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Theophilus Parsons.

Laws of business for all the states of the Union : with forms and directions for all transactions online

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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 oneor
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 has 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 bj 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 hd,yf , 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 wliat
is called the Law of Place, the Latin phrase for which. Lex Loci, 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
note is payable.

While the law of the place of the contract interprets and con-
strues it as a debt, the law of the place where it is put in suit —
vehich is called the Law of the Forum, or Court — determines all
questions as to remedy ; that is, all questions which relate to the



168 NOTES OF HAND, BILLS OF EXCHAKGE, ETC.

legal means of recovering the debt. Thus, in general, the statutes
of limitation of the place of the court are applied. But if a
cause of action relating to any special subject-matter which has a
defniitc location, as a parcel of land has, be barred by a statute of
limitations where the subject-matter is situated, it is barred every-
where. A promisor, not subject to arrest in the country wlicre the
note is made, may be arrested under the laws of the country where
the note is sued.

It will always be presumed, in the absence of testimony, that the
law of a foreign country is the same with that of the country in
which the suit is brought. If a difference in this respect is a ground
of defence, or of action, it must be proved by evidence.



SECTION in.

THE CONSLDEKATION OF NEGOTIABI^ PAPER.

1. Exception to the Common Law Rule, in the Case of Negotiable

Paper. — By the common law of England and of this country, aa
we have seen, no promise can be enforced, unless made for a con-
sideration, or unless it be sealed. But bills and notes payable to
order, that is, negotiable, are, to a certain extent, an exception to
this rule. Thus, an indorsee cannot be defeated by the promisor
showing that ho received no consideration for his promise ; because
the promisor made an instrument for circulation as money ; and it
would be fraudulent to give to paper the credit of his name, and
then refuse to honor it. But as between the maker and the payee,
or between indorser and indorsee, and, in general, between any two
immediate parties, the defendant may rely on the want of considera-
tion ; that is, if an indorsee sues the maker, and the maker says ho
had no consideration for the note, this is no defence ; but if the in-
dorsee sues his indorser, and the indorser shows that the indorsee
paid bim nothing, this would be a good defence ; and so it would be
if tlic payee sued the maker. So, if a distant indorsee has notice or
knowledge, when he buys a note, that it was made without con-
sideration, he cannot recover on it against the maker, unless it was
aji accommodation note, or was intended as a gift.



THE CONSIDERATION OF NEGOTIABLE PAPER. 169

Thus, if A, supposing a balance due from him to B, gives B hia
negotiable note for the amount, and afterwards discovers that the
balance is the other way, B cannot recover of A ; nor can any third
or more distant indorsee who knows these facts before buying the
note. But if A gives B his note wholly without consideration, for
the purpose of lending him his credit, or for the purpose of making
him a gift to the amount of the note, and C buys the note with a
full knowledge of the facts, he will nevertheless hold A, although B
could not. If the note was bought honestly for a fair price, the
buyer should recover its whole amount. Every promissory note
imports a consideration ; that is, none, in the first place, need bo
proved ; but when want of consideration is relied on in defence, and
evidence is given on one side and the other, the burden of proof is
on the plaintiff to satisfy the jury that consideration was given.

If an indorser, sued by an indorsee, shows that the note was
originally made in fraud, he may require the holder to prove that
he paid consideration ; but if this be proved, he must pay the whole
of the note, unless he was himself defrauded by the holder. And if
an accommodation note be discounted in violation of tlie agreement
of the party accommodated, the holder can still recover, provided he
received the note in good faith, and for valuable consideration.

2. Of " Value Received." — " Value received " is usually written,
and therefore should be ; but is not necessary. If not written, it
will be presumed by the law, or may be supplied by tlic plaintiff's
proof. If expressed, it may be denied by the defendant, and dis-
proved. And if a special consideration be stated in tlie note, the
defendant may prove that there was no consideration, or that the
consideration was different. If " value received " be written in a
note, it means received by the maker from the payee ; if the note
be payable to the bearer, it means received by the maker from the
holder. In a bill, "value received" means that the value was
received from the payee by the drawer. But if the bill be payable
to the drawer's own order, then it means received by the acceptor
from the drawer.

3. ItlTiat the Consideration may be. — A valuable considcratioo



170 NOTES OF HAND, BILLS OF EXCHANGE, ETC.

may be either any gain or advantage to the promisor, or any loss or
injury sustained by the promisee at the promisor's request. A pre-
vious debt, or a fluctuating balance, or a debt due from a third
person, might be a valuable consideration. So is a moral considera-
tion, if founded upon a previous legal consideration ; as, where one
promises to pay a debt barred by the statute of limitations, or by
infancy. But a merely moral consideration, as one founded upon
natural love and affection, or the relation of parent and child, is no
legal consideration.

No consideration is sufficient in law if it be illegal in its nature ;
and it may be illegal because, first, it violates some positive law, as,
for example, the Sunday law, or the law against usury. Secondly,
because it violates religion or morality, as an agreement for future
illicit cohabitation, or to let lodgings for purposes of prostitution, or
an indecent wager ; for any bill or note founded upon either of
these would be void. Thirdly, if distinctly opposed to public
policy ; as an agreement in restraint of trade, or injurious to the
revenue, or in restraint of marriage, or for procurement of mar-
riage, or suppressing evidence, or withdrawing a prosecution for
felony or public misdemeanor.



SECTION IV.
THE RIGHTS AND DUTIES OF THE BLIKER.

The maker of a note or the acceptor of a bill is bound to pay the
same at its maturity, and at any time thereafter, unless the action
be barred by the statute of limitations, or he has some other defence
under the general law of contracts. As between himself and the
payee of the note or bill, he may make any defences wliich he could
make on any debt arising from simple contract; as want or failure
of consideration; payment, in whole or in part; set-off; accord and
satisfaction ; or the like. The peculiar characteristics of negotiable
paper do not begin to operate, so to speak, until the paper has passed
into the hands of third parties. Then, the party liable on the note
or bill can make none of these defences, unless the time or manner



THE RIGHTS A2^I> DUTIES OF THE HOLDEE. 171

in wliich it came into the possession of the holder lays him open to
these defences. But the law on this subject may better be pre-
sented in our next section.



SECTION V.

THE KIGHTS AliT) DUTIES OP TILE HOLDEK OF NECsOTIABLE PAPEK.

1. What a Holder may do with a Bill or j\'ote. — An indorsee has
a right of action against all whose names are on the bill when he
Teceived it. And if one delivers a bill or note wliich he ought to
indorse and does not, the holder has an action against him for not
indorsing, or may proceed in a court of equity to compel him to in-
dorse. If a bill comes back to a previous indorser, he may strike
out the intermediate indorsements and sue in his own name, as
indorsee ; but he has, in general, no remedy against the intermedi-
ate parties, because, if he made them pay as indorsers to him, they
would make him pay as indorser to them. If, however, the circum-
stances are such that thei/, if compelled to pay, would have no right
against him as an indorser to them, as, for example, if he indorsed
it " without recourse," then he may have a claim against them.

The holder of a bill indorsed and deposited with him for coUec-
iiou, or only as a trustee, can use it only in cor.formity with the
trust. And if the indorsement express that it is to be collected for
the indorser's use, or use any equivalent language, this is notice to
an}^ one who discounts it ; and the party discounting the paper
against this notice will be obliged to deliver the note, or pay its con-
tents if collected, to the indorser. Thus, Mr. Sigourney, a merchant
in Boston, remitted to Williams, a London banker, for collection, a
bill of exchange indorsed by him, and over his name was written,
" Pay to Williams or order for iny use." TTilllams had the bill dis-
counted for his own benefit by his bankers, and failed ; and the
English court held that the indorsement showed that the bill did not
belong to Williams, and that the discounters had no right to dis-
count it for him ; and they were obliged to pay the araount of it

to Sigourney.

13



172 NOTES OF HAIiH), BILLS OP EXCHANGE, ETC.

S, Of a Transfer after Dishonor of Negotiable Paper. — So long
as a note remains due, everybody has a right to beheve that it has
not been paid, and will be paid at maturity, and may purchase it in
that belief. But as soon as it is overdue, the date shows it, and
every person must know that it is either paid, and so extinguished,
or that it has not been paid, and tiierefore is dishonored, and that
there may be good reasons why it was not paid, or good defences
against it. He therefore now takes it at his own peril ;• and there-
fore a holder who took the note after it became due is open to many
of the defences which the promisor could have made against the
party from whom the holder took it ; because, having notice that
the bill or note is dishonored, he ought to have ascertained whether
any, and, if so, what defence could be set up.

So, too, if an indorsee takes the note or bill before it is due, but
with notice or knowledge of fraud or other good defence which could
be made against his indorser if he sued it, it is a general rule that
the same defence may be made against him.

A promissory note payable on demand is considered as intended
to be a continuing security, and therefore as not overdue, imlesa
very old indeed, without some evidence of demand of payment and
refusal. But it is not so with a check ; for this should be presented
without unreasonable delay.

3. Of Presentment for Acceptance. — It is most important to the
holder of negotiable paper to know distinctly what his dutie? are in
relation to presentment for acceptance or payment, and notice to
others interested in case of non-acceptance or non-payment.

It is always prudent for the holder of a bill to present it for
acceptance without delay ; for if it be accepted, he has new security ;
if not, the former parties are immediately liable ; and it is but just
to the drawer to give him as early an opportunity as may be to with-
draw his funds or obtain indemnity from a debtor who will not honor
his bills. And if a bill is payable at sight, or at a certain period
after sight, there is not only no right of action against anybody
until presentment, but, if this be delayed beyond a reasonable time,
the holder loses his remedy against all previous parties. And
although the question of reasonable time is generally one only of



THE RIGHTS AXD DUTIES OF THE HOLDER. 173

law, yet, in this connection, it is treated as so far a question of fact,
that it is submitted to the jury There is no certain rule determin-
ing what is reasonable time in this respect. If a bill of exchange be
payable on demand, it is not like a promissory note, but must be pre-
sented within a reasonable time, or the drawer will be discharged.
A holder may put a bill payable after sight into circulation, without
presenting it himself; and in that case, if a subsequent holder
presents it, a longer delay in presentment would be allowed than
if the first holder had kept it in his own possession.

The presentment should be made during business hours ; but in
this country they extend through the day and until evening, except-
ing in the case of banks. Any distinct usage established where the
presentment is made would probably be received in evidence, and
permitted to affect the question.

Ill health, or other actual impediment without fault, may excuse
delay on the part of the holder ; but the request of the drawer to
the drawee not to accept does not excuse non-presentment for ac-
ceptance.

Presentment for acceptance should be made to the drawee him-
Belf, or to his agent authorized to accept. And when it is presented,
the drawee may have a reasonable time to consider whether he will
accept, during which time the holder is justified in leaving the bill
witli him. And this time would be as much as twenty-four hours,
unless the mail goes out before. And if the holder gives more than
twenty-four hours for this purpose, or the mail goes out before, ho
should inform the previous parties of it. If the drawee has changed
his residence, the holder should use due diligence to find him ; and
what constitutes due or reasonable diligence is a question of fact for
a jury. And if he be dead, the holder should ascertain who is his
personal representative, if he has one, and present the bill to him.
If the bill be drawn upon the drawee at a particular place, it is re-
garded as dishonored if the drawee has absconded, so that the bill
cannot be presented for acceptance at that place.

4. Of Presentment for Demand of Payment. — The next question
relates to the duty of demanding payment ; and here the law is
nmcli the same in respect both to notes and to bills.



174 NOTES OF HAJN'D, BILLS OF EXCHANGE, ETC.

Tlie universal rule of tlie la'w-merchant is, that the iudorscrs of
negotiable paper are supposed to agree to pay it only if the maker
or previous indorsers do not, and ^rovic?^(f due measures are taken
by the holder to get it paid by those who ought, in tlie first place, to
pay it. Every holder of negotiable paper can hold it as long as he
likes, and not lose his claim against the maker of a note, or the ac-
ceptor of a bill, unless he holds it more than six years, and the Sta-
tute of Limitations bars his claim. The reason is, tliat the maker
or acceptor promises directly^ and not merely to pay if another does
not. But every indorser of a note or bill, and every drawer of a
bill, only promises to pay if a maker or acceptor or some previous
indorser docs not. If there is a bill of exchange with six indorscrs,
the last promises in law to pay it only if the acceptor, the drawer,
and tlie five previous indorsers do not pay. He has therefore a right
that a demand according to law should be made against every one
of these persons, and that their refusal to pay should be notified to
him, forthwith, so that he may secure himself if he can. And the
law-morchant is very rigorous and precise in defining what demand
should be made by the holder, and when and how demand should be
made on every prior party, in order to hold any subsequent party ;
and also as to what notice of the demand and refusal of the prior
party should be given to any subsequent party to whom the holder
looks for payment.

A demand is sufficient if made at the usual residence or place of
business of the payer, either of himself, or of an agent authorized to
pay ; and this authority may be inferred from the habit of paying,
especially if the agent be a child, a wife, or a servant. The demand
should not be made in the street, although a demand then would
probably be held good, unless objected to at the time because made
tl'.erc. When a demand is made, the bill or note should be exhibited ;
and if lost, a copy should be exhibited, although this is not abso-
lutely necessary. And when the payer calls on the holder, and
declares to him that lie shall not pay, and desires him to give notice
to the indorscrs, this constitutes a demand and refusal, provided thia
declaration be made at the maturity of the paper ; but not if it was
made before maturity, because the payer may change his intention.

Bankruptcy or insolvency of the payer is no excuse for non-de-



THE EIGHTS AKD DUTIES OE THE HOLDER. 175

mand ; although the shutting up of a bauk may be regaidccl as a
refusal to all their creditors to pay their notes. Absconding of the
payer is generally a sufficient excuse ; but if the payer has shut up
his house, the holder must nevertheless inquire after him, and find
him, if he can by proper efforts. Even in case of absconding, it is
always better to go through the formality of making a demand at
the payer's last residence or place of business ; and this is held neces-
sary in Massachusetts. If the payer be dead, demand should be
made at his house, unless he have personal representatives, and in
that case, of them. And if the holder die, presentment should be
made by his personal representatives; that is, by his executor or
administrator.

If the drawer has no effects in the hands of the drawee, and has
no arrangement or understanding which gives him a right to draw,
non-presentation for payment is not a defence wdiich he can make if
sued on the bill.

Impossibility of presenting a bill for payment, without tlie fault
of the holder, as the actual loss of a bill, or the like, will excuse
some delay in making a demand for payment ; but not more than
the circumstances require. And the mere mistake of the holder as
to the time, place, person or manner, is no excuse, because he has
no right to make mistakes to the injury of other people.

In this coimtry, 'all negotiable paper payable at a time certain is
entitled to grace, which here means three days' delay of payment,
unless it be expressly stated and agreed that there shall be no grace ;
and a presentment for payment before the last day of grace is pre-
mature, the note not being due until then. If the last day of grace
falls on a Su)iday, or on a legal holiday, the note is due on the
Saturday, or other day before the holiday. But if there be no grace,
and the note falls due on a Sunday, or other holiday, it is not paya-
ble until the next day.

Generally, if a bill or note be payable in or after a certain num
bcr of days from date, sight, or demand, in counting these days,
the day of date, sight, or demand is excluded, and the day on
which it falls due included. And the law would supply the word
^^frorn^^^ &c., if the word were not used. Thus, a note dated
January 1, and payable in "twenty days" WQuld be held pay-



176 NOTES OF HAND, BILLS OF EXCHANGE, ETC.

able" in twenty days (and three days' grace) after the day of the
date ; that is on the 24th. If a note is made payable in one or more
months, this means calendar months, whether shorter or longer. If
made on the 13th of December, and payable in two months, it is
payable on the loth of February and grace, that is, on the IGth.
But if so many days are named, they must be counted, whether they
are more or less than a month. Thus, if the above note were paya-
ble in sixty days, it would be due on the 11th and grace, or on the
14th of February. If dated 13th January, and payable in sixty
days, it would be due on the 14th of March, with grace, or on the
17th.

Although payment must be demanded promptly, that is, on the
day on which it is due, it need not be done instantly ; a holder has
all the business-part of the day in which the bill or note falls due to
make his demand in.

Bills and notes payable on demand should be presented for pay-
ment within a reasonable time. If said to be " on interest," this
strengthens the indication that they were intended to remain for a
time unpaid and undemanded. But to hold indorsers, they should
still be presented within whatever time circumstances may make a
reasonable time ; and this is such a time as the interests and safety
of all concerned may require ; and it may be a few days, or even
one or two weeks. A bill or note in which no time of payment is
expressed is held to be payable on demand. And evidence to prove
it otherwise is inadmissible.

Tlie holder of a check should present it at once ; for the drawer
has a right to expect that he will ; it should, therefore, be presented,
or forwarded for presentment, in the course of the day following
that in which it was received, or, upon failure of the bank, the
holder will lose the remedy he would otherwise have had against
the person from whom he receives it. If the drawer of the check



Online LibraryTheophilus ParsonsLaws of business for all the states of the Union : with forms and directions for all transactions → online text (page 19 of 70)