. Indeed, the Supreme Court of Iowa, sincethe adoption of the Negotiable Instruments Law, hasheld, although without referring to the Act, that acheck payable 'in current funds' is not negotiable.The court followed former decisions based on theinterpretation of the words, 'current funds' as includ-


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NEGOTIABLE INSTRUMENTS 39ing any currency, although it might not be at par withcoin. In order to make instruments payable in 'cur-rency' or 'current funds' not only negotiable but ofuniform rule, the words in question ought to receivethe same interpretation everywhere. This can bedone by making section 6, subdivision 5, read as fol-lows : '(5) * * * is payable in currency or current funds 1or designates a particular kind of current money inwhich payment is to be made. The words 'currency,''current money,',or 'current funds' shall mean suchcirculating media as are legal tender or are lawfullyand actually circulating at par with legal tender at the )time and place of payment.' " Reviewing this articlein his recent book on the Negotiable Instruments LawProfessor Brannan further adds : "Since the foregoingwas written, it has been held in New York that aninstrument by which the maker agreed^o pay to theorder of the payee '$2,34 currency,' is a 'negotiablepromissory note' umeFthe Negotiable InstrumentsLaw, and in Connecticut it has been held that wherea check had been tendered in payment of rent and wasrefused and payment 'in money' was demanded, thatthis demand was fairly met by a terideFin bills of the ,ojrrengyLof the United States, wBetber such bills werelegal tend,^L or not. The Negotiable InstrumentsLaw was not cited. The conflict thus already appar-ent seems to make clear the necessity for the amend-ment of the section in the interest of uniformity."PAYMENT IN CURRENCY.It has also beensuggested that this section of the Negotiable Instru-ments Law be universally amended as it has been in


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40 NEGOTIABLE INSTRUMENTSIllinois, so that the subdivision in question shall readthat the negotiable character of an instrument shallnot be affected by the fact that it is payable in cur-rency or current funds, or designates a particular kindof current money in which payment is to be made.In the meantime it is safer not to accept as negotiableany instrument expressed as payable in currency orcurrent funds.

THE INSTRUMENT MUST BE CERTAININ TIME OF MATURITY.The third subdivisionof ection 1 of the Act provides that the instrument"must be payable on demand or at a fixed or deter-minable future time." Generally, instruments arepayable either at a fixed time or on demand, but some-times bills of excharge are payable a fixed number ofdays after sight. When such a bill will become dueis not fixed when the instrument is issued, but it canbe fixed by presenting the instrument and starting the^ays^to run. You cannot tell when you look at theinstrument just how soon it willbe due, but theholder can make it become due within the given num-ber of days after sight by formally presenting theinstrument. The time is therefore determinable. Sec-tion 4 of the Negotiable Instruments Law further de-fines what is meant in section 1 by "a fixed or deter-minable future time."

CERTAINTY OF TIME OF PAYMENT.Aninstrument is payable at a determinable future time,within the meaning of this Act, which is expressed tobe payable (Section 4) :1. At a fixed period after date or sight; or


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NEGOTIABLE INSTRUMENTS 412. On or before a fixed or determinable future time

specified therein; or3. On or at a fixed period after the occurrence of aspecified event which is certain to happen, though

the time of happening be uncertain.An instrument pajablejjpQrLajCQntingency-is-notnegotiable and the happening of the event does not

"cureTfie'defect.The typical negotiable instrument is payable ata fixed day in the future, as on July 1, 1926, or in threemonths froriL-date. An instrument payable on de-mand or at sight or at a fixed period after demand or

sight, involves a little extenstoiTof the principle ofcertainty, since no one can tell exactly when demandwill be made, but as the holder can make the time cer-tain by making jjemandr the value^oFsuch anInstru-ment is exactly calculable, and there has never beenany question that such instruments are negotiable.But the statute allows negotiability to some instru-ments where there was doubt at common law, thoughthe statute has followed what was previously theweight of authority. An instrument may be payable"onor_befDj^" a fixed or determinable future time.Therefore, a note payable on or before July 1 is anegotiable instrument.^ If this means at the option ofthe holder there wouldT e no morJTlackjjf certamtv^lan in demand paper since in effect the instrumentwouid'Be~payable^n demand prior to July 1, and if no

prior demand were made, then on that day. But^theoption is that of the maker, and it is impossible for theholder to tell whether theijption will be exercised.


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42 NEGOTIABLE INSTRUMENTSStill he knows the exact day when at latest the instru-ment is payable. A further latitude, however, is al-lowed by the enactment in subdivision 3, that aninstrument is negotiable though it is payable on an

I event "which is certain to happen, though the time of\ the happening is uncertain." That, it seems, is anobjectionable provision, and the only reason that theobjection is not more apparent is that the case whichis permitted is such a rare one. A common illustra-tion given is a note payable on a man's death ; that isan event certain to happen, but the time of happeningis uncertain. Now such a note is__wholly unsuited forthe purpose of negotiable instruments. Negotiableinstruments are intended as a kind of adjunct tomoney, as something that has a definite value andwhich can be dealt with on that assumption. It isbecause of this idea, that negotiable instruments area kind of adjunct to money, that all these require-ments which we are considering as to certainty of thepromise, the certainty of the time and the certainty ofthe medium of payment are made. But an instrumentpayable at a man's death is, of course, of speculativevalue. It is customary to contrast with such an in-strument,^ne made by a bachelor payable on his mar-riage. Thai is not certain to happen; he may nevermarry, and therefore such an instrument is not nego-tiable, even under the broad words which are used inthe Negotiable Instruments Law. The same point isillustrated in the case of a draft payable on the ar-rival of certain goods. It is not negotiaSTe. Thegoods may never arrive. ^~ -


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NEGOTIABLE INSTRUMENTS 43TENDENCY OF COURTS.Undoubtedly the

criticism of Professor Ames to the effect that "Noth-ing could be more inconsistent with negotiability ofa bill or note than that the holder should have to becontinually on the alert to ascertain the precise datewhen it should become payable, in order to charge thedrawer or indorser," is founded on sound reason. Un-fortunately, the courtejiave-beenjcather lax in holdingjiocuments negotiable where the time of payment isquite uncertain. Two cases may be mentioned asillustrative of this tendency. In Cota v. Buck. 7 Mete.(Mass.) 588, the document in question read:"New Ashford, March 13th, 1840. For value re-ceived, I promise to pay John Pero, or bearer, fivehundred and seventy dollars and fifty cents, it beingfor property I purchased of him in value at this date,as being payable as soon_as_can be realized of thefjibove amount for_Lhe said propertY_I_have this . day ipurchased of^sîd JBem_jyhich is to be paid in the/course of the season nowl^^ffiigr*^' Chief JusticeShaw in decidinglhe^case said : "The true test of nego-tiability of a note seems to be, whether the undertak-ing of the promisor is to pay the amount at all events,at some time which must certaialyjc^Tie, and not outoTTparticular fund, or upon a contingent event. Ifit were payable on a contingency, or out of a particu-lar fund, it would not be negotiable. This note,_wethink, was^gayable byj:hej;omisorât alTevents^^ndwithin a certain limited time. The note is obscurelywritten ndûngrammatical. But we think the mean-ing was this: that the signer, for value received in the


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44 NEGOTIABLE INSTRUMENTSpurchase of property, promised to pay Pero or bearerthe sum named, as soon as the termination of the com-ing season, and sooner, if the amount could be soonerrealized out of the fund. Such reference to the sale ofthe property was not to fix the fund from which itwas to be paid, but the time of payment. The under-taking to pay was absolute, and did not depend on thefund. So as to the time, whatever time may be under-stood as the 'coming season,' whether harvest timeor the end of the year, it must come by mere lapse oftime, and that must be the ultimate limit of the timeof payment."

Again in Capron v. Capron, 44 Vermont, 412, thenote read: "For value received I promise to pay B. D.or Bearer, seventy-five dollars one year from datewith interest annually; and, if there is not enoughrealized by good management in one year to havemore time to pay." This note was held negotiable.The court observed that as long as the payment iscertain and the uncertainty is only as to the length oftime to be given, this uncertainty the law makes cer-tain by giving a reasonable, jime after the time pre-scribed to make payment. All that can be said in re-gard to these cases is that the decisions in the particu-lar jurisdiction under whose law the note is governedshould be consulted. This is another case where wemay find a good illustration of a conflict in the law,although the case is covered by the Uniform Act.WORDS OF NEGOTIABILITY ARE NECES-SARY.Subdivision 4 of Section 1 provides that theinstrument "must be payable to order or to bearer."


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NEGOTIABLE INSTRUMENTS 4SIt does not matter whether the instrument reads "tothe order of A" or "to A or order." Legally thosemean the same thing. It may be to_ thg_ordgr of twoor more iointly or to the order of any one or moreof several. Itjgay be tglSe^order of the holder oY'anoffice for the time-being (Section 8). It does notmatter whether it is simply "to bearer" or whetherit is to "A or bearer." The definition of an instru-ment payable to bearer is further enlarged by sec-tion 9. To illustrate what has been said, that theobligations of the different parties to a negotiableinstrument are separate contracts, we may supposethe case of a note, non-negotiable because of theomission of the words "order" or "bearer" but in-dorsed by the payee in term.3 "to the order of" anindorser. The payee's indorsement is a negotiablecontract, though the contract of the maker of thenote is not.BEARER INSTRUMENT.The wprd^'bear^r"is not, of course, th^jonly word that may be used.OrKer words conveying the same implication willserve as well. Thus a bill payable to "holder" is pay-able to bearer. While the usual form of a bearerinstrument is "Pay to bearer," this may also be variedas "Pay to A or bearer." It has been held, however,that the expression, JlEay tn thejbearer, AJ* destroysnegotiability and it can be readily seen why this is so,"since tEetnstrument is payable to one person only, notto A or bearer. Suppose a document which omitswords of negotiability has written across the face ofit, "This note shall be negotiable." Whether or not


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46 NEGOTIABLE INSTRUMENTSsuch an expression supplies the absence of words ofnegotiability has been questioned, but there is someauthority that such a document would be negotiable.Thus, in the case of Tanner's National Bank v. Lacs,136 App. Div. (N. Y.) 92, the defendant made a noteon a printed form which contained the usual words ofnegotiability, "or order." However, in the lower lefthand corner, the words "Not transferable" were writ-ten in a small contracted hand. When the bankacquired the note, it did not notice thesg writtenwords, and the court held that the maker of the notewas not negligent in not writing the words moreplainly, and on the familiar principle that the^writtenlportion. of a Jiote-prevail over the, printed part, heldthat the_note was not negotiable.THE DRAWEE MUST BE INDICATED.-^Ifthe instrument is a bill of exchange, it must; be ad-dressed to a drawee who is indicated with reasonal/ifccertainty. It may be addressed to two or more per-sons as joint drawees (Section 128). The courts haveheld that an instrument which lacks a drawee and istherefore imperfect as a bill of exchange may be sus-tained as a promissory note. In Peto v. Reynolds, 9Exch. 410, the instrument was in the following form:

"Cameroons September 3, 1852,"Exchange for 200."At sight of this my third of exchange, the first

and second of the same tenor and date being unpaid,please to pay to S. M. Peto, Esq., or order, the sumof two hundred pounds sterling for value received,and place the same, as by letter of advice of 3d Sep-


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NEGOTIABLE INSTRUMENTS 47tember, to the account of Alfred Righton."

Across the face of the bill Righton wrote the de-fendant's acceptance, as follows: "Accepted. SamuelReynolds, Esq., Shern Lane, Bedminster, Bristol."The court stated in its opinion that,^Tbis instrn*ment, though in the form of a bill^isriot-addressed^toanyone, fbrJJMnk-itJmpsssM to consider the ac-ceptance _ as an address; but I do not see why theinstrument may not be treated as a promissory note,because, upon the face of it, there is a promise to paythe amount written in the name of Samuel Reynolds.Then, if the authority to subscribe his name has beensubsequently ratified, that amounts to a promise byhim. Therefore, if, on the next trial, there is satisfac-tory evidence to show that the defendant absolutelypromised to pay the amount mentioned in the instru-ment, he will be liable as upon a promissory note."WHAT CONSTITUTES CERTAINTY ASTO THE SUM.The sum payable is a sum certainwithin the meaning of the Negotiable InstrumentsLaw, although it is to be paid: (1) With interest; or(2) By stated instalments; or (3) By stated instal-ments, with a provision that upon default in paymentof any instalment or of interest, the whole shall be-come due; or (4) With exchange, whether at a fixedrate or at the current rate; or (5) With costs of col-lection or an attorney's fee, in case payment shall notbe made at maturity (Sgrjj^n 2)WHAT IS A SUM CERTAIN.We have con-sidered what is meant by money. What is meant bya "sum certain" is defined in section 2 to some extent.


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48 NEGOTIABLE INSTRUMENTSThe first two subdivisions state what would withoutany statute have been obvious. As the rate of interestis fixed by the instrument the exact sum which willbe due at maturity can be calculated by any one at anytime. And the sum is equally definitely fixed thoughpayable in instalments. The third subdivision is notquite so clear. It may be thought that if such aninstrument is open to any objection, it is rather opento the objection that it is not payable at a fixed time,(for, as we shall see, that also is one of the requisitesof negotiability), than to uncertainty of the amount.But a change in time of maturity will also involve achange in the amount due at maturity. However, thestatute solves our difficulty. The sum is certainwithin the meaning of the statute though the instru-ment is payable with exchange, either at a fixed rateor at the current rate. It is certain though payablewith the cost of collection, or with an attorney's feeif payment is not made at maturity. In these casesthe sum is not really certain, but the net recoverywhich the holder will realize is certain.ATTORNEY'S FEES.The provisions of thestatute in regard to attorney's fees has not altogetherset at rest, however, a conflict of authority whichexisted prior to the passage of the Negotiable Instru-ments Law. Before the passage of that statute ioiir.views were taken by different courts: (1) that the con-tract for attorney's fees was valid and the instrumentwas negotiable; (2) that the provision was a valid,simple contract between the parties but destroyednegotiability of the instrument; (3) that the provision


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NEGOTIABLE INSTRUMENTS 49was void and contrary to public policy, but beingj^oid^did not affect negotiability; (4) that the usury lawsprevented any fee which would make the total chargeover and above the face of the note exceed the highestrate of interest allowed by the statute. The NegotiableInstruments Law^makes it clear, where itjsjenacted,that the provision doeslnordestroy negotiability, butwhether the effect of the statute by implication is tomake valid a provision which previously was void,has been the subject of conflicting decisions. In Ohioand West Virginia, the Supreme Courts have heldthat the provision is void, though the note is negotia-ble. A contrary view has been taken by the SupremeCourts of Colorado and Virginia, that is that the pro-vision is valid and the note negotiable. In Nebraska,North Carolina and South Dakota, the statute con-tains provisions that the Act shall not be construedas making valid a stipulation for attorney's fees.WHEN PROMISE IS UNCONDITIONAL.We have already discussed the nature of the promiseor order and found that it must not be conditional, asfor example, a promiseto pajMf_ijt_does not rain. Weshall now consider this point more in detail withspecial reference to the provisions of Section 3 of theNegotiable Instruments Law.

An unqualified order or promise to pay is uncon-ditional within the meaning of this Act, thoughcoupled with:

LAn indicatip_ai3ia4Jartkular fund out of whichreimbursement is to be made, or a particular accountto be debited with the amount; or


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50 NEGOTIABLE INSTRUMENTS2. A statement of the transaction which gives rise

to the instrument. But an order or promise to payout of a particular fund is not unconditional.INDICATION OF A PARTICULAR FUND ISUNOBJECTIONABLE.We have seen that a prom-ise or order to pay which is dependent on the existenceor sufficiency of a fund or credit cannot be negotiable,but a statement of the fund or account to which thepajmient is to be charged is not objectionable becausethe sum is to be paid irrespective of whether or notthe fund or credit is sufficiently large to meet thecharge.STATEMENT OF THE TRANSACTIONGIVING RISE TO THE INSTRUMENT.Onematter in regard to the unconditional quality of thepromise required in a note may be worth mention-ing. It is provided in section 3, subdivision 2, that itdoes not make an instrument non-negotiable if it con-tains a^^tatement of the transaction which gave riseto the instrument. Suppose this case : a note in ordin-ary form adds these words, "This note_was_given fora horse, the title to which is to^emain^n the, selleruntil this note is paid." The Massachusetts courtand some other courts held, before the passage of theNegotiable Instruments Law, that that note was notnegotiable, on the ground that if the horse should diethe maker of the note would not have to pay it, sincethere would be what is called "failure of considera-tion" for the note, the horse having died, and anypurchaser of the note would have notice from its termsof this possibility. Other courts held that the buyer


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NEGOTIABLE INSTRUMENTS 51of a horse under those circumstances would have topay the price even though the horse died. The Mass-achusetts court under its view held such a note non-negotiable, since in effect it was conditional; the otheri:ourtsjieldjtjyas unconditional and negotiable, andit looks as if the same controyersyjnigbi;.jjiae-underthe present Act. There cerlainly is no harm in stat^ing the transaction which gave rise to the instrumentif nothing further iragdedTthat is, it will do to say,"This notewaFgiveriToTa horse," or, "This note wasgiven for digging a ditch," but probably it would no^do to add to a note, !IXl3^-notewas-.given.fQr a horseand is not to be paidjfJhe horse dies," nor, "This notf>is given for a ditch to be dug and is not to be paidunless the ditch is dug," for when you add those lastwords you do indicate that there is a condition to thipromise of the maker and that he is not to pay in ever^event. Now if that condition is implied it must be"just as bad as if it is expressly stated. Suppose theaddition, "This note_is given for a ditch to be dug."Does that carry with it the implication that unTesiTheditch is dug the maker is not going to pay? It cer-tainly suggests that implication, and if so, it wouldseem that the note was conditional and not, therefore,a negotiable instrument. It is, of course, not neces-sary that an instrument should state the transactionwhich gave rise to it, or even that it was given forvalue [Section 6, subdivision 2].ILLUSTRATION.In the case of the First Na-tional Bank of Hutchinson v. Lightner, 74 Kansas736, the facts were that the Snyder Planing-mill Co.


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52 NEGOTIABLE INSTRUMENTSagreed to erect a barn for the price of $3000 for Light-ner. Lightner accepted two orders reading as follows:

"Hutchinson, Kans., August 10, 1903.G. W. Lightner, Ofiferle, Kans.:

Dear SirPay to the order of the First NationalBank of Hutchinson, Kansas, $l,500^ou_account.ofcontract^between you and the Snyder Planing-mill"Company.

The Snyder Planing-mill Company,Per J. F. Donnell, Treasurer.Accepted

G. W. Lightner."The court held that the instrument in question

was negotiable and its discussion on this, a ratherdifficult section of the Act, is given in full : "The maincontroversy is whether the orders given by the plan-ing-mill company to the bank and accepted by defend-ant are negotiable instruments. It is true that nospecific time of payment is mentioned, but that doesnot affect their validity as such instruments; and,where no date is mentioned, they are payable oa de-mand. Each of them, therefore, possesses all thQessential elements of a bill of exchange, unless thewords 'on account of contract between you and theSnyder Planing-mill Company' make them payableout of a particular fund, and conditionally, so that theacceptance is thereby qualified."The law is well settled that a bill or note is notnegotiable if made payable out of a particular fund.But a distinction is recognized where the^ihsFrumentis simply chargeable to a particular account. In such


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NEGOTIABLE INSTRUMENTS 53a case it is beyond question negotiable ; payment is notmade to depend upon the sufficiency of the fund men-tioned, and it is mentioned only for the purpose ofinforming the drawee as to his means of reimburse-ment. A bill or note, without affecting its characteras sucbyvmay_state_Jhe_transaction out of which itarose, or the consideration for which it was given. So,also, Hie insertion into a bill or note of memorandaexplaining the nature of the business or debt forwhich the instrument is given will not make it non-negotiable, for such memoranda does not make thepayment conditional.

"The test in every case is said to be, 'Does theinstrument carry the general personal creditof thedfaweFor maker, or only the credit joI apartLcularyfund^r'A promise to pay a certain sum 'out of my nextquarter's mail pay, which becomes due January 1,1883,' was held to be an absolute promise to pay a cer-tain sum of money. An instrument promising to paya certain sum, 'being a portion of a value as underdeposit in security for the paymen'fhereoC^ was heldto be a promissory note payable at all events. Anorder which was to be charged *to freight' was heldnegotiable. A note expressed to be in payment ofcertain tracts of land was held negotiable. Likewise,a note which stated that it was given in considerationof certain personal property, the title to which wasnot to pass unless the note was paid. * * *

"The mere fact that the consideration for whicha promissory note is given is reclted^ln it, although itmay appear thereby that it was given for or in consid-


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54 NEGOTIABLE INSTRUMENTSeration of an executory contract, or promise on thepart of the payee,j5^1jjot destrojrjthejiegQtiabil^ ofthe note, unless it appears through the recital that itqualifies the promise to pay, and renders it conditionalor uncertain, either as to the time of payment or thesum to be paid. * * *

"The^ controversy is thus narrowed down towhether the words 'on account of contract betweenyou and the Snyder Planing-mill Company' amountto a direction to pay out of a particular fund, or, onthe other hand, are to be considered as simply indi-cating the fund from which the drawee, Lightner,might reimburse himself. Many of the cases attachbut little importance to the words 'account of andgive the same effect to them as to the words 'outof.' * * *"We are of the opinion that these orders cannotbe construed as drawn upon a particular fund. Be-yond question there are many authorities which holdsimilar expressions to indicate an intention to chargea particular fund. The weight of authority and reasonsupports the proposition that the words amount tono more than an indication of the fund from which thedrawee is to reimburse himself. The words used aresubstantially th^ same as though the orders read 'andcharge to account of contract with the SnyderPlaning-mill Company,' or 'credit to account of con-tract,' etc."THERE MUST BE NO ADDITIONALORDERS OR PROMISES.After the requirementsin the earlier sections of what a negotiable instrument


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NEGOTIABLE INSTRUMENTS 55must c-ontain. section 5 provides what it must not con-tain. There must not be any qther_additional orderor promise. The reasorTfor this is the same as for allthe formal tequisites of bills and notesnamely thattheface of the instrument may show glainly an-obli-gation7tHepecuiiiaryl?aIuei5fwHich can be calculated.THus'^ proiriissory note to pay A or order one hun-dred dollars and deliver one black horse is not nego-tiable. The rule forbidding additional orders or prom-ises, which is taken by the statute from the commonlaw, becomes quite important in regard to some oLthe collateral notes which are used. '^ÂDDITIONAL POWERS MAY BE GIVEN.Section 5 authorizes several provisions in a note as to"wKich thefeTiacl been some litigation prior to the en-actment of the Negotiable Instruments Law. Thusa power in_thg_.instrument to sellôUateral securitiesin case the instrument is not paid at maturity does notinterfere with negotiability, nor does a power to con-fess a judgment if the instrument is not~paid~at ma-turity, but that is unimportant in some States becausetheir law does not allow a confession of judgment be-forehand by a debtor as part of an obligation, whethernegotiable or not. Irrother^tatesôweveTjjiêbt^can give his creditor at the time the^debt is created apoweraiatfaofizifigThe clerk'grtheconrt to enteiFju^;-,lngnt^:gertnsrEirrvwHenever the creditor may request.It is also not destructive of negotiability for the makeror drawer to ssfaisejheênefit of any stay or exemp-tion law. That provision, too, is unimportant in someStates because they do not allow such exemptions as


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56 NEGOTIABLE INSTRUMENTSthe law gives to a debtor to be waived in advance..Nor is it objectionable that the note gives the holderan election to require something to be done in lieu ofthe payment of money. That last provision seems aconsiderable addition to mercantile theory. Supposea promise or order to pay A $100, or at A's electionto build a bay window on his house. Such an alterna-tive seems rather foreign, perhaps, to the idea thatnegotiable instruments are things of a fixed value cur-rent as an adjunct to money, but you will observe thatit is the holder^who has the option and the holder canalways demand money, and therefore can properly fixa value on that note as if it were simply for $100. Ifthe option is given to the maker of the instrument itdestroys negotiability.ILLUSTRATIONS OF ADDITIONALPROMISES WHICH DESTROY NEGOTIABIL-ITY.Now these additions, to which we havecalled attention, to the promise in the note ororder in the bill are all additional powers given to theholder rather than additional promises made by themaker, and the purpose of these powers is to makemore certain of performance the main promise to pay.Let us suggest in contrast some additional promisesmade by the maker. A maker signs a note which in-cludes this statement: "There is deposited to securethis note 100 shares of New York Central, and if atany time this security shall be deemed by the payee ofthe note insufficient collateral, I^promisejto depositfurther collateral." In most jurisdictions an TnstFu-ment containing this language regarding collateral


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NEGOTIABLE INSTRUMENTS 57would not be negotiable. It may readily be seen thatthere is in addition to the promise to pay money, aprom^ejo^eposit further collateral, and any collat-"erai noteinwhich the rhaker promises to do othertongs'than to pay the amount of the note, is not anegotiable instrument. However, in the. Federalcourts and in some of the States h has been held thatsuch a clauselSoesliJoirHestroy negotiability. Powersgiven to the holder of the instrument to sell the col-lateral would not render the instrument non-nego-tiable. A power, however, to declare the instrument idue might be regarded as more objectionable, but!probably even that would be held to come within theyprovision of the statute which says that an instrumentpayable on or before a fixed date is valid. In a recentcase there was astipulation on the back of a note thatit was secured by collateral and that the payee agreedto look to this security for pajmient of the_note. It

|was held that that provision written on the note ren-dered it non^negotiable. It was, in fact, not a promise 1to pay at all events, but a promise to pay out of aparticular fund, and if the fund proved insufficient bythe terms of the promise, then nothing would be due jthe payee.ILLUSTRATION.The importance of usingthe greatest care in inserting clauses which may effectnegotiability is illustrated by the submission by a bankin the Middle West of the form of note it was usingto one of the banking law journals"for opinion as towhether the note was negotiable. The note read asfollows


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58 NEGOTIABLE INSTRUMENTS"$ Stockwood, Ind., 192. .

after date for value received, I promiseto pay to the order ofTHE STATE BANK OF STOOKWOODDOLLARSat the office of the State Bank of Stookwood, Ind.,with interest at per cent, per annum.

The signers hereof severally waive all defenceon the ground of any extension of time of payment ofthis Note that may be given to them or either of them,each signer hereof expressly consenting to any exten-sion or extensions of time of payment ,which may begiven by the legal holder hereof.And to secure the payment of said amount we oreither of us authorize, irrevocably, any attorney ofany Court of Record, to appear for us in any such,Court, in term time or vacation, at any time hereafter,and confess a judgment withojat process in favor ofthe holder of this note, for such amount as may appearto be unpaid thereon, together with costs, and FifteenDollars attorney's fees on the first One Hundred Dol-lars and Five per cent, on all in excess of One Hun-dred Dollars. And also to file a cognovit for theamount that may be so due and unpaid, and to waiveand release all errors which may intervene in any suchproceedings and consent to immediate execution uponsuch judgment, hereby ratifying and confirming allthat my said attorney may do by virtue hereof.Witness my hand and seal this day of 19.Due (Seal)No (Seal)"


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NEGOTIABLE INSTRUMENTS 59It will be seen that the note^ allows the time of

payment to be extended indefinitely and also providestoTaconfession of judgnient at any time, tthas beenh'eld a number of tini^ntHat BotlTprovisions jdestToynegotiability. However, the iawL-Qii-an-4adefigiteextensiorf of time of payment is not altogether uni-formflhe courts in some States hold that such anextension does not impair the negotiability of the in-strument. Students should familiarize themselveswith the decisions of the courts of their own State onthis point. In the case of Wisconsin Yearly Meetingof Free Will Baptists v. Babler, 115 Wisconsin291.where the note in question contained a clause author-izing a confession of judgment at any time, thecourt held "It js gmte certain that the note was notnfigotiable. because jv the poweroFTttornejTwKrcTiit contained, judgment could be noted upon' it at anytime after its ^Ste, whether due or not7*~ Thus, thetrhie of judgment depends upon the whim or capriceof the holder and is absolutely uncertain. This de-prives it of its negotiability.CERTAIN OMISSIONS NOT AFFECTINGNEGOTIABILITY.The validity and negotiablecharacter of an instrument are not affected by the factthat (Section 6)

1. It is not dated.2. Does not specify the value given, or that any

value has been given thefefoi-.3. Does not^gecify the place where it is drawn

or the place where it is payable.4. Bears a seal.


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60 NEGOTIABLE INSTRUMENTSDATE OF A NEGOTIABLE INSTRUMENT.The lack of a date is unimportant in an instrument

unless it is in terms payable a certain period after date.If an instrument in this form were undated it wouldbe an incomplete instrument which would have to bedealt with as provided in section 13.WHEN DATEMAY BE INSERTED.Wherean instrument expressed to be payable at a fixed periodafter date is issued undated, or where the acceptanceof an instrument payable at a fixed period after sight isundated, any holder may insert therein the true date ofissue or acceptance, and the instrument shall be pay-able accordingly. The insertion of a wrong date doesnot avoid the instrument in the hands of a subsequentholder in due course; but as to him, the date so in-serted is to be regarded as the true date.INSERTION OF WRONG DATE.No ques-tion is likely to arise under this section where thetrue date is inserted after the issue of the instrument.The final sentence of the section, however, suggestsan inquiry. The implication of the sentence is thatthe insertion of a wrong date will avoid an instrumentin the hands of the original person who made the in-sertion; or in the hands of any one taking from himwith notice or after maturity, for such a person is nota holder in due course. This seems a heavy penaltyif the erroneous date was inserted without fraudulentintent, and on the supposition that the date insertedwas the true one. Therefore^_a date should not beinserted in an undated instrument unless one is per-fectly sure that the insertion represents the true date.


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NEGOTIABLE INSTRUMENTS 61VAl^UERECEIVED.Negotiable instruments

usuallystate thafthey are for value received and thismode of expression is of great antiquity. The orig-inal theory of a bill of exchange, which was the earli-est form of negotiable instrument, was based on theassumption that the purpose of the parties was to ex-change a sum of money actually received by thedrawer at his residence for a sum of money to be paidby the drawee at another place. Nevertheless, inXecentjtunes...at_any^rate, evenjipart^from statute, irhas not been necessary to insert either such a generalstatement ot consideration as the words for "value re-ceived," or a particular statement of the actual consid-eration given. . The ^last paragr^pji of section 6 refersto certain sp_ecial statutes in a iriumber of States requir-Jng^that^notes given for a patent right shall so state,and there are^other statutes in a few jurisdictions re-quiring a statement of the consideration in notes givenfor lightning rods, or stallions, or to pedlers. Suchstatutes, however, are distinctly exceptional.PLACE OF DRAWING OR PAYMENT.negotiable instrument need not state where it is drawnor where it is payable, because in the absence of such^Tstatement the law is able to determine the placewith accuracy. A bill is drawn or a note is made whereit is delivered. It is payable at the usual place of busi-ness or residence of tKepe^n who should make pay-nient ^See section 133.)SEAL AND NEGOTIABILITY.It was a ruleof the common law that a sealed instrument could notbe negotiable. This was due to the fact that under


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62 NEGOTIABLE INSTRUMENTSthe custom of merchants from which the law of billsand notes developed, such instruments were not sealed.When, however, business corporations became com-mon,

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