Copyright
Theophilus Parsons.

Laws of business for all the states of the Union : with forms and directions for all transactions. And abstracts of the laws of all the states and territories on the various topics online

. (page 18 of 70)
Online LibraryTheophilus ParsonsLaws of business for all the states of the Union : with forms and directions for all transactions. And abstracts of the laws of all the states and territories on the various topics → online text (page 18 of 70)
Font size
QR-code for this ebook


may seem to be intricate and difficult, they require, it is believed,
only careful consideration to be fully understood.

Where and when bills of exchange were invented is not certainly
known. They were not used by any ancient nations, but have been
employed and recognized by most commercial nations for some
centuries. A still more recent invention is the promissory negoti-
able note, which, in this country, for inland and domestic purposes,
has taken the place of the bill of exchange very generally. Besides



COMMON FOEM OF A BILL OF EXCHANGE. 157

these two, bills of lading, and some other documents, have a kind
of negotiability, but it is quite imperfect. The utility of bills and
notes in commerce arises from the fact that they represent money,
which is the representative of the market value of every thing ; and
many of the peculiar rules respecting negotiable paper are derived
from this representation, and intended to make it adequate and
effectual.

A negotiable bill of exchange^ is a written order whereby A orders
B to pay to or his order, or to bearer, a sum of money, absolutely
and at a certain time.

(65.)
Common Form of a Bill of Exchange.

New YorJc, January 5, 1869.
Value received, please pay to C or order, dollars,

in days (or months) after sight (it may be after date), 071

account of

(Signed) A
To B

A is the Drawer, B the Drawee, and C the Payee. If the bill is
presented to B, and he agrees to obey the order, he " accepts " the
bill, and this he does in a mercantile way by writing the word " Ac-
cepted " across the face of the bill, and also writing his name below
this word ; then the drawee becomes the Acceptor. If C, the payee,
chooses to transfer the paper and all his rights under it to some
other person, he may do this by writing his name on (usually across)
the back ; this is called Indorsement, and C then becomes an In-
dorser. The person to whom C thus transfers the bill is an Indorsee.
The indorsee may again transfer the bill by writing his name below
that of the former Indorser, and the Indorsee then becomes the
second Indorser ; and this process may go on indefinitely. If
the added names cover all the back of the note, a piece may be
wafered on to receive more. In France, this added piece is called
" allonge" and this word is used in some law-books, but not by our
merchants



158 NOTES OF HAN^', BILLS OF EXCHANGE, ETC.

(66.)
Common Form of a Promissory Note.

New York, January 5,1869.

Value received I promise to pay B or order,

dollars, in days (or monthi, or on demand) from date*

(Signature.)

It is quite important to have a clear idea of the difference between
the parties to a note, and the parties to a bill of exchange. If A
makes a note to B, then A promises to pay, and is the promisor, and
B is the promisee, or payee. But if it be payable to B or order, B
may write his name across the back, that is, may indorse it, and is
an indorser. And if he directs, over his signature on the back, that
the note be paid to any person in particular, such payee is now an
indorsee. But when a bill is drawn, nobody promises, in words, to
pay it. A orders B to pay to C. If B, when requested, says he
will not do as ordered, the law supposes A, the drawer, to have
promised that he would pay if B did not. If B " accepts," the law
now supposes that B promises C to pay the bill to him. Now B,
being the acceptor, is held by the law'just as a maker of a note is,
because he is supposed to have promised in the same way. A, the
drawer, is held just as the first iudorser of a note is held, because he
is supposed to have promised to pay if B did not. If the bill was
negotiable, that is, payable to C, or his order, then C may indorse
the bill, and although his name is the only one on the back of the
bill, he is treated in law only as second indorser, because the drawer
is bound in the same way as a first indorser. And if D then puts his
name below C's, he is treated as third iudorser, and so on. For the
rights, obligations, and duties of all these parties, see the subsequent
sections.

We repeat, that a negotiable promissory note is a written promise
to pay to a certain person or his order, or to bearer, at a certain time,
a certain sum of money ; and he who signs this is called the Maker
or the Promisor ; the other party is the Promisee or Payee. The

* It is bett to write the words, " from date," although they are often omitted, and the law con-
strues the note as If they were written.



WHAT IS ESSENTIAL TO A NEGOTIABLE NOTE. 159

payee of such a note has the same power of indorsement as the payee
of a bill of exchange. If the note be not payable " to order," nor to
" bearer," it is then not negotiable ; these words " or order " or " to
bearer " being the words which make it negotiable. The maker of
a negotiable note holds, as has been said, the same position as the
acceptor of a bill, the drawer the same as the first indorser of a note ;
that is, a party holding a note and seeking payment of it looks first
to the maker, and then to the indorser ; one holding a bill looks
first to the drawee or acceptor, and, on his failure, to the drawer.

Neither indorsement, nor acceptance, nor making, is complete
until delivery and reception of the bill, or note, or acceptance ; and
a defendant may show that there was no legal delivery of the paper.

The law of negotiable paper first defines a bill or note, and deter-
mines what instruments come under these names, and then describes
and ascertains the duties and obligations of all the parties ^we hav
named above. We shall follow this order.



SECTION n.

WHAT IS ESSENTIAL TO A NEGOTIABLE NOTE OB BELL.

A WRITTEN order or promise may be perfectly valid as a written
contract or promise, but, although made " to order," will not be ne-
gotiable, unless certain requisites of. the law-merchant are complied
with.

The difference between a note that is negotiable and one that is
not, is very important in many respects. One of these is as to the
operation of the trustee process, or foreign attachment, or garnishee
process, as it is sometimes called. If A owes B a hundred dollars, C,
a creditor of B, may trustee A (to use the common phrase), and A
must then pay to C what he owes to B. And this is so, even if A
have given his note to B for the hundred dollars, if the note be not
negotiable, that is, not to B or order. But if the note be negotiable,'
A cannot be trusteed. The reason is, that if he is obliged to pay the
money to C, and B should indorse the note to D for value, and D
take it honestly, A must pay the note to D, and so would have to



160 NOTES OF HAND, BILLS OF EXCHANGE, ETC.

pay it twice. But if the note is not negotiable, B cannot indorse it,
and A is safe in paying the money over.

1, The Promise must be absolute and definite. The promise of the
note, and the order of the bill, must be absolute. Words expressive
of intention only do not make a promissory note, and a mere re-
quest without an order does not make a bill of exchange. But no
one word, and no set of words, are absolutely necessary ; for if from
all the language the distinct promise or positive order can be in-
ferred, that is sufficient.

The time of payment is usually written in a bill or note ; if not,
it is payable on demand. The time of payment must not depend on
a contingency. In fact, any contingency apparent on the face of the
instrument prevents it from being a negotiable note ; and the hap-
pening of the contingency does not cure it. And the payment
promised or ordered must be of a definite sum of money.

A negotiable bill of exchange or promissory note must be payable
in money only, and not in goods or merchandise, or property of any
kind, or by the performance -of any act. If payable in " current
funds," or " good bank-notes," or " current bank-notes," this should
not be sufficient on general principles, and according to many au-
thorities ; some courts, however, construe this as meaning notes
convertible on demand into money, and therefore as the same thing
as money, and call the note negotiable.

A bill or note may be written upon any paper or proper substitute
for it, in any language, in ink or pencil. A name may be signed or
indorsed by a mark ; and, though usually written at the bottom, it
may be sufficient if written in the body of the note ; as, " I, A B,
promise," &c. ; unless it can be shown that the note was incomplete,
and was intended to be finished by signature. If not dated, it will
be considered as dated when it was made ; but a written date is
prima facie evidence (this means evidence which may be overcome
by opposite and better evidence, but until so overcome is sufficient)
of the time of making. The amount is usually written in figures at
the corner or bottom. If the sum is written at length in the body,
and also in figures at the corner, the written words control the
figures, and evidence is not admissible to show that the figures were



FORM OF A NOTE. 161

right aiid the words inaccurate. But in an American case, a prom-
issory note, expressed to be for " thee hundred dollars," and in
figures in the margin, $300, was held to be a good note for three
hundred dollars, if the maker when he signed it intended " three "
when he wrote " thee ; " and whether such was his intention was a
question for the jury. And the omission of such a word as " dol-
lars," or " pounds," or " sterling," may be supplied, if the meaning
of the instrument is quite clear.

It has been just said that any contingency apparent on the face
of the instrument prevents it from being a negotiable note. Hence
it is not safe to write in the body of the note, or in connection with
the promise, any condition or contingency. But, if what is so
written in no way affects the promise itself, the note may still be
negotiable.

Thus, in some parts of this country, persons who sell a machine,
or other thing, on a credit, sometimes take a promissory note pay-
able to the seller or order, and containing an additional clause,
providing, that, until the note is paid, the property in the thing
sold (or the ownership of it) shall be and remain in the seller
Such notes are often made in the following form :



(67.)

Form of a Note given for a Chattel sold, with a Condition pre-
serving the Ownership of the Seller.

$ (Place and date) 18

On the day of 18 the subscriber whose P. 0.

is , County of and State of ,

promise to pay , or order dollars at the First

National Bank in with interest at per cent per annum until

paid. And it is further agreed that the title to the (reaper) for which this note is
given shall remain in said (the seller) until this note is fully paid ; and, if not

paid when due, I will pay all expenses incurred in collecting.

Value received
( Witness.') (Signature.)

On the back of this note is sometimes the following statement :



162 NOTES OF HAND, BILLS OF EXCHANGE, ETC.

Statement made for the Purpose of obtaining Credit.

I own acres of land in my own name in the Town of

County of and State of which is worth at a fair

valuation, $

It is not incumbered by mortgage or otherwise, except the amount of $

and the title is perfect in me in all respects. I have stock and personal
property to the amount of $ over and above my debts and liabilities.

The above property being worth over and above my debts, liabilities and
exemptions at least FIVE TIMES the amount of the within note.

The question has arisen whether such a note is negotiable. 'Sup-
pose the seller of the chattel, who is payee of the note sells the noto
and indorses it for value to an innocent indorsee ; then the buyer
finds that he was cheated, and puts in this defence of fraud when he
is sued on the note by the indorser. He can make this defence if
this note be not negotiable ; but he cannot make it if it be negotiable.
I should say it was negotiable ; and that the only effect of the con-
dition or provision annexed to the promise, was, that it operated
much as a mortgage of the thing, by the buyer, back to the selbr,
to secure the payment.

2. The Payee must be designated. The payee should be dis-
tinctly named, unless the bill or note be made payable to bearer.
If it can be gathered from the instrument, by a reasonable or
necessary construction, who is the payee, that is enough. The note
may be made payable to the promisor or his order ; that is, a man
may say, I promise to pay to my own order; and such note is
nothing until the promisor not only signs it, but indorses it.

A note indorsed in blank is always transferable by delivery, just
as if it were made payable to bearer ; because any holder may write
over the indorsement an order to pay to himself. Indorsements are
either indorsements in blank, by which is meant the name of the
indorser and nothing more, or indorsements in full, which are so
called when over the name of the indorser is written, " pay to A B."
(By A B we mean the name of the person to whom the note or bill is
indorsed.) These two kinds of indorsements are fully explained
subsequently in section VI. of this chapter. A note to the order of
the promisor himself, and indorsed by him in blank, is therefore



WHAT IS ESSENTIAL TO A NEGOTIABLE NOTE. 163

tuach the same thing as a note to bearer. But it is quite commonly
used in our mercantile cities, because the holder can always pass it
away without indorsing if he chooses, or can put his name on it as
second indorser if he likes to. If the indorsee be named, and the note
get into the possession of a wrong person of the same name, this per-
son neither has nor can give a title to it. If the name be spelt wrong,
evidence of intention is receivable. If a father and son have the
same name, and either of them has possession of the note and indorses
it, this would be evidence of his rightful ownership.

If neither payable to bearer, nor to the maker's or drawer's order,
nor to any other person, it would be an incomplete and invalid
instrument.

A note to a fictitious payee, with the same name indorsed by the
maker, would undoubtedly be held to 'be the maker's own note,
either payable to bearer, or to himself or order, by another name,
and so indorsed. If a blank be left in a bill for the payee's name, a
bond fide holder may fill it with his own, the issuing of the bill in
blank being an authority to a bond fide holder to insert the name.
And if the name of the payee be not the name of a person, as if it
be the name of a ship, the instrument is payable to bearer. A note
payable to different persons in the alternative, that is, to one or
the other of them, is not a good promissory note. A bill or note
"to the order of" any person is the same as if to him " or his
order," and may be sued by him without indorsement.

3. Of Ambiguous and Irregular Instruments. The law in rela-
tion to protest and damages makes it sometimes important to distin-
guish between a promissory note and a bill of exchange, because, by
law, a foreign bill of exchange, if unpaid, should be protested, but not
a promissory note ; but it is a common practice to protest promis-
sory notes when they are not paid. The rule in general is, that, if
an instrument be so ambiguous in its terms that it cannot be
certainly pronounced one of these to the exclusion of the other,
tfie holder may elect and treat it as either. As if written, " Value
received, in three months from date, pay the order of H. L. $500.
(Signed) A. B. ; " and an address or memorandum at the bottom,
" At Messrs. E. F. & Co."



164 NOTES OF HAND, BILLS OF EXCHANGE, ETC.

4, Of Bank-Notes. Bank-notes or bank-bills are promissory notes
of a bank, payable to bearer ; and, like all notes to bearer, the prop-
erty in them passes by delivery. They are intended to be used as
money ; and, while a finder, or one who steals them, has no title him-
self against the owner, still, if he passes them away to a bond fide
holder, that is, a holder for value without notice or knowledge, such
owner holds them against the original owner. And if the bank pays
them in good faith on regular presentment, the owner has no claim.
They pass by a will bequeathing money. They are a good tender,
unless objected to at the time because not money. Forged bills,
given in payment, are a mere nullity. Bills of a bank which has
failed, but of which the failure is unknown to both parties, are now,
generally, put on the footing of forged or void bills. But if the
receiver of them, by holding them, and by a delay of returning or
giving them up, injures the payer and impairs his opportunity or
means of idemnity, the receiver must then lose them.

6. Of Checks on Banks. A check on a bank is undoubtedly a
bill of exchange ; but usage and the nature of the case have intro-
duced some important qualifications of the general law of bills in its
application to checks. A check requires no acceptance, because a
bank, after a customary or reasonable time has elapsed since deposit,
and while still in possession of funds, is bound to pay the checks of
the depositors. The drawer of a check is not' a surety, as is the
drawer of a bill, but a principal debtor, like the maker of a note.
Nor can a drawer complain of any delay whatever in the presentment ;
for it is an absolute appropriation, as between the drawer and the
holder, to the holder of so much money in the banker's hands ; there
it may lie at the holder's pleasure. But delay is at the holder's risk ;
for if the bank fails after he could have got his money on the check,
the loss is his. If the bank before he presents his check pay out all
the money of the drawer on other checks, he may then look to the
drawer.

If one who holds a check as payee, or otherwise, transfers it to
another, he has a right to insist that the check shall be presented in
the course of the banking hours of that day, or at farthest the next ;
that is, he is not responsible for the failure of the bank to pay, unless



WHAT IS ESSENTIAL TO A NEGOTIABLE NOTE. 165

it is BO presented, provided it would then have been paid. 1 And if
the party receiving the check live elsewhere than where the bank is,
it seems that he should send it for collection the next day ; and if to
an agent, the agent should present it, at latest, in the course of the
day after he receives it. If the check be drawn when the drawer
neither has funds in the bank, nor has made any arrangement by
which he has a right to draw the check, the drawing it is a fraud,
and the holder may bring his action at once against the drawer,
without presentment or notice.

Checks are seldom accepted. But they are often marked by the
bank as good ; and this binds the bank as an acceptor.

Checks are usually payable to bearer, but may be and often are
drawn payable to a payee or his order ; for this guards against loss
or theft, because the check will not be paid unless the payee writes
his name on it ; and it gives to" the drawer, when the check is
paid and returned by the bank to him, what is the same as the
receipt of the payee. Generally, a check is not payment until
it is cashed ; then it is payment if the money was paid to the credit-
or, or the check had passed through his hands. A bank cannot
maintain a claim for money lent and advanced, merely by showing
the defendant's check paid by them, because the general presump-
tion is, that the bank paid the check because it was drawn by a
depositor against funds.

While the death of a drawer countermands his check, if the bank
pay it before notice of the death reaches them, they are discharged.
This would seem to be almost a necessary inference from the
general purpose of banks of deposit, and the use which merchants
make of them.

If a bank pay a forged check, it is so far its own loss, that the
bank cannot charge the money to the depositor whose name was
forged. But the bank could recover the money back from one who
presented a forged check, and was paid, provided the payee, if inno-
cent, loses no opportunity of indemnity in the mean time, and can
be put in as good a position as if the bank had refused to pay it.
But if somebody must lose, the bank should, because it is the duty
of the bank to know the writing of its own depositors. If it pay a
check of which the amount has been falsely and fraudulently ic



166 NOTES OF HAND, BILLS OF EXCHANGE, ETC

creased, it can charge the drawer only with the original amount.
But if the drawer himself causes or facilitates the forgery, as by so
carelessly writing it, or leaving it in such hands, that the forgery or
alteration is easy, so that it may be called his fault, and the bank is
innocent, then the loss falls on the drawer. If many persons, not
partners, join in a deposit, they must join in a check ; but if one or
more abscond, a court of equity will permit the remainder to draw
the money.

6. Of Accommodation Paper. An accommodation bill or note is
one for which the acceptor or maker has received no consideration,
but lias lent his name and credit to accommodate the drawer, payee,
or holder. Of course he is bound to all other parties, precisely as
if there were a good consideration ; for, otherwise, it would not be
an effectual loan of credit. But he is not bound to the party whom
he thus accommodates ; on the contrary, that party is bound to take
up the paper, or to provide the accommodation acceptor, or maker, or
indorser, with funds for doing it, or to indemnify him for taking it
up. And if, before the bill or note is due, the party accommodated
provides the party lending his credit with the necessary funds, he
cannot recall them ; and if he becomes bankrupt, they remain the
property of the accommodation acceptor, or maker, who, if sued on
the bill or note, can charge the party accommodated with the ex-
pense of defending the suit, even if the defence were unsuccessful,
if he had any reasonable ground of defence, because the defence
was for the benefit of the party accommodated ; inasmuch as he
must repay the accommodation party if he pays the bill or note.

7, Of Foreign and Inland Bills. Bills of exchange may be
foreign bills, or inland bills. Foreign bills are those which are
drawn or payable in a foreign country ; and for this purpose, each
of our States is foreign to the others. Inland bills are drawn and
payable at home. Every bill is, on its face, an inland bill, unless it
purports to be a foreign bill. If foreign on its face, evidence is
admissible to show that it was drawn at home. If a bill be drawn
and accepted here, but afterwards actually signed by the drawer
abroad, it is a foreign bill. If a foreign bill be not accepted, or be



WHAT IS ESSENTIAL TO A NEGOTIABLE NOTE. 167

not paid at maturity, it should at once be protested by a notary-
public. Inland bills are generally, and promissory notes frequently,
protested ; but this is not generally required by the law. The
holder of a foreign bill, after protest for non-payment, or for non-
acceptance, may sue the drawer and indorser, and recover the face
of the bill, and, in addition thereto, his damages, which damages on
protest are generally adjusted in this country by various statutes,
which give greater damages as the distance is greater ; and an
established usage would supply the place of statutes if they were
wanting.

8. Of the Law of Place. The different States of the Union, are,
as to questions arising under Mercantile Law, foreign countries as to
each other. Important questions sometimes arise in the case of
foreign bills (as well as in some other cases), dependent upon what
is called the Law of Place, the Latin phrase for which, Lex Loti, is
often used. In general, every contract is to be governed by the law
of the place where it is made. Thus, if a bill is drawn in France,
and there indorsed in a way which is sufficient here, but insufficient
there, the indorsement would here be held void. But if a contract
entered into in one place is to be performed in another, as in the
case of a note dated, or a bill drawn, in one State, but payable in
another, the prevailing rule is, that the law of the place where the
note is payable construes and governs the contract. Therefore,
if a bill be drawn in England, payable in France, the protest and
notice of dishonor must be regulated by the law of France. But
one who makes such a note may elect, for many purposes, which
law shall govern it. Thus, if he makes it in New York, and it is
payable in Boston, he may promise to pay the legal interest of New
York, and will be bound to this payment in Boston, although the
legal interest in Boston is less ; but if there be no such express
promise, the interest payable will be that of the place where the



Online LibraryTheophilus ParsonsLaws of business for all the states of the Union : with forms and directions for all transactions. And abstracts of the laws of all the states and territories on the various topics → online text (page 18 of 70)