X. - 1 ■■- I. A A 7 1 8 5 1 ,7 -is WSi-AV'--'- .iiKttij UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW LIBRARY CYCLOPEDIA OF LAW EMBRACING THE BRANCHES OF AMERICAN JURISPRUDENCE HOW TO STUDY LAW bIlACKstonk's commentaries and quiz CONSTITUTIONAL LAW— FEDERAL AND STATE INCLUDING LEADING CASES PERSONAL RIGHTS AND DOMESTIC RELATIONS INCLUDING LEADING CASKS CONTRACTS AND PARTNERSHIPS INCLUDING LEADING CASES AGENCY AND BAILMENTS, INCLUDING COMMON CARRIERS INCLUDING LEADING CASES NEGOTIABLE INSTRUMENTS AND PRINCIPAL AND SURETY INCLUDING LEADING CASES WILLS AND SETTLEMENT OF ESTATES INCLUDING LEADING CASES PERSONAL PROPERTY AND EQUITY OR CHANCERY LAW INCLUDING LEADING CASES PUBLIC CORPORATIONS AND PRIVATE CORPORATIONS INCLUDING LEADING CASES REAL PROPERTY AND PLEADING AND PRACTICE INCLUDING LEADING CASKS CRIMINAL LAW, CRIMINAL PROCEDURE, AND EVIDENCE INCLUDING LEADING CASES PUBLIC INTERNATIONAL LAW, AND LEGAL ETHICS LEGAL FORMS, LATIN TRANSLATIONS, GENERAL INDEX CYCLOPEDIA OF LAW NEGOTIABLE INSTRUMENTS AND PRINCIPAL AND SURETY INCLUDING A FULL DISCUSSION OF THE ORIGIN AND HISTORY OF COMMERCIAL PAPER, BILLS OF EXCHANGE, PROMISSORY NOTES, AND THE LAW OF GUARANTY AND SURETYSHIP, WITH STATUTORY MODIFICATIONS OF THEM WHICH OBTAIN IN MANY STATES AND LEADING CASES VOLUME VI EDITOR IN CHIEF HON. CHARLES E. CHADMAN, LL.B., LL.M., LL.D. ASSISTED BY A CORPS OF LEGAL EXPERTS PUBLISHERS DE BOWER-ELLIOTT COMPANY CHICAGO, U. S. A. VOL. VI. OOPYHIGHT 1901 BY Charles E. Chadman Copyright 1908 BY American Cokresponuence School of Law Chicago FACULTY, ADVISORY BOARD AND LECTURERS Dean. HONORABLE GEO. D. ANTHONY, A. B., A. M., LL. B, Author of Text Books. HONORABLE CHARLES E. CHADMAN, LL. M., LL. D. Advisory Board. HOWARD W. HAYES, LL. B., Assistant Corporation Counsel, Chicago. RUSSEL S. CLARK, LL, B., Member of Illinois Bar. GEORGE J. MEIER, LL. B., Member of Illinois Bar. GEORGE D. ANTHONY, LL. B., Author and Writer of Text Books. ROBERT W. DUNN, LL. B., Member of Illinois Bar. THOMAS D. KNIGHT, A. B., A. M., LL. B., Ex-Ass't State's Attorney and Member of Illinois Bar. COUPS OF LECTURERS T. ELLIOTT PATTERSON, Practicing Attorney Philadelphia, Pa. CHARLES G. NEELY, Ex-Judge Circuit Court, Illinois. C. L. SMITH, Judge Municipal Court, Minneapolis. GILBERT E. ROE, Practicing Attorney, New York City. JOHN D. LAWSON, Dean Missouri Law School, Missouri. MAJOR CHARLES R. EVANS, Dean Law Department, Grant University, Chattanooga. ORVILLE W. COOLIDGE, Judge Circuit Court, Michigan. F. A. WILLIAMS, Justice Supreme Court, Texas. ROBERT M. BASHFORD, Justice Supreme Court, Wisconsin. PATRICK B. WOLFE. Ex-Judge District Court, Iowa. JOSEPH R. LONG, Author and Lecturer, Washington and Lee University, Virginia. WILLIAM H. K. HART, Ex-Attorney General, California. JAMES A. SEDDON, Ex-Judge Circuit Court, Missouri. JAMES SCHOULER, Author and Counsellor, Boston, Mass. WALTER CLARK, Chief Justice Supreme Court, North Carolina. GEORGE F. TUCKER. Author and Practicing Attorney, Boston, Mass. EDWIN W. SIMS, United States District Attorney, Illinois. LUTHER LAFLIN MILLS. Ex-State's Attorney, Cook County, 111. AUTHORITIES CONSULTED In writing and compiling the tweive volumes con- stituting the Cyclopedia of Law, neither time or expense was spared to make it what it is, the best and most comprehensive work of its character ever published. It has received the endorsement of many of the high- est legal authorities in America. The standard authorities of the world were con- sulted during the time of its compilation, notably : E. S. ABBOTT, On Municipal Corporations. W. A. ALDERSON, On Judicial Writs and Process. W. C. ANDERSON, Anderson's Law Dictionary. WILLIAM F. BAILEY, Bailey's Personal Injuries Relat- ing to Master and Servant; Bailey's Jurisdiction, etc., etc. FRANCIS BACON, Bacon's Complete Works. M. BACON, Bacon's Abridgment. F. H. BACON, On Benefit Societies and Life Insurance. J. P. BISHOP, Criminal Law; Bishop's Contracts; Bishop's Directions and Forms; Bishop's Marriage, Divorce and Separation, etc., etc. G. T. BISPHAM, Principles of Equity. M. M. BIGELOW, Bills, Notes and Checks; English Procedure; Bigelow's Equity; Bigelow's Estoppel; Life and Accident insur- ance Reports. E. C. BENEDICT, Benedict's American Admiralty. C. F. BEACH, Beach's Contracts; Beach's In- surance; Beach's Contributory Negligence; Beach's Injunction; Beach's Monopolies. E. E. BALLARD, Real Property Law; Deed Forms. SIMEON E. BALDWIN, Baldwin's American Railroad Law, American Judiciary; Baldwin's Modern Po- litical Institutions, W. E. BENJAMIN, Bills, Notes and Checks; the recognized standard authority on subjects treated. U. BLICKENSDERFER, Blackstone's Elements; Students' Review, AUTHORITIES CONSULTED J. H. BREWSTER. Brewster's Conveyancing. WILLIAM BLACKSTONE, Blackstone's Commentaries, Abridged by James DeWitt An- drews, Becliet, Chitty, Elwell, Hammond, Sharswood, Brown. Blackstone's Commentaries have ■been text books for students for many ycar.s. G. BLISS, Life Insurance. H. C. BLACK, Black's Accident Cases; Bank- ruptcy Law; Constitutional Problems; Law Dictionary; Judgment; Tax Titles, etc., etc. C. L. BATES, Bates' Federal Equity Procedure. W. H. BROWNE, Law of Trade Marks; Divorce and Alimony. HENRY F. BUSWELL, Buswell's Insanity; Limitations and Adverse Possessions; Personal Injuries. F. M. BURDICK, Partnership, Sales, Torts. A. M. BURRILL, Assignments; Circumstantial Evi- dence; Practice. JOHN BOUVTER, Institutes; Law Dictionary. IRVING BROWNE, Domestic Relations; Bailments and Carriers; Criminal Law; Law and Lawyer in Litera- ture; Parol Evidence. S. V. CLEVENGER, Spinal Concussion; Med"ical Juris- prudence of Insanity. G. A. CLEMENTS, Digest of Fire Insurance Deci- sions. JOSEPH CHITTY, JR., Chitty's Contracts. CHARLES D. DRAKE, Drake's Attachment Suits. GEORGE B. DAVIS, Davis' Military Law; Interna- tional Law; Elements of Law. M. E. DUNLAP, Abridgment of Elementary Law. EATON S. DRONE, Copyright Law, JOHN F. DILLON, Municipal Corporations; Jurispru- dence of England and America. CHARLES B. ELLIOTT, Public Corporations. SIMON GREENLEAF, Greenleaf's Evidence, recosnized as the highest authority. A. M. HAMILTON, Medical Jurisprudence. G. E. HARRIS, Contracts by Married Women; Damages by Corporations; Law of Certiorari; Sunday Laws Civil and Crimi- nal. JOHN G. HAWLEY, International Extradition; Inter- state Extradition; Law of Arrest. E. W. HUFFCUT, Negotiable Instruments; Business Law ; Agency. JAMES L. HIGH, Higfh on Injunctions; Extraordi- nary Legal Remedies; High's Receivers. F. N. JUDSON, Interstate Commerce. J. A. JOYCE, Insurance: Electric Law; Dam- ages. AUTHORITIES CONSULTED JOHN D. LAWSON, Contracts; Civil Damages for Sale of Liquors; Defense to Crime; Expert Evidence, etc., etc. J. R. LAW, Irrigation Law; Domestic Rela- tions. S. S. MERRILL, Mandamus; Conflict of Laws. J. W. MAY, Law of Crime; Insurance; U. S. Supreme Court Practice; Fraud- ulent Conveyances. G. L. PHILLIPS, Code Pleading. J, H. PURDY, Private Corporations. H. E. PAINE, Law of Election. J. RAM, Ram's Facts; Legal Judgments. W. C. ROBINSON, American Jurisprudence; Elemen- tary Law; Forensic Oratory; Law of Patents. W. H. RAWLE, Covenants for Title; Rawle's Equity. H. D. SEDGWICK, Law of Damages; Leading Cases on Law of Damages. JAMES SCHOULER, Domestic Relations; Bailments; Executors and Administra- tors; Law of Wills, €tCtj 6tCt W. L. SNYDER, Mines and Mining; Interstate Commerce Act. GEORGE H. SMITH, Elements of Right and of the Law. JAMES F. STEPHEN, Stephen's Practice; Digest of Evi- dence; Criminal Law, etc. HANNIS TAYLOR, International Law; Jurisdiction and Procedure of U. S. Su- preme Court. C. G. TIEDEMAN, Bills, Notes and Checks; Commer- cial Paper; Municipal Corpo- rations; American Law of Real Property. BRADLEY M. THOMPSON, Cases of Equity Pleading and Practice. H. C. UNDERHILL, Criminal Evidence; Trusts and Trustees; Wills. GEORGE W. WARVELLB, Abstracts of Title; Ejectments; Ethics; Real PropeHy, etc. FRANCIS WHARTON, American Law; Agency; Conflict of Laws; Contracts; Criminal Law; International Law; Law of Negligence, etc., etc. JOHN H. WIGMORB, Examinations in Law. J. G. WOERNER, JLmerican Guardianship. PREFACE. This volume of the Cyclopedia of Law, treats of two very important branches of law — the law of Negotiable Instruments, and the law of Suretyship and Guaranty. These subjects lie at the very basis of Commercial law, and contain most of the principles governing the every- day affairs of business men. Many bulky books covering these subjects have been compiled suitable for practitioners. This volume the author has designed as a simple and helpful handbook for the use of students, business men, notaries, and those who desire the general and essential principles of law, rather than an exhaustive and technical discussion of rules and cases. It is needless to point out the prime importance of an accurate knowledge of the law of Negotiable Instru- ments and Suretyship to the business man of today, and yet how many are utterly ignorant of the important and well-settled rules governing these subjects, and are de- pendent upon professional advice whenever they would know their legal rights and obligations. In this book the fundamental and important princi- ples of Commercial law are set forth, in reasonable com- pass, that all who wish may become familiar with those iii iv rUEFACE. rules which more or less pervade and control all commer- cial activities. No branch of the law is more essential to know and to understand than the subjects treated in this volume, for they are a part of the daily experience of almost every business man. 6 CONTENTS. Preface iii Abbreviations 315 NEGOTIABLE INSTRUMENTS. CHAPTER I. THE SUBJECT INTRODUCED AND DEFINED. Meaning of "Negotiable Instruments" 1 History of Negotiable Paper 3 Purpose Answered by Negotiable Instruments 5 Kinds of Negotiable Instruments 6 Bills of Exchange Defined 7 Usual Form of Bill of Exchange 8 Promissory Note Defined 9 Usual Form of Promissory Note 10 Check Defined 11 Essentials of Negotiability 12 Writers on Negotiable Instruments 13 CHAPTER II. ESSENTIALS OF BILLS AND NOTES. Must Be in Writing, Date, Signature 14 Same Subject — ^Designation of the Parties 17 Same Subject — The Payee 20 6 V vi CONTENTS. Must Be Payable in Uowy Only 24 Same Subject — Payable in Foreign Money 27 Same Subject— How, and Where Stated 28 Must Be for the Payment of a Sum Certain 28 Same Subject — Examples of Certainty as to the Sum Pay- able 29 The Sum of Money Must Be Payable without Conditions ... 32 Same Subject — "On or Before a Given Date" 34 Must Contain Words of Negotiability 36 Same Subject — Words of Negotiability, Examples of 37 Concerning: the Consideration for the Note or Bill 38 Concerning the Place of Payment 39 The Effect of a Seal 40 Witnesses, Delivery, Etc 40 The Effect of Notes and Bills Executed in Blank 43 Words Sufficient to Constitute the Promise 44 CHAPTER HI. THE PARTIES. In General 46 Commercial Paper of an Infant Considered 46 Commercial Paper of an Insane Person Considered 48 Commercial Paper of Married Women Considered 49 An Alien Enemy Cannot Be a Party to Commercial Paper . . 50 Partners as Parties to Commercial Paper 51 Same Subject — Bona Fide Holders 54 Same Subject — A Corporation Acts by Its Agents, Their Powers 55 Public or Municipal Corporations as Parties to Commercial Paper 57 Same Subject — How the Corporation is Bound, Signature of Agent 59 Trustees, Guardians, Etc., as Parties to Commercial Paper. . 60 CONTENTS. vii CHAPTER IV. THE CONSIDERATION. In General 63 What Constitutes a Valuable Consideration 63 Who are Holders for Value 64 Who are Bona Fide Holders for Value without Notice 67 Same Subject — Accommodation Paper 69 Effect When Consideration Is not Given or Fails, Etc 70 Fraud or Duress as Affecting the Consideration 72 CHAPTER V. ACCEPTANCE AND TRANSFER CONSIDERED. The Purpose of Acceptance 74 The Meaning and Effect of Acceptance 74 Bills that Must Be Presented for Acceptance 75 Presentment, How Made 75 Presentment, When Excused 79 Acceptance Considered 79 Acceptance for Honor, or Supra Protest 81 Presentment for Payment Considered 83 In What Ways Bills and Notes May be Transferred 84 Transfer by Acts of Law 84 Transfer by Assignment 85 Transfer by Negotiation, Its Meaning 85 Negotiation by Delivery and by Indorsement 87 Kinds of Indorsements 87 Qualified, Conditional and Restrictive Indorsements 88 Who May Negotiate a Bill 89 To Whom a Bill May Be Negotiated 90 When a Bill May Be Negotiated 90 Same Subject — Overdue Paper 91 Liability of the Indorser and Rights of the Indorsee 92 6 vill CONTEXTS. CHAPTER VI. DUTIES OF THK IIOI.DKU. In General 9^ How to xVscertain the Tropcr Date for rresentment O-i Mode of Presentment ^^ Meaning and Purpose of Protest 95 "Noting" or Preparation for Protest 97 What the Certificate of Protest Should Contain 98 Protest Evidence of What Facts 99 Hon Protest :\Iav Be Waived or Dispensed with 99 Protest for Better Security 100 Meaning and Purpose of Notice 100 Meaning of "Due Notice," by Whom and When to Be Given 101 Notice Given by Others than the Holder 107 When Notice of Dishonor Is Unnecessary 108 Excuses for Delay in Giving Notice of Dishonor 110 Conflict of Law as Regards Notice HI Duty of Holder to Accept Payment and Deliver Bill HI Who May Make and Receive Payment 112 Effect of Payment Properly Made 112 Payment, How Appropriated When There Are Two or More Bills 114 Payment by Bill, When Considered Absolute or Conditional. 114 CHAPTER VH. LIABILITIES OF PARTIES, AND SPECIAL FORMS OF DISCHARGES. Liability as between Drawee and Drawer or Holder 117 Liability of Acceptor to Holder 117 Liability of Drawer or Indorser to the Holder 119 Same Subject — Exchange and Re-Exchange Discussed 121 Same Subject — Interest 12- Liability of Person Who Transfers by Delivery Only 123 6 CONTENTS. ix Liabilit}^ of Person Accommodated to Accommodation Party 124 What Will Operate to Discharge the Liability of Parties to a Bill or Note 124. Same Subject — When Surety Discharged 125 Same Subject — Forgery and Alterations as a Discharge. . .126 Time within Which Suit May Be Brought on a Bill 129 CHAPTER VIII. PROMISSORY NOTES AND CHECKS SPECIALLY CONSIDERED. Form and Interpretation of a Promissory Note 130 The Transfer of Promissory Notes 132 Liability of Maker of a Note 132 A Check Defined and Discussed 132 Certified Checks Discussed 134 Negotiability of Checks 137 Presentment for Payment and Protest of Checks 13T Same Subject— Time within Which Checks Must Be Pre- sented for Payment 138 Same Subj ect — When Check Is Deemed Overdue and Charges Holder with the Equities 139 Who May Draw Checks against Deposits 140 When a Check May Be Revoked 140 Riffhts and Duties of the Bank or Banker 141 Rights and Liabilities of Drawer of Check 143 Account Paid by Check Not Discharged Until the Check Is Paid 144 CHAPTER IX. PAPER MONEY, COUPON BONDS, AND QUASI-NEGOTIABLE PAPER. Kinds of Paper Money and Effect as Negotiable Instru- ments 145 Coupon Bonds Defined and Explained 148 6 X CONTEXTS. Transfer, Presentment for Payment of Coupon Bonds 149 Actions on Bonds and Coupons, and Defenses on Municipal Bonds 151 Certificates of Deposits as Negotiable Instruments 152 Bills of Lading as Negotiable Instruments 153 Certificates of Stock as Quasi-Negotiable Instruments 155 Warehouse Receipts as Quasi-Negotiable Paper 156 Letters of Credit and Circular Notes 156 6 PART II. THE LAW OF SURETYSHIP AND GUARANTY. CHAPTER I. THE CONTRACT DEFINED AND EXPLAINED. Suretyship and Guaranty Defined and Distinguished 159 General Requisites of the Contract, History and Authorities. 162 Who May Become a Surety or Guarantor 163 The Consideration for the Promise of the Surety or Guaran- tor 164 Bond Given When Not Required, or in Different Form Binds Surety 166 Surety May Be Sound Though Name Not in Body of Writ- ing, and His ObHgation May Arise by Implication 167 When Joint Maker of a Note May Be Shown to Be a Surety bv Parol Evidence 168 When Surety Estopped from Denying Recitals of Facts in Written Obligation 170 Negotiability of Guaranties Discussed 171 When Offer of Guaranty Must Be Accepted 173 Forms and Kinds of Guaranties 173 Limitations of Surety's Contract as Regards Time, Act or Amount 175 Effect of the Statute of Frauds upon the Contract 177 Same Subject — Effect When the Contract Is within the Stat- ute and Not in Writing 182 6 xi xii CONTEXTS. CHAPTER II. T-IABIT-ITY OF SURETV OK GUAUAXTOU HOW DISCHARGED, ETC. Construction of Contract of Surety or Guarantor 184 When the Surety May Bo Sued 186 Same Subject — Meaning of Due Diligence 188 Liability of Surety for Payment of Overdue Notes and for Rent When Tenant Holds Over 189 Extent of Surety's Liability for a Debt or on a Bond 190 Liability of Surety on Discounted Note 190 Liability of Guarantor on General and Particular Guaranty. 191 Liability of Guarantor or Surety in Special Cases 192 Revocation of Guarantv on Death of Guarantor, and by No- tice " 193 When the Surety May Be Sued Jointly with the Principal. .194 Surety Not Liable at Law, May or May Not Be Chargeable in Equity 195 Contract of Surety Governed by Law of Place Where Made. 196 Liability of Surety When Principal Discharged, or not Orig- inally Bound 196 Necessity for Demand on the Principal and Notice of De- fault to Guarantor 197 Liability of Blank Indorsers and Accommodation Parties to Commercial Paper 200 Ways in Which Surety or Guarantor May Be Discharged . . . 202 Discharge of Surety or Guarantor by Payment 202 Discharge of Surety or Guarantor by Giving Time 203 Same Subject — Exceptions and Other Principles 206 Discharge of Surety or Guarantor by Alteration of the Con- tract 208 Discliarge of Surety or Guarantor by Fraud, Misrepresenta- tion, Concealment, Etc 209 Discharge of Surety or Guarantor by Creditor Relinquishing Security 211 Same Subject — Negligent Loss of Collateral Security 214 6 CONTENTS. xiii CHAPTER III. OF THE RIGHTS OF SECURITIES AND GUARANTORS CONTRIBUTION AND SUBROGATION. In General 216 The Right to Indemnity from the Principal 216 Same Subject — Other Principles 218 Rights of the Surety or Guarantor against the Creditor 221 Rights of Surety or Guarantor against Third Persons 222 Of the Right to Contribution 222 Same Subject — Who Are Co-Sureties 223 Same Subject — Other Principles Concerning Contribution. .225 Same Subject — Other Equitable Rights against Co-Securi- ties 226 Subrogation an Equitable Right 228 Prerequisites to the Right of Subrogation 229 How the Right to Subrogation Enforced 230 When Subrogation Will Be Allowed 230 Same Subject — In Case of a Judgment 232 Extent of the Right of Subrogation 233 When Creditor Entitled to Securities Held by the Surety. . .235 APPENDIX. Negotiable Instrument Code of Ohio 237 Questions for Students 291 NEGOTIABLE INSTRUMENTS. CHAPTER I. THE SUBJECT INTRODUCED AND DEFINED. Sec. 746. MEANING OF "NEGOTIABLE IN- STRUMENTS."— By Negotiable Instruments, also called "negotiable paper" and "commercial paper," are meant that exceptional class of contracts or obligations in writing, which by the law merchant, commercial usage, and now by statute, may be assigned or transferred from person to person independent of the rules of the common law regarding assignments generally, and which when properly delivered or indorsed to another may enable that other, called the holder or indorsee, to sue upon it in his own name free from any defenses which the obligor might have against the original holder.* *"Negotiable, describes that which is capable of being trans^ ferred by assignment, a thing which may be transferred by a sale and indorsement, or delivery. This negotiable quality trans- fers the debt from the party to whom it was originally owing to the holder, when the instrument is properly indorsed, so as to enable the latter to sue in his own name either the maker of a promissory note, or the acceptor of a bill of exchange, and the other parties to such instruments, such as the drawer of a bill or the indorser of a bill or note, unless the holder has been guilty of laches in giving the required notice. It must, how- ever, be payable to order or bearer, and, at all events, in money only, and not out of any particular fund." (Abbott's L. Diet., "Negotiable," citing Walker v. Ocean Bank, 19 Ind. 247.) 1 2 NEGOTIABLE INSTRUMENTS. In a prc\i()us volume of the Cyclopedia of Law* we have seen that, at the early common law. contracts could not be assigned, the reason being that the right con- ferred by a contract is a right to sue, or a "chose in ac- tion," and to permit this action to be assigned was held to be an encouragement to litigation and not sanctioned by the wisdom of the law.t This rule, however, was not founded in reason, and has been outgrown. The equity courts, at an early date refused to recognize it, and the law courts have made it a mere technicality by allowing the assignee to sue in the name of the assignor but for his own use and benefit. By statutes in the various States permitting or declaring that all suits shall be brought in the name of the real party in interest, the rule of the common law regarding assignments of contracts is prac- tically nullified. But from the earliest times, commer- cial, or negotiable paper, has been an exception to this common law rule, and has been trans ferrable from hand to hand with the right in the holder to sue in his own name, and hence they are very properly designated by writers as "negotiable" contracts.! *Vol. IV., Sees. 472-479, under the subject of Contracts. •J-"The gi-eat wisdom and policy of the sages and founders of our law have provided that by no possibility, title, right nor thing in action shall be granted to strangers, for that would be the occasion of multiplying contentions and suits of great op- pression of the people." (Lord Coke, in Lampet's Case, 10 Co. Rep. 48.) :|: Walker's Am. Law, Sec. 180. Under the present statutes requiring suits to be brought in the name of the real party in interest, the distinction between negotiable and non-negotiable THE SUBJECT DEFINED. 3 Sec. 747. HISTORY OF NEGOTIABLE PA- PER. — There is some dispute as to the exact time when certain forms of negotiable paper began to be used. Bills of exchange were used by the Romans in the time of Cicero, but did not possess the negotiable characteristics of our bills of exchange. Similar bills of exchange were made use of by the Venetians prior to 1272, their origin being ascribed to the Jews when exiled from various countries for usury, enabling them to draw their wealth after them into countries where ihey were permitted to reside. The Lombards and Florentines are also given the credit of their invention, and further it is stated that they were employed by King John as early as 1202 to remit money to his agents at Rome. As a result of the various theories JNIr. Parsons arrives at the conclusion that bills of exchange were "in use among the commercial nations of Europe, and especially along the shores of the Mediterranean, about five centuries ago, and that they were then of recent introduction."* Inland bills of exchange, which are distinguishable from foreign bills, in being drawn and payable in the same country, were of later origin, and were first used in England about the reign of Charles Il.f While prom- issory notes, though possibly used as evidence of obliga- instruments lies in the protection given to holders of negotiable paper against the equities existing between prior parties. *1 Parson's Notes and Bills, 2. See also in this connection, III Kent Com. 44 ; 1 Daniel's Negotiable Instruments, 4-5 ; Chitty on Bills, 11 ; Story on Bills, Sees. 5-11 : 2 Bl. Com. 467. fTiedeman, Com. Paper, Sec. 3; Daniel's Neg. Inst. 8. 4 NEGOTIABLE INSTRUMENTS. tions to pay money at an early day, were not recognized as negotiable by the courts until inland bills of exchange began to be used, and were then confounded with inland bills. As a result of the opposition of Lord Holt, who declared in Gierke v. ]\Iartin (2 Ld. Raym. 757), "that the maintaining of these actions upon such notes were innovations upon the rules of the common law, and that it amounted to setting up a new sort of specialty un- known to the common law, and invented in Lombard Street, which attempted in these matters of bills of ex- change to give laws to Westminster Hall," it became necessary to settle the matter of the negotiability of promissory notes by statute, as Lord Holt repeatedly denied that they could be declared upon as an inland bill under the custom of merchant.* By the statutes of 3 and 4 Anne, chapter 9, and 7 Anne, chapter 25, prom- issory notes were declared negotiable in England the same as bills of exchange.! *See Buller v. Crips, 6 Mod. 29; Grant v. Vaughan, 3 Burr. 1525. fBy the statute of 3 and 4* Anne, ch. 9, it was enacted : "That all notes in writing that shall be made and signed by any per- son, etc., whereby such person, etc., shall promise to pay to any other person, his, her, or then* order, or unto bearer, any sum of money mentioned in such note, shall be taken and construed to be, by virtue thereof, due and payable to any such person, etc., to whom the same is made payable; and also every such note payable to any person, etc., his, her, or their order, shall be assignable or indorsable over, in the same manner as inland bills of exchange are or may be, according to the custom of merchants; and that the person, etc., to whom such sum of money is or shall be by such note made payable, shall and may THE SUBJECT DEFINED. 5 In the United States similar statutes have been en- acted in the various States, and the negotiability of any note depends, it would seem upon the statute having been complied with. But it is held by many authorities that promissory notes are negotiable independent of any statute by the custom of merchants, the contrary is also maintained by other authorities.* Sec. 748. PURPOSE ANSWERED BY NEGO- TIABLE INSTRUMENTS.— "Negotiable contracts were introduced in modern times for the benefit of com- mercial intercourse. They are designed to circulate readily from hand to hand, and thus multiply the facili- ties of traffic and credit."t Professor Tiedeman states that the development and extension of commerce out- growing the limited supply of money, as well as the danger from loss by robbery and destruction in the trans- maintain an action for the same, in such manner as he, she, or they, might do upon any inland bill of exchange, made or drawn according to the custom of merchants, against the person, etc., who signed the same; and that any person, etc., to whom such note that is made payable to any person, etc., his, her, or their order, is endorsed or assigned, or the money therein mentioned ordered to be paid by indorsement thereon, shall and may main- tain his, her, or their action for such sum of money, eithel against the person, etc., who signed the note, or against any of the persons that indorsed the same, in like manner as in cases of inland bills of exchange." *Irwin V. Maury, 1 Mo. 194; Dunn v. Adams, 1 Ala. 527; 1 Parson's N. & B. 13, hold that they are negotiable independent of statute; while Davis v. Miller, 14 Gratt. 18; Morton v. Rose, 2 Wash. (Va.) 233, hold the contrary. fWalker's Am. Law, Sec. 180. 6 NEGOTIABLE IXSTUrMENTS. portation of money, led to the invention and use of a rep- resentative of money — ^commercial paper — which pos- sesses the characteristic of money in that it passes cur- rent and thus hecomes a medium of exchange. It was the demands of commerce, he believes, that induced the courts to extend to commercial paper the character of money, and that this exchange quality is what distin- guishes commercial paper from other instruments of in- debtedness.* This contention is strengthened, if not proven, by the fact that as commerce and trade devel- o])ed new forms of commercial or negotiable paper were invented, and this process of adding to the variety of instruments possessing the quality of negotiability has not ceased at the present time, though over nine-tenths of the volume of business is estimated to be conducted by this paper medium of exchange.! Sec. 749. KINDS OF NEGOTIABLE IN- STRU^NIENTS. — At common law, the first instrument recognized as possesshig negotiable qualities was a for- *See Tiedeman, Com. Paper, Sec. 1. fThis development of a paper currency in the face of the wise (?) policy of financiers and economists, who demand a money unit with intrinsic value equivalent to its face value, affords a striking example of the way in which the needs of trade and commerce force a modification of the law in the very teeth of the money sharks whose greed demands the limitation of the volume of monc}'. Were it not for this commercial mint, in which untold millions of a practical and business-like exchange medium can be created independent of the gambling of the money sharks, humanity would long since have expired with a last quiver upon the "cross of gold!" THE SUBJECT DEFINED. 7 eign bill of exchange, which came into vogue and was sanctioned by the custom of merchants. This was fol- lowed by inland bills of exchange, and inland bills by promissory notes, whose negotiability was settled by the statute of 3 and 4 Anne, chapter 9. By State statutes, bills, notes and bonds are made equally negotiable, and in addition to these forms of negotiable instruments, checks, drafts, bank notes, coupon bonds, bills of lading, warehouse receipts, and letters of credit have been devel- oped with all or some of the features of negotiable in- struments. Sec. 750. BILLS OF EXCHANGE DEFINED. — A bill of exchange is defined by Blackstone to be "an open letter of request from one man to another, desiring him to pay a sum of money therein named to a third person on his account." (2 Com. 4<66.) Later defini- tions only improve on Blackstone by stating that the re- quest must be unconditional, and the amount payable ab- solutely and at all events.* Bills of exchange are either foreign, or inland. By a foreign bill of exchange is meant one drawn in one coun- *Thus In Byles on Bills, 1, it is said, "a bill of exchange is an unconditional written order from A to B, directing B to pay C a sura of money therein named." While Mr. Daniel defines a bill of exchange as "an open letter addressed by one person to a second, directing him, In effect, to pay absolutely and at all events, a certain sum of money therein named, to a third person or to any other to whom that third person may order it to be paid ; or It may be payable to bearer or to the drawer himself." (1 Daniel's Neg. Inst. 35. See also, Bayley on Bills, 1, and TIedeman, Com. Paper, Sec. 2.) 8 NEGOTIABLE INSTRUMENTS. try and payable in another. While an inland bill of ex- change designates one drawn and payable in the same State or countr5\ If the bill is payable in a different State or country from that in which it is drawn, it is foreign; and if drawn and payable in the same State or country it is inland, regardless of the residence of the liarties. (Buckner v. Findley, 2 Pet. 58G.) The differ- ent States of the United States are regarded as foreign to each other, and a bill drawn in one payable in another is deemed a foreign bill. (Warren v. Grooms, 20 JNIe. 139.) The chief distinction between an inland and for- eign bill is, that the former is construed and interpreted by the law of its origin, and need not be protested for non-payment, while the latter is construed by the law of the place of payment and must be protested in order to hold the drawer and indorsers.* Sec. 751. USUAL FORM OF BILL OF EX- CHANGE. — A bill of exchange is usually, though not necessarily, of the following form: CoNNEAUT, Ohio, April 1st, 1900. Three months after date, pay to Abel Payee, or order, sixty dollars, for value received. Charles Drawer. To Edward Drawee.f "The person who makes this order (Charles Drawer) is called the Drawer; the one upon whom the order is *Ticdcman, Com. Paper, Sec. 3. f This form, as well as several others which follow, are adapted from Swan's Treatise, the Ohio Justice Guide, and are used THE SUBJECT DEFINED. 9 drawn (Edward Drawee) is called the Drawee; and the person to whom the money is directed to be paid (Abel Payee) is called the Payee." (Swan's Treatise, 15th ed., p. 689.) The Drawee may accept the bill, which is done by writing the word "accepted" across the face of the bill and signing his name or initials thereto, and he is then called the Acceptor. And the Payee may indorse the bill, which is done by writing his name upon the back of the instrument and delivering it to some third person, he then becomes an Indorser as well as Payee ; the party to whom he thus transfers the bill is called an Indorsee. The indoi'see may in turn become an indorser by transfer of the note, and then sustains a double relation thereto, that of First Indorsee, and Second Indorser; the party to whom he has transferred becoming the Second In- dorsee, and this process may continue through any num- ber of indorsements. The last indorsee or party entitled to the bill is called the Holder. Sec. 752. PROMISSORY NOTE DEFINED.— "A promissory note is an unconditional promise to pay to another's order or to bearer a specified sum of money at a specified time."* It will be seen that a jjromissory note does not differ materially from an inland bill of ex- because it is believed they will assist the student in identifying the respective parties to the bill. *Tiedeman, Com. Paper, Sec. 6. "A promissory note is an unconditional written promise, signed by the maker, to pay absolutely and at all events a sum certain in money, either to the bearer or to a person therein designated, or his order." (Benjamin's Chalmers B. N. & Checks, Art. 271; Colehan v. Cooke, [1742] Willes, 393-397.) 10 NEGOTIABLE INSTRUMENTS. change, with which it was earlv confounded. It is an order drawn on one's self instead of a third person.f Sec. 753. USUAL FORM OF PROMISSORY NOTE. — The form of a promissory note, like that of a bill of exchange, is not arbitrary, so long as the essentials of a negotiable instrument are present. A customary form is as follows : CoNNEAUT, Ohio, April 1st, 1901. For value receiv^ed, I promise to pay Abel Payee, or order, sixty dollars, two months after date. Charles Dame. "The one to whom the money is payable, still continues to be called the Payee; but the one who is bound to make payment is neither a drawer, draw^ee, nor acceptor; but the signer of the note is called the Maker, though his liability to the payee is precisely the same as if he had accepted an order, or bill of exchange, in favor of the payee." (Swan's Treatise, p. 690.) The payee of the note may indorse it to a third person the same as a bill of exchange, and become both payee and first indorser, and this process may continue through f'lndeed," says Professor Walker, "it is sufficient, so far as negotiability is concerned, to consider all negotiable instru- ments as divided into two classes, orders and promises : for a bill of exchange is a written order for the pajrment of money; which definition equally embraces checks, drafts, and orders commonly so-called : and a promissory note is a written promise for the payment of money, which definition equally embraces promises under seal, whether denominated bonds or single bills." (Am. Law, Sec. 180.^ THE SUBJECT DEFINED. 11 any number of indorsers, the last party taking by in- dorsement being known as the Holder.* Sec. 754. CHECK DEFINED.— A check is de- fined by JNIr. Daniel as "a draft or order upon a bank or banking house, purporting to be drawn upon a deposit of funds for the payment at all events of a certain sum of money, to a certain person therein named, or to him and his order, or to bearer, and payable instantly on de- mand." (Neg. Inst., Sect. 1566.) While Professor Tiedeman describes a check as "having essentially the characteristics of a bill of exchange, and differing from the bill in being drawn on a bank or banker, apparently and presumptively against a deposit of funds, and pay- able on demand without grace." (Com. Paper, Sec. 430.) A check is in the following form: CoNNEAUT, Ohio, April 1st, 1900. The First National Bank, pay to Abel Payee, or order (or bearer), sixty dollars ($60.00), and charge to my account. Charles Dra^ver.! *"In a bill, the person who makes the order is called the drawer; the person in whose favor it is made, the payee; and the person to whom the order Is addressed, the drawee, and after acceptance, the acceptor. In a note, the person who makes the promise is called the maker ; and the person to whom it is made, the payee. When the payee, either of a bill or note, has indorsed it to a third person, it is then said to be negotiated. He be- comes the indorser, and the person to whom it is transferred, the indorsee. He may in his turn become the indorser, and so on indefinitely. The person having a right to the bill or note at any particular time is called the holder." (Walker's Am. Law, Sec. 180.) ■|'"A check is a written order or request, addressed to a bank. U NEGOTIABLE INSTRUMENTS. Checks are negotiable instruments, and may be trans- ferred by delivery when j^ayable to bearer, or by indorse- ment when payable to any person or his order. The other forms of negotiable or quasi-negotiable in- struments mentioned in Sec. 749 will be discussed in their order in a later cliapter. Sec. 755. THE ESSENTIALS OF NEGOTIA- BILITY. — In order that written instruments may pass current or have the character and superior advantages accorded to commercial paper, they must bear certain indicia of their worth and nature upon their face. These requisites or essentials of negotiability are thus stated by Professor Walker: "First, it must be in \vi'iting; secondly, it must be for the payment of money only, and not for other propert}^; thirdly, it must be for the pay- ment of a sum certain, and not for unliquidated dam- ages ; fourthly, the sum promised must be payable abso- lutely, and without conditions; fifthly, the contract must contain words of negotiability, as 'to order,' 'to assigns, ' or its cashier, and drawn by a person having mone}-^ in the bank, requesting the bank, or its cashier, to pay on demand, — that is, on presentment, — to a person therein named, or to bearer, a named sum of money. "The person who draws the check is called the drawer; the person upon whom it is drawn (the bank) is called the drawee; and the person to whom the money is directed to be paid is called the payee." (Swan's Treatise, p. 737.) "A check is a bill of exchange drawn by a customer on his banker payable on demand." (Ben j.'s Chalmers, B. N. & Checks, Art. 254.. Citing, McLean v. Clydesdale Bank (1883), 9 App. Cas. 95; 21 Wend. (N. Y.) 372; Bickford v. Bank (1866), 42 111. 238.) THE SUBJECT DEFINED. 13 or 'to bearer;' and sixthly, it must import a considera- tion, so as to preclude the necessity of inquiry and proof." (Am. Law, Sec. 180.) A contract possessing these properties, since it is liable to no other question than what relates to the responsibility of the parties. In the succeeding chapter we shall discuss, one by one, these essentials of negotiability, and explain their mean- ing in detail. Sec. 756. WRITERS ON NEGOTIABLE IN- STRUMENTS.— Mr. Daniel's noted work on Nego- tiable Instruments is a standard authority, and has reached the sixth American edition. Byles on Bills is a smaller work which has reached the eighth American edi- tion. Among American authors are Story's work on "Promissory Notes;" Parsons' work on "Notes and Bills;" Ames' "Bills and Notes;" Randolph's work on "Commercial Paper;" Tiedeman's "Commercial Paper." Among the more recent writers are Bigelow, who has compiled a work styled "Bills, Notes and Checks;" Ed- wards' work on "Bills and Notes;" Hawthorne's "What Instruments Are Negotiable;" Van Schaak's "Bank Checks;" and Benjamin's Chalmers' "Bills, Notes and Checks." CHAPTER II. ESSENTIALS OF BILLS AND NOTES. Sec. 757. MUST BE IN WRITING, DATE, SIGNATURE. — A bill of exchange, promissory note, or other negotiable histriiment must be in writing. There can be no verbal promise which is transferrable by de- livery or indorsement. The bill or note may of course be printed, and even the signature of the drawer or maker may be i)rinted, if it is proven that such printed signature has been adopted by the drawer or maker as his own signature. (Pennington v. Baehr, 48 Cal. o(j5.) The signature may also be written in pencil as well as in ink. (Reed v. Roark, 14 Tex. 329.) The signature of the maker need not be at the place indicated in the forms given, and is sufficient if it appears on any part of the paper, even the back. (Hunt v. Adams, 5 ]Mass. 359; Schmidt v. Schmaelter, 45 Mo. 502.) So it is held that the signature is sufficient though only the initials have been signed to the instrument. (^lerchants' Bank v. Spicer, 6 Wend. 443.) To avoid ambiguity and suspi- cion of the validity of the instrument, it should be signed at the customary place, with the full name of the drawer or maker.* *"A bill of exchange must be signed by the drawer. The drawer's signature may be added at any time, but until it is there the instrument is inchoate and without effect. A draws 14 ESSENTIALS OF BILLS AND NOTES. 15 A bill or note is usually dated at its 'commencement, as in the forms given, and this is proper but not necessarj^* Where the date is not given and the instrument is pay- able at a certain time after the date, the time is computed from the date of issue, and parol evidence is admissible to show what this date was. (Lean v. Lozardi, 27 Mich. 424.) It may also be shown that there was a mistake in the date as against the maker, but not as against a bona fide purchaser without knowledge of the mistake. ( Hus- ton V. Young, 33 Me. 85.) An undated note or bill may be filled up by the payee, and any date inserted by him binds the maker or drawer when the instrument has been indorsed to an innocent purchaser for value; but in the hands of the payee, or holders with notice of the true date, it will be void if the date inserted is not the true date, unless authority has been given to change the date. (Androscoggin Bank v. Kimball, 10 Cush. 373; Good- man V. Simonds, 19 Mo. 106.) Bills and notes may be antedated or post-dated with- out destroying their negotiability. f They may be nego- a bill on B, payable to drawer's order but does not sign it. B accepts, and it is transferred for value to C. The mstrument is neither a bill nor a note. (Benj.'s Chalmers, Art. 4, et seq. ; McCall V. Taylor, 34 L. J. C. P. 365.) *It has been very generally held that the date is not essential to the validity of a bill or note. (Tiedeman, Com. Pap., Sec. 10. Citing, Michigan Ins. Co. v. Leavenworth, 30 Vt. 11 ; Drake v. Rodgers, 32 Me. 524; Cowing v. Altman, 71 N. Y. 441 ; Seldenridge v. Connable, 32 Ind. 375 ; etc. ) fit is usual but not necessary, to Insert in a bill the date on which it Is drawn. A bill, expressed to be payable after 16 NEGOTLVBLE INSTRUMENTS. tiated before the day of the date without suspicion of In- validity. (Richter v. Sehn, 8 Serg. & R. 425.) And where the indorser died before the date set in a post- dated instrument, the indorsee was held to acquire the full title of the indorser. (Brewster v. McCardel, 8 Wend. 478.) The rights of the parties are determined with reference to the date actually stated in the note or bill as a general rule, but in case the note or bill would be void if it had been executed on that day, either be- cause the maker was incompetent or the day precluded the making of valid paper, it can be shown in behalf of its validity that it was actually negotiated at a different date. But a bill post-dated or antedated for the very purpose of evading rules of law invalidating paper made on the day the paper is executed and delivered, will be date, should be dated; but evidence is admissible to show on what day such bill, if undated, was issued, and it takes effect from that time." (Richardson v. Elett, 10 Tex. 190.) "A bill may be ante-dated or post-dated. Evidence is admis- sible to show on what day such bill was issued, and it takes effect from that time. A draws a bill on B, bearing date May 1st, payable to C's order. C indorses to D, who sues A. It appears that C died in April. D may show that the bill was post-dated, and that C really indorsed it. He can then recover." (Benj.'s Chalmers B. N. & Checks, Arts. 15-lG; Pasmore v. North, (1811), 13 East. 517.) "Such evidence is not admissible to invalidate the title of a bona fide holder for value. "A bill is prima facie presumed to have been issued on the day which it bears date. But a bill bearing date on a Sunday is not presumed to have been issued on that day." Id. Dohoney V. Dohoney (1870), 7 Bush (Ky.), 217. ESSENTIALS OF BILLS AND NOTES. 17 void in the hands of all persons who have notice of the evasion or who take the paper without consideration.* Sec. 758. SAME SUBJECT— DESIGNATION OF THE PARTIES.— The name of the maker of a note or the drawee of a bill should appear on the instru- ment. In the case of the note it is important as it is the maker who is liable thereon; and in case of the bill the drawer's name must be written in to bind the party ac- cepting. (Levis V. Young, 1 Met. Ky. 199.) In a case where the signature of the maker of a note was in the alternative as "A. B. or else C. D." it was held not to be a negotiable note within the statute of Anne, as against C. D., on account of his conditional liability. (Ferris v. Bond, 4 B. & Aid. 679.) The execution and delivery of a bill of exchange without the signature of the drawer will be valid in *Tiedeman, Com. Pap., Sec. 12; Pasmore v. North, 13 East. 517; State Bank v. Thompson, 42 N. H. 369. Note. "A bill issued on Sunday is not void at common law, but by statutes in most of the States, resembling the 29 Car. 2, c. 7, a bill issued on Sunday is void between immediate parties, (Sayre v. Wheeler (1870), 31 la. 112) and incapable of ratifi- cation, but valid in hands of a bona fide holder for value, if dated on a secular day, either on the ground of estoppel, or because the statute does not declare the bill void to all intents and purposes. That the bill bears date on a Sunday, is imma- terial if in fact issued on a secular day. The date of the bill, e. g. "March 6th, 1881, is itself notice to the holder of its issue on Sunday, as the almanac is part of the law of the land." (Benj.'s Chalmers B. N. & Checks, Art. 17 note, citing Knox v. Clifford, 38 Wis. 651; Vinton v. Peck, 14 Mich. 287; Finney V. Callendar, 8 Minn. 41.) 18 NEGOTIABLE INSTRUMENTS. two cases, first, where the payee is authorized to fill in the name, and second, where without authority the name has been filled in, and after acceptance jiassed into the hands of an innocent holder. Instead of the name of tlie maker or drawer a de- scrijjtion of the person sufficient to identify him will suffice, so a note signed "Steamboat Ben Lee and Own- ers," was held to be sufficiently executed. (Sanders v. Anderson, 21 JNIo. 402.) In case of signature by mark it is customary to have witnesses to the mark of the signer, but this is for identification and not necessary to tlic validity of the signature; and the identification of the mark may be shown by its peculiarities the same as in the case of a signature. (Flint v. Flint, 6 Allen 34; Shank v. Butsch, 28 Ind. 19.) An agent may sign the name of the maker or draw^er to a bill or note, and parol authority is generally suf- ficient for him to do so. (Daniel's Negot. Inst., Sec. 274.) A bill or note may be executed by one person or by a number of persons. When executed by but one, it is called a several note. When executed by two or more, it is either joint, or joint and several, according to its wording. Thus if in a note signed by two or more, the plural number is used in referring to them as "we prom- ise to pay," it is held to be a joint note. (Barrett v. Funay, 38 Ind. 86.) While if in the same note the singular number is used, as "I promise to pay," then the note is considered as joint and several, since this expression indicates an intention to make it a joint and ESSENTIALS OF BILLS AND NOTES. 19 several note. (Johnson v. King, 20 Ala. 270.) So the expression, "we or either of us," is held to make a note joint and several. (First Natl. Bank v. Fowler, 36 Ohio St. 524.) The distinction between a joint note, and one joint and several, results from the fact that at common law but one suit may be maintained on a joint note, and all the makers must be joined in it. While the holder of a joint and several note maj^ sue all, or each of them singly, but not more than one and less than all. But under the modern statutes in most of the States, the common law rules respecting joint, and jomt and sev- eral notes is changed so that suit may be brought against any number of the makers regardless of the wording of the instrument, hence the distinction is not of present importance. The two or more drawers of a bill of exchange are treated as separate personages, unless they are partners, and are each entitled to the same notice of dishonor as a single drawer. Each is liable to the acceptor for the whole of the amount of the bill. ( Suydam v. Westf all, 4 Hill 211; Swilley v. Lyon, 18 Ala. 558.) The drawee is a party to the bill, and his full name properly appears in the bill as indicated in the form given. But here, as in the case of the maker and drawer, the place given the name of the drawee is not impor- tant, neither is it required that the name should appear at all, if from the language used the identity of the drawee can be made out. Thus he may be identified by his description, official position, residence, and the oo NEGOTIABLE INSTRUMENTS. like, and when accepted by the person intended is valid. (Gray v. Milner, 8 Taunt. 739.) Until accepted, a bill without the name of the drawee is invalid; though it is claimed if such a defective bill is accepted by any one, it becomes valid, as the accex)tor cannot deny that he was the intended drawee.* The name of the drawee may be in the alternative as "to A, or to B," or "to A, and in case of need, apply to B." This simply necessitates that the holder should present the bill to each of the persons named as drawees before protest, and causes no uncertainty or condi- tional obligation as in the case of alternative makers or drawers. (1 Parsons' N. & B. 64, 65.) f Sec. 759. SAME SUBJECT— THE PAYEE.— Every bill or note should specify clearly to whom it is payable. If no person is designated as payee the *Tieclcman, Com. Paper, Sec. 15; 1 Parsons' N. & B. 288-9; Contra, Davis v. Clarke, 6 Q. B. 16. "Illustrations. Instrument in the form of a bill, but addressed *To — , Mobile, Ala." This is not a bill. "Instrument in the form of a bill payable to drawer's order, not containing the name of the drawee, but expressed to be payable at "No. 1 X Street, London." B, who lives there, ac- cepts it. This is a bill, and B is liable as acceptor." (Benj.'s Chalmers B. N. & Checks, Art. 5.) f"A bill of exchange may designate one or more persons in addition to the drawee, to be resorted to for acceptance of pay- ment in case of need, i. e. in the event of the bill being dis- honored by the drawee. Such person is called the drawee or referee in case of need, or simply the case of need. The prac- tice of deslcnatlno; a case of need Is not common in America." (Benj.'s Chalmers B. N. & Checks, Art. 7.) ESSENTIALS OF BILLS AND NOTES. 21 instrument cannot be negotiated, though if some one is indicated so as to be identified by parol evidence it may be good as a non-negotiable contract. (Brown v. Oilman, 13 Mass. 158; Kinney v. Flinn, 2 R. I. 319.) This does not mean that the payee must be actually named in the instrument, though this is the proper way of doing. The instrument may be drawn payable to bearer, no name being given, and is negotiable as though executed to a named person, or bearer. The payee may be designated by his official capacity or office, or de- scribed as the administrator or executor of a deceased person, or the guardian or trustee of an infant.* * Adams v. King, 16 111. 169; Moody v. Threlkeld, 13 Ga. 55; Tiedeman, Com. Paper, Sec. 17. "Or it may be made pay- able to the officer of a corporation or incorporated society ; and without any further description, it will be payable to whoever occupies the office, at the time of presentment and demand, since the corporation or society was the real payee. But if the bill or note is payable to the officer of an unincorporated society, it must be made payable to the present occupant of the office, as payment 'to the secretary for the time being,' would make the paper void for uncertainty as to the payee." (Tiedeman, Sec. 17.) "A bill may be expressed to be payable to a person therein designated, or to his order, or to bearer. "Illustrations. Pay C. — Pay the trustees of the X Chapel. — Pay to bearer C. "Pay C or order. — Pay to the order of C. "Pay to bearer. — Pay to sliip 'Fortune,' or bearer." (Benj.'s Chalmers B. N. & Checks, Art.. 8.) "The payee of a bill, not payable to bearer, must be an exist- ing person capable of being ascertained and identified at the time it is issued. Extrinsic evidence is admissible to identify the 22 NEGOTLVBLE INSTRUMENTS. A note payable to a named person, there being two persons of the same name, father and son, is presumed to be payable to the father unless the word "junior" is affixed to the signature. But where the son had pos- session of the note and had sued upon it a eounter pre- sumption arises wliich will permit the son to recover, unless it is shown that the father was intended. (Steb- bing V. Spicer, 3 C. B. 827; Sweeting v. Fowler, 1 Starkie 106.) And, as a rule, an ambiguity caused by a mis-description of the payee will not destroy the negotiability of the instrument if the payee can be identified by the aid of parol evidence. (Cork v. Bacon, 45 Wis. 192.) A note in the form, "Received of A. B. one hundred dollars, which I promise to pay on de- payee when misnamed, or when designated by description only, but not to explain away an uncertainty patent on the bill. "The following are valid: "Pay to C, D and E, or the order of any two of them. "Pay to C or his agent. — Pay the trustees of the X Society, or their treasurer for the time being. — Pay C or his wife. "Pay to C, the treasurer for the time being of the X Company. "Pay to the administrator of X, deceased. Evidence is ad- missible to show that C was administrator of X when the bill was issued. The following arc invalid: "Pay to C or D, there being no apparent community of in- terest. "Six months after date, pay to the treasurer for the time being of the C institution. «Pay or order. Evidence is inadmissible to show that C was intended to be the payee. "Pay to the estate of X, deceased. (Benj.'s Chalmers B. N. & Checks, Art. 9, and Illustrations.) ESSENTIALS OF BILLS AND NOTES. 23 mand," was held to give a sufficient deserijotion of the payee, as from the receipt it is manifest that A. B. was the intended payee. (Green v. Davies, 4 B. & C. 235.) Where the instrument is payable to a fictitious person or order, whose name has been indorsed on the back, the paper is treated as though it were payable to bearer in the hands of an innocent holder for value.* Such a holder may sue in his own name, the drawer or maker, and also the acceptor if he had accepted knowing that the payee was a fictitious person. (3 Kent Com. 78.) If the name of the payee or indorsee is left blank, any bona fide holder has authority to insert his own name as payee or indorsee. So if a note or bill is executed to the payee in a wrong name by mistake, he may sue in his right name and show the mistake at the trial. And the payee maj^ assume a name different from his real name and the use of such adopted name honestly and in good faith will not invalidate the con- tract. (Bartlett v. Tucker, 104 I^Iass. 345.) A note or bill may be made payable to the maker or drawer, and when endorsed and negotiated it be- comes a valid negotiable instrument, and is treated as though it had been made payable to bearer. All bills in Avhich the drav/er and drawee are the same person may be treated by the indorsee as bills of exchange or *This rule is statutory in some States. (See Rev. Stats., N. Y. 768. Rogers v. Ware, 2 Neb. 29; Lane v. Krekle, 22 la. 404.) 24 NEGOTIABLE INSTRUMENTS. promissory notes, and the drawer is not entitled to notice of dishonor.* Sec. 760. MUST BE PAYABLE IN MONEY ONLY. — Another requisite of a negotiable instrument is, that it must call for the payment of money only, and not for other property. Though all of the other fea- tures of negotiability are j)resent and the paper calls for the payment of goods, or is in the alternative, as for the payment of a sum of money or "to issue stock" (Hodges V. Shuler, 22 N. Y. 114), payable in "foreign bills" (Jones v. Fales, 4 Mass. 245), payable "in ginned cotton at eight cents per pound" (Lawrence v. Dough- erty, 5 Yerg. 435), to pay "fifty dollars, and deliver up a horse" (1 Stra. 127), it is not negotiable and be- comes a mere contract, f *Chicago R. R. Co. v. West, 37 Ind. 211 ; Planters' Bank v. Evans, 36 Tex. 592. "The most common instance of bills of exchange, where the drawer and the drawee are the same person, are those in which one member of a firm or corporation draws on a branch of the finn or corporation doing business in a dif- ferent place ; those in which an agent draws a bill upon his principal, with his authority ; and those in w^hich one officer of a corporation draws on another officer, who has the custody of the funds. In all these cases the paper may be treated as a bill or note at the option of the holder." (Tiedeman, Com. Paper, Sec. 20.) ■|""(1) The direction must be imperative, not permissive or precative; but the insertion of the mere terms of courtesy will not make it precative. "Illustrations : Mr. B will much oblige Mr. A by paying C or order. — Valid. "Please let the bearer have $100. I will arrange it with you Hiis noon. — Valid. ESSENTIALS OF BILLS AND NOTES. 25 Just what will be included in the word "money" is not always clear. Originally it was limited to the stamped metal or coin issued by a government. But "Please let bearer have $100, and you will much obhge me. — Invalid. "We authorize you to pay C or order. — Invahd. "(2) An order to pay out of a particular fund does not con- stitute a bill; but an absolute order to pay, coupled with (1) a direction to the drawee to reimburse himself out of a particu- lar fund, or (2) a statement of the transaction which gave rise to the bill, is valid. "Illustrations. The following orders or promises are invalid: "Pay C or order $100 out of the money in your hands belong- ing to the X Company. "Pay C or order $100 on the sale or produce when sold of the XX Hotel. "Pay C or order $100 and deduct the same from my share of the partnership profits. "The following are valid: "Pay C or order $100, as my quarterly half-pay due 1st Feb- ruary by advance. "Pay C or order $100 and take the same out of our share of the grain. "Pay C or order $100 against cotton per 'Swallow.' "(3) The order must require the payment of money. "Illustrations: The following are not bills. An order for the delivery to bearer on demand of a certain quantity of iron. A promise to pay C or order $100 in cotton; or in work and labor. A promise to pay in money or in property at the maker's option. Pay C or order $100 In 'good East India bonds.'" (Benj.'s Chalmers B. N. and Checks, Art. 10.) Note. — An order invalid as a bill or note may be valid as an equitable assignment of the fund or account to which it refers. (Bank v. Dubuque R. Co. (1879), 52 la. 378; Grant V. Wood, 12 Gray 220.) «6 NEGOTIABLE INSTRUMENTS. now that paper issued by the government is declared legal tender, money properly includes all legal tender. Though the word "currency" is a broader term than money, and includes bank-notes which are not legal tender, yet it is held that certificates of deposit, notes, bills, bonds, checks and the like, payable in "currency," or in "current funds of this State," "Arkansas money," "current Ohio bank-notes," etc., constitute good com- mercial paper, and are really payable in money, as the term used is but a common expression used to indicate current legal tender. J But if the instrument is made payable in the paper or currency of a particular bank, specifically and abso- lutely, and without reference to the currency or value of the paper, it is held not to be for the payment of money, and is not negotiable.* It is no objection to negotiable paper that it calls for a special kind of legal tender, as "gold coin." (Chrysler v. Pendis, 42 N. Y. 209.) But the legal authorities are divided as to the negotiability of instru- ment payable in currency other than legal tender.f iMorris v. Edwards, 1 Ohio 189; Graham v. Adams, 5 Ark. 255; Wilbum v. Gr«er, 6 Ark. 255; Howe v. Hartness, 11 Ohio St. 449; Bank v. Brown, 45 Ohio St. 39; Black v. Ward, 27 Mich. 173. * Hawkins v. Watkins, 5 Ark. 481 ; Bank v. Zadox Street, 16 Ohio St. 1. jThat such expressions as "current funds," "bank-notes," "currency" and the hke are the equivalent of "money," see White V. Richmond, 16 Ohio 5 ; Judah v. Harris, 19 Johns. 144 ; Drake V. Markle, 21 Ind. 433 ; Hunt v. Divine, 37 lU. 137 ; Butler v. ESSENTIALS OF BILLS AND NOTES. 27 Sec. 761. SAME SUBJECT— PAYABLE IN FOREIGN MONEY.— Negotiable instruments are not invalidated because the amount payable is expressed in mone}^ of the denomination of a foreign country. But a note is not negotiable which requires the obligor to tender money of the foreign denomination in pay- ment instead of a like sum in the native denomination. As where the note is written in dollars and cents and made "payable in Canada money." (Thompson v. Sloan, 23 Wend. 71.) It is the equivalent value of the foreign money which is to be paid, and not the real foreign money. All notes or bills made in the United States and calling for the jDayment of a designated number of dollars and cents are held to be negotiable, and to be drawn for the stated amount of lawful money of the United States, and this presumption is as a rule con- clusive against showing that some other denomination was intended. ( Cook v. Lillo, 103 U. S. 793. ) A noted exception however to this rule was made by the courts in the cases of instruments calling for the payment of a specific number of dollars and cents, but made within the lines of the Confederate government during the civil war and intended to be paid in Confederate money which was greatly depreciated. In order to do equity between the parties the presumption w^as relaxed, and Paine, 8 Minn. 324. To the contrary, see: Collins v. Lincoln, 11 Vt. 268; Ford v. Mitchell, 15 Wis. 304; RlndskoiF v. Bar- rett, 11 la. 172; Wright v. Hart, 44 Pa. St. 454; Johnson v. Henderson, 76 N. C. 227. 28 NEGOTIABLE INSTRUMENTS. the parties allowed to show that b}- dollars and cents the parties meant not "the lawful money of the United States," but a foreign money of a less value, the amount payable being determined by ascertaining the value of so much Confederate money at the time and place of the contract.* Sec. 762. SAME SUBJECT— HOW, AND WHERE STATED. — As a rule the denomination of the money called for in the paper must be stated m the body of the note or bill, and not merely in the margin. Though where the denomination is not given in the body of the instrument, and is given by mark or symbol in the margin, it is held that a holder may write the denomination in the body of the paper. ( Tiedeman, Sec. 29d; Beardsley v. Hill, 61 111. 354.) Sec. 763. MUST BE FOR THE PAYMENT OF A SUM CERTAIN.— It is also a requisite to the negotiability of an instrument that it call for the payment of a definite and certain sum, and not for unliquidated damages. The amount to be paid or which the paper represents should be stated plainly on the face of the instrument, and like the denomination of the money must be stated in the body of the note or bill or it will be defective, unless it is purposely left blank and authority given or implied to fill it up. ( Nor- wich V. Hyde, 13 Conn. 279.) The amount is cus- tomarily written in the margin also, but this is held to *Tiedeman, Com. Paper, Sec. 29c; Stewart v. Solomon, 94 U. S. 434. The Confederate Note Case, 19 Wall. 548. Its value is now fixed by statute. ESSENTIALS OF BILLS AND NOTES. 29 be no part of the instrument, and made simply for con- venience of reference, and the statement in the body of the instrmnent controls, and should they vary any holder may change the marginal figures to conform to the amount as written in the body of the paper. ( Smith V. Smith, 1 R. I. 398.) Unless required by statute to be written in words, the amount may be stated in the body of the instrument in figures. (Petty v. Fleispel, 31 Tex. 169.) Unless the amount of the paper is definitely stated and made certain by the instrument it will not be ne- gotiable. Reference to other papers cannot be made to make certain the amount called for by the instru- ment, but it is to be construed as a whole, and if from anything that appears on the face or back of the paper itself the sum is made certain, the instrument is nego- tiable. So a note giving the number of acres in a tract of land and the price per acre agreed to be paid, was held negotiable. (Smith v. Clopton [1849], 4 Tex. 109.) Sec. 764. SAME SUBJECT— EXAMPLES OF CERTAINTY AS TO THE SUM PAYABLE.— By custom and usage instruments are WTitten with ap- pended statements or agreements which apparently make the amount payable uncertain, but which are held to be negotiable on the ground that the amount can be ascertained with certainty at the time of payment. Thus the note or bill may be written "with current exchange" on some money center. This means, in effect, that the maker or drawer agrees to pay in addition to the sum 30 NEGOTIABLE INSTRUMENTS. named the expense of transmitting the money to the stipulated place, and while this sum may vary from time to time it is not held to destroy the negotiability of the paper.* In case the stipulation is to pay costs of collection, or a certain per centum for attorney's fees m collecting the note if not paid at maturity, the authorities differ as to the effect of this provision. "A few decisions main- tain that the stipulation is in the nature of a usurious charge, and avoids the whole transaction under the laws prohibiting usury. Other decisions hold the stipulation to be void, as against public policy, because it is in the nature of a penalty, and tends to the oppression of im- pecunious debtors. But the avoidance of the stipulation on such gi'ounds enables the courts to treat the stipula- tion as mere surplusage, and hold the instrument to be negotiable notwithstanding. In a large number of cases, the stipulation is held to be valid; but, because it ren- ders the gross sum to be recovered on the instrument uncertain, its insertion in a bill or note is declared to destroy its negotiability; but there are also other cases, which not only recognize the validity of the stij^ulation, but also the negotiability of the paper, in which it appears."! ♦Pollard V. Herries, 3 B. & P. 335; John v. Trisbie, 15 Mich. 286; Leggett v. Jones, 10 Wis. 35; First National Bank v. Dubuque, etc., R. R., 52 la. 378. f Tiedeman, Com. Paper, Sec. 28b. Citing, State v. Taylor, 10 Ohio 378; Meyer v. Hart, 40 Mich. 517; Sweeney v. Thick- stun, 77 Pa. St. 131 ; Storr v. Wakefield, 71 Mo. 622 ; Overton ESSENTIALS OF BILLS AND NOTES. 31 Akin to stipulations making the agreement uncertain as to the amount to be paid are those collateral obliga- tions which are sometimes attached to an instrument call- ing for the performance of certain other acts on the part of the obligor. According to the earlier authorities all such stipulations were held to destroy the negotiability. Thus, paper for the payment of a sum of money and the performance of certain work (Fletcher v. Thomp- son, 55 N. H. 208), the payment of a stated sum and the settlement of other debts (Ayrey v. Fearnsides, 4 M. & W. 168), and the payment of a certain sum for the hire of a negro, with a stipulation for the furnishing the negro with clothing (Barnes v. Gorman, 9 Rich. 297) , was held non-negotiable. But later decisions, con- trary to earlier decisions, have held valid and negotiable paper stipulating that in default of payment the holder or his agent should have authority to confess judgment against the maker for the amount of the note. Instru- ments waiving the benefit of the exemption laws have also been held valid.* V. Matthews, 35 Ark. 147; Johnson v. Crossknd, 34 Ind. 344, etc. By statute in Indiana, it is provided that a stipulation In a negotiable paper to pay attorney's fees made to depend upon a condition in the Instrument, shall be declared Illegal and void. An unconditional stipulation Is held not to be avoided by this statute. (Brown v. Barber, 59 Ind. 533.) *ZImmerman v. Anderson, 67 Pa. St. 421 ; Walker v. Woolen, 54 Ind. 164; Contra, Overton v. Tyler, 3 Barr. 346. In Ohio, a note authorizing the holder to confess judgment, is called a "cognovit note," while a stipulation waiving the benefit of the exemption laws is rendered invalid by statute. 32 NEGOTIABLE INSTRUMENTS. Sec. 765. THE SUM OF MOXEY MUST BE PAYABLE WITHOUT CONDITIONS.— A fourth requisite of commercial paper is that the sum of money promised must be payable absolutely and without conditions. The payment must be promised at a time certain or upon a condition that must happen, and not depend upon a contingent event. Thus where the paper was payable, provided a ship should arrive (Coolidge v. Ruogles, 15 Mass. 387), provided a railroad should be built to a certain point within a stated time (Blackman V. Lehman, 63 Ala. 547), or provided the maker was able (Lalinas v. Wright, 11 Tex. 572), the instrument was held non-negotiable because of the condition being contingent or uncertain. Any uncertainty or indefinite- ness in the time of payment will destroy the negotiability of the paper, but if the condition upon which the note or bill is to be paid must ha2:>pen in the ordinary course of events, however remote, the instrument is negotiable. Thus a promise to pay when "A. B. dies," or on the first day of January, 2000, is a valid negotiable instru- ment, as the event stated must happen.* *Colcman v. Cooke, Welles 393; Worth v. Case, 42 N. Y. 362 ; Conn v. Thornton, 46 Ala. 587. By a number of American authorities notes are allowed to be negotiable though plainly uncertain as regards time of pay- ment, thus the promise, "payable from the avails of logs bought of A. B., when there Is a sale made," (Scars v. Wright, 24 Me. 278) ; "as soon as I can," (Works v. Hershey, 35 la. 340) ; "to be paid as soon as collected from my accounts at P.," (Ubs- dell V. Cunningham, 22 Mo. 124), have been held good as negotiable instruments. The English rule is quite different, and ESSENTIALS OF BILLS AND NOTES. 33 So if the instrument is to be negotiable the amount must not be made payable out of a particular fund, but must be drawn absolutely for the payment of the stated amount by the maker or acceptor without refer- ence to a special fund. Thus if a paper is written, pay- able out of a pension, out of stated funds when received, "provided A shall not pay it," "out of the net proceeds of certain ore," "on account of brick work done on a certain building," and the like, it is uniformly held to be non-negotiable.f A drawer of the instrument may, however, indicate the source from which the drawee or acceptor may repay himself, without making the payment conditioned upon such fund, or relieving the acceptor of his absolute lia- bility, and the bill will be negotiable. And in the same way a memorandum showing the nature of the debt which the instrument is to pay may be inserted without affecting its negotiability. Thus, a memorandum that if the instrument was not paid the insurance policy should be void (Kirk v. Dodge Co. Mut. Ins. Co., 39 the United States Supreme Court holds such notes as non-nego- tiable, since the condition expressed may never happen. (Nunez V. Dantel, 19 Wall. 560. See Tiedeman, Com. Pap., Sec. 25b.) f "In consequence of the uncertainty of payment which would result therefrom, it has invariably been held by the courts that a note or bill, payable out of a particular fund, is not negotiable, for the liability of the maker or drawer is conditional upon there being a fund." (Tiedeman, Com. Paper, Sec. 26, citing, Worden v. Dodge, 4 Denio 159; Pitman v. Crawford, 3 Gratt. 127 ; Corbett v. Clark, 45 Wis. 403 ; Clarke v. Percenal, 2 B. & Ad. 660.) 34. NEGOTIABLE INSTRUMENTS. Wis. 138) ; that title should not pass until note was paid (Heard v. Dubuque Bank, 8 Neb. 10), and direct- ing the drawee to "charge the same amount against whatever amount may be due me for m}^ share of fish" (Redman v. Adams, 51 ^le. 433) was held not to affect the negotiability of the paper. When no time is mentioned for payment in the in- strument it is construed to be payable immediately, as if written payable on demand, and the fact that the note is written with interest payable annually will not change this construction. (Jones v. Brown, 11 Ohio St. 601.) And parol testimony cannot be introduced to show that the parties intended a different time. Xotes payable "when convenient," and the like expressions, are deemed payable in a reasonable time, where they are regarded as negotiable at all. (Lewis v. Tipton, 10 Ohio St. 88.) And those payable on demand, are con- sidered due immediately without demand. This rule is different though if the instrument is payable a certain number of days after demand, demand is then necessary to fix the time when the instrument is to come due. ( In- surance Co. V. Jones, 35 Ohio St. 351.) Sec. 70G. SAME SUBJECT— "ON OR BE- FORE" A GIVEN DATE.— In a few decisions a note or bill made payable "on or before" a stated date has been held non-negotiable, but the great majority of decisions declare them to be negotiable. In Mattison V. ^larks (31 Mich. 421), Judge Cooley decided such a note to be negotiable, and stated that the legal rights of the holder were clear and certain, the note being ESSENTIALS OF BILLS AND NOTES. 35 due at a time fixed and not before, the maker having a mere option to pay in advance of tlie legal liability if he saw fit.* Where the note is wTitten, payable "on the return of this receipt or note," it is held negotiable, as this pro- vision is not a contingency, but a mere restriction im- plied if not expressed in every promissory note, subject to an exception in case the instrument is lost by accident or mistake. (Frank v. Wessels, 64 N. Y. 158.) But "payable on the return of my guaranty of a certain note" added to a note was held to impose a condition not im- plied by law, and to make the note non-negotiable. (Blood V. Northrup, 1 Kan. 29.) The provision in notes payable in part payments or installments, to the effect that if any one of the install- ments is not paid as agreed, all installments or the whole sum shall become due and payable, does not destroy the negotiabiHty of the note, and such notes are quite com- mon, f The provision that the interest shall be paid at stated intervals, and if not paid the entire sum shall be- come due is also common, and does not affect the nego- tiability of the paper. Notes made payable at a certain date or time, and * Walker v. Woolen, 54 Ind. 164; Cidne v. Chidester, 85 111. 523; Palmer v. Hummer, 10 Kans. 464; Helmer v, Krolick, 36 Mich. 373, hold that an instrument so written is negotiable. Stults V. Silva, 119 Mass. 139; Chouteau v. Allen, 70 Mo. 339, seem to hold the contrary. fSuch a note must state the times or dates when the several installments are payable. (Tiedeman, Com. Paper, Sec. 25d; Moffat V. Edwards, Car. & M. 16.) 36 NEGOTL\BLE INSTRUMENTS. not written "on or before" the time, are not due until the time has arrived, and the holder may refuse to re- ceive payment sooner. Building associations are re- quired by statute in some States to release notes before due upon stated terms. (Rev. Stat. Ohio, Sec. 3836-3.) Sec. 767. MUST CONTAIN WORDS OF NE- GOTIABILITY. — Another essential or requisite of negotiable paper is the set of words which from the first introduction of these instruments have been used to distinguish them from non-assignable contracts.! These words, as commonly employed, are "order," "bearer," "assigns," and the like, placed after the name f'When bills of exchange first came into use, . . . choses in action were in general non-assignable; and in order that the intention of the parties, to make commercial paper assign- able and negotiable, may be Indicated, it became the custom to make it in express terms payable to A or order, or bearer, or using like words conveying an authority to transfer it. So, also, when promissory notes were by the statute of Anne de- clared to be negotiable, like bills of exchange, the notes which would fall within the statute were described as containing these or other words of negotiability. It has in consequence become the universal opinion that in order that negotiable paper may be negotiable and the indorscrs be held liable as guarantors by the holder of tlic paper, it must contain these or like words of negotiability. Without these words of negotiability, the as- signee of the bill and note would acquire only a right of action against his immediate indorser, and according to the early com- mon law he could not maintain an action on it against the maker or the drawer and acceptor." (Ticdcman, Com. Paper, Sec. 21. See also. Rex v. Box, 6 Taunt. 328; Maule v. Crawford, 14 Hun 193; Warren v. Scott, 32 la. 22; Rev. Stat. Ohio, Sec. 3171.) ESSENTIALS OF BILLS AND NOTES. 57 of the payee to indicate the intention of the parties that the instrument shall be transferable. By long usage and custom these or a similar expression have become an essential of a negotiable paper, though the change in the law as respects the assignment of contracts, would seem to make it unnecessary to employ words to indi- cate that the contract can be assigned, as all choses in action are now assignable. Now by statute in the various States, as well as by decisions the words of negotiability are essential if the paper is to be negotiable, though it is a good and valid contract without these ^s'ords. (Story on Bills, Sec. 60; Michigan Bank v. Eldred, 9 Wall. 5U.) Sec. 7G8. SAME SUBJECT— WORDS OF NE- GOTIABILITY, EXAMPLES OF.— At first it was the inclination of the courts to be strict in regard to words expressing negotiability, and an early case held that a paper payable to a j)erson or bearer was not ne- gotiable. (Hodges V. Steward, 1 Salk. 125.) But it is now well settled that such an instmment is negotiable, and that no special or exact form of words is required to indicate the negotiability of the paper. (Tiedeman, Com. Paper, Sec. 22.) The expression, payable "to the order of A. B.," is considered of the same effect as "to A. B., or order." (Smith v. McClure, 5 East 476; Durgin v. Bartol, 64 Me. 473.) But a note payable "to the bearer A." is held non-negotiable. (Warren v. Scott, 32 la. 22.) It is held that while the words "order" or "bearer" are convenient and expressive terms to indi- cate negotiabilitj'', they are not the only words that are 38 NEGOTIABLE INSTRUMENTS. sufficient to give the paper this transferable quality, and instruments payalile to a jierson or holder, or assigns, and the like, have been held negotiable.* Sec. 7C9. COXCERXIXG THE COXSIDERA- TIOX FOR THE XOTE OR BILL.— Walker gives as the sixth essential of a negotiable instrument that it must import a consideration, so as to preclude the necessity of inquiry and proof. (Am. Law, Sec. 180.) This statement does not mean that the considera- tion must be stated in the paper, or that as between the original parties the question of consideration can never be raised. The words so commonly used in notes and bills, "for value receiv^ed," are not essential to the nego- tiability of the instrument, a consideration for the mak- ing or transfer is presumed, but as between the imme- diate parties it may be shown that there was no consid- eration given, and this whether the words "for value received" are used or not. But holders of negotiable instruments who are not original parties, and who have taken paper in the usual course of business are protected against a failure of the consideration between prior par- ties. (Riley V. Johnson, 8 Ohio 526; Conklin v. Vail, 31 111. 1C6; Jordan v. Pate, 19 O. St. 580.) And under certain circumstances to be discussed later the maker ♦Raymond v. Middlcton, 29 Vn. St. 530; Wilson County v. Natl. Bank, 103 U. S. 776 ; Douglass v. Wilkeson, 6 Wend. 637. In construing the State statute in Illinois it is held that a note payable to a person or bearer is not negotiable. (Gai-vin V. Wiswell, 83 111. 218.) ESSENTIALS OF BILLS AND NOTES. 39 of a note or bill or bond is precluded from showing a want or failure of consideration.* Sec. T70. CONCERNING THE PLACE OF PAYJMENT.— The name of the town or place where commercial paper is executed is customarily written with the date as in the forms given: "Conneaut, Ohio," etc., but this does not make it the duty of the holder to go to the place mentioned to demand payment. The con- tract being construed according to the laws where made, this mention of the place of execution is evidence tend- ing to show by what law the parties meant to be gov- erned. It may also be stated in the body of the instru- ment that the payment shall be made at a given plsLce, and it is held that the holder need not make demand at the named place to render the maker or acceptor liable for non-payment, unless it is made payable at the given place "only and not elsewhere." (Cox v. Natl. Bank, 100 U. S. 714; Llills v. Place, 48 N. Y. 520.) But if the place of pa}Tnent is expressly stated in the instru- ment the holder must make demand at this place in order to hold indorsers and others secondarily liable on the instrument. (Bank of the U. S. v. Smith, 11 Wheat. 171.) And by statute in some States it is made a requi- site to the negotiability of a note or bill that the place of payment must be specified in the body of the instru- *By the law merchant words importing consideration received were deemed essential to bills of exchange, but they are not necessary now in negotiable instruments in the United States, unless, as in Missouri, the State statute requires the words "value received" to be inserted in all promissory notes. (Tiedeman, Com. Paper, Sec. SI ; Bailey v. Smock, 61 Mo. 213.) 40 NEGOTLVBLE INSTRUMENTS. ment. In the absence of a statute to this effect the place of payment need not be stated in the paper. (Romin- ger V. Keyes, 73 Ind. 376; Gates v. Natl. Bank, 100 U. S. 239; Tiedeman, Com. Paper, Sec. 30.) Where no place of payment is mentioned in the paper, it is payable at the ])lace of business of the maker or acceptor or at his residence in case he has no place of business. But in case the note is made payable at a named place it is best to make the demand at the place stated, though it is not absolutely necessary to hold the maker or acceptor. Sec. 771. THE EFFECT OF A SEAL.— An instrument under seal, though possessing all essential features of commercial paper, is not negotiable in the absence of a statute authorizing it. The rule grows out of the fact that by the law merchant the custom was to execute commercial pai:)er without seals, and also that the common law forbade the assignment of sealed in- struments, hence the seal is held to indicate an intention that the instrument shall not be negotiated. The rule formerly applied to the paper of a corporation executed under the corporate seal, but the tendency at present is to hold such paper negotiable on the ground that the seal of a corporation does not of itself indicate an intent to execute a specialty. (Tiedeman, Com. Paper, Sec. 32; Rand v. Dovey, 83 Pa. St. 280.) Sec. 772. WITNESSES, DELIVERY, ETC.^ It has been seen in a previous section, that the signa- ture of the maker need not be attested by a witness even when the signature is by mark. Such witness is ESSENTIALS OF BILLS AND NOTES. 41 only a help in proving the execution, and may be re- placed by other competent evidence. Where there is such a witness he must be called to prove the execution of the paper unless he cannot be produced, when the execution may be shown by proof of the witness' signa- ture. (Tiedeman, Sec. 33; Greenleaf on Ev., Sec. 575.) There must be a delivery of the instrument to the payee to make it binding on the maker or drawer. Until delivered it is of no effect and is considered a nullity. (Roberts v. Bethel, 12 C. B. 778.) By delivery is meant the actual or constructive transfer of the instrument to the payee. When an actual transfer of the paper is made to the payee no question can arise as to its suffi- ciency, but where the paper is given to an agent to be delivered to the payee it may be recalled by the maker at any time before delivery. (Devries v. Shumate, 53 Md. 216.) Where the custodian of the instrument is instructed to hold it for the payee or to deliver to him or his indorsee, it is held a sufficient constructive delivery. (Fisher v. Bradford, 7 Greenl. 28.) The delivery may be made to the payee, or to any person for his benefit with his consent. It may be sent to the payee by post, and if done with his express or implied consent consti- tutes a good delivery though lost in the mail. While in transit to the payee, a maker or indorser may exercise the right of stoppage in transitu under the rules applica- ble to the case of vendor and vendee. A hona fide holder of an instrument is not protected in case there has been no delivery to the payee. (Rich- ards v. Darst, 51 111. 141; Freeman v. Ellison, 37 ^lich. 42 NEGOTIABLE INSTRUMENTS. 459.) The paper becomes operative only from the time of its delivery, and if a date is stated m the paper the delivery is presumed to be made on that date, and before the day of maturity. But parol evidence is admissible to show the true date of delivery, and this governs, unless the instrument is written to mature at a certain time after date, when it will be considered as operating from the day of the date. (Tiedeman, Com. Paper, Sec. 34b; Powell V. AVaters, 8 Cow\ 669; Lovejoy v. Whipple, 18 Vt. 379.) By the common law there is no prohibition of the making of contracts or doing work on Sunday, or the first day of the week; but in most of the States there are statutes forbidding all labor on this day and inval- idating ail contracts made on it. The execution and indorsement of negotiable paper comes wdthin these stat- utes, and no suits can be brought on paper so made or indorsed.* But the paper may be dated and formu- lated on Sunday, and will be valid if delivered on some other day. (Drake v. Rodgers, 32 Me. 524.) And paper made and delivered on Sunday may be subse- quently re-delivered and so ratified as to make it valid or authorize the recovery of the consideration for which it was given. (Sayre v. Wheeler, 31 la. 112.) f *Ticcleman, Com. Paper, Sec. 34c ; Benson v. Drake, 55 Me. 555; State Capital Bank v. Thompson, 42 N. H. 370; Smith V. Case, 2 Ore. 190. f'The court will take judicial notice of the fact that the date of the paper is a Sunday, and all parties to the contract are charged with notice of that fact. Where, however, the paper is delivered on Sunday, but bears a different date, the paper is ESSENTIALS OF BILLS AND NOTES. i3 Negotiable paper may be delivered as an "escrow," by which is meant that it shall be held by some one subject to the performance of a certain condition, and then be delivered to the payee. In the case of a deed delivered as an escrow it must be held by a stranger, and not by the grantee if it is to operate as an escrow. And except in New York this rule is held to apply to commercial paper. In the case of Benton v. JNIartin (52 N. Y. 574), it was stated that negotiable paper might be delivered to the payee subject to a condition, "the observance of which is essential to their validity." And in other cases it is held that a second delivery to the payee or indorsee is not necessary when conmiercial paper is deposited as an escrow. (Taylor v. Thomas, 13 Kans. 217; 1 Daniel's Negot. Inst., Sec. 68.) Sec. 773. THE EFFECT OF NOTES AND BILLS EXECUTED IN BLANK.— It is not un- usual for a person w^ishing to secure a loan on his note or bill to obtain the signature of persons as accommoda- tion makers to sign the bill or note in blank, or to affix their signature to a blank paper with authority to fill up the blank as a bill or note in a certain amount. Such instruments are held to be binding upon the parties who only void as to those parties who take it with knowledge of the illegality. An indorsee for value, and without notice of its de- livery on Sunday, will take a negotiable paper free from the defense of illegality." (Tiedeman, Com. Paper, Sec. 34c; Pope V. Linn, 50 Me. 84; Cranson v. Goss, 107 Mass. 439; Ball v. Powers, 62 Ga. 757. Contra, Parker v. Pitts, 73 Ind. 598.) In Ohio, commercial paper is valid though executed on Sun- day. (Bloom V. Richards, 2 Ohio St. 387.) 44 NEGOTIABLE INSTRUMENTS. have sioiiwl them, and to constitute a general letter of credit to any person who takes it without knowledge of limitations or conditions imposed, and pays value for it. In the ahsence of knowledge of the limitation of his authority the i)arty to whom such a paper is entrusted is presumed to have implied authority to fill up the hlanks and perfect the instrument, and the parties who have so signed are bound tliough the paper is executed for a greater amount than was intended.* Sec. 774. WORDS SUFFICIENT TO CON- STITUTE THE PROMISE.— It is not necessary that the words expressing the obligation to pay be con- fined to any particular form or expression. Thus a promise to "deliver," to be "accountable," to be "respon- sible," and the like, have been held sufficient promises to pay the amount stated in the note. And where the expression used was "Borrowed of A. B. fifty dollars, which I agree never to pay him, or order," it was held that the word "never" should be rejected as surplusage, and the amount be deemed payable on demand. And the expressions, "I have agreed to pay," "I acknowledge to owe," "I am content to pay," and the like, have been held sufficient in a bond.f *Pittsburg V. Ncal, 22 How. 107; Bank v. Smith et al., 5 Ohio 222 ; Schryvcr v. Ilankes, 22 Ohio St. 308 ; White v. Ver- mont, etc., R. R. Co., 21 How. 575, But by the weight of authority an agent cannot by parol authority thus fill up blanks in a bond or deed under seal and must have authority under seal to do so, or the delivery must be made by the maker himself. (Ticdeman, Com. Paper, Sec. 35.) f Swan's Treatise, 15th ed., p. 696. ESSENTIALS OF BILLS AND NOTES. 45 In a bill of exchange the words used must create a distinct and certain obligation to pay the amount men- tioned, but the expression "please pay" used in a bill directed to the drawee is considered a mere civility and does not destroy the effect of the order or command to the drawee. But a supplicatory request to another, the granting of which is a favor and not a right, does not constitute a bill of exchange, unless the words of com- mand are indicated by the use of words of negotiability.* The expression "pay" in a note or bill, may be re- placed by the equivalent expression "deliver," "credit in cash," and the like. (Morris v. Lee, 2 Ld. Raym. 1396.) In a note the certain promise to pay may be indicated by any series of words that constitute a prom- ise, and in a number of States a due bill, or acknowl- edgment of an existing indebtedness is held to be a promissory note, and especially when followed by words of negotiability.! *Tiedeman, Com. Paper, Sec. 23; Little v. Slackford, 1 M. & M. 371 ; RufF v. Webb, 1 Esp. R. 129. fBrady v. Chandler, 31 Mo. 28; Carver v. Hayes, 47 Me. 257 ; Smith v. Allen, 5 Day 337. But the contrary doctrine in regard to due bills, or "I. O. U.s" is held in England and some of the States, they being considered insufficient as promissory notes. (Fesenmayer v. Adcock, 16 M. & W. 449; Currier v. Lockwood, 40 Conn. 348.) CHAPTER III. THE P^UITIES. Sec. 775. IN GENERAL.— Negotiable contracts, in general, are governed by the same rules which apply to all contracts as regards the capacity of the jiarties to enter into the contract or assume the obligation. Hence we shall merely observe at this time that infants, insane persons, married women, under the rules of the common law, and alien enemies are, as a rule, incapable or making, accepting, or indorsing a bill or note; and paper executed by such persons is either void or void- able. But, on the other hand, it is not only competent individuals who may become parties to commercial pa- per. Negotiable instruments may be executed and transferred by a firm or partnership, by public and pri- vate corporations, and b}^ one person acting for another as an agent.* Sec. 776. COMMERCIAL PAPER OF AN INFANT CONSIDERED.— An infant's contracts are now generally regarded as voidable rather than void, and except in the case of necessaries, the infant may dis- affirm any contract into which he has entered.! While this is true of most of the contracts entered into by an *Scc Vol. 4, Cyclopedia of Law, Sees. 452-458. fSce Vol. 3, Cyclopedia of Law, Sec. 378. 4^ THE PARTIES. 47 infant, it is quite generally held in the ease of nego- tiable paper made, accepted or indorsed by an infant, that the instrument is not onl}^ voidable but absolutely void. (Conn v. Coburn, 7 N. H. 368; Morton v. Stew- ard, 5 111. App. 533.) Other authorities maintain that while the note or bill made by an infant is not negotiable so as to preclude inquiries when m the hands of a bona fide holder, the holder of such paper is subrogated to the rights of the origmal payee, and may recover in the name of the payee the original consideration for the paper. (Tiedeman, Com. Paper, Sec. 48.) When the instrument has been given for necessaries for the infant, the holder is entitled to recover the value of the articles supplied. A note or bill made payable to an infant is valid, and may be enforced by the infant against the maker or acceptor, since the privilege of avoiding the contract lies with, and is for the benefit of the infant. But pay- ment to the infant payee will not j)i*otect the payor unless made through the infant's guardian. (Phillips V. Paget, 2 Ark. 80.) If the infant payee indorse the note or bill, the maker or acceptor is bound to pay the indorsee, as the drawing of the paper payable to an in- fant estops them from denying his capacity to indorse the paper. The infant, however, not being bound by his indorsement may choose to disaffirm it, and bj^ re- turning the consideration received, compel the maker or acceptor to pay him, although the money has already been paid to the indorsee; or the infant may disaffirm the indorsement, notify all the parties, and if payment 48 NEGOTIABLE INSTRUMENTS. has not been made to the indorsee, destroy his title to the paper.* The infant on coming of age, may ratify commercial paper executed or indorsed by him during his infancy, and such ])aper then becomes valid and binding, and may be enforced by any holder. No consideration is required for such ratification, but there should be a new I)romise to pay. This promise need not be formal or in writing, it may be made orally and in any form of words. (Owis v. Kimball, 3 N. IT. 314; ]\Iartin v. Mayo,. 10 Mass. 137.) Sec. 777. COMMERCIAL PAPER OF IN- SANE PERSONS CONSIDERED.— Any person mentally deficient, as a lunatic, imbecile, drunken per- son, and the like, cannot make a contract binding upon them during tlie period of such incompetency. One ignorant of the insanity of a person with whom he contracts and who has acted in good faith and taken no advantage will be ])rotected, and for necessaries a luna- tic may bind himself upon a bill or note. (^Nloore v. Hershey, 90 Pa. St. 196; Williams v. Wentworth, 5 Beav. 325.) Such persons, however, may be payees of bills or notes and may compel payment to them or a return of the consideration. As payees they may in- dorse the paper and the indorsee may recover of the maker or acceptor, who is estopped from denying ca- pacity to indorse if the payee was incompetent when the *Melburg V. Watrous, 7 Hill 110; Bool v. Mix, 17 Wend. 119; Taylor v. Crokcr, 4 Esp. 187; Hardy v. Waters, 38 Me. 450. THE PARTIES. 49 paper was executed. (Tiedeman, Com. Paper, Sec. 56.) But, as a rule, these contracts are considered void- able rather than void, and may be ratified or disaffirmed by the party when he recovers, or by his guardian or representatives.* Sec. 778. COMMERCIAL PAPER OF MAR- RIED WOMEN CONSIDERED.— "According to the common law, a married woman cannot make or ac- cept or indorse a commercial instrument, and her at- tempted execution, acceptance or indorsement of such an instrument is absolutely void."t But modern stat- utes in the various States have modified the common law in regard to the contracts of married women, and under these statutes married women may execute valid commercial paper. | All negotiable instruments of the wife are held to be choses in action, and at the common law a married *Campben v. Kuhn, 45 Mich. 513; Halley v. Froester, 72 Mo. 73 ; Calkins v. Fry, 35 Conn. 170. fTiedeman, Com. Paper, Sec. 59. But at the common law if the husband of the married woman was an alien enemy, or was otherwise unable to aid the wife, as in case he was impris- oned, banished or had entered a monastery, then the wife might make valid commercial paper. As a sole trader she could also make any contract necessary to such separate business. (Abbott V. Bailey, 6 Pick. 89; Hatchet v. Baddeley, 2 W. Bl. 1079; 2 Kent Com. 136.) |See Vol. 3 Cyclopedia of Law, Sees. 327-328; Camden v. Mulen, 29 Cal. 566. So in regard to property granted to a married woman to her sole and separate use, known as her equita- ble estate, she may make valid commercial paper. (Todd v. Lee, 15 Wis. 365; Williams v. Urmston, 35 Ohio St. 296.) 50 NEGOTLVBLE INSTRUMENTS. woman could not pass title to such instruments by de- livery or indorsement, though she was the named payee, unless the husband also consented. (Barlow v. Bishop, 1 East 432.) The hus^band could indorse the paper and pass title, or could sue upon it by joining with the wife. (Mason v. Morgan, 2 Ad. & El. 30; Richards v. Rich- ards, 2 B. & Ad. 447.) Also by the common law, the husband was required to reduce the wife's choses in action to possession, and unless he did so, at his death they became the absolute property of the widow and not of the husband's personal representatives. (Gaters v. ]Madely, 6 M. & W. 423; Draper v. Jackson, 16 Mass. 480.) Now the property rights of married women are regulated by statute in the various States, and the rules of the common law are greatly modified if not entirely abrogated. Under the modern statutes of distribution the husband who has not reduced the wife's choses in action to possession during her life, takes only his dis- tributive share after her death. (Tiedeman, Com. Paper, Sec. 64.). Sec. 779. AN ALIEN ENEMY CANNOT BE A PARTY TO COiNIMERCIAL PAPER.— Every bill or note attempted to be negotiated between parties whose respective countries are at war with each other, is void, and cannot be enforced during or after the close of hostilities. (Ward v. Smith, 7 Wall. 447.) The two hostile countries are deemed sealed to each other so as to prevent all commercial intercourse. ( 1 Daniel's Negot. Inst., Sec. 220.) THE PARTIES. 61 Sec. 780. PARTNERS AS PARTIES TO COMMERCIAL PAPER.— The subject of Partner- ship has been treated in a previous number of the Cy- clopedia of Law, to which the student is referred at this time.* The rights and liabilities of the partners to validly executed firm paper was fvdly discussed in the previous volume, and it is only necessary at this time to again point out the fact that the partners only have implied power to make and negotiate commercial paper in case the firm is a trading j)artnership, or one whose business necessitates the use of commercial paper. If it comes within the nature and scope of the firm's busi- ness to issue negotiable paper, any partner may bind the firm by making or accepting a note or bill, though the proceeds are for his own benefit if the holder of the paper was not a party to the fraud.f Where the business of the firm is not of the character to imjjly such authority, that is, where the firm is re- garded as a non-trading firm, commercial paper issued in the name of the firm by one partner will not bind the other partner. (Dickenson v. Valpy, 10 B. & C. 128.) A partner cannot, however, under his implied powers, *Vol. 4, Cyclopedia of Law. t Illustration : Where X, a partner In a trading firm, makes a note in the firm name, payable to C for his accommodation, or as surety for him, without the knowledge of the other part- ners, the firm Is not liable to C, but is liable to a bona fide holder of the note for value. (Heffron v. Hanaford, 40 Mich. 305; Austin V. Vandermark, 4 Hill 259; Chemung Bank v. Bradner, 44 N. Y. 680.) 6g NEGOTIABLE INSTRUMENTS. issue purely acconiniodation paper, or paper for his own private benefit, and for a purpose unconnected with the business of the firm. If such j)aper is issued, it will not bind the other partners until it has passed into the hands of a ho7ia fide holder, who has given value for it with- out notice of the fraud upon the other partners. (At- lantic St. Bank v. Savery, 82 N. Y. 294; Burke v. Wilbur, 42 JNIich. ,329.) This is the result of the rule of negotiability which applies when the indorsee shows that the paper bearing the firm name was taken by him without knowledge of its im2)roper issue and for value. (Monroe v. Copper, 5 Pick. 412.) The proper form of signing the firm name to any contract made by a partner is to write the firm name and nothing else. It is permissible but unnecessary to write the name of the partner after the firm signa- ture. It is held to be a good firm signature to write all the names of the partners without using the part- nership name. (Maynard v. Fellows, 43 N. H. 255.) If there is a material variance in the firm name as used by the partner in signing the note or bill the firm will not be bound as where the firm name is that of an indi- vidual and the note is signed in the name of the indi- vidual with the addition of "& Co." (Kirk v. Blurton, 9 M. & W. 284.) And it must appear upon the face of the paper that it is a firm obligation if the firm is to be bound. (Gallway v. :Mathew, 10 East 264.) In case a bill is payable to the order of the firm and the partnership is subsequently dissolved the indorse- ment of an ex-partner in the firm name transfers the THE PARTIES. 63 property therein and authorizes the payment thereof. (Benjamin's Chalmers, Article 80.) Sec. 781. CORPORATIONS AS PARTIES TO COMMERCIAL PAPER.— Corporations are either private or public. The distinction being, that in the former a few individuals own and control the franchises and property of the corporation, while in the latter the interests and franchises belong to the general public, or people composing the district which the corporation covers. The former is managed for private gain, the latter for public service and advantage. It is said that private corporations are organized to prosecute private interest or business as distinguished from governmental or public undertakings. A corporation derives its authority from its charter; it can incur no liability by drawing, indorsing or ac- cepting a bill, unless expressly or impliedly empowered by its act of incorporation so to do, and in general the capacity of a corporation to bind itself by a bill, is co-extensive with its capacity to contract. (Benj.'s Chalm., Art. 67; Curtis v. Smith, 15 N. Y. 66.) Thus a corporation chartered to build a railroad, may bind itself by note for materials used in constructing the road, but could not accept accommodation paper to aid an- other company in constructing its road. ( Smead v. R. R. Co., 11 Ind. 104.) A bill given to the order of the corporation transfers the property therein, though from want of capacity the corporation may not be liable thereon as an indorser. (Brown v. Donnell, 49 Me. 421.) 54 NEGOTIABLE INSTRUMENTS. Sec. 782. SAME SUBJECT — BONA FIDE HOLDERS. — As against original parties to commer- cial paper of a corj)oration Avliieh has been issued ultra vires, that is, without authority, the cori)oration may plead its lack of authority, but in the hands of ho?ia fide indorsees for value, the conmion rule of negotia])le paper prevents the corporation from setting up this defence. (Ticdeman, Com. Pap., Sec. 116.) In the case of ac- commodation paper this rule does not apply, and the paper is considered void. And where the corporation has expressl}^ declared that paper issued ultra vires shall be void, a ho7ia fide holder gets no title. It is the rule of law that commercial paper should not be issued under seal. At common law a corporation could not make a binding contract without using its corporate seal. It was formerly held that the seal de- stroyed the negotiability of the instrument, but the rule is now relaxed, and the commercial paper of a corpora- tion under seal is negotiable, and further, that in making commercial paper a corporation may dispense with the use of its corporate seal. (Barrett v. Schuyler Co. Court, 44 Mo. 197; Clark v. Iowa City, 20 Wall. 583; Beaver Co. v. Armstrong, 44 Pa. St. 03.) A corporation has the implied power to take a note or bill for any de])t due it. (Buckle}^ v. Briggs, 30 ^lo. 452.) But in order to make a regular business of lend- ing money and taking })aper of the borrower the power must be given in its charter. (Grand Lodge of Free Masons v. Waddill, 30 Ala. 313.) THE PARTIES. 55 Sec. 783. SAME SUBJECT— A CORPORA- TION ACTS BY ITS AGENTS, THEIR POW- ERS. — The power to appoint agents is necessarily im- plied as the corporation can only act through its agents and officers. The power is general and unlimited un- less expressly denied. But an agent appointed by a corporation must have express authority to issue notes, unless his position is such as by general custom and usage would authorize him to bind the corporation^ (Odd Fellows v. First Natl. Bank, 42 Mich. 463.) A cashier of a bank has implied power to bind his bank by putting his official signature to commercial paper. He may transfer the negotiable paper of the bank; give the bank's note for borrowed money; accept bills and certify checks drawn on the bank; sell notes and bills of the bank; and draw bills and checks on the bank's deposits.* The president of a corporation also, as its chief execu- tive officer, has implied power to represent the corpora- tion in various ways. He may bring suits in the name of the corporation (Alexandria Canal Co. v. Swann, 5 How. 83), and in case of a banking corporation he may receipt for deposits and do other acts in the ordinary course of business by following the customary rules of the institution. (Sterling v. Marietta Co., 11 Serg. & R. 170; Foster v. Essex Bank, 17 Mass. 479.) Neither the cashier nor president of a bank has implied authority to release any claim due the bank ; this power must be exercised by the board of directors. (Bank of *Tiedeman, Com. Paper, Sec. 120; Morse on Banking, 164. 56 NEGOTLVBLE INSTRUMENTS. U. S. V. Dunn, 6 Pet. 51; Olney v. Chadse}^, 7 li. I. 225.) Other officers of corporations, as secretary, treasurer, etc., may be expressly autliorized to issue commercial paper for the corporation or they may have such power from implication by reason of having exercised it pre- viously. (Tiedeman, Com. Pa^)., Sec. 122.) The proper signature of a corporation by an agent is the name of the corporation followed by the name of the agent mak- ing the signature with his official designation. But this is not the only form of a corporate signature which will bind the corporation. Where the name of the corpora- tion appears in the instrument as the party to be bound, and is signed by an authorized agent of the corporation with his name and official title, it is held a good cor- porate obligation.* So, later decisions hold, that when it appears from the signature of the agent that he is acting in a repre- sentative capacity for the corporation, as where he uses the words "on account of," "for the use of," and the like, in connection with the name of the cori:)oration, it will be considered a corporate obligation. (Lindud V. Melrose, 3 H. & N. 177; Dow v. :Moore, 47 N. H. 419.) As the drawee named in the bill is the only one who can accept it, except for honor supra iwotcst, unless the 'bill is drawn upon a corporation it cannot be accepted ^Commercial Bank v. Newport Mf<^. Co., 1 B. Monr. 13; Township v. Citizens' Bank, 81 InJ. 515; Tiedeman, Com. Paper, Sec. 123. THE PARTIES. 57 even by an authorized agent for the corporation. The principles already stated govern in determining whether the bill is drawn on a corporation or an individual. (Walker v. Bank, 9 N. Y. 582.) In making acceptances or indorsements the designation of the drawee and payee indicate the coiTCct form of signature. If the bill is payable to an individual in his personal capacity, he cannot make the corporation an indorser by affixing its name, if liable at all on such a signature it would be as a guarantor. But if the bill or note is properly payable to the corporation, an indorsement by an authorized offi- cer using his own signature and official designation will bind the corporation. (Tiedeman, Com. Pap., Sec. 126.) Sec. 784. PUBLIC OR MUNICIPAL CORPO- RATIONS AS PARTIES TO COMMERCIAL PAPER. — The State or Federal governments as cor- porations may, by their duly authorized agents, become parties to the different species of conmiercial paper, either as drawer, maker or acceptor. (United States v. Bank, 15 Pet. 377; State ex rel. Plock v. Co'bb. 64 Ala. 156.) But as the ordinary exercise of their powers does not require the use of this power, the courts do not recognize any officer or agent of the government as possessing implied power to bind the government by making or accepting commercial paper. The authority to make or accept commercial paper in order to bind the government must be expressly granted to the officer by the legislative department of the government or neces- sary to carry out some express powder.* *FIoyd, Acceptances, 7 Wall. 667- In this case it was held 68 NEGOTIABLE INSTRUMENTS. A slight distinction is sought to be drawn between public corporations and municipal corporations, the lat- ter having reference more particularly to incorporated villages, towns and cities. (Dillon ]\Iun. Corp., Sec. 10.) But the distinction is of little importance as the legislature in each case fixes the powers of these cor- porations by special acts or general laws. It is conceded by the weight of authority that muni- cipal corporations may exercise the power to borrow money as an implied power, though not expressly granted, if necessary to carry out the purposes for w'hich they were created. (Williamsport v. Commonwealth, 84 Pa. St. 487; City of Galena v. Corwith, 48 111. 423.) But it seems that the weight of authority would deny them the right to issue negotiable paper to secure such borrowed money unless they had been expressly author- ized to borrow. It being claimed that it is not neces- sary to the exercise of the power that negotiable securi- ties be issued. (Reinboth v. Pittsburg, 41 Pa. St. 278; Railroad Co. v. Evansville, 15 Ind. 395 ; JMayor v. Ray, that no officer of the United States government has the implied authority to bind the government by his acceptance of a bill in his official capacity, although it can be shown by extraneous evidence, as well as on the face of the bill, that the bill was accepted in order to provide supplies for an acknowledged pub- lic purpose. (Tiedeman, Com. Paper, Sec. 132.) Miller, J., said in summing up the case: "We arc of the opinion that, as there can be no lawful occasion for any department of the government, or for any of its officers or agents to accept drafts drawn on them, under any statute or other law known to us, such acceptances cannot bind the government." THE PARTIES. S9 19 Wall. 476.) Other cases hold that for lawful debts a municipal corporation not restricted by its charter or prohibited by statute, may issue notes, bills, or bonds, and that these in the hands of bona fide holders will be free from equitable and other defenses not appearing on the face of such instruments or to be gathered from the ordinances or published notices in reference to such securities.* Sec. 785. SAME SUBJECT— HOW THE COR- PORATION IS BOUND, SIGNATURE OF AGENT. — As the common council is the legislature for a municipal corporation, it must authorize the execu- tion and issue of municipal obligations. No administra- tive or executive officer of the municipality has implied power to issue negotiable securities, and must be ex- pressly authorized so to do. (Little Rock v. State Bank, 3Eng. (Ark.) 227.) Officers of the government and other public corpora- tions are not held to the same rule of agency by which in exceeding their authority they bind themselves ; every one having dealings with a public officer is supposed to know the legal limitations of his agency, so that when a public officer in innocent mistake of the law makes an unauthorized contract in the name of the public cor- poration neither he nor the corporation is bound. (Houston V. Clay County, 18 Ind. 396; Ogden v. Ray- mond, 22 Conn. 379.) *Tiedeman, Com. Paper, Sec. 134 and note; Bank of Chilli- cothe V. Chillicothe, 7 Ohio 31 ; Mullarkey v. Cedar Falls, 19 la. 21 ; Clark v. Des Moines, 19 la. 199. GO NEGOTIABLE INSTRUMENTS. The officer of a municipal corporation acting in his official capacity must take care that the fact of his of- ficial character appear on the face of the instrument and that he is not acting in his personal character or he will bind himself. But m this case not the same degree of technicality is required as in the case of private corpora- tions, and in some cases it is held that merely adding his official designation to his signature will relieve him of personal liability. (Dugan v. United States, 3 Wheat. 172; ^McGee v. Laramore, 50 INIo. 425.) Drafts or warrants drawn by one officer of a munici- pal corporation on another, and used chiefly for the pur- poses of furnishing vouchers to the officer in charge of the funds, are quite generally held not to be negotiable, but some cases conclude that if drawn in negotiable form by the proper officer they will be valid negotiable instru- ments. (Kelly V. Mayor of Brooklyn, 4 Hill 265.) When these drafts or warrants are recognized as nego- tiable they may be transferred by indorsement as other commercial paper. If they are treated as not nego- tiable then the party transferring them does not become liable as an indorser. (Keller v. Hicks, 22 Cal. 460; Bull V. Sims, 23 N. Y. 571.) The warrants are assign- able and the assignee may recover of the corporation subject to the equities existing against the assignor. (Tiedeman, Com. Pap., Sec. 139.) Sec. 786. TRUSTEES, GUARDIANS, ETC., AS PARTIES TO CO^NIMERCIAL PAPER.— In general trustees and guardians cannot issue any bill or note which will bind the estate they represent, though THE PARTIES. 61 issued in their representative capacity. By attempting to do so they bind themselves personally. (Robertson V. Banks, 1 Smedes & M. 666; Conner v. Clark, 13 Cal. 168.) A note or bill made payable to a guardian or trustee cannot be endorsed away by the guardian for his own private debts, the indorsee taking the paper in every such case charged with the trust. (Baughn v. Shackel- ford, 48 Miss. 255.) Other cases hold that in the hands of a bona fide holder without notice other than that of the character of the paper, the paper will be free from the trust. (Thorton v. Rankin, 19 Mo. 193.) The executor or administrator of an estate cannot issue commercial paper in his representative capacity to bind the estate. (Curtis v. Bank, 39 Ohio St. 579; Lynch v. Kirby, 65 Ga. 279.) Neither can he accept a biU drawn on a claim against the estate, and if he does so he will bind himself personally (Wisdom v. Becker, 52 111. 342), in whatever way the signature is written. A note by an administrator in settlement of a debt of the estate will not discharge the obligation unless accepted as absolute payment of the original debt. (Yerger v. Foote, 48 Miss. 62.) He may limit his personal lia- bility by making the note payable out of the assets of the estate, but this destroys the negotiability of the in- strument because payable out of a particular fund.* There must be some new consideration for the prom- ise of the executor or administrator if he is to be bound personally, but a consideration is presumed from the *See ante. Sec. 760. 62 NEGOTIABLE INSTKUMENTS. fact that he has assets of the estate in his hands when he made the paper. This presumption may be rebutted, and then in case no other consideration appears the per- sonal representative will be liable only to the amount of the assets in his hands belonging to the estate. (Walker v. Patterson, 3G INIe. 273; Rittenhouse v. Am- merman, 64 Mo. 197.) The executor's note in the hands of bona fide holders without notice will be enforceable regardless of the consideration. (Bank of Troy v. Top- ping, 13 Wend. 273.) A bill or note which was payable to the decedent in his lifetime should be treated by the representative as other personal property, and suit should be brought in his representative capacity. When the note is payable to the executor or administrator as such, he may sue on it in his own name or in his representative capacity. The personal representative may transfer or indorse the paper of the estate, but in the case of indorsements un- less he exempts himself he will become personally liable as an indorser. A note payable to the decedent may be indorsed by any one of his representatives, while if made payable to his representatives, all must join in the in- dorsement. The indorsement does not pass title unless there is a delivery of the paper. (Tiedeman, Com. Pap., Sec. 148.) CHAPTER IV. THE CONSIDERATION. Sec. 787. IN GENERAL.— It is a general rule of law that all executory contracts to be enforceable must rest upon a valuable consideration. And this rule ap- plies to negotiable instruments as regards the immediate or original parties to the instrument.* By the common law, and now quite generally, it is presumed that every negotiable instrument was given upon a valuable con- sideration, and words acknowledging receipt of consid- eration are not essential to the validity of the paper.f Sec. 788. WHAT CONSTITUTES A VALU- ABLE CONSIDERATION.— In general a valuable consideration as applied to the law of commercial paper is any consideration sufficient to support a simple con- tract. Thus a cross acceptance, the forbearance of a debt of a third person, the compromise of a disputed liability, or a debt barred by the statute of limitations, is held to constitute a valuable consideration. (Benj. *See Sections 437 et seq.. Vol. 4 of the Cyclopedia of Law. fPopplewell V. Wilson, 1 Stra. 264; Mandeville v. Welch, 5 Wlieat. 277; Dean v. Carruth, 108 Mass. 242. By statute in some of the states, as Arkansas (Rev. Stat. Ark., 1874, Sec. 568), Missouri (Macy v. Kendall, 33 Mo. 164), and Pennsyl- vania (Purdon's Digest, 1894, p. 1731, Sec. 1). It is required that all promissory notes contain the words "for value received" in order to be negotiable. 63 64 NEGOTIABLE INSTRUMENTS. Chalmers, B. N. & Checks, Art. 82.) So an antecedent or pre-existing debt will be a valuable consideration in support of a bill or note, when the bill is received in absolute payment of the orighial debt, if nothing but a conditional payment the holder's rights will be deter- mined by a subsequent rule governing bills taken as collateral security. (Bank v. Gilliland, 23 Wend. 311; Bardsley v. Delp, 88 Pa. St. 420.) A valuable consideration is defined by Lush, J., in Currie v. ]Misa, 10 L. R., Ex., 162, as "some right, interest or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility given, suf- fered or undertaken by the other." Its adequacy will not be investigated if given in good faith, but where the consideration is not in good faith or there is fraud or mistake, or the consideration is illegal, or the parties are so situated that an unfair advantage is taken by one of them, as where one drives a hard bargain with an ex- pectant heir or reversioner, the consideration may be questioned in actions between the parties. (Tiedeman, Com. Pap., Sec. 154; Nevill v. Snelling, 15 Ch. D. 679; Thomas v. Thomas, 7 Wis. 476.) A mere moral obliga- tion, the giving up of a void note, or a voluntary gift of money will not constitute a valuable consideration. (Eastwood V. Kenyon, 11 A. & E. 438; Hill v. Wilson, 8 L. R. Ch. 894.) Sec. 789. WHO ARE HOLDERS FOR VALUE? — If value has at any time been given for a bill, the holder of it is a holder for value as regards the acceptor and all parties prior to such time; thus, B THE CONSIDERATION. 65 owes C $50. In order to pay C, A draws at B's request a bill on B for $50 in favor of C. C is a holder for value and can sue A, though A has received no value. (Benj.'s Chalmers, B. N. & Checks, Art. 83.) So it will not matter to the holder that value was given to a person who never signed the instrument, or whose signature has been struck out. Thus a note may be made to an indi- vidual for a debt due to a company of which the indi- vidual is an agent (Lomas v. Bradshaw, 19 L. J. C. P. 273) ; or to a public officer for a debt due the State (Hunter v. Field, 20 Ohio 340). So where the note has been indorsed in blank without value, and the in- dorsee indoi'ses to another for value, the holder may sue all the parties. (Brummel v. Enders, 18 Gratt. 905.) A person must receive a bill in payment of a debt due him if he is to be considered a holder for value of a bill of his debtor's. The holder of a bill who re- ceives it from a holder for value, but does not himself give value for it, has all the rights of a holder for value against all parties to the bill except the person from whom he receives it. (Frederick v. Winans, 51 Wis. 472; Rickle v. Dow, 39 Mich. 91.) But a holder for value may or may not be a holder for value without notice and in good faith, and if it can be shown that he is not a holder in good faith and without notice, this will sometimes defeat his action. (Ethridge v. Gallagher, 55 Miss. 464.) A holder having a lien on a bill, as a banker or broker, arising either by agreement or by implication of law, is held to be a holder for value to the extent of 66 NEGOTIABLE INSTRUMENTS. the sum for which he has a Hen. And the holder of a hill taken as collateral security is a holder for value where the debt was created at the time of the transfer, or where taken for a pre-existing debt, and there is an express or implied agreement to extend the time of pay- ment of such debt, or other like consideration. (Logan V. Smith, 62 Mo. 455; Moore v. Ryder, Q5 N. Y. 438; Stotts V. Byers, 17 la. 303.) The courts are divided where a note is taken for a pre-existing debt and no other consideration appears, some holding that the party is a holder for value because of his responsibility as a party to the instrument. ( Swift v. Tyson, 16 Pet. i; Comstock v. Ilier, 73 N. Y. 269.) Others deny this, but regard him as a holder for value as against the claim that the paper was given for ac- commodation. (Cummmgs v. Boyd, 83 Pa. St. 376.) A bill will be presumed to have been negotiated for value and not to have been pledged or given as col- lateral security, but this presumption may be disproved. (Trustees v. Hill, 12 la. 462.)* *Mr. Daniels, in lils "Negotiable Instruments," Sec. 831c, classifies the New York decisions on the question when a holder is one for value having taken the paper as collateral or for a pre-existing debt, as follows : "The transferee has been declared to be entitled to protection as a bona fide holder for value in the following Instances: (1) Wliere the collateral note was taken for a loan contracted on the faith of Its transfer; (2) where the transferee of the note surrendered a security for the antecedent debt; (3) where he received the note In payment of a previous note which was surrendered and canceled; (4) where he received the note as absolute payment of a pre-existing debt THE CONSIDERATION. 67 Sec. 790. WHO ARE BONA FIDE HOLDERS FOR VALUE WITHOUT NOTICE?— A bona fide holder for value without notice is a holder who, at the time he becomes the holder and gives value, is really and truly without notice of any facts which, if known, would defeat his title to the bill. Thus where a bill is payable in two installments and the holder pays one installment without notice of any fraud, but before the second payment he learns that the bill was obtained by fraud, if he pays the second installment he cannot col- lect for it, but only for the first installment. (Benj.'s Chalmers, B. N. & Checks, Art. 85; Dresser v. Mis- souri Co., 93 U. S. 92.) The terms ''bona fide holder," "innocent indorsee," etc., are used synonymously with the expression ''bona fide holder for value without no- tice." Under the English code. Sec. 29, the phrase "holder in due course" is used in the same sense. By "notice" is meant either actual notice, or a knowl- edge of such facts of wrong-doing as would, if disre- garded, constitute bad faith. Mere negligence or even gross negligence, will not in the absence of bad faith constitute notice to one who has taken a bill for value without notice. ( Goodman v. Simonds, 20 How. 343. ) and not merely as security ; ( 5 ) where he received the note with a vaHd agreement for an extension of time, or with an agreement not to sue upon a pre-existing debt; (6) where he received the note, paying part cash, and applying the residue in payment of a pre-existing debt; (7) where he received the note in part paym.ent of the pre-existing debt, surrendering old notes and taking new notes for the balance; (8) where he received the note and discontinued proceedings upon an execution." 68 NEGOTIABLE INSTRUMENTS. Gross negligence may be evidence of bad faith, but is not conclusive of it, and bad faith is now considered necessarj^ to defeat a hoiia fide holder for value. ( Good- man V. Harvey, 4 A. & E. at 876; Johnson v. Way, 27 O. St. 374.)* When a bill is overdue, or has an irregularity ap- pearing on its face the holder of it will be charged with notice. These are considered equivalent to notice of all defects relating to it. (^IcSherry v. Brooks, 46 Md. 118.) A holder who takes a bill or note from a bo7ia fide holder for value, without notice is subjected to all the rights of such former holder, though he himself gave no value and may have had notice, if he was not a party to the fraud. (Woodworth v. Huntoon, 40 111. 131.) But the paper will not be freed from the fraud of a party by being negotiated to an innocent party when it has come back to the hands of the wrong-doer. (Cal- houn V. Albin, 48 Mo. 304.) A defense available against an immediate party, as fraud, lack of consideration, etc., is available against a remote party who is in privity with such immediate party. Immediate parties are those in du*ect relation with each other, as the drawer and acceptor, indorser and indorsee; all other parties are remote. Privity be- *"IllustratIon : D, the holder of a bill indorsed in blank, trans- fers it to E for value. E suspects that D had obtained the bill by a false representation, and consequently makes no inquiries. As a fact D stole the bill. E is not a bona pde holder; he is affected with notice." (Benj.'s Chalmers, B. N. and Checks, Art. 86; Parsons v. Jones, 99 U. S. 434.) THE CONSIDERATION. 69 tween the parties is created in all cases by want of con- sideration, sometimes by notice, and by agreement. Thus notice creates j)rivity when it is notice of the de- fective title of him from whom the bill is taken. A holder of a bill who has given no consideration is deemed, as regards third jiarties, as the agent of the party from whom he took the hill, and he holds it subject to all the defenses against the person for whom he is regarded as an agent. (Benj.'s Chalmers, B. N. & Checks, Art. 88.) Sec. 791. SAME SUBJECT— ACCOMMODA- TION PAPER. — An accommodation paper or bill in- dicates that the principal debtor, maker or acceptor, is lending his name for the benefit of some other per- son who may or may not be a party to the instrument. Thus A draws a bill on B. B accepts it to accommo- date A, and it is then negotiated. This is an accom- modation paper, and B is an accommodation party, or one who has signed without receiving value, and for the purpose of securing credit for the other party. It will be seen that as between the accommodating party and the party acconmiodated, there being no consideration no action could be maintained, and the paper is of no significance until negotiated. But the holder who has taken the accommodation paper for value can enforce it against all the parties to it. But if the holder had notice of the character of the paper the accommodation party may set up any defense which would avail the party accommodated, as to set off a debt due from the holder to the party accommodated. Until an accommodation 70 NEGOTIABLE INSTRUMENTS. bill has been negotiated the accommodation party may rescind his obligation and demand the recall of the in- strument or the cancellation of his signature. (Tiede- man, Com. Pap., Sec. 158.) The consideration given by a holder for value of accommodation paper makes the paper enforceable against all parties to it, and this is true where the paper has been negotiated after due. (Sevfert v. Edison, 16 Vroom 393.) Sec. 792. EFFECT WHEN CONSIDERA- TION IS NOT GIVEN, OR FAILS, ETC.— It has been seen in the previous section, that the mere ab- sence of consideration, as in accommodation paper, is only a defense as against an immediate party or a re- mote party who is not a holder for value, and is not a defense against a remote holder for value. Thus where a note is given to the holder as a gift, the holder cannot sue the giver. But if such a note were indorsed away for value, the indorsee could sue the maker.* Total failure, as against an immediate party, is a good defense, but not as against a remote party who is a bona fide holder for value without notice. Thus where the consideration of the note was that the payee should act as executor for the maker, and the payee died *"A di-caws a bill on B for $100. B accepts it to accommo- date A. A discounts it with C, who knows that it is an accom- modation bill. C can sue A or B for $100; but if C, instead of discounting It, merely advanced $50 on it, he can only recover $50. If C discount the bill, and pledge it with D for $50, D can recover $100 from B. and he will hold $50 thereof in trust for C." (Benj.'s Chalmers, B. N. and Checks, Art. 91 ; Hilton V. Smitli, 5 Gray 402.) THE CONSIDERATION. 71 first, the note could not be enforced against the maker. So where a bill is drawn by one party on another pay- able to his own order, and is accepted, if the considera- tion fails as between these two, an indorsee for value who knows that the consideration has failed cannot sue the acceptor. (Starr v. Torrey, 2 Zabr. 190.) Partial failure of consideration is a defense pro tanto against an immediate party when the failure is an ascertained and liquidated amount in money. But it is not a de- fense against a remote party holder for value. (Tiede- man. Com. Pap., Sec. 201; Stevens v. Campbell, 13 Wis. 419.) A few decisions hold that a partial failure of consideration will not constitute a good defense in any case whether definite or indefinite. (Fletcher v. Chase, 16 N. H. 38; Briggs v. Boyd, 137 Vt. 534.) Statutes in Colorado, Florida, Georgia, Illinois, In- diana, Iowa, New Hampshire and Vermont allow a par^ tial failure of consideration to be set up as a defense as between the parties (2 Randolph Com. Pap. 540n), Where the consideration is illegal in whole or in part it is a defense against the entire note while in the hands of an immediate party or one who is not a bona fide holder for value without notice. (Shirley v. Howard, 53 111. 455.) In general the consideration for a bill is illegal when it is wholly or in part immoral, contrary to public policy, or forbidden under penalties by statute.* *Thus TIedeman mentions among illegal considerations, the compounding of crimes and misdemeanors, contracts in aid of rebellion or an alien enemy, the bribing of a public officer, 72 NEGOTIABLE INSTRUMENTS. A distinction is to be made between a consideration simply illegal and one which by statute expressly makes the bill void. In the former case a bona fide transferee may recover, though not m the latter. (Boughner v. Meyer, 5 Col. 71.) Where a bill is given for a consideration which the statute expressly makes void, the party who gave the paper may set it up as a defense against all holders whether immediate or remote, but the holder can sue the indorser. (Eagle v. Cohen, 84 111. 292; Armstrong V. Gibson, 31 Wis. 60.) It is no longer customary by law to make notes expressly void by statute, and where such statutes do exist a clause frequently saves the rights of innocent holders. (Benj.'s Chalmers, B. N. & Checks, Art. 96n.) The holder of commercial paper is prima facie presumed to be an innocent holder for value, but where there is evidence affecting the bill or note with fraud or illegality, the burden of proof is shifted to the holder to show that he is an innocent holder for value. (Sj:)erry v. Spalding, 45 Cal. 544; Bank v. Gilliland, 23 Wend. 311.) In case the holder can show that he paid full value, the defendant must then show that the holder had notice of the fraud or illegality. So it is held that where the holder has in good faith given part value he may recover to a like amount. (Dresser v. Missouri, 93 U. S. 92.) Sec. 793. FRAUD OR DURESS AS AFFECT- ING THE CONSIDERATION.— Where the con- wagers, options or "futures," restraint of trade, restraint of marriage, usury, etc. (Com. Paper, Sees. 183-196.) THE CONSIDERATION. 73 sideration for a bill is clearly fraudulent it is a good defense against an immediate party or a remote party unless he is an innocent holder for value, and while the instrument is yet in the hands of a party with notice a court of law will compel its surrender, or restrain its negotiation until the question of fraud is settled. (Joyce on Injunctions, p. 369; Jones v. Lane, 3 Y. & C. 293.) A bill is affected with fraud when the issue or any subsequent negotiations of it is obtained by fraud, or coercion, or when it is negotiated in breach of faith, or in fraud of third parties. (Segrum v. Prescott, 69 Me. 376.) The defendant should not retain any part of the consideration. (Heaton v. Knowlton, 53 Ind. 357.) No holder of a bill subsequent to its being affected with fraud can enforce payment from any party thereto, or retain the bill against the rightful owner unless he is a bona fide holder for value without notice. ( Alsager V. Chase, 10 M. & W. 576.) CHAPTER V. acceptanc:e and transfer considered. Sec. 794. THE PURPOSE OF ACCEPT- ANCE. — The drawee of a bill is not bound as a party to the instrument until he has accepted it, or agreed previously to pay it, and cannot be sued by the holder of the bill, though he has funds in his hands to cover the bill, except where the bill constitutes an equitable assignment of the fund drawn against. (Mandeville v. Welch, 5 Wheat. 277.) So due presentment for ac- ceptance by the holder is a condition precedent to the exercise of rights against the other parties to the bill arising when the bill is dishonored by non-acceptance. The purpose of acceptance then is to bind the drawee and make him an actual and bound party to the instru- ment, w hich he is not until he has accepted. ( Swope v. Ross, 40 Pa. St. 186.) Sec. 795. MEANING AND EFFECT OF ACCEPTANCE.— When the drawee has accepted the bill it means that he has bound himself to pay the bill according to its tenor, and he thus replaces the drawer as the primary debtor to the holder, and relieves him from responsibility as a guarantor that the acceptor will pay when due. Upon paying the bill the acceptor can charge the amount of same to the funds of the drawer in his hands, or if none, can recover from him by action, 74 ACCEPTANCE AND TRANSFER. 75 (Planters' Bank v. Douglass, 2 Head. 699; Smith v. Mimcie Bank, 29 Ind. 158.) Sec. 796. BILLS THAT MUST BE PRE- SENTED FOK ACCEPTANCE.— All bills pay- able on a future date, or a specified time after date, or on demand, need not be presented until they mature and are payable. But such bills may be presented be- fore due to ascertain if they will be honored, and if this is done and acceptance refused, the bill is dishon- ored and must be protested. (Philpott v. Bryant, 3 C. & P. 244; Allen v. Suydam, 20 Wend. 321.) In case of bills payable at sight, or a specified time after sight, or after any uncertain event, presentment for acceptance must be made without unreasonable delay to bind the other parties to the bill. (Tiedeman, Com. Pap., Sec. 211; Cox V. National Bank, 100 U. S. 704.) A failure to present in the proper time and manner by the holder of a bill, will destroy its effect as against all the parties, and also cancel the claim settled by the bill. Presentment is a duty which the holder owes to the other parties to the instrument, as they expect the bill to be accepted and paid by the drawee. (Gracie V. Sandford, 9 Ark. 238; Smith v. Miller, 43 N. Y. 171.)* Sec. 797. PRESENTMENT, HOW MADE.— Any person in possession of a bill of exchange may *"Presentment for acceptance is necessary in the case of a bill of exchange payable at or after sight. In other cases, in the absence of express stipulation, it is optional." (Benj.'s Chalmers, B. N. and Checks, Art. 147.) 76 NEGOTIABLE INSTRUMENTS. present it for acceptance, or may do so through his properly authorized agent. (Freeman v. Boynton, 7 Mass. 483.) The presentment must be made to the drawee personally or to some person who has authority to accept or refuse to accept for him. ( Sharpe v. Drew, 9 Ind. 281.) A bill on a firm may be presented to any one of the partners, otherwise in case of two or more drawees not partners. (Holtz v. Popple, 37 N. Y. 634; Bank v. Willis, 8 Met. 504.) If drawee is dead presentment must (perhaps) be made to the execu- tor or administrator. (Chitty on Bills, Sec. 280; Con- tra, Daniels, Sec. 458.) By statute in California, Utah and the Dakotas, presentment may be made to one in charge of the place of business or residence of the drawee in case of his absence. The bill should be presented to the drawee at his domicile, either at his residence or place of business, and in case of a regular business place it is the more cus- tomary place. (Tiedeman, Com. Pap., Sec. 213.) When the residence or place of business cannot be found after diligent search, or his new residence in case of removal, the bill may be protested as though refused acceptance. (Chitty on Bills 317.) Presentment should be made on a business day and at reasonable hours of business. What constitutes rea- sonable hours of business depends upon the custom of the particular place and also upon the trade or busi- ness. (Nelson v. Fotterall, 7 Leigh 179.) Any hour before the customary hour of retiring will be sufficient ACCEPTANCE AND TRANSFER. 77 when presented at drawee's residence. (Dana v. Saw- yer, 22 Me. 244.) The time within which the holder must present a bill for acceptance which requires such presentment, is usu- ally stated to be a reasonable time, and this is a mixed question of law and fact. (Walsh v. Dart, 23 Wis. 334.) When the facts are plain and simple reasonable time for presentment is a question of law, while complicated circumstances make it a question for the jury. (Prescott Bank v. Caverly, 7 Gray 217.) The facility of communication between the domiciles of holder and drawee; the distance; the facility of get- ting exchange; sickness; war; and other circumstances not to be overcome by due diligence of the holder, will affect the time allowed for presentment for acceptance. So the holder of a bill of exchange payable at or after sight instead of presenting within a reasonable time may negotiate it away, and this will relieve him, as the bill is intended to circulate. But this cannot go on in- definitely and will only affect the question of reasonable time.* *"In the following cases the delays were held to be reasonable ; four days, drawn in country on London, Shute v. Robins, 3 C. & P. 80 ; bill drawn in Erie, Pa., on New York City, delay eleven days; Banking Co. v. Second National Bank, 63 Pa. St. 404; drawn in New Orleans on Liverpool, ten weeks, Bolton v. Harrod, 9 Mart. 326; drawn in Dakota on Chicago, thirty-five days, Montelius v. Charles, 76 111. 303; drawn in Toronto on New York, three months, Boyes v. Joseph, 7 U. C. Q. B. 505 ; drawn in London on Calcutta, seventy-eight days, Muilman v. D'Eguino, 2 H. Bl. 565. On the other hand, it was held to be 78 NEGOTIABLE INSTRUMENTS. The drawee maj'' demand of the holder of a bill who seeks acceptance of it, that the bill be exhibited to him, and in this case the holder must have the bill with him in order to make a good presentment, and the drawee may take it into his possession and retain it twent}-- four hours for examination and identification. But where the drawee refuses acceptance of a bill from its description the holder need not exhibit it.* The presentment must be final, and the notary must not agree to call again with it on another day. And in case of duplicate bills the drawee should accept but one, or he will be liable to bona fide holders of each accepted bill. (Bank v. Neal, 22 How. 96, 109.) unreasonable delay of presentment for acceptance, where the bill was drawn in Detroit on Chicago, twenty-one days' delay, Phoe- nix Ins. Co. V. Allen, 11 Mich. 30; drawn in Wisconsin on New York, fourteen days, Walsh v. Hart, 23 Wis. 334 ; drawn in Ohio on New York, ten days, Vantrot v. j\IcCuIlough, 2 Hilt. f272, etc." (Tiedcman, Com. Paper, Sec. 21 6n.) *In many of the States the time is fixed by statute during Ashich the drawee may retain the bill for examination, and is customarily 24 hours. "The person who presents a bill of exchange for acceptance must deliver it to the drawee if required to do so. The drawee is entitled to retain it for twenty-four hours, but after the ex- piration of this time he must re-deliver it accepted or unaccepted. (Case V. Burt, 15 Mich. 82.) In reckoning the twenty-four hour non-business days must be cxckided. If after the expira- tion of the twent3'-four hours the drawee refuses to re-dehver the bill it must be treated as dishonest in order to preserve the holder's right of recourse against antecedent parties." (Benj.'s Chalmers, B. N. & Checks, Arh 154.) ACCEPTANCE AND TRANSFER. 79 Sec. 798. PRESENTMENT, WHEN EX- CUSED. — Presentment for acceptance is excused and the bill should be protested as dishonored by non-ac- ceptance: (1) When the drawee is discovered to be a fictitious person, or is incapable of making a valid con- tract from legal disabilities, or is the drawer, as a part- ner in the firm which is drawee, or officer of a private corporation which is drawee. (Tiedeman, Com. Pap., Sec. 218.) (2) Where, after reasonable diligence to ascertain the drawee, the presentment cannot be ef- fected. (Byles, 12th ed., p. 183; Chitty, p. 199.) (3) When the drawee is not in funds, and the drawer has no reasonable expectation that the bill will be accepted. (Robinson v. Ames, 20 Johns. 146.) (4) Where the bill contains a clause waiving acceptance, but not be- cause the drawer has countermanded the bill. (Daniel, Sec. 450.) Sec. 799. THE ACCEPTANCE CONSID- ERED. — Generally speaking, no one but the drawee can accept a bill, and a stranger accepting will either not be bound at all or, if there is sufficient considera- tion, as a guarantor. (Keenan v. Nash, 8 Minn. 409; Story on Bills, Sec. 254.) This does not apply to bills in blank, and a case of need may accept. So an author- ized agent of the drawee may accept, but unless the agent furnishes clear evidence of authority the holder may protest the bill for non-acceptance. The accej^t- ance may be made before the bill is drawn or while still incomplete, but is usually made a reasonable time after execution. Where the acceptance is made in blank and 80 NEGOTIABLE INSTRUMENTS. delivered to be filled up a bona fide holder for value may enforce it against the acceptor. The acceptance may be made after the bill has matured and been pro- tested for non-payment, and is then payable on demand. The holder may require that the date of acceptance be written on the bill so it will appear from the face of the instrument when it is due. (Daniel, Sec. 395.) Where the date is not indorsed on the bill it may be proven and is presumed to have been made prior to the date of payment and within a reasonable time after the bill's execution. (Tiedeman, Com. Pap., Sec. 220.) The acceptor or drawee who has not communicated his acceptance or the accepted bill to the holder, may re- voke an acceptance before delivery and cancel the writ- ten acceptance. Unless required by statutes, which is usually the case, or requested by the holder, the accept- ance may be written or verbal. Many States require the acceptance to be in writing and signed by the ac- ceptor. The fact that the statute of frauds, respecting a promise to answer for the debt of another, is held by some authorities, makes it desirable that all acceptances be in writing. But where the drawee has funds of the drawer in his possession it is held to be the payment of his own debt, and the acceptance is not within the stat- ute of frauds. (Townsley v. Sumrall, 2 Pet. 170.) The usual form of acceptance is made by writing the word "accepted" on the face of the bill, and the signa- ture of the acceptor, and by statute in a number of States the signature is required. But an acceptance is good at the common-law merchant without the signa- ACCEPTANCE AND TRANSFER. 81 ture. (Phillips v. Frost, 19 Me. 77.) So any form of expression as "presented," "seen," ''honored," "payment guaranteed," and the like exj^ressions, indicating the intent to accept, will take the place of the formal expres- sion "accepted." (Tiedeman, Com. Pap., Sec. 223.) So an acceptance will be implied from conduct of the drawee inconsistent with a refusal to accept, as where he discounts j^aper made for his accommodation, or makes part pajinent and arranges to pay the balance. (Bank v. Woodruff, 34 Vt. 89; Andressen v. Bank, 2 Fed. Rep. 125.) Sec. 800. ACCEPTANCES FOR HONOR, OR SUPRA PROTEST.— When the drawee has refused to accept a bill and protest has been made and notice given to all the parties, any third person may then ac- cept the bill for the honor of one or several parties to the bill. The acceptor after protest {supra protest) should specify for whose honor he accepts it, or it will be presumed to be for the honor of the drawer. The acceptance for honor enures to the benefit of all parties for whose honor it was accepted. ( Markham v. Hazen, 48 Ga. 570; 1 Parsons' N. & B. 313.) The holder is not bound to take an acceptance for honor, but by doing so he loses the right to sue the parties for whose honor it was accepted until maturity, and refusal of payment by the acceptor for honor. An acceptance for honor is properly made by the ac- ceptor appearing before a notary public and declaring his intention to accept for the honor of some one or more of the parties and subscribing to some such ex- 82 NEGOTL\BLE INSTRUMENTS. pression of his intention as "accepted for the honor of A." (Daniel, Sec. 523.) The acceptance for honor is not absolute. "In order to make such an acceptor liable, the bill must be again presented to the drawee at maturity, notwithstanding his refusal to accept, so that he might pay the bill, if he saw reasons for changing his previous determination. If he refuses, the bill should be protested, and then presented to the acceptor for honor. And if the acceptor for honor refuses to pay the bill, it should be again protested, and in this pro- test all the steps that had been taken to secure the payment of the bill should be stated, SLAd then notice should be given to all the parties for whose honor the bill had been accepted." (Tiedeman, Com. Pap., Sec. 228; 1 Parsons' N. & B. 320.) The date of maturity will be ascertained from the date of acceptance and not from presentment in case of acceptance for honor. The acceptor must notify the parties for whose honor he ac- cepts, and of his payment of the bill, and if this is done within a reasonable time he will have recourse against such parties. He will only have recourse against parties prior to the one for whose honor he acce2)ts. (Gazzam V. Armstrong, 3 Dana 554.) Other forms of conditional acceptance occur in busi- ness, and if the holder consent to take such a qualified acceptance he must give notice of the qualification to antecedent parties and get their consent, otherwise he runs the risk of freeing them from their liability. ( Cro- well V. Plant, 53 Mo. 135.)* *"Thc following may be mentioned as illustrative exampks ACCEPTANCE AND TRANSFER. 83 Sec. 801. PRESENTMENT FOR PAYMENT CONSIDERED. — The rules already considered apply both to presentment for acceptance and presentment for payment, but it is thought best to give a few principles applicable to presentment for payment at this time. When a bill of exchange has been dishonored by non- acceptance the holder has the option to present for pay- ment or not, except when accepted supra protest. (Read v. Adams, 6 Serg. & R. 356.) In other cases due presentment of a bill of exchange to the drawee for payment is necessary to bind the drawer and indorsers. By due presentment is meant such a presentment as re- gards time, place, and other circumstances as has been discussed in this chapter. The holder must demand pay- ment according to the tenor of the bill. When payable at a determinable time it should be presented upon that day subject to grace and usance of trade; and when payable on demand it must be i:)resented within a reas- onable time. {Byles, p. 211.) When a bill is made pay- able at a particular place by the drawer of a draft or by the acceptor in a general acceptance, presentment for payment must be made at that place. The person who presents the bill should produce it and be ready and willing to surrender it on receiving payment. In case of conditional and qualified acceptances: 'To pay when goods consigned to me are sold' (Smith v. Abbott, 2 Stra. 1152); 'to pay as remitted for' ; 'to pay when cargo of equal value is con- si o-ned to me' ; 'payable when house is ready for acceptance.' (Cook V. Wolfendale, 105 Mass. 401)." (Tiedeman, Com. Pa- per, Sec. 227.) 84 NEGOTIABLE INSTRUMENTS. the bill- is lost presentment of a copy with a bond of indemnity would be valid. (I^ane v. Bank, 9 Heisk. 419.) And a protest may be made on a copy of the lost instrument. (Brooks' Notary, 4th ed., pp. 137, 217.) A bill is said to be dishonored by non-payment when it is duly presented for payment and payment refused or cannot be obtained; or when presentment for pay- ment is excused, and the bill is overdue and unpaid. The holder of a bill dishonored by non-payment, by tak- ing steps to protest the bill acquires right of recourse agahist all antecedent parties to the bill. When a bill is payable generally or at a particular place no presentment is necessary to charge the ac- ceptor, as it is his duty to be on hand to pay or seek out his creditor to pay him. (Dougherty v. Bank, 13 Ga. 288.) TRANSFER. Sec. 802. IN WHAT WAYS BILLS AND NOTES MAY BE TRANSFERRED.— As a bill or note is a chattel it may 'be sold as a chattel; it is also a chose in action and can be assigned as a chose in action, and as it is also a negotiable instrument it may be trans- ferred by indorsement according to the rules of the law merchant. Sec. 803. TRANSFER BY ACT OF LAW.— At common law the title to a bill of a married woman during marriage was in the husband, if he died it re- verted to her. (Draper v. Jackson, 10 JNIass. 480.) This rule does not apply to a bill forming part of wife's separate estate, and now quite generally by statute a ACCEPTANCE AND TRANSFER. 85 married woman has the rights of a feme sole. ( See this subject discussed in Vol. 3 of The Cyclopedia of Law.) On the death of a holder the title passes by act of law to his personal representatives. And upon the death of a joint payee the law passes the title to the sur- vivor or survivors. (Wheeler v. Wheeler, 9 Cow. 34.) Sec. 804. TRANSFER BY ASSIGNMENT.— The holder of a bill may transfer it by assignment the same as any other chose in action. Where the holder of a bill payable to order transfers it without indorse- ment it operates as an equitable assignment, and the transferee may compel indorsement. (Matteson v. Mor- ris, 40 Mich. 55.)'' When indorsement is subsequently obtained the trans- fer operates as a negotiation from the time when given, unless the indorsement was omitted at the time of trans- fer by fraud, accident or mistake, in which case it oper- ates from the time of the transfer. (Lancaster Bank v. Taylor, 100 Mass. 18.) The holder of a bill, but not the maker of a note, may deliver it by way of a gift in contemplation of death, and die, and it will operate as a valid donatio mortis causa. But the estate is not liable on the donor's in- dorsement. (Weston V. Hight, 17 Me. 287.) Sec. 805. TRANSFER BY NEGOTIATION, ITS MEANING.— "Negotiation" means the transfer *"C, the holder of a bill payable to order, transfers it to D for value without indorsing it. D cannot sue the acceptor in his own name, or negotiate the bill by indorsing it to E." (Benj.'s Chalmers, B. N. & Checks, Art. 104 ; Hull v. Conover, 35 Ind. 372.) I 86 NEGOTIxVBLE INSTRUMENTS. of a bill ill the form and manner prescribed by the law- merchant with the incidents and privileges annexed thereby, i. e.: 1. The transferee can sue all parties to the instru- ment in his own name, and, if an innocent holder, be free from all defenses unknown to him and not appear- ing on the face of the note. 2. The consideration for the transfer is i^rima facie presumed. 3. The transferor can under certain conditions give a good title, although he has none himself. 4. The transferee can further negotiate the bill with the like privileges and incidents. (Benj.'s Chalmers, B. N. & C, Art. 106.) We have seen in the previous chapters that to make a bill or note negotiable it must contain express words making it negotiable, and these words of negotiability w^re there discussed. ( Sec. 755, et seq., ante.) When the bill is made negotiable in its origin, the absence of words implying power to transfer will not limit the negotiable effect of such indorsement. (Lea< vitt V. Putman, 3 N. Y. 494.) Having the other requisites a bill is negotiable which is payable in legal effect either to order or to bearer. It is payable to bearer when so stated or when indorsed in blank. And a bill lacking words of negotiability, but containing an expression as "this bill is to be negoti- able," indicating that it was the intention of the parties ACCEPTANCE AND TRANSFER. 87 to make it negotiable, will be negotiable. (Parker v. Middleton, 29 Pa. St. 530.) Sec. 80G. NEGOTIATIONS BY DELIVERY AND BY INDORSEMENT.— There are two modes of negotiation, by delivery and by indorsement accord- ing to the form of the instrument transferred. Thus, a bill which in legal effect is payable to bearer, may be negotiated by delivery alone. It may also be indorsed and makes the indorser a guarantor of the instrument, and such indorsement may be struck out without affect- ing the negotiability of the paper. A bill in legal effect payable to order is negotiated by indorsement.* But indorsement must be completed by delivery of the in- strument, and the term usually implies delivery. The indorsement must be written on the bill itself, or on a copy, or on a slip of 2>aper attached thereto called an "Allonge," and considered a part of the bill. The indorsement may be on the face of the bill. Sec. 807. KINDS OF INDORSEMENTS.— An indorsement may be in blank or a general indorsement, in which case the bill is transferable by delivery alone, or it may be a special or full indorsement designating the person to whom or to whose order the bill is thereby made payable, and then can only be negotiated by such person's indorsement. The holder of a bill with a blank indorsement, may, *"Indorsement means a writing on a bill signed by the holder, ordering the amount to be paid to a person therein designated, or to his order, or to bearer." (Benj.'s Chalmers, B. N. & C, Art. 111.) 88 NEGOTIABLE INSTRUMENTS. by writing a name over the indorser's signature con- vert it into a S})ecial indorsement, but such a bill is not restrained thereby and is payable to bearer, except that the special indorser is only liable to parties making title through his indorsement. (Johnson v. ]\Iitchell, 50 Tex. 212.) Sec. 808. QUALIFIED, CONDITIONAL AND RESTRICTIVE INDORSEMENTS.— As every indorsement consists of two distinct contracts, imless otherwise stipulated, the present transfer or negotiation of the bill, and the assumjition of a future contingent liability to jmy same as an indorser, it is necessary for the indorser to limit or qualify his second contract of future liability, and this may be done without affecting the negotiability of the paper. Thus the indorser may put in the indorsement, "pay D or order, without recourse on me," or ''sans recours," or the like, and then he transfers his title just the same but incurs no liability as an indorser. The indorser may also waive a right he may have as an indorser and thus enlarge the right of the holder. This is called a facultative indorsement, and does not affect the negotiability of the bill. So the indorser may insert a reference to a case of need in the indorsement. By a conditional indorsement is meant that the in- dorser makes his liability as a party depend upon the fulfillment of the condition stated. Thus where the bill reads, "Pay D or order u2)on my name appearing in the Gazette as ensign in any regiment between the 1st and 64th, if within two months from this date," and ACCEPTANCE AND TRANSFER. 89 the acceptor pays the bill without the condition being fulfilled, he is liable to the indorser for the amount of the bill. (Story, Sec. 217; Robertson v. Kensington, 4 Taunt. 30.) But such indorsements are of doubtful va- lidity. A restrictive indorsement makes the indorsee the holder of the bill, but states that he is not the beneficial owner. It gives authority to deal with the bill as di- rected, but does not transfer the ownership. The in- dorsee cannot transfer his rights unless expressly author- ized in the restrictive indorsement.* He may sue and collect the bill. A mere statement in the indorsement that the value was furnished by another will not make it restrictive. (Potts V. Reed, 6 Esp. 57.) When the restricted indorsee has the right to indorse the bill his indorsee takes affected by the same restric- tions, the relation between indorser and indorsee being that of principal and agent. (Treuttel v. Barandon, 8 Taunt. 100.) Sec 809. WHO MAY NEGOTIATE A BILL. — In general a bill must be negotiated by the de facto holder, that is, the person in possession of a biU and to whom it is payable, whether his possession be lawful or not, and in such sense it is broader in significance than the term "holder," which customarily means lawful holder. If the bill is payable to bearer the person in pos- *Illustrations of restrictive indorsements given by Benjamin are : "Pay D or order for the use of X," "pray pay the money to my use," etc. (Art. 124.) 90 NEGOTIABLE INSTRUMENTS. session is the de facto holder, hut if the hill is payahle to order the de facto holder must have possession and he the person to whom it is payable. But if the name is misspelled, or wrongly designated, the holder may nego- tiate by writing the name as in the bill, and then his true name. (Bryant v. Eastman, 7 Cush. 11 ; Redmond V. Stansbur}^ 24 INIich. 445.) So the person who ob- tains title by transfer by act of law is a de facto holder. But two or more persons to whom the bill is paj^able, not being partners, must each indorse the bill, unless one has authority to indorse for all. (Ryhiner v. Feickert, 92 111. 305.) Sec. 810. TO WHOM A BILL MAY BE NE- GOTIATED. — A bill may be issued to any person, including the drawer, drawee, acceptor or prior in- dorsers, and may be reissued by such indorsees. But in case a bill is indorsed back to a party already liable thereon, he cannot sue the intermediate parties, and in case it is indorsed to the acceptor at or after maturity it is discharged. (Bank v. Thompson, 124 JNIass. 515.) A special indorsee should be designated with the same certainty as in the case of an original payee. (Murray V. East India Co., 5 B. & Ad. 204.) Sec. 811. WHEN A BILL MAY BE NEGO- TIATED. — While a complete bill may be negotiated at any time before it is discharged, the character and incidents affecting it depend on the time when it is negotiated, as, for example, whether indorsed before or after due. Prima facie the bill is presumed to have been negotiated when issued or before maturity, and this pre- ACCEPTANCE AND TRANSFER. 91 sumption may be rebutted by suspicious circumstances. (Anderson v. Weston, 6 Bing., N. C, 296; Bounsall v. Harrison, 1 M. & W. 611.) Sec. 812. SAME SUBJECT— OVERDUE PAPER. — A bill that is overdue, that is, whose time of payment has matured, and is not discharged may be negotiated as other bills, except that the fact of its being overdue is equivalent to notice to the holder of all facts which, if known before maturity, would destroy his title as a bona fide holder without notice. This characteris- tic of overdue paper is called an "equity attaching to the bill." (Kittle v. DeLameter, 3 Nebr. 325; Natl. Bank v. Texas, 20 Wall. 72.) Bills payable in installments are considered overdue in toto, when any installment is past due, but not from the fact that interest is past due. (Field v. Tibbetts, 57 Me. 358; Kelley v. Whitney, 45 Wis. 110.) A bill of exchange payable on demand and not dishonored by non-acceptance is not overdue unless it appears on its face to have been in circulation an unreasonable time. (La Due v. Bank, 31 Minn. 33.) Bills payable on demand are overdue after the expiration of the last day of grace. (Chambiss v. Matthews, 57 Miss. 306.) The holder's title after maturity will be as good as that of the previous holder, in case of a defective title in one of the parties. (Hereth v. Bank, 34 Ind. 380.) The existence of a set-off or matter of counter-claim against the holder of a bill is not an equity which at- taches to an overdue bill. (Richardson v. Daily, 34 la. 427; Young v. Schroner, 80 Pa. St. 463.) But this 92 NEGOTIABLE INSTRUMENTS. principle is denied by other authorities. (Armstrong V. Chadwick, 127 Mass. 156; Pugh v. Grant, 85 N. C. 39.) But if the transfer was without consideration, or in violation of an agreement not to negotiate after ma- turity, the equity attaches. But the lack of considera- tion as between an accommodation maker and the holder is not an equity attaching to the instrument. (Davis V. ]Miller, 14 Grat. 1; contra, Kellogg v. Barton, 12 Allen 527.) Payment and other forms of discharges disentitle the holder after maturity, but these are rather regarded as grounds of nullifying the instrument than as equities attaching to the bill. Part payment is re- garded as an equity attaching to an overdue bill.* Sec. 813. LIABILITY OF THE INDORSER AND RIGHTS OF THE INDORSEE.— By nego- tiation the indorser warrants that the paper is a valid obligation in every particular, as that the parties are *Graves v. Key, 3 B. and Ad. 319; Lanati v. Bayhi, 31 La. Ann. 229. "The position of a holder who takes a bill when overdue is this; he is a holder with notice. He may or may not be a holder for value, and his rights will be regulated accord- ingly. He is a holder with notice for this reason : he takes a bill which, on the face of it, ought to have got home and to have been paid. He is therefore bound to make two inquiries: 1. Has what ought to have been done really been done, i. e., has the bill in fact been discharged? 2. If not, why not.'' Is there any equity attaching thereto, i. e., was the title of the person who held it at maturity defective.'' If his title to the instrument was complete, it is immaterial that for some collateral reason, e. g., set-off, he could not have enforced the bill against some one or more of the parties liable thereon." (Benj.'s Chalmers B. N. and Checks, Art. 134!n.) ACCEPTANCE AND TRANSFER. 93 competent to contract, the genuineness of all the signa- turesf, and that the paper is not in violation of the law for any reason; and further he guarantees by a full indorsement, that the paper will be honored by accept- ance and payment, and for this guaranty he is liable to each subsequent indorsee. These rights inure to the de facto holder of the bill, and he can sue upon the bill or further negotiate it, and though guilty of a fraud in parting with it, give title to a bona fide holder for value without notice who takes it before maturity. Any ir- regularity, as a torn paper, j^atent on the face of a bill is equivalent to notice, and the holder who takes such an instrument will not be considered an innocent holder. (Ingham v. Primrose, 7 C. B. N. S. 82.) In an action by the de facto holder it may be shown that he holds adversely to the true owner, and that he is agent or trustee for another person, and then any de- fense or set-off available against such person is available against the holder. (Benj.'s Chalmers, B. N. & C, Art. 141.) An action at law may be maintained upon a lost bill, when it is shown to have been destroyed; or that it has come into the possession of the defendant since its loss; or that the defendant is protected from future liability by the statute of limitations. This action upon lost instruments is now regulated in England and some of the States by statute. The holder has also a remedy in a court of equity by giving a bond of indemnity against future liability on the bill. (Torrey v. Foss, 40 Me. 74; Hagerstown v. Adams Ex. Co., 45 Pa. St. 419.) CHAPTER VI. DUTIES OF THE HOLDER. Sec. 814. IN GENERAL.— The duties of the holder of a bill include presentment for acceptance, pre- sentment for payment, protesting for non-acceptance or non-payment, the giving notice of dishonor to all parties secondarily liable on the instrument whom he desires to hold liable, and the delivery of the paper on receiving payment. In the preceding chapter we have discussed at more or less length the subjects of presentment, whether for acceptance or payment, and to this the stu- dent is now referred. Sec. 815. HOW TO ASCERTAIN THE PROPER DATE FOR PRESENTMENT.— In computing time on all commercial paper the day of date is excluded, so where the paper is payable one year from date it will mature on the first anniversary of that date. Where days of grace are allowed the date of maturity will be three days later, on the last day of grace. (Henry V. Jones, 8 Mass. 453. ) When the term month is used it is held to mean a calendar month and not a lunar month. In an instrument payable a stated number of days after sight, or after date, the day of sight or date is excluded and the day of payment included in the computation. Presentment for payment cannot be made on a Sun- day or legal holiday, in such case, and when days of 94 DUTIES OF THE HOLDER. 95 grace are not allowed, the note maturing on a holiday or Sunday, as the maker cannot be compelled to j^ay sooner than he had promised, the note or bill will have to be presented on the next business day. But where days of grace are allowed and the last day of grace is a holiday, the demand should be made on the preceding day, since these days are a matter of indulgence to the maker or acceptor in their origin. (Barrett v. Allen, 10 Ohio 426; Shepherd v. Spates, 4 Md. 400.) Sec. 816. MODE OF PRESENTMENT.— As a general rule the presentment is made by the holder or his agent presenting the bill to the acceptor and demand- ing payment. But where the bill is payable at a bank, it is sufficient if the paper is there in possession of one entitled to receive payment. By usage the banks in some States give notice to the promisor a few days be- fore maturity of the fact that the paper will be due on a named day, and it has been held that this preliminary notice will take the place of a formal presentment on the day of maturity. (Weld v. Gorham, 10 Mass. 366.) PROTEST. Sec. 817. MEANING AND PURPOSE OF PROTEST.— "Protest" means a formal notarial cer- tificate attesting the dishonor of a bill. It must be made by a notary public or other person authorized to act as such, except where a notary cannot be obtained, in which case it may be made by any respectable person in the presence of two witnesses. (Burke v. McKay, 2 How, 66.) 96 NEGOTIABLE INSTRUMENTS. j The purpose of the protest and certificate is to furnish legal evidence of the fact that proper demand had been made upon the promisor and notice of dishonor given in a suit by the holder against the prior parties. It does away with the necessity of witnesses to prove these facts, and being so much more expedient in cases of foreign bills, it has long been the universal rule of the law mer- chant in England and America that such bills must be protested in order to hold the prior parties. Inland bills, or domestic paper, being of easier proof, unless the statutes require it, need not be protested for non- payment, and protest of such paper independent of stat- ute would have no effect. (Daniel, Sec. 927.) * The con- venience of proving the essential facts of 'dishonor by notarial certificate has caused the enactment in most of the States of statutes requiring or permitting the pro- testing of inland bills and notes. (Tiedeman, Com. Pap., Sec. 321.) When a foreign bill of exchange is dishonored It must be duly protested for non-acceptance or non-payment, as the case may be in order that the holder may preserve his right of recourse against the drawer and indorsers. This is indispensable. (Union Bank v. Hide, 6 Wheat. 572.) If a bill of exchange is dishonored by non-acceptance, and the holder without proper excuse neglects to protest *If the holder has paper protested for non-pa3^ment when the law merchant or statutes do not require or allow protest, the notary public cannot recover his fees of the parties to the paper. (Cramer v. Eagle Mfg. Co., 23 Kan. 400.) DUTIES OF THE HOLDER. 97 it, the drawer and indorsers are discharged as regards such holder and all subsequent holders, who have knowl- edge that the bill has been dishonored, but such parties are not discharged as regards a holder who takes such a bill before maturity and without knowledge of its dishonor. (Benj.'s Chalmers, B. N. & C, Art. 181.) So a bill dishonored for non-acceptance must be pro- tested, but when this is done it need not be subsequently protested for non-payment. (Whitehead v. Walker, 9 M. &W. 516.) Sec. 818. NOTING, OR PREPARATION FOR PROTEST.— As we have seen (Chapter V), any holder may present the bill or note for payment and re- ceive payment, but in case payment is refused and pro- test becomes necessary, the notary public who makes the protest is obliged by law to make a second demand, so that he can of his personal knowledge certify to the fact of dishonor. In England the preliminary presentment is made by the notary's clerk, but in America such a pre- sentment is insufficient unless authorized by statute or custom of the place. (Bank v. Barnum, 49 N. Y. 275; Cribbs v. Adams, 13 Gray 597.) "Noting" means a minute made by the notary public on a dishonored bill at the time of its dishonor. The "noting" consists merely of the notary's initials, date, charges, and cause of dishonor, as "no effects," and may be made on the back of the instrument or on a ticket at- tached to it. (Brooks' Notary, 4th ed., pp. 80-82.) This noting of the dishonor is for the convenience of the notary, who by the law merchant is required to make 98 NEGOTIABLE INSTRUMENTS. the protest on the same day that the presentment and demand were made, and this short form or "noting" is equivalent to the protest itself, and the more formal protest may be made out later from the "noting." The notary is not allowed to trust his memory, and if the dishonor is not protested or noted on the same day, the drawer and indorsers w^ill be discharged. (Tiedeman, Com. Pap., Sec. 325; Dennistoun v. Stewart, 17 How. 606; Chitty on Bills 377.)* Sec. 819. WHAT THE CERTIFICATE OF PROTEST SHOULD CONTAIN.— The protest certificate should contain a copy of the bill or the bill itself annexed ; a statement of the parties for whom and against whom the mstrument is protested; the date of protest and the place where made; a statement that ac- ceptance or payment was demanded by the notary; the terms of the answer, if any, or a statement that no answer was given, or that the drawee or acceptor could not be found; a claim for protection from the parties liable, and the signature and seal of the notary makmg the protest. (Brooks' Notary, 4th ed., p. 82.) A bill must be protested at the place where it is dis- honored, but if the domicile and place of payment are different it may be protested at either place. (Tiede- man, Com. Pap., Sec. 323.) When the laws are in con- *A foreign bill sliould be noted for protest on the day that it is dishonored. When a bill has been duly noted, the formal protest may be extended at any time. (Bcnj.'s Chalmers B. N. and Checks, Art. 178.) But in practice the noting is fre- quently made on the day after dishonor. (Brooks' Notary Pub- lic, 80.) DUTIES OF THE HOLDER. 99 flict, the validity of the protest will be detei-mined by the law of the place where it is made. (Carter v. Bur- ley, 9 N. H. 558.) Sec. 820. PROTEST EVIDENCE OF WHAT FACTS. — The notary's certificate of protest is only evidence of those facts which are stated therein and which are the duty of the notary to note in making presentment and demand for payment. Collateral facts noted by the certificate must be proved by other evi- dence. So where, as is usually the custom, the notary sends out the notices of dishonor to the drawer and indorsers, as this duty is not required of him by the law merchant, his certificate in regard to such notices being sent out is not legal evidence of the fact. But statutes in the different States usually provide that a notarial certificate of protest will be evidence of any fact therein stated in respect to notice. (Tiedeman, Com. Pap., Sec. 327.) The certificate of protest may fail to state all the necessary facts, and in such a case the missing facts are not as a rule to be supplied by implication or infer- ence. (Bank v. Smith, 11 Wheat. 171; Bradshaw v. Hedge, 10 la. 402.) A protest certificate is only prima facie evidence, and all facts stated therein may be disproved by competent evidence showing the statements to be untrue. (How- ard Bank v. Carson, 50 Md. 27.) Sec. 821. HOW PROTEST MAY BE WAIVED OR DISPENSED WITH.— Protest is waived by waiver of a, presentment for payment, and protest is dispensed with by the same circumstances which would 100 NEGOTIABLE INSTRUMENTS. dispense with notice of dishonor in the case of an inland bill, and circumstances excusing delay in giving notice of dishonor will excuse delay in protesing. (Moyer's Appeal, 87 Pa. St. 129.)* Sec. 822. TROTEST FOR BETTER SECU- RITY. — AVhen the acceptor of a bill of exchange be- comes bankrupt or makes an assignment before its ma- turity, it may be protested for better security. ( Brooks' Notary, p. 88, form p. 219.) When a bill of exchange is dishonored by non-ac- ceptance or non-payment, and a reference to a case of need has been made, the holder should (perhaps) pre- sent the bill to the case of need for acceptance or pay- ment supra protest, to preserve his rights against prior parties. But it is optional to do so, when the reference to a case of need is given by an indorser. (Benj.'s Chal- mers, B. N. & C, Art 184.) So a bill must be presented to the drawee or acceptor and duly noted for protest before it can be presented to the acceptor supra protest; an omission by the holder to so protest the bill accepted supra protest will discharge such acceptor. And when dishonored by the acceptor after protest, it is held to be again necessary to protest it in order to charge the prior parties. ( Chitty, p. 242 ; Brooks' Notary, p. 108.) NOTICE OF DISHONOR. Sec. 823. MEANING AND PURPOSE OF NO- TICE. — Notice of dishonor means a formal notice of ^See post. Sees. 826-827. DUTIES OF THE HOLDER. 101 dishonor to parties liable on the bill, and is not excused because the drawer or indorser had notice that the bill had been dishonored. It is a duty of the holder, and a condition precedent to his being protected by previous parties, that he shall give immediate notice of dishonor by non-acceptance or non-payment to all prior parties whom he expects to hold liable. If this is not done in case of dishonor for non-acceptance the drawer and in- dorsers are discharged as regards the holder at the time of dishonor, and all subsequent holders with notice thereof, but not as regards a subsequent holder who takes the bill before maturity and without notice that it has been dishonored. The failure of the holder to give due notice of dis- honor for non-payment, discharges the drawer and in- dorsers from liability on the instrument, and also from any liability on the consideration for which it was given. (Allen V. Eldred, 50 Wis. 136, Rucker v. Hiller, 16 East 43; Chitty, 488.) Sec. 824. MEANING OF DUE NOTICE; BY WHOM AND WHEN TO BE GIVEN.— By due notice is meant notice given by the proper party, in the proper form, at the proper time, in the proper manner and to the proper party. 1. The proper party to give the notice is the holder or his authorized agent, or an indorser who is at the time of giving it liable on the bill and who has a right of re- course against the party to whom notice is given. That is, the notice must be given by a party to the paper or his agent, and a total stranger cannot give proper notice 102 NEGOTIABLE INSTRUMENTS. of dishonor. The notary may give the notice as agent for the holder, and so may any bank holding the paper for collection. (Shedd v. Brett, 1 Pick. 401; Bank v. Vaughan, 36 ^lo. 90.) By holder is meant the dc facto holder. (Story, Sec. 303.) A party entitled to give no- tice may constitute the drawee or acceptor his agent for the purpose of giving notice of dishonor. (Harrison v. Ruscoe, 15 M. & W. 231 ; Bank v. Ryerson, 23 la. 508.) The notice when given by an agent may be given in his own name or the name of the principal. (Harrison v. Ruscoe, supra.) So if the holder be dead, notice of dis- honor may be given by his personal representatives. (White V. Stoddard, 11 Gray 258.) Notice of dishonor given by or on behalf of the holder enures for the benefit of all subsequent holders, and all prior indorsers liable on the bill who have a right of re- course against the party to whom notice is given. ( Staf- ford V. Yates, 18 Johns. 327.) And notice of dishonor given by or on behalf of an indorser entitled to give no- tice, enures for the benefit of the holder and all.indorsers liable on the bill who have a right of recourse against the party given notice.* *In Beale v. Parish, 20 N. Y. 407, it is hckl that notice though duly sent by the holder docs not inure for tlie benefit of a prior indorser, unless it reaches the party to whom it is sent. "If the holder or his agent, gives notice to the immediate indorser alone, and he (the notified indorser) then sends notices to the other prior indorsers, these prior indorsers will not only be bound to the indorsee, who gives the notice, but also to the holder. But in order that an indorser's notice may bind another indorser, the liability of the indorser giving the notice, must be DUTIES OF THE HOLDER. 103 2. The notice may be verbal or written, and consists in the communication of the fact of dishonor by the per- son whose duty it is to give it. ( Thomjjson v. Wilhams, 14 Cal. 160.) When verbal it is not necessary to be as formal as when written, for the party may inquire if he is not fully informed. "In order that the notice may be complete, it should contain, (1) a sufficient description of the bill or note; (2) a statement that it had been presented for acceptance or payment, and had been dis- honored; (3) the statement that the paper had been pro- tested, and (4) an announcement of the intention of the holder to look to the party addressed for payment." (Tiedeman, Com. Pap., Sec. 344.) The notice of dishonor should as a general rule indi- cate on its face, either by express statement or by neces- sary or reasonable implication, that the paper had been presented and dishonored. This is the earlier English rule, and prevails in America. (Solarte v. Palmer, 1 Bing., N. C. 194 ; Gilbert v. Dennis, 3 Metcalf 495. ) A statement of non-payment is not sufficient without a statement that presentment and demand had been made, but if the word "dishonored" is used it is held to be suffi- cient without further statement of presentment and de- mand. (Page V. Gilbert, 60 Me. 488; Rowland v. Sprinjett, 14 M. & W. 7.) So if an allegation of pro- fixed by having himself received the required notice of dishonor." (Tiedeman, Com. Paper, Sec. 835.) If he has not received this notice he is discharged from liability, and may properly be treated as a stranger to the paper. (Id. Turner v. Leach, 4 B. and Aid. 451.) 104 NEGOTIABLE INSTRUMENTS. test or words from which it may be inferred is used, as "your bill is unpaid, noting 5 s.," in connection with a statement of non-payment it will be sufficient. (Arm- strong V. Christiana, 6 C. B. 687.) And in general the notice need not expressh^ state that the bill has been pre- sented and dishonored, or protested, if protest be neces- sary, or that the party to whom notice is sent is called on to pay the bill. It is sufficient if these facts can rea- sonably be inferred from the terms of the notice. (Benj.'s Chalmers, B. N. & C, Art. 199.) And a mis- description of a bill will not vitiate notice unless the party to whom notice is given is in fact misled thereby.* (Gill V. Pahner, 29 Conn. 54; INIills v. Bank, 11 Wheat. 431.) 3. The proper time to give notice of dishonor is as *"A notice to the drawer which describes the bill as payable at the 'S Bank,' when in fact it was payable at the 'T Bank,' or which describes a bill of exchange as a note, or which trans- fers the names of drawer and acceptor, or which describes the acceptor by a wrong name, or which misstates the sum payable, ma}' be sufficient." (Benj.'s Chalmers B. N. and Checks, Art. 199 III.) "A full description properly made, should give the date of the paper, by whom executed, payable to whom, for what amount, when due, by whom indorsed, and in the case of bills of exchange, on whom it is drawn. If payable at a particular place the place should be stated." (Tiedeman, Com. Paper, Sec. 345.) But all of this particularity is not absolutely necessary to the suf- ficiency of the notice, and as stated by Benjamin, Art. 199, notice is sufficient which so identifies the bill that the recipient is not misled, and informs him that the bill has been dishonored by non-acceptance or non-payment, and that he is held liable. DUTIES OF THE HOLDER. 105 soon as the bill has been dishonored, and it must be given within a reasonable time after dishonor, and cannot be given prior to dishonor. (Story on Bills, Sec. 285; Chitty on Bills, 366-544.) Reasonable time within which to give notice may be a mixed question of law and fact, and in determining reasonable time non-business days are excluded. By the present rule of the law mer- chant the holder is given mitil the expiration of the next day after dishonor, in which to give notice; in case the holder lives in a different i:>lace from the parties notified he has until the last mail on the day after dishonor, and in case this mail leaves at an unreasonable hour, he has until the next mail to send the notices. ( Lenox v. Rob- erts, 2 Wheat. 373; Bank v. Stedman, 3 Conn. 489.) When the person giving notice and the party to whom notice is to be given live in the same place, the notice must, in the absence of special circumstances, be received by such party at a reasonable hour on the day after the sender became entitled to give notice, and if such notice is to be left at a place of business it should be received during business hours. (Adams v. Wright, 14 Wis. 408.) If the notice is sent by mail it should be so sent that it will reach the party on the day after the sender became entitled to give notice; and if sent by other means than the mail it should reach the party to be notified at a reasonable hour on the same day it would have been received by due course of mail. It was formerly a general rule that when the parties to be notified and the holder lived at the same place that personal notice should be given in all cases, and a notice 106 NEGOTIABLE INSTRUMENTS. by mail would not be sufBcient unless actually received. (Busard v. Leverin^^, 6 Wheat. 104.) But now in case of cities in which there is postal delivery the holder is protected in case he lias duly mailed a properly addressed letter containing the notice, though by the delay or de- fault of the mail it is never received. (Bank v. Warner, 10 Allen 522; Forbes v. Natl. Bank, 10 Nebr. 338.) And in some States statutes provide for the mailing of notices of protest where parties reside in same place. (Shoemaker v. Bank, 59 Pa. St. 83.) In cases where the parties and the holder live in different post-office de- liveries, and due notice is sent by mail, the notice is suffi- cient though not received. (Munn v. Baldwin, 6 Mass. 316; Walters v. Brown, 15 Md. 285.)* 4. In general, now notices of dishonor may be sent by mail, but in case jDersonal notice should be or is sent, it must be sent to the residence or place of business of the party to be notified, delivery at either place will be suf- ficient, and in his absence it may be left with a person in charge, or put into the keyhole or under the door. (Stewart v. Eden, 2 Caines 121; Tiedeman, Com. Pap., Sec. 340.) 5. The proper party or parties to be given notice are *The holder or other party person entitled to give notice of dishonor must give notice to a remote party Mithin the same limits of time that is required in the case of an immediate party. (Bcnj.'s Chalmers B. N. and Checks, Art. 197.) That is, the holder must give notice to all prior parties whom he desires to hold liable at the same time, and if he does not he cannot look to them unless an indorser has given the required notice in time and such notice enures to his benefit. DUTIES OF THE HOLDER. 107 the drawer, indorser, or indorsers, or their authorized agent or other person entitled to receive notice for them. That is, the notice must be given to all persons seconda- rily liable whom the holder wishes to charge. And notice should be given to indorsers who have indorsed for the purpose of collection, and indorsers of overdue paper. (Tiedeman, Com. Pap., Sec. 336.) Where there are two or more joint drawers or indorsers who are not part- ners, notice of dishonor must be given to them all in order to bind either. (People's Bank v. Keech, 26 Md. 521.) If the drawer or indorser is a bankrupt, notice should be given to the assignee ; and if the party sought to be notified is known to be dead the notice should be addressed to the personal representative by name if he can be ascertained, otherwise to the family residence of the deceased. (Goodnow v. Warren, 122 Mass. 79; Bank v. Birch, 17 Johns. 25.) It is the duty of the drawer or indorsers, if absent from their place of business or residence, to see that there is some one there to receive notice on their behalf. (N. Y. Bank v. Selma Bank, 51 Ala. 305.) Sec. 825. NOTICE GIVEN BY OTHERS THAN THE HOLDER.— A party who receives due notice of the dishonor of a bill, as an indorser, after the receipt of such notice, has the same time in which to give notice to antecedent parties whom he desu'es to hold liable, as the original holder has after the dishonor of the bill. (Lawson v. State, 1 Ohio St. 206.) So when a bill is in the hands of an agent, he will have the same time ill which to give notice to his principal, as he would if he 108 NEGOTIxVBLE INSTRUMENTS. were an iiulejjcndcnt indorser, with his principal liable to him. (Wrio-ht v. Shawcross, 2 15. & Aid. 501.) If the bill is presented through the post-office for payment, the drawee or acceptor is deemed to be the af^ent of the holder for the purpose of giving' notice of dishonor, and has the same time for giving notice as the holder would have. (Prideaux v. Criddle, 4 L. R. Q. B. 461 ; Benj.'s Chalmers, B. N. & C, Art. 196.) Sec. 826. WTTEN NOTICE OF DISITOXOTl IS UNNECESSARY.— "Notice of dishonor is dis- pensed with: "1. When the drawer or indorser sought to be charged is, as between the parties to the bill, the i)rin- cipal debtor, and has no reason to expect that it will be honored on presentment."* As where a person draws a bill on one who is under no obligation to accept or pay- it and has not agreed that he will do so. The drawer is not entitled to notice of dishonor. (Welch v. B. «Sc C. Mfg. Co., 82 111.579.) "2. As regards the drawer, when drawer and drawee are the same person, or identical in interest." For ex- ample, where a bill is drawn by one firm on another, and the two have a common partner. "3. When the drawer or indorser sought to be charged is the person to whom the bill is presented for payment." "4. When the drawee is a fictitious person, or (per- *Thc quotations in tliis section are from Bcnj.'s Chalmers, Art. 200. DUTIES OF THE HOLDER. 109 haps) a person not having capacity to contract, and the drawer or indorser sought to be charged was aware of the fact at the time he drew or indorsed the bill." ''5. When the drawer or indorser sought to be charged has received an assignment of all the j)roperty of the acceptor as security against his liability." And by some authorities whenever the secondary obligor has collateral security sufficient to satisfy the debt, whether all or only a part of the i^roperty of the accex^tor, since, in such case, the secondary obligor could suffer no damage from want of presentment and notice. Tiedeman asserts the bet- ter rule to be, that the indorser or drawer in taking the collateral security should obligate himself to see the pay- ment of the paper, in order that the taking shall relieve the holder of the duty of giving notice. (Com. Paj)., Sec. 362.)* "6. When, after the exercise of reasonable diligence, notice of dishonor cannot be given to or does not reach the party sought to be discharged." As where the no- *Bank v. Griswold, 7 Wend. 165; Spencer v. Harvey, 17 Wend. 490; Duvall v. Farmers' Bank, 9 G. and J. 31, hold that an assignment of all the property is necessary to relieve the duty of giving notice. Watklns v. Crouch, 5 Leigh 522 ; Bank v. McGuire, 33 O. St. 295; Woodman v. Eastman, 10 N. H. 359, hold that all or a part sufficient to cover the note is sufficient; while Bond v. Farnham, 5 Mass. 170; Haskell v. Boardman, 8 Allen 39, indicate that the drawer or indorser should be obli- gated to pay the debt on taking security. Taylor v. French, 4 E. D. Sm. (N. Y.) 458; Wilson v. Senier, 14 Wis. 380, deny that security by part of acceptor's property, though sufficient to meet the bill will dispense with demand, notice, and protest. no NEGOTIABLE INSTRUMENTS. tice is duly posted but lost in the mail, or where the no- tice is duly served at the party's place of business or resi- dence but the party is not there or any one to receive notice. (Bank of Utica v. Bender, 21 Wend. 643; Mackay v. Judkins, 1 F. & F. 208.) But the mere fact that the drawer or indorser has reason to believe that the 'bill will be dishonored on presentment, will not dis- pense n-ith notice of dishonor. Bankruptcy or death will not dispense with the necessity of notice being attempted to be given to the party or his representatives. { Smalley V. Wright, 40 N. J. L. 471.) "7. By Waiver exj^ress or implied. Notice of dis- honor may be waived before the time for giving notice has arrived, or after the omission to give notice." A waiver of notice in favor of the holder enures for the benefit of parties prior to such holders as well as subse- quent holders. But waiver of notice of dishonor by an indorser does not affect prior parties. When there is an acknowledgment of liability after failure to give no- tice, it must be made with full knowledge of the facts to be valid. And a verbal waiver of notice *may be re- voked if the time for giving notice has not expired. (Benj.'s Chalmers, B. N. & C, Art. 200.) Sec. 827. EXCUSES FOR DELAY IN GIV- ING NOTICE OF DISHONOR.— In general, delay in giving notice of dishonor will be excused when such delay is caused by circumstances beyond the control of the party whose duty it is to give notice, and not caused by his negligence. And when the cause of the delay is removed, notice should be given with reasonable dili- DUTIES OF THE HOLDER. Ill gence. Thus sickness, death, or accident to the holder a'bout the time the note or bill matures will excuse delay for a reasonable tune. (White v. Stoddard, 11 Gray 258.) So where paper is sent to an agent for collection, or transferred on or near the day of maturity, delay will be excused, as to the indorser causing the delay. (Tiede- man, Com. Pap., Sec. 361.) Where the holder does not know the indorser's address, delay caused in making in- quiries will be excused. (Fugitt v. Nixon, 44 Mo. 295.) Sec. 828. CONFLICT OF LAWS AS RE- GARDS NOTICE.— Where the instrument is drawn in one country and payable in another, and there is a conflict of laws, the validity of a notice of dishonor, both as to form and time, will (probably) be determined by the law of the place where the notice is given. (Home V. Rouquette, 3 L. R., Q. B. D. 514.) PAYMENT. Sec. 829. DUTY OF HOLDER TO ACCEPT PAYMENT, AND DELIVER BILL.— Upon pay- ment from the drawee or acceptor it is the duty of the holder to deliver up the bill or note, except, perhaps, upon proof of its destruction when he cannot do so. The surrender is desired as it is jjresumptive evidence of pay- ment, and further that the payor may know that the bill is not in circulation. Some cases hold that the payor may demand a receipt of payment to be written on the surrendered paper, but this is doubtful authority. (Chitty on Bills, 13th Am. ed. 477; Otisfield v. May- berry, 63 Me. 197; Best v. Crall, 23 Kans. 482.) The 112 NEGOTIABLE INSTRUMENTS. payor may also demand the right to examine the paper to ascertain tlic o'cnuineness of the signatures, but the right to its sin-render finally is concurrent and not a con- dition precedent to payment. (Wheeler v. Guild, 20 Pick. 54>5.) Payment is to be distinguished from a sale or transfer of a bill or note, as it extinguishes the liability of the party on behalf of whom the payment is made, instead of transferring the claim under it, as in the case when the parties agree that it shall be a transfer or sale. There must be a present bona fide intention at the time to make the transaction a sale and not a payment discharging the claim. (Greening v. Patten, 51 Wis. 150.) Sec. 830. WHO MAY MAKE, AND RECEIVE PAYJNIENT.— All parties to the bill, primarily or secondarily liable to it, may make or offer pay- ment. A mere stranger to the jiaper cannot make pay- ment without the consent of the holder unless he repre- sents a party liable thereon, or makes payment supra protest. A personal representative of a party is not a stranger. (Burton v. Slaughter, 26 Gratt. 919.) The payment can only be properly made to the holder or his authorized agent or representative. This means the de facto holder, and a bill payable to bearer may be paid to the holder though he has stolen it. If payable to order it must then be paid to the person named in the order or his agent, and any other payment will not dis- charge the party paying. (2 Daniel, Sec. 1231.) Sec. 831. EFFECT OF PAYMENT PROP- ERLY MADE. — A proper payment can only be made DUTIES OF THE HOLDER. 113 with money that is legal tender, unless by agi-eement with the holder. And money that is legal tender must be taken in payment though depreciated as regards an- other specie of legal tender. (Killough v. Alford, 32 Tex. 457.) The payment must, however, correspond to the terms of the bill, and if a particular kind of legal tender is specified, as gold, the holder need accept none other.* The holder may accept in payment of the bill anything he desires, but an agent of the holder in the absence of authority can accept only money. (DeMets V. Dogon, 53 N. Y. 635; Chapman v. Cowles, 41 Ala. 103.) The effect of payment is to extinguish the liability of the party paying in all cases, and in case he is the pri- mary obligor all the parties to the bill are discharged, since they merely guarantee payment by such primary party ; but where payment is made by a party who is not the primary obligor, or an accommodated party, his pay- ment only cancels his own liability, and those who are obligated after him. All prior parties, primarily or sec- ondarily liable on the bill, are liable to such a payor, and the payor may cancel indorsements subsequent to his own and re-issue the paper, and it will be valid as against the prior parties. In such case, the re-issue or indorse- ment must, if made after maturity, contain words of negotiability, as "to order," or "to bearer," as the trans- *Bronson v. Rhodes, 7 Wall. 245; Phillips v. Dugan, 21 O. St. 466 ; McGoon v. Shirk, 54 111. 408 ; Smith v. Wood, 37 Tex. 457. Contra, Wood v. Bullens, 6 Allen 518 ; Kilough v. Alford, supra. 114 NEGOTIABLE INSTRUMENTS. fer is a new and independent contract. (W. Boston Savings Inst. v. Thompson, 124 Mass. 506; St. Jolin v. Roberts, 31 N. Y. 441.) Sec. 832. PAYMENT, HOW APPROPRIATED WHEN THERE ARE TWO OR MORE BILLS. — If the debtor is obligated to tlie holder on two or more instruments, and a payment is made, how shall it be ap- plied? The following rules are deduced by Professor Tiedeman in his valuable work: 1. When the payment Is voluntary, the debtor may make the ajipropriation as he pleases, and has until the bringmg of suit to make the appropriation as regards the creditor, and a reasonable time as regards thu'd per- sons. 2. If the debtor makes no specific appropriation the creditor may apply it as he pleases. Perhaps he may not apply the payment to a debt not yet due if one is due, or to a debt whose validit}^ has been questioned by the debtor. He may apply it to a debt barred by the statute of limitations, but such application will not take the debt out of the statute as to the balance. 3. The law will make the appropriation, in case neither creditor 'or debtor does so, to best conform to the prin- ciples of equity, and the probable intention of the par- ties. Thus a debt of long standing will be paid before a later one, and interest will be paid before the principal. (Com. Pap., Sec. 377.) Sec. 833. PAYMENT BY BILL, WHEN CON- SIDERED ABSOLUTE OR CONDITIONAL.— When payment of a bill or note is made by giving an- DUTIES OF THE HOLDER. 115 other note or bill, — other than notes treated as legal ten- der, — as a general rule, such payment will not be con- sidered absolute until the paper given in payment has been itself paid, except where the parties expressly or impliedly agree that the claim shall be discharged by such payment. (Tiedeman, Com. Pap., Sec. 379.) A distinction is made by some authorities when the payor gives his own note in payment and when he gives the note or bill of another. In the first instance it is uni- formly treated as a conditional payment. (Bank of U. S. v. Daniel, 12 Pet. 32; McLaren v. Hall, 26 la. 298.) When a stranger's note is given in payment for a prece- dent debt it is also generally treated as a conditional payment, but if given in satisfaction of a contemporane- ous debt it is held to be an absolute payment if so trans- ferred as to end the transferor's liability thereon, that is, without indorsement. (Crane v. McDonald, 45 Barb. 355; Boyd v. Hitchcock, 20 Johns. 76.) A new bill or note given in renewal of an old one re- tained by the payee, is also held to constitute but a sus- pension of the old one until the new one is paid. If the new note fails for any reason, the old one is revived and suit may be brought on it. (Ritter v. Singmaster, 73 Pa. St. 400.) To rebut this legal presumption that such payments are conditional, there must be an express agreement to the contrary, or such circumstances as will by implication show that the parties considered the pay- ment absolute. Thus while a receipt in full signed by the recipient of the paper is not considered sufficient to rebut the presimiption of conditional payment, if other 116 NEGOTIABLE INSTRUMENTS. corroborating circumstances appear, as where the words were, "received and accepted in full satisfaction," and security by the indorsement of a third person was given, it was held to be an absolute payment. ( jNIorris v. Har- vey, 75 Va. 72G.) Some cases hold where the holder had the option of a cash payment or the bill it will be treated as an absolute payment, but the surrender of a security is not sufficient to alter the presumption. (Tiedeman, Com. Pap., Sec. 380.) The conditional payment operates to suspend the right of action on the original paper until the paper taken in payment falls due, then the holder can sue, at his election, on either of the obligations. But if he sues on the original debt or note, he must present and surren- der the bill or note taken in payment, or account for it to the satisfaction of the party giving it. It is the duty of a holder of a bill taken in conditional payment to pre- sent it for acceptance or payment and do all things nec- essary to charge the parties liable on it, and a failure so to do, is held by some authorities to discharge the debtor both on his indorsement and on the original debt. (Mauney v. Coit, 80 N. C. 300.) While others hold such failure will only discharge the debtor in case he has been damaged by the negligence of the creditor. (Kep- hart V. Butcher, 17 la. 240; Tiedeman, Com. Pap., Sec. 382.) CHAPTER VII. LIABILITIES OF PARTIES AND SPECIAL FORMS OF PIS- CHARGES. Sec. 834. LIABILITY AS BETWEENi DRAWEE AND DRAWER OR HOLDER.— We have seen {ante,, Chapter V) that the drawee does not become an actual party to the bill until he has accepted, and that he is not boun'd to accept, unless, upon a valu- able consideration, he has expressly or impliedly agreed to do so. The drawee for the breach of an agreement to accept with the drawer would be responsible for the damages resulting, and these include damages to draw- er's credit. (Roberts v. Corbin, 26 la. 315.) So as regards the holder the drawee before acceptance incurs no liability to the holder, and no privity of con- tract exists between them. So the holder of a check dis- honored by the bank on which it was drawn would have no redress as against the bank though the drawer had money in bank to pay it. (Carr v. Natl. Bank, 107 Mass. 45 ; Griffin v. Kemp, 46 Ind. 175 ; Bank v. Bank, 80 111. 212.) Privity between drawee and a holder may be created by an agreement outside of the bill, and the liability of the drawee might become that of an acceptor under such an agreement. (Re Agra Bank, 2 L. R. Ch., 391.) Sec. 835. LIABILITY OF ACCEPTOR TO HOLDER. — By acceptance of a bill the drawee be- 117 118 NEGOTIABLE INSTRUMENTS. comes the principal debtor, and in effect agrees that he will pay it at matnrity according to the terms of his ac- ceptance. (Thilpot V. Bryant, 4- Bing. 720; RoAve v. Young, 2 Bligh. II. L. 467.) To a bona fide holder the acceptance of a bill of exchange precludes the acceptor from denying the existence of the drawer; tlie genume- ness of his signature, or his capacity and authority to draw the l)ill. (N. Park Bank v. North Bank, 4-6 N. Y. 77.) But this rule is further restricted by the authorities so that the holder in addition to beuig a holder in good faith, must not have contributed througli neglect or oth- erwise in misleading the acceptor into believmg the sig- nature of the drawer to be genuine.* By accepting a bill payable to drawer's order, the ac- ceptor warrants that the draw^er is at the time not inca- pacitated from indorsing, but does not warrant the gen- uineness of the signature or the authority to indorse.! Acceptance of a bill payable to a third person pre- cludes the acceptor from denyhig the existence of the payee, and his capacity to indorse at the time, but not the genuineness of the indorsement. (Benj.'s Chalmers, B. N. & C, Art. 212.) Where there is a forged indorse- ment on the bill when issued by the drawer, it could not *White V. Cont. Bank, 64 N. Y. 316; Peoria R. R. Co. v. Ncill, 16 111. 269. And by McKlcroy v. Bank, 14 La. An. 462, it Is held that the genuineness of the signature is only warranted by the acceptor to a holder who takes the bill after the acceptance. yBralthwalte v. Gardiner, 8 Q. B. 473; Canal Bank v. Bank, 1 Hill 287; Garland v. Jacomb, 8 L. R. Ex. 216. In the latter case a bill drawn and indorsed by a partner in non-trading firm was not warranted by the acceptance. LIABILITIES OF PARTIES. 119 be set up as against a bona fide holder, as the drawer is responsible for the utterance of the forgery, and can be charged with the bill by the accex^tor. (Llorstman v. Henshaw, 11 How. 177.) By refusing to pay the accepted bill at maturity the acceptor becomes liable for the amount of the bill with interest from the date of maturity when the bill is pay- able on a day certain, or with interest from the date of presentment for pajanent when payable on demand. (Ayer v. Tilden, 15 Mass. 183; Patrick v. Clay, 4 Bibb. Ky. 246.) And as special damages the acceptor is liable for the expenses of protest, and cost of re-exchange to the party taking up the bill. (Bowen v. Stoddard, 10 Met. 375.) Sec. 836. LIABILITY OF DRAWER OR IN- DORSER TO THE HOLDER.— "The drawer of a bill of exchange engages that on due presentment it shall be accepted and paid according to its tenor, and that if it be not so accepted and paid he will indemnify the holder, provided due notice of dishonor be given." (Benj.'s Chalmers, B. N. & C, Art. 215.) And by drawing the bill the drawer warrants and admits to a bona fide holder the existence of the payee and his then capacity to indorse. (Id., Art. 216.) All persons who sign a negotiable instrument except as a drawer or acceptor, or by way of receipt, incur thereby the liability of indorsers. (Bigelow v. Colton, 13 Gray 309; Ex parte Yates, 3 D. & J. 191.)* *A person indorsing a bill or note in blank of which he is not the holder or payee, is called a quasi-indorser, and by some 120 NEGOTIABLE INSTRUMENTS. Indorsers, as regards their liability are deemed new drawers. Each indorser, by his indorsement, contracts that the bill will be paid according to its tenor on pre- sentment, and in case it is not accepted and paid he will indenmify tlie holder upon receiving due notice of dis- honor. (1st Natl. Bank v. :Marine Bank, 20 Minn. 63.) Each indorser upon indorsement warrants and admits to innocent holders the genuineness and regularity of the drawer's signature, and of all previous indorsements; that the bill is a valid and subsisting one, and that his title to it is lawful. (Williams v. Inst. 57 IMiss. 633; Watson V. Chesire, 18 la. 202.) As regards an innocent holder the indorser could not set up as a defense to his liability that the drawer's or acceptor's signature had been forged, or that the bill had been materially altered after issue and before indorse- ment, since his indorsement operates as a new and in- dependent contract. (Andrews v. Simms, 33 Ark. 771; Dalrymple v. Hillenbrand, 62 N. Y. 5.) The indorser upon the dishonor of the bill becomes liable to the holder for the amount of the bill with in- authoritlcs is held to Incur the liability of an indorser, subject to the true intention of the parties, which, when ascertained controls his liability. And by other authorities he is held liable as a joint promisor or co-maker in case he indorsed the note before issue, and as a guarantor if the indorsement was made after its issue, subject, of course, to tlie true intention of the parties. For the first rule, see: Browning v, INIcrritt, 61 Ind. 425 ; Eilbcrt v. Finkhciner, 68 Pa. St. 243. And for the second rule see: Union Bank v. Willis, 8 Met. 504; Good v. Martin, 95 U. S. 90; Herbage v. McEntee, 40 Mich. 337; Chafee v. R. R., 64 Mo. 193. LIABILITIES OF PARTIES. 121 terest from the date of dishonor, in the case of an inland bill, but interest in the way of damages may or may not be given as the facts of the particular case would war- rant. (Keene v. Keene, 3 C. B., N. S., 144.) And upon a foreign bill of exchange, the indorser becomes liable for the face of the bill with interest from the date of dishonor, plus protest fees, re-exchange, interest and expenses. Sec. 837. SAME SUBJECT— EXCHANGE AND RE-EXCHANGE DISCUSSED.— Ex- change means the cost of transmitting money from one place to another. But as in commercial transactions the bills drawn upon one place are offset by those the place of payment may have upon the town or city drawing, the rate or cost of exchange varies as between two places as the inequality between bills drawn and bills payable increases. In tlie place of the greater liabilities ex- change will be higher or at a premium, and in the other place at a discount. In the case of a bill drawn payable in a foreign comitry the drawer, and likewise an in- dorser, agrees that the holder shall receive the full face value of the bill in the place of j^ayment, it has become the rule of the law merchant that the holder, upon dis- honor of the bill, from the place of payment may draw a new bill on the indorser or original drawer for such a sum as will be worth in the indorser's or drawer's domi- cile, the face value of the original bill in its place of pay- ment. This second bill is called a bill of re-exchange, and the cost of such exchange is assessable by way of damages against the drawer or indorser of the dishon- 122 NEGOTIABLE INSTRUMENTS. ored bill. (Bank of U. S. v. United States, 2 How. 737.)* While such a bill of re-exchange is not actually drawn it serves to ascertain the amount of damages to be col- lected by the holder. And now by statute in most of the States and countries this damage by way of cost of ex- change is fixed and a definite amount to be recovered as liquidated damages. (Tiedeman, Com. Pap., Sec. 406.) In case of a conflict of laws, the liability of the drawer or indorser is fixed by the law of the 2)lace where the bill is drawn or indorsed, and not by the place of pay- ment. (Crawford v. Bank, 6 Ala. 12; Gibbs v. Fre- mont, 9 Exch. 25.) Promissory notes are not within the commercial rule as to re-exchange unless written "with exchange," or until indorsed, when it becomes a sort of bill of exchange upon the maker, and the holder may recover principal, interest, costs, and exchange. (Bank of Mo. v. Wright, 10 Mo. 719; Cash v. Kennion, 10 Ves. 314; contra, Adams v. Cordis, 8 Pick. 260.) Sec. 838. SAME SUBJECT— INTEREST.— JNIany statutes fix a legal rate of interest and allow a *"Re-exchange means the loss resulting from the dishonor of a bill of exchange in a country different from that in which it was drawn or indorsed. The re-exchancre is ascertained by proof of the sum for which a sight bill (drawn at the time and place of dishonor at the then rate of exchange on the place where the drawer or indorser sought to be charged resides must be drawn in order to realize at the place of dishonor the amount of the dishonored bill and the expenses consequent on its dis- honor." (Benj.'s Chalmers, B. N. and Checks, Art. 221.) LIABILITIES OF TARTIES. 123 greater rate by express contract. Where this is the case and the higher rate is specified in the bill, it is in dispute whether this rate of interest can be recovered after ma- turity. The weight of authority seems to be that the specified rate can be recovered after maturity, though this is denied in many cases.* Where the United States courts have to j^ass upon this question of interest, the legal interest alone can be recovered except where the case comes up from one of the States where the other rule prevails. (Holden v. Trust Co., 100 U. S. 72.) Sec. 839. LIABILITY OF PERSON WHO TRANSFERS BY DELIVERY ONLY.— A bill made payable to bearer is transferrable by delivery only, and a party thus transferring, called a transferor by de- livery, incurs no liability on the instrument, and unless given as collateral security or for an antecedent debt he is not liable for the consideration for which the bill was transferred in case of its dishonor. (Munroe v. Hoff, 5 Den. 360; Van Wart v. Wolley, 3 B. & C. 446.) A transfer or by delivery, however, warrants to his im- mediate transferee that the bill is what it purports to be (Challis V. McCrum, 22 Kan. 157) , and that at the time of transfer he is without notice of any fact which de- stroys its validity. (Delaware Bank v. Jervis, 20 N. Y. *Hand v. Armstrong, 18 la. 324; Pruyne v. Milwaukee, 18 Wis. 568; Hopkins v. Crittenden, 10 Tex. 189; Seymour v. Continental Life Ins. Co., 44 Conn. 300, hold that the specified rate can be recovered, while the following cases hold the con- trary: Duran v. Ayer, 67 Me. 145; Newton v. Kennerly, 31 Ark. 6W ; Perry v. Taylor, 1 Utah 63, 124- NEGOTIABLE INSTRUMENTS. 228.) The transferee upon discovering a defect in the bill known to the transferor, must give notice of his in- tention to repudiate the transfer with reasonable dili- gence. (Benj.'s Chalmers, B. N. & C, Art. 226.) Also, by the weight of authority, the transferor warrants the solvency of the maker at the time of the transfer. (Rob- erts V. Fisher, 43 N. Y. 159; Townsends v. Bank, 7 Wis. 185; contra, Bicknall v. Waterman, 5 R. I. 43.) Sec. 840. LIABILITY OF PERSON ACCOM- MODATED TO ACCOMMODATION PARTY. — An accommodation party is defined in Benj.'s Chal- mers, as "a person who has signed a bill as drawer, in- dorser, or acceptor, without receiving value, and for the purpose of lending his name to some other person as a means of credit." (Art. 90.) To such a party to a bill the person accommodated, or the principal creditor on the bill, engages that he will see to the payment of the bill at maturitv, and in case of failure so to do, that he will indemnify the accommodation party. If the accom- modation party is compelled to pay the bill, he has the rights of the ordinary surety, and entitled to the benefit of any security held 'by the creditor. If there are two or more accommodation parties, they are considered as co- sureties as between themselves. (Baker v. INIartin, 3 Barb. 634; Raynolds v. Wheeler, 30 L. J., C. P., 350.) Sec. 841. WHAT WILL OPERATE TO DIS- CHARGE THE LIABILITY OF PARTIES TO A BILL OR NOTE.— By discharge of a bdl is meant the extinguishment of rights of action on it. It then ceases to be negotiable, and its transfer can only operate LIABILITIES OF PARTIES. I2r, as a new contract between the transferor and transferee. (Eaton V. McKown, 34 Me. 510.) The law governing the question of discharge is that of the place where the party sought to be charged became a party to the in- strument. Thus where a bill was drawn and issued in the United States on a party in England and dishonored, it was held that the drawer could not be sued in Eng- land because he had been discharged in America as a bankrupt. (Potter v. Brown, 5 East 124.) A bill is discharged by pajTnent in due course {ante. Sees. 829-832) ; by part payment in due course the bill wiU be discharged irro tanto (Com. Bank v. Cunning- ham, 20 Pick. 275) ; by the acceptor becoming the holder after maturity in his own right (Hall v. Kimball, 77 111. 161 ; Mitchell v. Rice, 6 J. J. Marsh 625) ; by the holder renouncing absolutely and unconditionally after matur- ity his rights against the acceptor (Larkin v. Harden- brook, 90 N. Y. 333). So where the holder intention- ally strikes out or cancels a signature of a party, such party is thereby dischai'ged. (Brett v. Marston, 45 Me. 401.) Sec. 842. SAME SUBJECT— WHEN SURETY DISCHARGED.— The holder of a bill having notice that the relationship of principal and surety exists be- tween prior parties to the insti-ument, will discharge such sureties by giving time to the principal unless he expressly reserves his rights against the sureties.* *Benj.'s Chalmers, B. N. and Checks, Art, 245. "Prima facie the acceptor of a bill is the principal debtor, and the drawer and indorsers are as regards him, sureties, and the drawer of 126 NEGOTIABLE INSTRUMENTS. Sec. 843. SAME SUBJECT— FORGERY AXD ALTERATIONS AS A DISCHARCxE.— By for- gery is meant the counterfeit making or fraudulent al- teration of any writing, and may consist in the signing of another's name, or the alteration of an instrument in the name, amount, description of the person, and the like, with intent thereby to defraud. The intent to de- fraud distinguishes forgery from irmocent alterations and six>liation. A forgery or fraudulent alteration will avoid the instrument and also extinguish the debt which represents the consideration of the insti*ument. (Tiede- man, Com. Pap., Sec. 392.) An innocent alteration, when material, is also held by some authorities to avoid the instrument while not canceling the debt, others hold- ing that so long as the alteration has caused no injury a court of equity may restore it to its original condition so that a suit may be brought on it. (Booth v. Powers, 56 N. Y. 31; Komitz v. Kennedy, 63 Pa. St. 187; con- tra, Bigelow V. Stephens, 35 Vt. 525.) When the change in the bill or note is made by a stranger it is called a spoliation instead of an alteration. Such a change of an instrument has no effect upon it, if the original meaning can be ascertained. (Buckler v. a bill is the principal as regards the indorscrs and the first indorser is the principal as regards the second and subsequent indorscrs, and so on in order ; but evidence for the present pur- pose is admissible to show the real relationship of the parties, and it is immaterial tliat the holder was ignorant of the real relationship when he took the bill, provided' he had notice thereof at the time of his dealings with the principal." Id. (And see subsequent part of this book on Guarantors and Sureties.) LIABILITIES OF PARTIES. 127 Huff, 53 Ind. 474<; Laugenberger v. Kroeger, 48 Cal. 147.) A material alteration is defined to be any change in the instrument which affects or changes the liabilitj'- of the parties in any way. The alteration avoids the paper regardless whether it is favorable or unfavorable to the party making the alteration. (Franklin Ins. Co. v. Courtney, 60 Ind. 134.) The following have been held to be material alterations: Any change in the date of the instrument, but not in the date of indorsement (Wood V. Steele, 6 Wall. 80; Griffith v. Cox, 1 Tenn. 210) ; any alteration in the amount of principal or in- terest (Harsh v. Klepper, 28 O. St. 200; Draper v. Wood, 112 Mass. 315) ; any change in the character of the payment, whether in the denomination or the medium of payment (Schwalm v. Mclntyre, 17 Wis. 232; Dar- win V. Rippey, 63 N. C. 318) ; any alteration in the personality, number and relations of the parties (Lamb V. Paine, 46 Iowa 551) ; any change in the liability of the parties (Blake v. Colman, 22 Wis. 415) ; or any change in the place of payment (Tiedeman, Com. Pap., Sec. 394; Benj.'s Chalmers, B. N. & C, Art. 247) . The effect of a material altei'ation by the holder of a bill is to discharge all parties from liability on the bill, unless they consented to such alteration. (Willis v. Wil- son, 3 Ore. 308; Bank v. Lockwood, 13 W. Va. 392.) Immaterial alterations which are those which do not change the legal effect of the instrument, as adding words implied by law, making marginal figures cor- respond to the written statement iia the body of the in- 128 NEGOTIABLE INSTRUMENTS. strumcnt, the adding of immaterial memoranda, and the like. (Smith v. Smith, 1 11. I. 398; Bachellor v. Priest, 12 Pick. 399.) So the correcting of a mistake to con- form to the intention of the i)arties is an immaterial alteration. (Bank v. Bank, 13 N. Y. 309.) The holder of a hill altered materially cannot recover on the original consideration, unless the alteration was made before he received it and he had no notice of the fact ; or unless he was innocent of fraud in making the alteration, and the party sued would not have had any remedy over or recourse to others, if it had not been altered. (Benj.'s Chalmers, B. N. & C, Art. 249.) Bona fide holders are only protected against forgery or material alterations discharging the party liable, when some carelessness or negligence on the part of the per- son Avhose liability has been changed by the alteration, has contributed to the negotiation of the paper without suspicion of the fraud, as where blank spaces have been left, or written partly in pencil so as to be easily erased. (Zimmerman v. Rote, 75 Pa. St. 188; Harvey v. Smith, 55 111. 224.) So a memorandum which can be detached without affecting the paper will, when detached in fraud, not be allowed to avoid the paper in the hands of a bona fide holder. (Noll v. Smith, 64 Ind. 511.) It must not be forgotten in this connection, that the drawee, by accepting a bill, warrants the genuineness of the drawer's signature, and the indorsers likewise guarantee the genuineness of all parties to the bill at the time of the indorsement. As against such parties the alteration or forgery of a signature prior to their LIABILITIES OF PARTIES. 129 signature will not avoid the instrument. (See ante^ Sees. 834-837.) Sec. 844. TI^IE WITHIN WHICH SUIT MAY BE BROUGHT ON A BILL.— At the com- mon law the limitation within which an action may be brought on a bill or note is six years, and after the expiration of this time the holder who has had a right of action for this period against any party cannot sue such party. (Woodruff v. Moore, 8 Barb. 171.) The period or limitation varies in the different States, and in some the common law term has been lengthened, in Ohio it is fifteen years. (Rev. Stat. Ohio, Sec. 4980.) The time begins to run as regards the acceptor from the maturity of the bill, except where presentment for payment is necessary, in which case time runs from the date of such presentment, and where the acceptance is made after maturity the time probably runs from date of acceptance. (Benj.'s Chalmers, B. N. & C, Art. 252.) Notice of dishonor fixes the date when the time begins to run as regards the drawer and indorsers. (Wood V. McMeans, 23 Tex. 481.) Any circumstance which delays or defeats the opera- tion of the statute of limitations in the case of an ordi- nary contract will delay or defeat it in the case of a bill. Thus if the holder is a minor, married woman, a lunatic, or otherwise protected from the running of time, the statute will not begin to operate until the disability is removed. So the bill when barred from the operation of the statute of limitation may be subsequently ren- dered valid by an acknowledgment in writing by the party sought to be charged. CHAPTER VIII. PROMISSORY NOTES AND CHECKS SPECIALLY CONSIDERED.* Sec. 845. FORM AND INTERPRETATION, OF A PROIMISSORY NOTE.— In a previous sec- tion {ante. Sec. 752) a promissory note has been de- fined and somewhat explained, and we only need to state here some special provision applicable to promis- sory notes. The person making the promise is called the maker of the note, and the person in whose favor it is made is called the payee. These two parties are essential to every note, and a note payable to maker's order would not be a note until a payee had been desig- nated by indorsement. (Miller v. Weeks, 22 Pa. St. 89.) The note is incomplete until deliveiy has been made to the payee. As regards the form of a promissory note, any writ- ing which has all the essentials laid dowTi for a prom- issory note will be a valid note if the intention of the maker, as gleaned from the writing, was to make a note. (Sibree v. Trip, 15 M. & W. 29.) The following have been held not to be notes but mere evidences of indebt- edness; "Due C $100, value received;" "I. O. U. $100;" *Thc preceding cliapters have discussed principles applicable alike to bills of exchange, promissory notes and checks, and when not otherwise limited the expression "bill" heretofore used re- ferred to all of these negotiable instruments. 130 PROMISSORY NOTES, ETC. 131 "I acknowledge the within note to be just and due," written on the back of a note. (Daggett v. Dago-ett, 124 Mass. 149; Currier v. Lockwood, 40 Conn. 349.) While the following are held to be notes since importing a promise to pay: "I owe you $100, to be paid May 5th;" "Due C or order $100 on demand." (Waithman V. Elsee, 1 C. & K. 35; Carver v. Haj^es, 47 Me. 257.) There may be two or more makers to a promissory note, and in case it is written "I j^romise," it will be considered joint and several if they are not partners. (Maiden v. Webster, 30 Ind. 317.) If ^\Titten "We promise," and signed by several it is considered a joint note only. (Barnett v. Juday, 38 Ind. 86.) But these holdings are subject to statutory modifications. The note may contain a pledge of collateral security, and give the payee the right to dispose of such security, and the right to the security passes with a transfer of the note, and free from equities if the note was free. (Knipper v. Chase, 7 la. 145; Duncan v. Louisville, 13 Bush 378; Kelley v. l^Tiitney, 45 Wis. 110.) So an instrument is still a note which gives the holder an option of taking a cash sum, or the performance of another act from the maker. Thus where the note prom- ised to pay a sum certain in money or in goods on de- mand, it was held a valid note in the hands of the payee, as he could demand money, and the promise to pay money was absolute notwithstanding the option. (Hoss- tatter v. Wilson, 36 Barb. 307.) But as to the maker, it is held not to be a note. (Dinsmore v. Duncan, 57 N. Y. 573.) 132 NEGOTIABLE INSTRUMENTS. Sec. 846. THE TRANSFER OF PROMIS- SORY NOTES. — Promissory notes have been made negotiable the same as bills of exchange by statute, thoug-h many decisions hold that they are negotiable independent of statute. Like bills of exchange, a promissory note, payable on demand and not known to be dishonored, will be deemed overdue after the lapse of a reasonable time from the date of its issue. Reasonable time is a ques- tion of law, but governed in the absence of statute, by the circumstances of the case and the intention of the parties. (Herrick v. Wolverton, 41 N. Y. 581; Poor- man v. Mills, 39 Cal. 345.) And such a note must be presented for payment within a reasonable time in order to charge indorsers. (Crim v. Starkweather, 88 N. Y. 339.) Sec. 847. LIABILITY OF MAKER OF A NOTE. — The maker of a promissory note, in general corresponds to the acceptor of a bill of exchange, each being the principal debtor on the bill, and each engages that he will pay at maturity accordmg to the tenor of the bill. And the maker of a note payable to order, warrants and admits to a bona fide holder the existence of the payee, and his then capacity to indorse. (Esley V. People, 23 Kan. 510; Benj.'s Chahners, B. N. & C, Art. 287.) CHECKS. Sec. 848. A CHECK DEFINED AND DIS- CUSSED. — Professor Tiedeman defines a check "to be a draft or order, having essentially the character- PROMISSORY NOTES, ETC. 133 istics of a bill of exchange, and differing from the bill (1) in being drawn on a bank or hanker, (2) appar- ently and presumptively against a deposit of funds, and (3) payable on demand without grace."* Contrary to the Enghsh rule, in the United States banks are required as a matter of custom to pay checks drawn "to order," and must at their peril pay to the exact party mentioned in the order. (Dodge v. Natl. Exch. Bank, 30 Ohio St. 8.) Unless the order is dvawn on a bank or banker it will not be a check, though it may be a bill. (Espy v. Bank of Cin., 14 Wall. 620.) To constitute a check the order should be drawn against funds hi the hands of the drawee bank, and if there are no funds on deposit and no arrangement made for meet- *Com. Paper, Sec. 430. See other definitions, ante. Sec. 754. "Bank checks are not inland bills of exchange, but have many of the properties of such commercial paper, and many of the rules of the law merchant are alike applicable to both. Each is for a specific sum, payable in money. In both cases there is a drawer, drawee, and payee. Without acceptance no action can be maintained by the holder upon either, against the drawee. The chief points of difference are, that a check is always drawn on a bank or banker. No days of grace are allowed. The drawer is not discharged by the laches of the holder in present- ment for payment, unless he can show that he has sustained some injury by the default. It is not due until payment is demanded, and the statute of limitations runs only from that time. It is by its face the appropriation of so much money of the drawer in the hands of the drawee to the payment of an admitted lia- bility to the drawer. It is not necessary that the drawer of a bill should have fundt3 in the hands of the drawee. A check in such cases would be a fraud." (Merchants' Bank v. State, 10 Wall. 647.) IS* NEGOTIABLE INSTRUMENTS. iiig the check it will still be considered a check if appar • eiitly drawn against a deposit. (Champion v. Gordon, 70 Pa. St. 476.) By some authorities it is deemed a bill of exchange. (Planter's Bank v. Keese, 7 Ileisk. 200.) And the order to the banker must be payable on demand if it is to constitute a check, since it is sup- posed to be drawn against a deposit and there is no need of acceptance or days of grace. (Georgia Natl. Bank V. Plenderson, 40 Ga: 496; Andrew v. Blackley, 11 Ohio St. 89.) A few authorities hold that an instrument may be a check, when having the other requisites, though payable a stated number of days after date or sight. (Bank v. Wheaton, 4 R. I. 30.) The usual form of a check has already been given {ante. Sec. 754), but it need not be written with all the exactness of the form given to constitute a valid check. Thus the date may be omitted, or the check may be ante-dated or post-dated and is still valid. A post- dated check may be issued, but is not paj^able before the given date. The purj^ose of post-dating checks is to give the debtor time to make payment. The usual form of a check has the name of the bank written across the top in large letters as in the form given, but when drawn on a banker or banking firm and not on a char- tered bank, the address is customarily ])ut in the left- hand corner as in bills of exchange. (Tiedeman, Com. Pap., Sec. 435.) Sec. 849. CERTIFIED CHECKS DIS- CUSSED. — A check is not intended for circulation or for acceptance, but for prompt payment on present- Promissory notes, etc. lU ment. In the United States a custom has come to pre- vail whereby the bank named as drawee accepts or certifies to the holder that the check will be paid on presentment.* By the certification of the check the bank becomes the principal debtor, even as the accej^tor of a bill of ex- change. (Bank v. Leach, 52 N. Y. 350.) It precludes the hank from setting up a forged signature in the check or the lack of funds of the drawer. The amount of the certified check is in effect transferred from the deposi- tor to the holder, and it cannot be countermanded or con- trolled in any way by the drawer. (Gerard Bank v. Bank of Penn. Twp., 39 Pa. St. 92.) A forgery in the body of the check is a defense even as against a bona fide holder, as the bank only warrants the genuineness of the drawer's signature. (Bank v. Bank, 67 N. Y. 458; Clews v. Bank, 89 N. Y. 418; contra. La. Bank v. Bank, 28 La. An. 189.) A certified check circulates as cash, since it is an abso- *"The practice of certifying checks has grown out of the business needs of the country. They enable the holder to keep or convey the amount with safety. Thej^ enable persons not well acquainted to deal promptly with each other, and they avoid the delay and risks of receiving, counting, and passing from hand to hand, large sums of money. It is computed by a com- petent authority that the average daily amount of such checks in use in the city of New York is not less than one hundred millions of dollars. We could hardly inflict a severer blow upon the commerce and business of the country than by throwing a doubt on their validity." (Swayne, J., in Merchants' Bank v. State Bank, 10 Wall. 648.) 136 ^EGOTIABLE IxNSTllUMENTS. lute indebtetlness of the bank, and recovery thereon is only stopped by the statute of limitations. (Willetts V. Bank, 2 Duer 121.) The usual mode of certifying' a check is for the proper officer of the bank to write across the face of the check the word "good" and add his name or initials, though either alone may consititute a good certification. ( ]Morse on Bankhig, 284; Barnett v. Smith, 30 N. H. 250.) A verbal statement to the holder as an inducement to take the check, by the bank officer, will operate as a certiii-. cation, unless the bank has no funds of the drawer at the time, when, to satisfy the statute of frauds, as re- gards a promise to answer for the debt of another, the promise w^ould have to be in writing. ( Tiedeman, Com. Pap., Sec. 437.) The proper officer of the bank to certify checks is determined by the by-laws of the institution, or by im- plication from the duties of the officer. The board of directors have the power, and may delegate it to other officers. The president, cashier and teller, but not an assistant cashier, have implied j)ower. (Bank v. Bank, 14 N. Y. 024; Pope v. Bank of Albion, 57 N. Y. 127.) But such officer cannot bind the bank by certifying his own check, and such a certificate is void in the hands of an innocent holder if it appears on the face of the paper, or the holder had notice of the fact. (Claflin V. Farmers' Bank, 25 N. Y. 294.) The officer cannot bind the bank by certifying a check for a drawer not in funds except to a bona fide holder -without notice of the fact. And the bank will not be bound by the certifica- PROMISSORY NOTES, ETC. 137 tion of a post-dated check prior to the given date. (Tiedeman, Com. Pap., Sec. 439; Clarke Natl. Bank v. Albion, 52 Barb. 593.) Sec. 850. NEGOTIABILITY OF CHECKS.— Checks are negotiable instruments, and as such are transferred by indorsement or delivery as bills of ex- change. A bank may require the holder of a check pay- able to bearer to indorse his name on it for the double purpose of a receipt and a memorandum of the person receiving payment. Such an indorser is not bound un- less it can be shown that he signed with the intention of becoming a regular indorser. (Daniel, Sec. 1653; Tiedeman, Com. Pap., Sec. 440.) Sec. 851. PRESENTMENT FOR PAYMENT, AND PROTEST OF CHECKS.— As regards the liability of indorsers, presentment for payment, notice of dishonor and protest, are duties to be performed by the holder of a check, with equal or greater precision and dispatch than in tlie case of other commercial paper. Protest of a check must be made to hold drawer or indorsers the same as in case of bills and notes. (Nor- ris V. Despard, 38 Md. 491.) As regards the drawer, the presentment for payment, and notice of dishonor if not made or given within a reasonable time by the holder as would be necessary in the case of a bill of exchange, will not discharge the drawer unless he has suffered actual damage through the delay. This damage is usually caused by the failure of the bank before the check is presented for paj^ment. (Stewart v. Smith, 17 Ohio St. 85; Stevens v. Park, 138 NEGOTLVBLE INSTRUMENTS. 73 111. 387.) The indorsers would be discharged on account of the laches in making presentment or giving notice irrespective of damage. (Murray v. Judah, 6 Cow. 490.) Sec. 852. SAME SUBJECT— TI:ME WITHIN WHICH CHECK MUST BE PRESENTED FOR PAYINIENT.— A check is deemed to be pre- sented within a reasonable time and with sufficient promptness to charge prior parties when presented ac- cording to the following: 1. Where the payee and the bank on which the check is drawn are in the same place, the check must, unless excused by special circumstances, be presented on the next day after it is received. 2. When the person who receives the check and the bank on whom it is drawn are in different places, the check must, in the absence of special circumstances, be forwarded for presentment on the day after it is re- ceived, and the agent to whom it is forwarded must, in like manner, present or forward it on the day after he receives it.* Non-business days are excluded in com- puting time under the above rules. The above rules are subject to the preceding section as to the necessity of actual damage suffered by the drawer before he will be discharged by an unreasonable delay in presentment. *Bcnj.'s Chalmers, B. N. and Checks, Art. 257; Cox v. Boone, 8 W. Va. 500; Morrison v. Bailey, 5 O. St. 13; Himmelman V. Hataling, 40 Cal. Ill; Smith v. Jones, 20 Wend. 192. PROMISSORY NOTES, ETC. 139 The excuses for delay in presenting a check for pay- ment or giving notice of dishonor are the same as those discussed heretofore under Chapter VI. One of the most common excuses heing that the check has heen drawn against a bank not having funds of drawer, and in such case it is unnecessary to give notice of dishonor to the drawer. (Fletcher v. Pierson, 69 Ind. 281; Kin- yon V. Stanton, 44 Wis. 569.) And the same is true if payment has been countermanded. (Woodin v. Frayzer, 38 N. Y. S. C. 190.) Sec. 853. SAME SUBJECT— WHEN CHECK IS DEEMED OVERDUE AND CHARGES HOLDER WITH THE EQUITIES.— There is some uncertainty among the authorities as to when a check not known to have been dishonored is overdue so as to charge the holder with equities of which he had no notice vrhen taking the note; thus Professor Tiede- man states that a check would be considered stale or overdue "whenever the delay m presentment has been so long that, in the light of the circumstances of the particular case, it is sufficient to arouse the suspicions of a reasonably prudent man." (Com. Pap., Sec. 446.) Thus under different circumstances a check has been held to be overdue from a delay in presentment of two years (Skillman v. Titus, 32 N. J. L. 96) ; one year (Bank v. Woodward, 18 Pa. St. 357) ; fourteen months (Cowing v. Altman, 71 N. Y. 436) ; five days (Down V. Hailing, 4 B. & C. 330). And a delay in present- ment for the following periods has been held not to make the check overdue as regards the holder: one 140 NEGOTIABLE INSTRUMENTS. month (Lester v. Given, 8 Busk. 357) ; ten days ( Anies V. Merriam, 98 Mass. 294.) Sec. 854. WHO MAY DRAW CHECKS AGxVIXST DEPOSITS.— The depositor or his authorized agent should execute the check. A firm de- posit may be checked against by any one of the active partners by signing the firm name. A number of per- sons, not partners, having a deposit to their joint credit, must all unite in drawing checks against it, otherwise if the deposit is to their joint and several credit. (Morse on Banking 2GG.) This rule is applicable to cases where two or more trustees deposit tiaist funds, but not to personal representatives, an}^ one of whom may draw against funds of the decedent's estate. (Allen v. Dun- das, 3 T. R. 125.) A deposit by an individual as a ti-ust fund camiot be held for his private debt to the bank. (Cent. Natl. Bank v. Ins Co., 104 U. S. 54.) Sec. 855. WHEN A CHECK MAY BE RE- VOKED. — Death or bankruptcy of the drawer is held to revoke the authority of a banker to pay a check. Thus a check given by the drawer in contemplation of death must be presented for payment by the donee be- fore the drawer's death in order to entitle the donee to receive the amount as a gift in contemplation of death. (Benj.'s Chalmers, B. N. & C, Art. 262.) This is the same rule a})plicable to bills, since there is no consideration for the making of the promise. Where the check is sup2:)orted by a valuable consideration it is not revoked by the death of the drawer. (Burke v. PROMISSORY NOTES, ETC. 141 Bishop, 27 La. An. 465; Tate v. Hilbert, 2 Ves. Jr. 118; Benj.'s Chalmers, B. N. & C, Art. 261.) Sec. 856. RIGHTS AND DUTIES OF THE BANK OR BANKER.— A banker is bound to honor his depositor's checks (quere, as to his bills), properly presented, to the extent of the funds of the depositor in his hands, and for refusing so to do he becomes liable to such de2)ositor for damages to his credit. (Marzetti V. Williams, 1 B. & Ad. 415.) The bank is entitled to have the funds paid in a reasonable time before they are drawn against, and also to a reasonable time to ascer- tain what is the state of the account between itself and the depositor. It being allowed the bank to return a check within twenty-four hours after presentment in case a deficiency in the deposit is discovered. ( Overman V. Bank, 31 N. J. L. 563.) But this right is denied if the check has been accepted and the money paid out or credited to the checkholder. (Oddie v. Natl. City Bank, 45 N. Y. 735.) A check of a third person pre- sented by a depositor and credited on his bank-book by the bank, is deemed received for collection, and if not paid may be returned, and the credit cancelled. (Natl. Gold Bank v. McDonald, 51 Cal. 65.) The bank is responsible to the drawer or holder if the check is paid on a forged indorsement, or paid to one not an indorsee or a bona fide assignee of the check. (Dodge V. Natl. Exch. B., 30 O. St. 1; Freund v. Imp. & Trad. N. B., 76 N. Y. 352.) The bank or banker is under no obligation, except by agreement, to allow a depositor to overdraw his ac- 142 NEGOTIABLE INSTRUMENTS. count. And in general, if the funds are not sufficient to pay a check in full, part pa>Tnent need not be made. (Daniel, Sec. 1G20.) The bank must pay checks in the order of their presentment so long as the deposit lasts, and should not attemjJt to ])ro rate an insufficient fund, or give preference to a holder of a check presented at a later hoiu- than others. (Tiedeman, Com. Pap., Sec. 450.) The bank may recover the money paid on an altered check from the person to whom it has been paid, since the holder guarantees the genuineness of the contents of the check, and this aj^plies to certified checks. The bank only warranting the genuineness of the signature. (Espy V. Bank of Cinn., 18 Wall. 614; Parker v. Roser, 67 Ind. 500.) As regards forged signatures of drawer or indorser, the bank is usually held strictly to the obligation to know the signature of its dejiositor, and money paid out upon a forged signature of a depositor cannot be recovered back. Others hold that the bank may recover money so paid out where the signature was so cleverly forged as to free the bank from the suspicion of negli- gence, and the discovery is made and the money de- manded back in time to allow the holder to have recourse against other parties. (Daniel, 1655a.) Money paid out on the forged signature of an indorsee or payee may be recovered from the person to whom it is paid, but the bank is liable to the real payee or indorsee. (Sev- enth Xatl. B. V. Cook, 73 Pa. St. 483.) The holder of a check is quite generally held to have PROMISSORY NOTES, ETC. 143 no right of action against the bank for a refusal to pay the cheek, and for the same reason that the holder of an unaccepted bill of exchange cannot sue the drawee for refusing to accept, that is, because there is no privity between the holder and drawee unless the bill would constitute an assignment pro tanto of the fund drawn against, and this is not feasible by another rule of law which denies the right of a creditor to split ujj a single indebtedness into a number of obligations or rights of actions. A few authorities do hold that a check does operate pro tanto as an assignment of the fund, and Professor Tiedeman makes a strong argument that in the case of checks this would be no burden on the banker, since it impliedly agrees to pay out the fund in parts as the depositor elects. (Com. Pap., Sec. 452.) But the weight of authority is against the right of the check- holder to sue the bank. (Brown v. Leckie, 43 111. 500; Roberts v. Austin, 26 la. 316.) The holder of a check on a bank is entitled to receive payment free from any offset by the bank for a debt which such holder may owe the bank. (Brown v. Leckie, supra. ) Sec. 857. RIGHTS AND LIABILITIES OF DRAWER OF CHECK.— After presentment for payment and dishonor the check is evidence of the in- debtedness of the drawer, the check is presumed to be given in satisfaction of a debt, but may be sho\\Ti to have constituted a loan from drawer to payee, and is then evidence of the amount. (Tiedeman, Com. Pap., Sec. 455.) Wlien held by the drawer the check is pre- 144 NEGOTIABLE INSTRUMENTS. sumptivcly a receipt for money paid the payee, if it was made payable to order. But when the check is payable to bearer, affirmative evidence would be required to show who received the payment. (Conelly v. JNIcKean, GJj Pa. St. 113; People v. Baker, 20 Wend. G02.) The check is not evidence of payment of a particular account, without proof of the special consideration. (Aubert v. Walsh, 4 Taunt. 293; Tiedeman, Com. Pap., Sec. 455.) The check when paid becomes the property of the drawer, but may be ke]5t by the bank as a voucher or receipt for money paid out on the account of the de- positor until the account is balanced or settled, when they are to be delivered up to the depositor. Sec. 858. ACCOUNT PAID BY CHECK NOT DISCHARGED UNTIL THE CHECK IS PAID. — It is the invariable rule of law that when a check is given in pajinent of a debt it does not con- stitute an absolute discharge of that debt until it is paid. (Smith V. INIiller, 43 N. Y. 151; Hearth v. Rhodes, 66 111. 351.) And the surrender of a bill or note could not be comi)elled until the check given in payment had been paid. (Barnett v. Smith, 30 N. II. 250.) CHAPTER IX. PAPER MONEY, COUPON BONDS, AND QUASI-NEGOTIABLE PAPER. Sec. 859. KINDS OF PAPER MONEY, AND EFFECT AS NEGOTIABLE INSTRUMENTS. — A number of different kinds of paper money exist in the United States, some being made by law legal tender and receivable in payment on all debts, while others sim- ply pass as currency on the credit of the bank or fund which they are drawn against. All these species of paper money are negotiable instruments, payable to bearer, and transferred by delivery. They are: United States Treasury Notes, Silver and Gold Certificates, and Bank Notes. United States Treasury Notes are in form promis- sory notes payable to bearer on demand. By statute they are made legal tender, and their issue by the United States, though questioned at first, has been upheld by the Su^ireme Court. (Juillard v. Greenman, 110 U. S. 421.) Unlike ordinary promissory notes all kinds of paper money is printed on fine paper of a texture selected to prevent counterfeiting. The silver and gold certificates issued by the federal government are not legal tender, and are payable as the certificate states, in gold or silver coin deposited in the treasury and payable to bearer on demand. 145 146 NEGOTIABLE INSTRUMENTS. Bank-notes or bank-bills are the promissory notes of incorporated banks intended to pass current as money. (Ticdeman, Com. Pap., Sec. 464.) When they are issued and made payable at a future time they are called post-notes, otherwise they are payable to bearer on de- mand. Bank-notes not being legal tender, they are not a valid tender in pajTnent of a debt if objected to, and this is true as to a debt due to the bank that issued them unless by statute they are made receivable for all debts owing the bank of issue. (Thomas v. Todd, 6 Hill 340; Bank of U. S. v. Bank of Ga., 10 Wheat. 833; Bank v. Roosevelt, 9 Cow. 409.) Bank-notes and post-notes are negotiable, and since they are designed to circulate rapidly as currency or money, the holder is presumed to be the bona fide owner even though guilty of negligence in taking the notes, and can compel pay- ment to him though the notes were stolen from the true owner. (Tiedeman, Com. Pap., Sec. 464; Worcester Co. Bank v. Dorchester Bank, 10 Cush. 488.) The holder should receive the notes in the usual course of business and not as a ^^Ic'dge or security upon an agreement not to put them in circulation, in order to be deemed a bona fide holder. (Davenport v. City Bank, 9 Paige 12.) Since bank-notes are specially intended to circulate indefinitely, they are not to be deemed overdue because not presented a reasonable time after issue. And they may be re-issued after payment, unless protested for non-payment, in whicli case the holder, with or without MONEY, BONDS, ETC. 147 notice, would be charged with equities. (2 Parsons, N. & B. 95; Burroughs v. Bank, 70 N. C. 284.) The transfer is customarily made by delivery only, though a transfer by indorsement may be made. In either case the transferor warrants the genuineness of the note, and in case of its being comiterfeit he is the loser, and the debt for which it was transferred is not cancelled. (Young v. Adams, 6 Mass. 182; Ramsdale V. Horton, 3 Pa. St. 330.) The receiver of counterfeit notes must give notice of its character within a reason- able time or he will lose his remedy against the trans- feror. Reasonable time is governed by the facts of each case. (Simms v. Clark, 11 111. 137; Gloucester Bank V. Salem Bank, 17 Mass. 44.) In case the holder of bank-bills or notes loses them the loss falls on him, unless he can show that certain specific notes were destroj^ed and indemnify the bank against their future present- ment for payment. In case of a partial destruction or loss of a note the authorities differ, some holding that a recovery may be had by showing the facts without an indemnifying bond, others requii-ing a bond. (Bank of U. S. V. Sill, 5 Conn. 112; Commercial Bank v. Bene- dict, 18 B. Monr. 311; Story on Bills, Sec. 448.) State bank-notes have been superseded by National bank-notes, and these later notes differ only from the former in that they are secured by the federal govern- ment, which guarantees their payment. The govern- ment is protected by the deposit of government bonds by the banks issuing the notes. 148 NEGOTIABLE INSTRUMENTS. COUPON BONDS. Sec. 860. COUPON BONDS DEFINED AND EXPLAINED. — "A coupon bond is a ])rimary obli- gation, in the nature of a promissory note, promising 'to pay a sum of money on a day certain in the future, to which are attached certain other obligations called coupons,* which call for the payment of the installments of interest on the principal debt, as they fall due; each coupon representing an installment of interest, and pay- able when the installment of interest falls due." (Tiede- man. Com. Pap., Sec. 471.) The coupon is practically a separate promissory note, but its payment is protected by the mortgage given to secure the primary bond ; it is payable at maturity with- out grace, and where written in the form of a draft or bill on a banker, it need not be presented for accept- ance. (Arents v. Coiimion wealth, 18 Gratt. 773; Beaver Co. V. Armstrong, 44 Pa. St. 03.) Public corporations, governmental and municipal, and all sorts of private corporations may and do issue coupon bonds. The loans of the Federal and State gov- ernments are usually made in this way. (Natl. Bank v. Co. of Yankton, 101 U. S. 133.) Individuals are also held to be able to issue coupon bonds, and the only question of this power is from the fact that these bonds are executed under seal, which by the law merchant is *Coupon is derived from the French verb, couper, to cut, since they are made detachable, and designed to be cut off when they fall due. (Daniel, Sec. 1489.) MONEY, BONDS, ETC. 149 excused in the case of corporations but not in the case of individuals. The seal being held to destroj^ their nego- tiability. Coupon bonds are negotiable notwithstanding the presence of the seal, if they contain words of nego- tiability. (Comrs. of Manor v. Clark, 94 U. S. 279; White V. R. R. Co., 21 How. 175; Barrett v. Co. Court, 44 Mo. 197.) The holder or owner of the coupon bond has the same rights and privileges as regards it as he would if it were a bill of exchange, and the same rules operate to fix his position as a ho7ia fide holder or not as in the case of other commercial paper. Thus if the coupon is over- due at the time of transfer, the purchaser takes it sub- ject to all equitable defenses. (Bank v. Co. Comrs., 14 Minn. 79; Tiedeman, Com. Pap., Sec. 473.) Sec. 861. TRANSFER, PRESENTMENT FOR PAYMENT OF COUPON BONDS.— Cou- pon bonds may be made payable to order and trans- ferred by indorsement, but they are ordinarily payable to bearer and transferred by delivery. (City of Lex- ington V. Butler, 15 Wall. 295; Roberts v. Bowles, 101 U. S. 122.) A party indorsing a coupon bond assumes the same liability as the indorser of other commercial paper, and both indorser and transferor by delivery warrant the genuineness of the bond, and would be held responsible for the consideration received if the bond was forged. (Smith v. McNair, 19 Kans. 330.) *"The bond and coupons are generally printed on paper of a very fine texture, more or less beautifully engraved. But in other respects the bond differs in form very little from a promis- 150 NEGOTLVBLE INSTRUMENTS. For the puri)ose of fixing the Hability of an indorser the coupons must be presented at maturity, and within a reasonable time after maturity to hold a guarantor. (Bonner v. New Orleans, 2 Woods C. C. 135; Arents V. Commonwealth, 18 Gratt. 773.) Otherwise the cou- pons need not be presented on the day of maturity to 'hold the principal obligors on the coupons. (Mayor v. Patomac Ins. Co., 58 Tenn. 296.) And interest may be recovered without presentment at maturity, unless the corporation should show that it was ready to pay the coupon at the stipulated place. (Walnut v. Wade, 103 U. S. 683; North Penn. R. R. Co. v. Adams, 54 Pa. St. 97.) The coupons represent the interest on the bond until maturity, after maturity the bond itself draws interest if not paid. The coupon, if not i:)aid at maturity, draws interest, and may be recovered by the holder with ex- change, where exchange could be recovered on bills and sory note. It and the coupons are usually signed by the presi- dent of the corporation, or the chief executive of the town or municipality, which issues them, and countersigned by the sec- retary, treasurer, cashier, or other clerk of the corporation, ac- cording to its by-laws, or the statutes 'in such cases made and provided.' These signatures may be either written or printed. The coupon may take on any form ; sometimes it is a promissory note; at others a bill of exchange on the treasury of the corpora- tion ; a draft or order without naming any drawee ; a check, and a mere due bill or acknowledgment of indebtedness." (Tiede- man, Com. Paper, Sec. 475, citing, Thompson v, Lee Co., 3 Wall. 327; Moran v. Comrs. of Miami Co., 2 Black 722; Mer- cer Co. V. Hubbard, 45 111. 140, and others.) MONEY, BONDS, ETC. 151 notes. (Jeffersonville v. Patterson, 26 Ind. 16; Tiede- man, Com. Pap., Sec. 477.) Sec. 862. ACTIONS ON BONDS AND COU- PONS, AND DEFENSES ON MUNICIPAL BONDS. — In case the holder is the o^vner of both bond and coupons lie may ])ring an action in his own name on both bond and coupons. (Soc. for Savings v. City of N. London, 29 Conn. 175.) And the holder of the coupons may maintain his action on them independently of the holder of the bond. (Beaver Co. v. Armstrong, 44 Pa. St. 63; Bank v. Tabor, 52 Vt. 87; Town of Cicero v. Clifford, 53 Ind. 191.) So the coupons may be sued on where the bonds have been previously paid and surrendered. (Natl. Exch. Bank v. Hartford, etc., R. R. Co., 8 R. I. 373.) "Wliere the corporation denies its liability on bonds, the consideration paid for them by the holder may be recovered, if such holder did not participate in the wrongful issue, and the issuing was not a malum in se. (Draper v. Springport, 104 U. S. 501; Louisiana v. Wood, 102 U. S. 294.), Since a municipal corporation in its issue of coupon bonds is limited by its charter and implied powers, and may not in any case issue them for a private end, but only for a public purpose, the holder of municipal obli- gations or coupon bonds must take notice that they are not issued ultra vires, that is, outside the power of the municipality. The scope of its powers is deemed a matter of public law, and every one is charged with notice of the limitations set. (Bissell v. Kankakee, 64 152 NEGOTIABLE INSTRUMENTS. 111. 249; Veeder v. Lima, 19 Wis. 298.) Where the municipality has the power to issue the bonds, the fraud or neglect of agents as to their negotiation or execution with prescribed formalities cannot be set up as a de- fense to the action of a bona fide holder. (Tread well v. Commissioners, 11 Ohio St. 183; Gould v. Sterling, 23 N. Y. 463.) Sec. 803. CEKTIFICATES OF DEPOSIT AS NEGOTIxVBLE INSTRUMENTS.— By a certifi- cate of deposit is meant the receipt in writing given by a bank or banker in acknowledgment of money re- ceived, and which states that the amount designated therein is payable to bearer, to the order of the depositor, or a third person. The power of a bank to issue them is co-extensive with the power to issue promissory notes.* Certificates of deposit are transfeiTcd by delivery or by indorsement according as they are in terms payable to bearer or to order. By the weight of authority they are, when possessing the essential features of a nego- tiable instrument, accorded all the privileges and charac- teristics which pertain to other forms of commercial *Morse on Banking, 53. "They are used, instead of draw- ing checks on the fund deposited, whenever the depositor desires a continuing security, drawing interest, and payable on demand or at some time in the future. The certificate of deposit is sup- posed to have originated with the goldsmiths of England, who, in the course of tlieir banking business, were in the habit of giv- ing to the depositors, receipts for the money deposited, in the form of a promissory note." (Tiedeman, Com. Paper, Sec. 485.) MONEY, BONDS, ETC. 153 paper. (Lynch v. Goldsmith, 64 Ga. 42; Lafayette Bank v. Ringel, 51 Ind. 393; Howe v. Hartness, 11 O. St. 449; Tripp v. Curtenius, 36 Mich. 494; contra, London Sav. Soc. v. Savings Bank, 36 Pa. St. 498; Patterson v. Poindexter, 6 Watts & Serg. 227.) As a negotiable instrument it must be taken before maturity if the holder is to be free from equitable defenses. Like- wise it must not be overdue when transferred or the holder will be charged with equities. Demand and re- fusal are necessary to make the certificate overdue when payable on demand. (Pardee v. Fish, 60 N. Y. 271.) The certificate of deposit when given in payment of a debt is presumed a conditional payment unless the cred- itor transfers the certificate in payment of his own debts instead of presenting it for prompt payment. (Bower V. Hoffman, 23 Md. 264; Lindsey v. McClellan, 18 Wis. 481.) Sec. 864. BILLS OF LADING AS NEGO- TIABLE INSTRUMENTS.— "A bill of lading is very often called a negotiable instiniment. But, al- though it does possess some of the qualities of negotia- bility, it is not strictly one independently of statute, and is more properly described as quasi-negotiable"* *Tiedeman, Com. Paper, Sec. 491. "The bill of lading may be defined to be a written acknowledgment by a common car- rier of the receipt of certain goods described therein, and an agreement to transport them to their place of destination, to be there delivered in good order to the consignee or his assigns. It has, therefore, a double character, being both a receipt and contract for the carriage of goods. As a receipt, it has become, 154. NEGOTLVBLE INSTRUMENTS. While a bill of lading as a negotiable instrument is regulated in some States by statute, and given the same characteristics as other commercial paper, it has certain quasi negotiable characteristics at common law. Thus while the transferee does not get any better title to the goods than his transferor had in case the bill had been found or stolen by such transferor, yet a bona fide transferee will take the bill of ladhig free from the vendor's right of stopiMge in transitu. (Newhall v. Cent. P. R. R. Co., 51 Cal. 345; Lickbarrow v. INIason, 1 Sm. Lead. Cas. 895-6; Emory v. Natl. Bank, 25 O. St. 360.) And by some authorities the common car- rier cannot dispute the correctness of the statement in the bill though the goods had never been received by him, when the bill of lading has passed into the hands of a bona fide transferee. (Armour v. Mich. C. R. R. Co., 65 N. Y. Ill; Sav. Bank v. Atchison, etc., R. R. Co., 20 Kan. 519.) As between the immediate parties the bill of lading is only prima facie evidence of the receipt of the goods. (The Delaware, 14 Wall. 579; Grace v. Adams, 100 Mass. 505.) WTien the bill of lading is attached to a bill \)f ex- change for the purchase money of the goods, its trans- fer is conditional upon the payment or acceptance of the bill according to its tenor. (Marine Bank v. Wright, 4)8 N. Y. 1.) If such bill of exchange is paya- ble on demand, it cannot be surrendered by the holder under the influence of commercial custom, a symbol of property and passes title to the goods by delivery in the same manner as if the goods were themselves delivered." Id. MONEY, BONDS, ETC. 155 until the vendee has accepted and paid it, unless the vendee has a right to the goods without payment. (Bank v. Bayley, 115 Mass. 228; Heiskell v. Farmers', etc., Bank, 89 Pa. St. 155.) Where the bill of exchange is payable at a future time, and in the absence of an agreement to the contrary, the bill of lading may be surrendered to the vendee upon his accepting the bill of exchange, and the vendee may make its surrender the condition of his acceptance. (Tiedeman, Com. Pap., Sec. 496; National Bank v. Merchants' Bank, 91 U. S. 93.) Sec. 865. CERTIFICATES OF STOCK AS QUASI-NEGOTIABLE INSTRUMENTS.— Cer- tificates of stock are regarded as quasi-negotiahle in- struments, since they are intended for transfer, and to some extent the transferee gets a better title than his transferor had. Though some of the rights of a bona fide purchaser of stock arise rather from the principles of agency than those of negotiability. The delivery of the stock is not necessary to the transfer, but the certificate is regarded as a muniment of title and the holder, if an innocent purchaser, will take a superior title to a prior purchaser by agreement, though the transfer to the first purchaser has been made on the books of the corporation. (Driscoll v. Bradle}^ etc., Co., 59 N. Y. 96; Bank v. Lanier, 11 Wall. 369.) But the full rights of a bona fide holder are not ac- corded to the transferee of stock, and the real owner may recover lost, stolen, or otherwise unlawfull}^ trans- ferred stock, though in the hands of an imiocent pur- 156 NEGOTIABLE INSTRUMENTS. chaser. (Railroad v. Howard, 7 Wall. 415; Burton's Appeal, 93 Pa. St. 214.) Sec. 8G6. WAREHOUSE RECEIPTS AS QUASI-NEGOTIABLE PAPER.— Warehouse or elevator receipts for a stated amount of grain of a cer- tain kind or quality are issued by the public warehouse- men for grain stored with them, to be deliv^ered to the depositor or his order on demand. These receipts, like bills of lading, represent the grain itself, and their sale or transfer operates a sale or transfer of the grain. By statute m some States, and also by custom these receipts have come to possess some of the qualities of negotiable instruments. But in the absence of statute they are denied to be negotiable instruments, since they call for the delivery of goods and not the payment of money. (2d Natl. Bank v. Walbridge, 19 O. St. 419; Canadian Bank v. McCrea, 40 111. 281.) The receipt will not assist the bona fide holder to recover from the warehouseman, in case his agent issued it without get- tmg the grain. (Burton v. Cuiyea, 40 111. 320.) And the warehouseman is not charged with the liability of a guarantor where the receipts are by statute made nego- tiable. (Hale V. Milwaukee Dock Co., 29 Wis. 492.) Sec. 867. LETTERS OF CREDIT AND CIR- CULAR NOTES.— A letter of credit is a written statement addressed to an individual or to any one to whom it may be delivered, to the effect that the writer is prepared to meet drafts drawn on him by the person named in the letter to a stated amount. When drawn to an individual it is called a special letter of credit, MONEY, BONDS, ETC. 157 and when not addressed to an individual it is called a general letter of credit, and will bind the wiiter to any one who advances money as directed by it. Where the letter of credit directs the drawing of a bill of exchange on the writer, it is deemed an acceptance of the bill when drawn. (Agra v. Masterman's Bank, 2 L. R. Ch. App. 297; Bissell v. Lewis, 4> Mich. 450.) A circular note is a form of a special letter of credit authorizing any one of a list of banks or bankers in various places, to advance money on drafts drawn by the person named and to look to the writer for indemnity. PART II. THE LAW OF SURETYSHIP AND GUARANTY. CHAPTER I. THE CONTRACT DEFINED AND EXPLAINED. Sec. 868. SURETYSHIP AND GUARANTY DEFINED AND DISTINGUISHED.— Surety- ship is a contract by which one person (>blig'ates himself to be responsible for the debt, default or miscarriage of another. The person thus obligating himself is called a "surety," and the person for whom he engages is the primary or principal debtor, and sometimes called sim- ply "principal." The term suretyship further denotes the relation in which the surety stands towards the primary debtor and the creditor whose claim he assures.* *"A surety is defined as a person who, being liable to pay a debt or perform an obligation, is entitled, if it is enforced against him, to be indemnified by some other person, who ought himself to have made payment or performed before the surety was com- pelled to do so." (Smith v. Sheldon, 35 Mich. 42.) "The contract of suretyship has been defined to be a contract whereby one person engages to be answerable for the debt, de- fault or miscarriage of another. It is an obligation acces- sorial to that of the principal debtor; the debt is due from th« 159 160 SURETYSHIP Ax\D GUARANTY. A contract of guaranty is likewise a contract to answer for the debt, default or obligation of another; the "guarantor" beuig the one thus engaging, while the creditor to \\lioni he makes the promise is styled the "guarantee," and the party for w'hom the guarantor engages is still the principal or primary debtor.* While the terms guaranty and suretyship are fre- quently used sj^nonj^mously, and the definitions show slight difference if any, yet they are distinguishable by important differences. Thus in INIcJMillan v. Bull's Head Bank, 32 Ind. 11, it is said: "The surety is bound with his principal as an original promisor ; he is a debtor from the beginning and must see that the debt is paid, and is held ordinarily to know every default of his prin- cipal, and cannot protect himself by the mere indulgence of the creditor, nor by want of notice of the default of the prmcipal, however such indulgence or want of no- tice may in fact injure him. On the other hand, the contract of a guarantor is his own separate contract; principal, and the surety is merely a guarantor for its payment. Hence it is of the essence of the contract that there should be a valid obligation of the principal debtor; also, that the surety may, in general, avail himself of any defence which his prin- cipal could make, while a defence which the principal has pre- cluded himself from making, or has waived, cannot be made by the surety." (Evans v. Kneeland, 9 Ala. 42.) *The words "guaranty" and "warranty" are derived from the French verb garanttr, meaning to undertake, vouch for, secure, or indemnify. The verb in English is spelled both "guaranty" and "guarantee." See Abbott's Law Diet. "Guar- antee." THE CONTRACT DEFINED. 161 it is in the nature of a warranty by him that the thing guaranteed to be done by the principal shall be done, — not merely an engagement jointly with the principal to do the thing. The original contract of the principal is not his contract, and he is not bound to take notice of its non-j)erf ormance ; therefore the creditor should give him notice; and it is universally held, that if the guarantor can prove that he has suffered damage by the failure to give such notice, he will be discharged to the extent of the damage thus sustained. It is not so with a surety."* *La Rose, et al v. Logansport Bank, 102 Ind. 332; Reigert V. White, 52 Pa. St. 438; Harris v. Newell, 42 Wis. 687; Brandt, Sur. & Guar., Sec. 1. "A surety undertakes to pay if the debtor does not, and, in general, a guarantor undertakes to pay if the debtor cannot." (Swan's Treatise, p. 567.) "The surety is the guarantor of the payment of the face value of the note, who assumes this liability by becoming a regular party to the paper, as drawer or indorser, but usually as co- maker of a promissory note. Where the surety is co-maker, the obligation to pay becomes his own immediately upon fail- ure of the principal to pay, without any previous demand on the principal or notice of his default. . . . The guarantor is never a regular party to the commercial instrument, and his liability depends upon an independent, collateral agreement, which provides for the payment of the debt by the guarantor in case the primary debtor fails to pay." (Tiedeman, Com. Paper, Sec. 415; citing, Axents v. Com., 18 Gratt. 770; Jones V. Ashford, 70 N. C. 176, etc.) "The rules of the common law as to sureties are not strictl}^ applied to guarantors, but rather the rules of the law merchant, and the true distinction seems to be this: That a surety is in 162 SURETYSHIP AND GUARANTY. Sec. 8G9. GENERAL REQUISITES OF THE COXTRACT, IIISTORY^ AND AUTHORITIES. — In general, to constitute the contract of suretysliip or guaranty the same essentials are necessar}"" as in any simple contract; thus the parties should be competent to contract, their minds should meet in agreement, and the contract should be ui)on sufficient consideration un- less made under seal. (Brandt, Sur. & Guar., Sec. 3; Snyder v. Click, 112 Ind. 293.) To satisfy the statute of frauds the contract must also be in writing. (In- gersoll V. Baker, 41 Mich. 48.) The contract of guaranty or suretyship extends back to the remotest times; the Bible mentions the fact that sureties were held to their obligations among the He- brews.* Among the authorities and writers on the law of suretyship and guaranty, may be mentioned almost every writer on Negotiable Instruments or Commercial Paper, as the two subjects are usually treated in con- nection. Fell, Baylies, Brandt, and De Colj^er are WTiters of separate treatises on the subjects of Guar- anty and Suretyship. the first instance answerable for the debt for which lie makes himself responsible, and his contracts are often specialties, while a guarantor is only liable when default is made by the party whose undertaking is guaranteed, and his agreement is one of simple contract." (Hubbard, J., in Curtis v. Dennis, 7 Mete. 610.) *"Hc that is surety for a stranger shall smart for it, and ht that hateth suretyship is sure." — Proverbs XI, 15. THE CONTRACT DEFINED. 163 Sec. 870. WHO MAY BECOME A SURETY OR GUARANTOR. — In addition to natural persons of the requisite capacity, surety companies, or corpora- tions authorized by statute to guaranty bonds and un- dertakings or the fidelity of officers in positions of pub- lic or private trust, may become sureties or guarantors. (Cramer v. Tittle, 72 Cal. 12; Hurd v. Hannibal, etc., R. R. Co., 33 Hun 109.) And individuals becoming guarantors or sureties con- trary to a statute or rule of court will be bound by their obligations. Thus an attorney would be bound by his contract though the statute or rule of court forbade at- tornej^s from becoming sureties. (Tessier v. Crowley, 17 Neb. 207; Kohn Bros. v. Washer, 69 Tex. 67.) And a non-resident accepted as bail contrary to the statute was held bound by his contract. (Com. v. Ramsay, 2 Duvall, Ky., 386.) Married women cannot become sureties for their hus- bands or strangers in the absence of enabling statutes, and in general a married woman cannot charge her sep- arate equitable estate by becoming a surety. (Yale v. Dederer, 18 N. Y. 265; Curtan v. David, 18 Nev. 310.) But where the enabling statute allows her to contract as a feme sole^ or for any lawful purpose, she may be- come a surety. (Mayo v. Hutchinson, 57 IMe. 546; Low V. Anderson, 41 la. 476.) In a few States statutes have been passed providing that a married woman cannot bind her estate by a contract of suretyship. (Nixon v. Whitely, 102 Ind. 360; Beatie v. Callioun, 73 Ga. 269; Sweazy v. Kammer, 51 la. 642.) 164 SURETYSHIP AND GUARANTY. Sec. 871. THE COXSIDERATIOX FOR THE PRO.AIISE OF THE SURETY^ OR GUAR- ANTOR. — Except when under seal, the contract 'of the surety or guarantor must be supported by a suffi- cient consideration, and this is determined by the same principles as govern in the case of the ordinary contract. The smallness of the amount of the consideration does not matter, so long as it is not such a consideration as would be opposed to public policy. (Davis v. Wells, 104 U. S. 159; Rouse v. Glissman, 29 111. App. 321.) "When the guaranty is contemporaneous with the creation of the original liability, the same consideration will support the guaranty which supports the principal contract. In such a case the credit is given to both, and not to one alone, although only one may derive any substantial benefit from the transaction.* But w^here the guaranty is given after the principal contract is made, the guaranty must be supported by a new and independent consideration, unless it was given subse- quently, in pursuance of a contemporaneous agreement to that effect." *Drapcr v. Snow, 20 N. Y. 331; Campbell v. Knapp, 15 Pa. St. 27. "It is not necessary to the validity of the consider- ation that any portion of it should move from the creditor to the surety or guarantor, provided that the circumstances are such that a previous request on the part of the surety or guar- antor is held to exist. A consideration moving to the principal alone contemporaneous with or subsequent to the promise of the surety or guarantor is sufficient." (Brandt, Sur. Sc Guar., Sec. 15; Savage v. Fox, GO N. H. 17; Bicksford v. Gibbs, 8 Cush. 154.) THE CONTRACT DEFINED. 165 Thus where the promise that a surety or guarantor will become liable is given as an inducement to the creditor to extend credit to the principal, this is a sufficient consideration to support the contract of the surety or guarantor who subsequently signs. (Paul V. Stackhouse, 38 Pa. St. 302; Standley v. Miles, 36 Miss. 434.)* A promise for a promise will be a sufficient considera- tion to support the contract of the guarantor or surety, as where the creditor agrees to extend the time of pay- ment and the guarantor or surety thereupon agrees to be answerable for the debt. (Fuller v. Scott, 8 Kan. 25; Lee v. Wisner, 38 Mich. 82.) But an executed consideration to the principal, that is, where the consideration is founded on something al- ready done and passed, as on account of further time already given to the principal, such by-gone considera- tion is not sufficient to support the i^romise of the guar- antor or surety, and the contract will be void, except where there was a previous request by the surety or guarantor to the creditor (Williams v. Marshall, 42 *"If A executes his note to B, and X, at the time the note is made, indorses his name on the back of it, he thereby be- comes surety for A, the same as if he signed his name to the note with A, in the absence of an agreement in regard to the extent of the responsibihty of X; and consequently there is a sufficient consideration for his promise. But if A executes his note to B, and X, having no concern with the note at the time that it is made, afterwards indorses his name on the back of it, he is not liable unless there was sufficient consideration therefor." (Swan's Treatise, p. 572.) IGG SURETYSHIP AND GUARANTY. Barb. 524; Luchvick v. Watson, 3 Ore. 256; Ashton v. Bayard, 71 Pa. St. 139.) If the written promise of the surety to answer for the debt of another, be made in consideration of something to he done, as in considera- tion of goods to be supplied, legal proceedings to be staid, and the like, the consideration is sufficient. (West- head V. Sproson, G H. & X. 728.)* Sec. 872. BOND GIVEN WHEN NOT RE- QUIRED, OR IN DIFFERENT FORM BINDS SURETY. — A voluntary bond, or one given when none is recjuired by law, or in a different form from the one required binds the surety. Thus, the bond of a plaintiff in an attachment suit though not required binds the sureties and is valid. (Lartigue v. Baldwin, 5 Martin, La., 193.) And the sureties upon the bond of a State treasurer, and a deputy collector of customs, where the bond was voluntarily given and not demand- able by law were nevertheless held bound by their obli- gation. (Sooy ads. the State, 38 N. J. L. 324; Dignan V. Shields, 51 Tex. 322.) And where a bond was re- *Soe Brandt on Sur. & Guar., Sec. 16. In Jackson v. Jack- son, 7 Ala. 791, Collier, C. J., said: "Any act in the nature of a benefit to the person who promises, or to any other person upon his request, or any act which is a trouble or detriment to him to whom the promise is made, is sufficient, and the amount of benefit or of trouble or of detriment or its comparative value in relation to the promise is indifferent." And the consideration need not be a benefit to the principal or surety, any trouble, detriment, or inconvenience to the creditor Is sufficient. (Pillans V. Van Mierop, 3 Burr. 1663; Wells v. Mann, 45 N. Y. 327.) THE CONTRACT DEFINED. 167 quired of bank cashier with two or more sureties, and the bond was given with but one surety, the single surety- was held liable on the bond. (Pritchett v. the People, 1 Oilman, 111., 525 ; Bank of Brighton v. Smith, 5 Allen 413.) Sec. 873. SURETY MAY BE BOUND THOUGH NAME NOT IN BODY OF WRIT- ING, AND HIS OBLIGATION MAY ARISE BY IMPLICATION.— Where the intention is clear from the writing and signature who is the surety, it is not necessary that the name of the surety appear in the body of the instrument. So where a blank is left intended for the name of the surety, and the instrument is signed, sealed and delivered, the signer is bound. (Bartley v. Yates, 2 Hen. & Mun., Va., 398; Partridge V. Jones, 38 O. St. 375.) But it is held where the pen- alty of the bond is left blank, the sureties are not bound. (Austin V. Richardson, 1 Gratt. 310.) The obligation of a surety or guarantor is sometimes implied by law from the circumstances surrounding a person who sells or transfers a negotiable instrument, in the same manner as a warranty is implied in the case of the sale of goods. Thus in the transfer of a promis- sory note by endorsement without recourse, the trans- feree impliedly guaranties the genuineness of prior sig- natures, and this is so as regards the party selling such a note without indorsing it. (Dumont v. Williamson, 18 O. St. 515; Lyons v. Miller, 6 Gratt. 427; Cabot Bank v. Morton, 4 Gray 156.) 168 SURETYSHIP AND GUARANTY. Sec. 874. WHEN JOINT MAKER OF NOTE MAY BE SHOWN TO BE A SURETY BY PAROL EVIDENCE.— Where several parties sign a joint, or joint and several note, not under seal, if one or more of tliem are sureties, and the creditor is cognizant of the fact, parol evidence is admissible to show tliat they were sureties and that the creditor had knowledge of their signing as such, and this is true though there is nothing in the note to indicate that any of the parties are sureties. Such parties are sureties to all intents and purposes, and the creditor must deal with them as regards protecting their rights as in the case of any other surety. Any act by the creditor which would discharge a surety will discharge them. (Sefton V. Hargett, 113 Ind. 592; Piper v. Newcomer, 25 la. 221; Higdon v. Bailey, 26 Ga. 426.) The apparent change in the terms of the contract made by the intro- duction of such parol evidence is held to be but the proof of a collateral fact and not a controverting of the terms of the contract. (Rose v. Williams, 5 Kan. 438; Car- penter v. King, 9 Met. 511.) By a number of cases it is held that a joint maker of a sealed note may show that he was in fact a surety and that the creditor had notice of the fact. (Creigh V. Hedrick, 5 W. Va. 140; Forbes v. Shepard, 98 N. C. 111.) Other cases deny that parol evidence may be introduced for tliis jnirpose when the insti-ument is under seal, in actions at law, but admit such evidence in courts of equity. (Burke v. Cruger, 8 Tex. G6; Levy v. Hampton, 1 McCord, L. [S. C], 145.) THE CONTRACT DEFINED. 169 And, in general, where the creditor at the time of doing an act which will discharge an ordinary surety, has knowledge that a party is in reality a surety, this will discharge such party, though the creditor did not know beforehand that such party was in fact a surety. Thus where the holder of an instrument did not know that one of the parties was a surety at the time of taking it, but was afterwards, — and before doing the act oper- ating as a discharge of the surety, — informed of it; held, that the surety was discharged. (Bank of Mo. v. Matson, 26 Mo. 243; Pooley v. Harradine, 7 E. & B. 431.) Parol evidence is also admissible to charge a party who had added the word "surety" or the like to his signa- ture to a promissory note as a princij^al. Such addition to a signature is held to be simply presumptive evidence of suretyship, and may be rebutted by proof of the fact. (Rose V. Madden, 1 Kan. 445; Boulware v. Admrs., 83 Va. 679.) But where a surety in terms binds himself as a princi- pal by adding the word "principal" after his name, he cannot by parol evidence show that he was in reality a surety. Thus where three persons signed a note, joint and several, and one added "principal" to his signature and the other two adding "surety" to theirs, it was held that the party using the word principal could not show by parol evidence that he was a surety and known as such by the creditor. The addition of such word indi- cates a waiver of his rights as surety. (Picot v. 170 SURETYSHIP AND GUARANTY. Signiago, 22 ^lo. 587; Deny Bank v. Baldwin, 41 N. H. 434.) Sec. 875. WIIEX SURETY" ESTOPPED TO DEXY" RECITALS OF FACTS IN WRITTEN OBLIGATION.— "The general rule is that sureties are estopped to deny the facts recited in the obligations signed bj^ them, and this whether the recitals are true or false in fact. Having once solemnly alleged the ex- istence of the facts they cannot afterwards be heard to deny it."* Likewise sureties on notes or bonds executed to a corjioration or partnership are estopped from denying the legal existence of such corporation or partnership. (Jackson v. Foote, 12 Fed. Rep. 37.) And a surety on a bond is held estopped from denying liability be- cause the bond is different from what he thought it was, where he was not prevented from reading the same by the fraud of the obligee. (Johnston et al. v. Patterson, 114 Pa. St. 398.) But in some cases the surety is not estopped from *Bran(U, Sur. & Guar., Sec. 42; Montcith v. Commonwealth, 15 Gratt. 172; Decker v. Judson, 16 N. Y. 439. Where the holder of the bond of a corporation guaranteed it, and after- wards in a suit against him on the guaranty he attempted to sot up the fact that the corporation had no authority to make it and it was invalid, he was held to be estopped from showing these facts, the court saying: "The guaranty of the payment of the bond by the defendant imports an agreement or under- taking that the makers of the bond were competent to contract in the manner they have, and that the instrument is a binding obligation upon the makers. ?» THE CONTRACT DEFINED. 171 denying the facts stated in his obligation. Thus in a suit upon a township bond, which recited that the of- ficers executing it had been authorized so to do, the township was not estopped from showing that no such authority had been given. ( Hudson v. Inhab. of Wins- low, 6 Vroom. [N. J.] 437.) So where the bond of an officer is sued upon, the surety is not estopped from setting up the fact that the appointment of the officer was void or illegal. (Thomas v. Burrus, 23 Miss. 550; Tinsley v. Kirby, 17 S. C. 1.)* Sec. 876. NEGOTIABILITY OF GUARAN- TIES DISCUSSED.— While a person who holds the guaranty of another may assign the right of action on the guaranty by express words so that the transferee may thereafter enforce the guaranty either in the name of the assignor or his own name, there is a conflict of authorities in regard to the guaranty of a negotiable in- strimient passing to the subsequent indorsee or holder when the paper which the guaranty covers has been transferred to such indorsee or holder. Professor Tiede- *In Miller v. Bag\vell, 3 McCord, Law, S. C, 429, Nott, J., states the reasons for allowing the recitals to be controverted as follows : "It is a general rule of law, and a correct one, too, that a man cannot aver against his own deed; but that is where he has alleged some particular fact within his own knowledge and which forms a part of the consideration for his undertak- ing ; and that is the whole extent to which the cases relied on go. But the principle cannot be extended to an allegation com- ing from the other party, and which can be necessarily known only to him, although contained in the recital of a deed made by the defendant." 172 SURETYSHIP AND GUARANTY. man states that the authorities generally agree that when the guaranty is written on a separate paper it will not he negotiable so far as to pass as appurtenant to the bill or note to a subsequent holder, unless words of ne- gotiability are incorporated in the guaranty. (Com. Pap., Sec. 419.) So that a guaranty written on a sep- arate paper and not in terms negotiable, could not be sued on by the holder to whom the original paper had been transferred, but a suit might be brought on it in the name of a person to whom it was first given. ( ]Mc- Laren v. Watson's Admrs., 26 Wend. 42o; contra, Gould V. Ellery, 39 Barb. 163.) Where the guaranty is written on the negotiable instrument which it guaran- tees contemporaneously with its execution, the authori- ties are divided ; in a number of cases it is held negotiable and in others not negotiable.* And where the guaranty is written on the paper at the time of its transfer by the transferor, the question of its negotiability is in dispute.f In Potter v. Gronbeck, 117 111. 404, it is held that a guaranty covenng the pay- *The following cases hold the guaranty negotiable: Cole V. Merchants' Bank, 60 Ind. 350; Webster v. Cobb, 17 111. 466; Northumberland Bank v. Eyer, 58 Pa. St. 97; Jones v. Dow, 142 Mass. 130. Contra cases are: Springer v. Hutchinson, 19 Me. 359; Tinker v. McCauley, 3 Mich. 188; Smith v. Dickin- son, 6 Humph. [Tenn.] 261. J Johnson v. Mitchell, 50 Tex. 212; Robinson v. Lain, 31 la. 9; Gage v. Mechanics' Bank, 79 111. 62, are cases holding such guaranties negotiable, while Trust Co. v. Natl. Bank, 101 U. S. 70 ; Tavlor v. Binney, 7 Mass. 481 ; Miller v. Gaston, 2 Hill. 188, hold the contrary. THE CONTRACT DEFINED. 173 ment of rent and other covenants on the part of a lessee could not be assigned so as to pass a legal title to the assignee. Sec. 877. WHEN OFFER OF GUARANTY MUST BE ACCEPTED.— An offer of suretyship or guaranty must be accepted the same as any other offer if the party offering is to be bound. Where the partie.s deal together personally, or a single specific lia- bility is guarantied, formal notice of acceptance by the creditor is unnecessary. (Walker v. Forbes, 25 Ala. 139; Montgomery v. Kellogg, 43 Miss. 486.) When the guaranty covers a future and continuing credit, un- less it refers specifically to a certain line of credit which it absolutely guaranties, indicating a previous request for a guaranty, it should be formally accepted by notice sent to the guarantor of the creditor's intention to rely upon the guaranty. (Sheurll v. Knox, 2 Am. Lead. Cas. 104; Babcock v. Bryant, 12 Pick. 133; Davis v. Wells, Fargo & Co., 104 U. S. 159; contra. Powers v. Bumcranz, 12 O. St. 284.) And, unless the guarantor waive notice of acceptance, it must be given to bind him upon a general letter of credit. (Tiedeman, Com. Pap., Sec. 420; Russell v. Clarke, 7 Cranch 69.) This is to enable the guarantor to know to whom he is liable. Sec. 878. FORMS AND KINDS OF GUAR- ANTIES. — There is no specific form required to con- stitute a guaranty, and it is sufficient if it indicates the intent of the party to assume the obligation. It may be written on the instrument guaranteed, or be given in a 174 SURETYSHIP AND GUARANTY. separate writing, and before the statute of frauds could be oral. It may in terms be absolute or conditional upon some future event or contingency^ ; limited or unlimited as to the amount, time, and number of transactions. (Tiedeman, Com. Pap., Sec. 416.) When a question arises as to whether a guaranty authorizing the loan of any amount not exceeding a specified simi is exhausted by a single advancement or operates as a continuing guaranty of all advances up to the amount stated, the intention of the parties will govern, and to explain the ambiguous guarantj^ parol evidence is admissible. While there is no general rule by which to determine whether the guaranty is continu- ing or not, Professor Tiedeman states that, where the language used is singular in number it will be considered exhausted by the first loan, while if the plural number is used, indicating an authority for repeated loans within the amount, it will be held to cover all loans within the stipulated amount. (Com. Pap., Sec. 416.) Mr. Brandt, in his excellent work, simply states that no defi- nite rule can be given for determining whether a guar- anty shall be considered a continuing one or not, as the circumstances are different in almost every case, and he therefore illustrates the subject by giving the facts of decided cases, a few of which we append below:* *Brandt, Sur. & Guar., Sec. 156. Wlicrc a guaranty read: "]Mr. J. B. Maynard, being about to commence the retailing of dry goods at Connelton, Ind., and desiring to open a credit with James Lowe & Co., of the city of Louisville, I hereby un- dertake and contract with said Lowe & Co. to become respon- THE CONTRACT DEFINED. 175 Sec. 879. LIMITATIONS OF SURETY'S CONTRACT AS REGARDS TIME, ACT OR AMOUNT. — When a person is surety for the honesty of another in an office of limited duration, to which sible to them for the amount of any bill or bills of merchandise sold by them to said Maynard, agreeable to terms of sale agreed upon between the parties, without requiring said Lowe & Co. to prosecute suit against said Maynard therefor," it was held a continuing guaranty and not exhausted by the first few bills bought on commencing the business. (Lowe v. Beckwith, 14 B. Monr., Ky., 150.) So the writing, "I hold myself accountable to you for any goods Mr. Francis Murphy may purchase of you to the amount of £250, currency," is a continuing guar- anty, (Ross V. Burton, 4 Up. Can. Q. B. 357); and also the words, "Sir, you can let J. L. Day have what goods he calls for, and I will see that the same are settled for." (Hotchkiss v. Barnes, 34 Conn. 27.) But where the guaranty was In the form of a letter: "The object of the present letter is to request you. If convenient, to furnish them (the principals with) any sum they may want, so far as $50,000, say $50,000. They will reimburse you the amount, together with Interest, as soon as arrangements can be made to do It. . . , We shall hold ourselves answerable to you for the amount," It was held to be exhausted by the first advance of $50,000 and not a continuing guaranty. (Cremer V. HIgginson, 1 Mason 323.) And a guaranty in the following form was held not to be a continuing guaranty : "Sir, for any sum that my son, George Reed, may become Indebted to you, not exceeding $200, I will hold myself accountable." (White V. Reed, 15 Conn. 457.) So where the letter of guaranty asked that a full line of samples of goods be sent for a stated season, and concluded, "and I will guaranty the payment of any goods you may sell him," It was held to cover but one transaction or sale of goods. (Schwartz v. Hyman, 107 N. Y. 562.) And a letter stating "The bearer, . . . my son-in-law, wishes 176 SURETYSHIP AND GUARANTY. he has been appointed for a limited time only, such surety is not bound beyond that period, though the of- ficer is re-elected or re-appointed, unless the guaranty, by an express provision, extend the obligation beyond the original term. (Thompson v. Young, 2 Ohio 334<; Arlington v. Merricke, 2 Saund. 403; Sidner v. Alex- ander, 31 O. St. 378.) The last case holding that moneys received during the first term, and in the ofii- cer's hands when executing bond for second term, are covered by first bond and not by second. So where a surety on a bond providing that a clerk should properly demean himself, "from time to time and at all times, so long as he should continue to hold said office or employment," showed that the employment was but for a year, the creditor could not set up that by con- sent of all parties the clerk had been retained beyond the year and had made default. (Pepj^in v. Cooper, 2 Barn & Aid. 431.) And it is held where the bond of the surety is gen- eral covering the entire period for which the principal shall remain in office, and the salary of the principal is increased at the end of the year, such change of term revokes the first appointment and releases the surety. (Bamford v. lies, 3 Wels. Hurl. & Gor. 380.) And to place a stock of groceries in his provision and meat store. To enable him to do this, I am willing to be responsi- ble to you for the amount of groceries he may order of you," was held not to be a continuing guaranty. (Knowlton v. Her- sey, 76 Me. 345; Chapter V, Brandt Sur. & Guar.) THE CONTRACT DEFINED. 177 where the general bond of a cashier of a bank, was extended by the re-chartering of the bank without a new bond, the sureties were not held for a default by the cashier made after the time of the exj^iration of the original charter. (Thompson v. Young, 2 Ohio 335.) But where the terms of the bond indicate the intention of the surety to be bound beyond the term for which the officer is elected or appointed, as where the words were: "during the whole time of continuing in said of- fice, in consequence of said election, or under any annual or other future election ... to the said office," the surety will be bound for any default while the person remains in office. (Oswald v. Mayor of Berwick, 5 H. L. Cas. 56.) Sec. 880. EFFECT OF THE STATUTE OF FRAUDS UPON THE CONTRACT.— By the fourth section of the Statute of Frauds (29 Charles II, ch. 3) and re-enacted in the various States in almost identical terms, it is provided: "No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt, default or mis- carriage of another person, unless the agreement upon which such action shall be brought, or some memoran- dum or note thereof, shall be in writing and signed by the party to be charged therewith, or by some person thereunto by him lawfully authorized." The general effect of this section is that the contract of a surety or guarantor being a promise to answer for the debt of another, must be in writing or a suit cannot be main- 178 SURETYSHIP AND GUARANTY. tained upon it. As this section of the Statute of Frauds has already been considered under the subject of Con- tracts* it is not necessary to enter upon a lengthy dis- cussion of it liere. As regards the extent of the writing necessary to satisfy the Statute of Frauds the rule differs in the various States. In some a statement of the considera- tion is required. (Kigby v. Norwood, 34 Ala. 129; Nicliols V. Allen, 23 ]\Iinn. 543.) Others hold that the consideration is no part of the "agreement" and need not be stated. (Reed v. Evans, 17 Ohio 128; Gillighan V. Boardman, 29 Me. 79.) So where the words of the statute only require the "promise" to be in writing, the consideration need not appear ( Violet t v. Patten, 5 Cranch 142). Where the consideration is held to be unnecessary, the mere signature of the guarantor on the principal obligation will be treated as a sufficient compliance with the statute, as where one not a party to a negotiable instrument puts his name on the back of it. (Nelson v. Dubois, 13 Johns. 175.) In order that the contract of the surety or guarantor come within the operation of the statute as a promise to answer for the debt or default of another it must be collateral to a liability on the part of the principal debtor, that is, the principal debtor must not be entirely discharged by the obligation of the suret5\ If at the time of the surety's promise there is an actual primary liability of a principal to the promisee which continues 'See Vol. 4 of the Cyclopedia of Law. THE CONTRACT DEFINED. 179 after the making of the promise, the contract is within the statute and must be in writing to be valid.* Where the contract of the surety extinguishes the first contract, so that the first debt no longer exists, and the principal debtor is not liable thereon, the contract of the surety is binding though not in writing. (Esta- brook V. Gebhardt, 32 O. St. 415; Anderson v. Spence, 72 Ind. 315; Read v. Nash, 1 Wils. 305.) And where the contract of the surety is to pay his own debt to a person designated by his creditor, in discharge of a debt owing to such person by his creditor, this agree- ment need not be in writing.f "When the promise to pay the debt of another is made in consideration of the delivery by the creditor to the promisor of a security for such debt, as of an assign- ment of the debt itself to the promisor — that is, when *Thus In the leading case of Birkmyr v. Darnell, 2 Ld. Ray- mond, 1085, S. C, 6 Mod. 248, and 1 Salk. 27, the distinction between a collateral and original promise is thus illustrated: *'If two come to a shop and one buys, and the other, to gain him credit, promises the seller, 'if he does not pay you I will,' this is a collateral undertaking, and void without writing by the Statute of Frauds. But if he says, 'let him have the goods, I will be your paymaster,' or 'I will see you paid,' this is an undertaking as for himself, and he shall be intended to be the very buyer, and the other to act but as his servant." t"If A be indebted to B, and B be indebted to C, and they get together and agree that B's debt to C shall be canceled, and A shall pay the debt which he owed B to C, such agreement is valid and binding without writing." (Brandt, Sur. & Guar., Sec. QQ\ Hodgson v. Anderson, 3 B. & C. 842 ; Barker v. Bucklin, 2 Denio 45.) 180 SURETYSHIP AND GUARANTY. the transaction amounts to a sale by the creditor to the promisor of the lien or debt — the jiromise is not within the statute." (Brandt, Sur. & Guar., Sec. 65; Castling V. Aubert, 2 East 325.) When there is a sale of goods to one person and a promise to pay the debt by another, if the person to whom the goods are furnished is at all liable, the prom- ise of the surety must be in wTiting to bind him. But where the goods are given on the credit of a person, and at his request delivered to another, to whom no credit is given, and who incurs no responsibility, the person to whom the credit is given, being solely respon- sible, the contract need not be in writing. (Swan's Treatise, p. 570.) So where there is a promise to answer for a party not legally competent to contract, or not answerable for his wrongful acts, the promise need not be in writing, as there is no collateral liabiHty the 23rinci23al not being bound. Thus a father who prom- ised verbally to answer for goods supplied by a mer- chant to his minor son was held bound, because the son not being of age to become liable for the debt, it was held to be the separate, independent and original debt of the father. (Chapin v. Lapham, 20 Pick. 467; Har- ris V. Huntbach, 1 Burrows 373.) "The Statute (of Frauds) was intended to apply to promises made to the person to whom the debt is due^ and in order to secure its paj'^ment to him. There is, therefore, a class of cases that do not come within the operation of the statute, because the promise is either to the person who owes the debt, or, though made to THE CONTRACT DEFINED. 181 the person to whom the debt is due, is not made to secure its payment. Thus, if there is a suit by A against you, and B promises to pay him $50 if he will withdraw the suit, and he does it, B is liable on his promise, though not in writing ; for the promise is not to pay your debt, but a sum of money distinct from, and independent of it."* So where the promise of the surety is to pay the debt of another out of the proceeds of such other's prop- erty in the hands of the surety for the purpose, the promise need not be in writing. (JNIeyer v. Hartman, 72 111. 442; Stoudt v. Hine, 45 Pa. St. 30.) The prom- ise of the surety is considered original, and he is re- garded as an agent to distribute the property. (Brandt, Sur. & Guar., Sec. 63.) "Where the plaintiff, in con- sideration of the promise, has relinquished some lien, benefit or advantage, for securing or recovering his debt, and where by means of such relinquishment the same interest or advantage has inured to the benefit of the defendant, there his promise is binding without writ- ing. . . . It is not enough that the plaintiff has relinquished an advantage or given up a lien in conse- quence of the defendant's promise, if that advantage has not directly inured to the benefit of the defendant, so *Swan's Treatise, p. 570 : "A promise, however, to indemnify A for assuming the debt of B, or a promise by A to B to indem- nify B against loss in becoming surety for C, is void, if not in writing ; but a promise by one co-surety, to indemnify the other, need not be in writing ; for it is a promise to secure one's own de- fault." (Id., citing Oldham v. Broom, 28 O. St. 41.) 182 SURETYSHIP AND GUARANTY. as to make it a purchase by the defendant from the plaintiff." (Per Shaw, C. J., in Curtis v. Brown, 5 Cush. 4-88.) "Whenever the main purpose and object of the prom- isor is not to answer for another, but to subserve some pecuniary or business i)urj)ose of his own, involving either a benefit to himself or damage to the other con- tracting party, his promise is not within the statute, al- though it may be in form a promise to pa}^ the debt of another, and although the performance of it may inci- dentally have the effect of extinguishing that liability." (Per Clifford, J., in Emerson v. Slater, 22 ITow. 28.) Sec. 881. SAME SUBJECT— EFFECT WHEN THE CONTRACT IS WITHIN THE STAT- UTE AND NOT IN WRITING.— The words of the Statute of Frauds are, "no action shall be brought," And these do not make a contract not comi)lying vv'ith its provisions illegal or void, but render it incapable of being enforced. In case the surety voluntarily pays the debt where he could not have been compelled so to do because his contract was not in writing, he can- not recover it; the contract being entirely executed on both sides, the statute will not affect the relations of the parties. (Stone v. Dennison, 13 Pick. 1; Shaw v. Woodcock, 7 Barn. & C. 73.) The statute affects the remedy, hence a verbal contract of suretyship valid by the law of the country where made will not be enforced in a country requiring the contract to be in writing. (Leroux v. Brown, 12 Com. B. 801.) When a promise is divisible as to the thing promised THE CONTRACT DEFINED. 183 and partly within and partly without the Statute of Frauds, it is held, that if the parts of the promise are so connected as to make one entire contract, rather than distinct promises, the contract will be wholly unenforce- able; while if the portion not within the statute can be separated from the part of the promise that is, an action may be brought on the valid portion.* *Brandt, Sur. & Guar., Sec. 52 ; Wood v. Benson, 2 Cromp. & Jer. 94; Wetherbee v. Potter, 11 Allen 361 ; Theob. Prin. & Sur. 278. CHAPTER II. LIABILITY OF SURETY OR GUARANTOR HOW DISCHARGED, ETC. Sec. 882. CONSTRUCTION OF CONTRACT OF SURETY OR GUARANTOR.— "In guaran- ties, letters of credit, and other obligations of sureties, the terms used and language employed are to have a reasonable interpretation according to the intent of the parties, as disclosed by the instrument read in the light of the surrounding circumstances and the purposes for which it was made. If the terms are ambiguous, the ambiguity may be explained by reference to the circum- stances surrounding the parties, and by such aids as are allowable in other cases, and if an ambiguity still remains, I know of no reason why the same rule which holds in regard to other instruments should not apply; and if the surety has left anything ambiguous in his expressions, the ambiguity may be taken most strongly against him." (Per Allen, J., in Belloni v. Freeborn, 63 N. Y. 383.) This statement is a fair summary of the general rule of construction as regards the contracts of the surety or guarantor. (Lawrence v. IMcCalmont, 2 How. [U. S.] 426; Wills v. Ross, et al., 77 Ind. 1.) Another general rule applying to the contract of the surety or guarantor is, that they are regarded as favorites of the law, and are not bound beyond the strict 184 LIABILITY OF SURETY. 185 terms of their engagement, when such terms have been ascertained. (People v. Chalmers, 60 N. Y. 154; Brandt, Sur. & Guar., Sec. 93.) It is held to be well settled that the guarantor or surety is bound only by the strict letter or precise terms of the contract of his principal, whose act he has guarantied. He has a riglit to stand upon the very terms of his contract, and if he does not assent to any variation of it, and a variation is made it is fatal. (Kingsbury v. Westfall, 61 N. Y. 356; Miller v. Stewart, 9 Wheat. 680.) The reason for the surety being treated as leniently as possible is obvious, since he is not paying his own debt or obliga- tion, but that of another, and should not be charged be- yond his specific agreement. (Ludlow v. Simond, 2 Caines' Cas. in Error 1.) The contract of the surety or guarantor is construed to cover a future or prospective liability, and unless expressly stated to cover delinquencies prior to its exe- cution, it will have no retroactive effect. Thus, where the promise of the guarantor was to pay for all coal sup- plied the principal at an agreed price within a certain time, it was held to apply only to future contracts fixing terms of payment. (Delaware, L. & W. R. R. Co. v. Burkard, 114 N. Y. 197.) And in Weir Plow Co. V. Walmsley (110 Ind. 242), it was held that a surety for a commission merchant was not liable for a default respecting goods bought by and in the possession of the principal prior to the execution of the contract. And a guaranty for the payment of rent under a lease cov- ering "any default" in the payment of the rent, was held 186 SURETYSHIP AND GUARANTY. only to ^over defaults in the payment of the rent after the execution of the guaranty. (Brooks v. Baker, 9 Daly [N. Y.] 398.) Sec. 883. WHEN THE SURETY MAY BE SUED. — Though the contract of the sin*ety is in effect collateral to that of the principal, yet, when by the terms of the contract the obligation of the surety or guarantor is the same as that of the principal, the creditor, upon default, may sue the surety or guarantor immediately without any proceeding against the principal. (Penny V. Crane Bros. Mfg. Co., 80 111. 244.) No demand on the principal is necessary in such cases before suit, and the suit itself is a sufficient demand on the surety or guarantor. (Hough v. Aetna L. Ins. Co., 57 111. 318; Carr v. Card, 34 Mo. 513.) This is true, also, where the creditor has a mortgage or other security, he need not exhaust the security of the principal before looking to the surety. (Jones v. Ashford, 79 N. C. 172.) This is the common law rule, and prevails in England and the United States, except where changed by statute. By the Roman Law after the time of Justinian the surety had the right to require the creditor to pursue the principal debtor to judgment and execution, before becoming liable on his obligation.* *Sec. 5835, Rev. Stat. Ohio, provides: "A person bound as surety in a written instrument for tlie payment of money, or other valuable thinf^, may, if a right of action accrue thereon, require his creditor, by notice in writing, to commence an action on such instrument forthwith, against the principal debtor; and unless the creditor commences such action within a reasonable LIABILITY OF SURETY. 187 But where the guaranty in terms is to insure the collection of a debt of another, there is no default of the guarantor until the creditor has attempted by due course of law to collect the debt from the principal debtor. (Ralph v. Eldredge, 58 Hun 203; Lemmon V. Strong, 55 Conn. 443.) Some cases hold that legal proceedings to collect are imperative before the liability of the guarantor attaches, and this though the principal debtor is insolvent. But the guarantor would be re- sponsible for the costs made in the attempt to collect in such cases. (Craig v. Parkis, 40 N. Y. 181 ; Brandt, Sur. & Guar., Sec. 98.) The better opinion seems to be that other competent evidence to show that the prin- cipal debtor was insolvent would take the place of an actual suit. (Stone v. Rockefeller, 29 O. St. 625; Brackett v. Rich, 23 Minn. 485.) Where there is a guaranty of a note or bond which in terms makes the guarantor liable for the payment of the instrument, it is generally held that the holder could not look to such guarantor unless he had first been dili- gent in attempting to collect from the principal debtor. (Cowles V. Peck, 55 Conn. 251; Johnston v. Chapman, 3 Pen & Watts 18.) So if a note is guarantied to be time thereafter, and proceed with due diligence, in the ordinary course of law, to recover judgment against the principal debtor shall thereby forfeit the right which he would other- wise have to demand and receive of such surety the amount due thereon." And by Sec. 5845, Rev. Stat. Ohio, the surety is given a right of action against his principal, to compel his payment of the debt after it becomes due. 188 SURETYSHIP AND GUARANTY. collectible, the creditor must exhaust the estate of all prior solvent parties before the guarantor can be made to pay. (Pittman v. Chisolm, 43 Ga. 442; McClurg v. Fryer, 15 Pa. St. 293.) Sec. 884. SAME SUBJECT— MEANING OF ''DUE DILIGENCE."— When the contract of the surety is not the same as that of the principal, but only charges him when the creditor has exhausted his remedy against the principal, the creditor is bound to use due diligence in proceeding to collect from the primary obli- gors. Just what will constitute due diligence depends upon the circumstances surrounding each case, and is said to be that which a vigilant creditor employs when he has no other security than the obligation of the prin- cipal debtor. (Hoffman v. Bechtel, 52 Pa. St. 190.) Due diligence, in the absence of an}^ special facts, is held to require suit to be instituted at the first regular term of court after the maturity, and the obtaining judg- ment and execution thereon as soon as practicable by the ordinary rules and practice of the court. (Voor- hies V. Atlee, 29 la. 49.) The determination of the fact whether due diligence has been exercised or not is prob- ably a mixed question of law and fact for the jury to j^ass upon under instructions from the court. (Brandt, Sur. &: Guar., Sec. 101; Backus v. Shipard, 11 Wend. 629.) The insolvency of the principal, or the existence of war making it impossible to collect debts, will excuse delay in bringing the suit to collect from the principal. (Bashford v. Shaw, 4 O. St. 264; Kinyon v. Brock, 72 N. C. 554.) LIABILITY OF SURETY. 189 But where in a guaranty of payment, the time within which payment shall be made is fixed, and there is a default by the principal within the time specified, the guarantor is in default, and no proceedings need be taken against the ])rincipal whether insolvent or not. (Cobb V. Little, 2 Greenl. [Me.] 261; Roberts v. Rid- dle, 79 Pa. St. 468.) Here the terms of the contract indicate an intention to become liable immediately upon default, and not after the principal has been pursued to judgment and execution. And where the guaranty is in terms which bind the promisor to the absolute pay- ment of the note or obligation when due, demand on the principal is not necessary to charge such guarantor. (Brown v. Curtis, 2 N. Y. 225; Hooker v. Gooding, 86 111. 60.) Sec. 885. LIABILITY OF SURETY^ FOR PAY^MENT OF OVERDUE NOTES, AND FOR RENT WHEN TENANT HOLDS OVER.— Though a note is past due, and the guaranty is to pay the note "when due," oi* "according to its tenor," the guarantor is bound, and is considered to have stipulated to answer for the payment of a note payable on demand, since he is understood to have contracted with reference to the overdue note. (Crocker v. Gilbert, 9 Cush. 131; Gunn V. Madigan, 28 Wis. 158.) When there is an option in the lease for a renewal of it for another year or more upon the same terms, and the contract of the guarantor covers such lease, he is generally held for the default of the principal occur- ring during the period of the renewal. (Decker v. Gay- 190 SURETYSHIP AND GUARANTY. lord, 8 Hun 110; Deblois.v. Earle, 7 R. I. 26.) And where the guaranty of the payment of another's rent reads: "So long as said lessee shall occupy said prem- ises," it was held to include in the word "occupy" the whole period of tenancy. (Morrow v. Brady, 12 R. I. 130.) Sec. 886. EXTENT OF SURETY'S LIA- BILITY FOR A DEBT, OR ON A BOND.— Where the contract of the surety expressly or in effect covers stipulated damages, they may be recovered. (First Natl. Bank v. Breese, 39 la. 640; Gridley v. Capen, 72 111. 11.) In general, the surety on a bond is not liable beyond the sum stated in the bond as the penalty. But when the surety is in default and neg- lects to pay within a reasonable time, he may be held liable for the legal rate of interest on the penal sum, as damages for the delay. (Brainard v. Jones, 18 N. Y. 35; Perry v. Horn, 22 W. Va. 381.) Such interest is held to run from proper demand, or from date of suit or service of summons. (United States v. Curtis, 100 U. S. 119.) Sec. 887. LIABILITY OF SURETY ON DISCOUNTED NOTE.— The surety who has be- come a party to a promissory note to raise money for the principal for a specified purpose, cannot complain if the note is discounted by another than the payee and the money applied to the purpose intended. (Bank v. Bingham, 33 Vt. 621.) And where a note was executed to buy a yoke of oxen of one person the surety to have a mortgage on them for security, and the principal LIABILITY OF SURETY. 191 bought the oxen of another person, who knew that the note was given to buy another pair of oxen, but did not know of the agreement as to the mortgage, both prin- cipal and surety were held liable on the note. (Laub V. Rudd, 37 la. 617.) But if the note signed by the surety for a particular purpose is diverted from that purpose, and the party taking it knew of the purpose for which it was executed, the surety will not be bound. (Brown v. Tabor, 5 Wend. 566.) A party taking such note in good faith for value and without notice may hold the surety regardless of the fact of the note being di- verted from the purpose intended. (JNIcWilliams v. Mason, 31 N. Y. 294.) Sec. 888. LIABILITY OF GUARANTOR ON GENERAL AND PARTICULAR GUAR- ANTY^. — A general guaranty, as a letter of credit ad- dressed to all persons, is valid and may be enforced by any person w^ho gives credit on the strength of it. (Lowry v. Adams, 22 Vt. 160.) And though addressed to a named person, to the purchaser or a third person, the guaranty may be shown by the smTOunding circum- stance to be intended for the person who gives credit upon it. (Drummond v. Preston, 12 Wheat. 515; Benedict v. Sherill, Lalor's Sup. to Hill & Denio 219.) When the guaranty is special, that is, addressed to a named person, it must generally be acted on by such party to bind the guarantor. So where there is no am- biguity, and the letter of guaranty is addressed to an individual, it could not be enforced by a partnership who had furnished goods upon it, though the individual waj8 192 SURETYSHIP AND GUARANTY. a member of the partnership. (Sollee v. Mengy, 1 Bailey, Law 620.) And where the guaranty authorized the furnishing of goods in "oMacon" and the place was changed to "Griffin" witliout the guarantor's consent, it was held he was not liable on the guaranty. (John- son V. Brown, 51 Ga. 498.) And the rule that the surety is only bound by the strict letter of his contract extends to a case where the surety has become liable for a single individual and the credit has been given to several, in such case the surety is not liable. (Bell v. Norwood, 7 La. 95; Con- necticut Mut. L. Ins. Co. V. Scott, 81 Ky. 540.) Like- wise, where the surety has become bound for several, as for a firm, he will not be bound if the credit is given to one of the parties, as a partner in the firm after dis- solution. (Cremer v. Higginson, 1 ]\Iason 323; Pem- berton v. Oakes, 4 Russell 154.) So a surety to or for a firm is not liable after a change in the members of the firm. (Bamett v. Smith, 17 111. 565.) So the surety on a bond to perform the award of certain arbitrators will not be liable if the arbitrators are changed. (Mackey v. Dodge, 5 Ala. 388.) The surety will not be held liable beyond the scope of his obligation, and if the terms of his obligation are varied, or a thing is done differently from what was intended or specified in his contract he will not be bound. (Mercer Co. v. Coovert, 6 Watts & S. 70; Ryan v. Morton, 65 Tex. 258.) Sec. 880. LIABILITY^ OF GUARANTOR OR SURETY IN SPECIAL CASES.— Where a person LIABILITY OF SURETY. 193 l>ecame a surety on a bond for the hire of a slave, with a covenant for the return of the slave at the end of the period for which he was hired, it was held that the death of the slave during the period covered by the bond as a result of cruel treatment by the principal, would not discharge the surety from his liability for the return of the slave. (Carney v. Walden, 16 B. Monr. 388.) The surety was held because he was regarded as a joint covenantor with the principal, and neither could excuse his liability on the ground that the other by his wrong- ful act had made performance impossible. Where the surety stipulates that the payment shall be made by the princij^al part in cash and balance in "good obligations," he is not responsible for bad notes taken and receipted for by the creditor. (Corbet v. Evans, 25 Pa. St. 310.) And when the surety's prom- ise is to make good a balance remaining due after "sale" of mortgaged property of principal, the surety is not in default until the sale is completed. (Moor v. Rob- erts, 3 J. Scott [N. S.] 830.) Sec. 890. REVOCATION OF GUARANTY ON DEATH OF GUARANTOR, AND BY NOTICE. — Unless the obligation of the surety is a bare authority, and not a contract it will not be revoked by his death. It is a valid obligation against the estate of the surety the same as though he were aliA^e. (Brandt, Sur. & Guar., Sec. 134, citing Hightower v. Moore, 46 Ala. 387; Royal Ins. Co. v. Davies, 40 la. 469, etc.) But since the surety for the performance of a con- tract, may, after a default by the principal justifying 194 SURETYSHIP AND GUARANTY. its determination, demand of the creditor that the con- tract be terminated, and his suretyship be limited to the damages then sustained (Hunt v. Roberts, 45 N. Y. 691), it is sometimes held that the death of the guar- antor will operate as notice to the creditor of such ter- mination, or operate to revoke his authority to give fur- ther credit on a limited guaranty. (Harriss v. Fawcett, L. R. 8 Ch. App. Cas. 8G6; Michigan State Bank v. Estate of Leavenworth, 28 Vt. 209.) And the death of the guarantor will revoke a contmuing guaranty as to subsequent advances if the creditor has notice of the death. (Hyland v. Habich, 150 Mass. 112.) The creditor or other party secured by a guaranty would have a reasonable time to secure other sureties, after receiving notice that the surety desired to be discharged before such notice would take effect. (Bostwick v. Van Voorhis, 91 N. Y. 353.). Sec. 891. WHEN THE SURETY^ MAY BE SUED JOINTLY WITH THE PRINCIPAL.— If the principal and surety are jointly liable on the same contract, they may be sued jointly, though the fact of the one being a surety appears on the instrument, as where a note reads "I promise" and is signed by the princi2)al and another who adds "surety" to his name. (Dart V. Sherwood, 7 Wis. 523; Craddock v. Armor, 10 Watts 258.) Where the wording of the surety's promise shows that his liability is distinct from and col- lateral to that of the principal, as where the words are "in case of non-payment," or "not being fulfilled" on the part of the principal, the surety cannot be sued LIABILITY OF SURETY. 195 jointly with the principal (Cross v. Ballard, 46 Vt. 415; Virden v. Ellsworth, 15 Ind. 144.) Sec. 892. SURETY^ NOT LIABLE AT LAW, MAY^ OR MAY NOT BE CHARGEABLE IN EQUITY^. — A court of equity will charge a surety in many cases where he is not liable at law, as by allowing a lost bond to be set up (Kerney v. Kerney, 6 Leigh, Va., 478), reform a bond so as to correspond with the facts, intention or purpose for which it was given. (Olmsted v. Olmsted, 38 Conn. 309; Percival v. Mc- Coy, 13 Fed. Rep. 379.) At law there is no remedy against the estate of a deceased surety in a joint obliga- tion, and, in general, equity will not charge the estate of such surety, miless there is some previous equity, or all the obligors partook of the consideration, and it would appear that the intention had been to make a joint and several note instead of a joint one.* Where the surety or guarantor in a joint obligation is directly benefited by the contract, his estate will be held liable on the promise. (Richardson v. Draper, 87 N. Y. 337.) And the surety may expressly bind his estate so that it will be liable, and the State statutes providing that all causes of action founded on contract survive, will hold the estate of surety on a joint prom- issory note. (Redman v. Marvil, 73 Ind. 593.) *Brandt, Sur. & Guar., Sec. 139; Pickersgill v. Lahnes, 15 Wall. 140. "Where a joint appeal bond is signed by two sure- ties, and one of them dies, his estate is discharged from liability, both at law and in equity, and the fact that the bond was given in pursuance of a statute does not affect the liability thereunder." (Brandt, Sec. 139, citing Wood v. Fisk, 63 N. Y. 245.) 196 SURETYSHIP AND GUARANTY. Sec. 893. CONTRACT OF SURETY GOV- ERNED BY LAW OF PLACE WHERE MADE. — The general rule is that the liability of the surety or guarantor is construed according to the law of the place of making the contract. (Long v. Temple- man, 24 La. Ann. 564.) The intention of the parties may change this rule, and make the contract subject to the laws of a state other than the one where executed. (Milliken v. Pratt, 125 :Mass. 374.) Sec. 894. LIABILITY" OF SURETY^ WHEN PRINCIPAL DISCHARGED OR NOT ORIG- INALLY^ BOUND. — As a general rule the surety is not bound where the principal for some reason is not })oimd by the contract on which the surety has prom- ised, since the surety's contract is collateral or accessory to that of the principal, and the principal being dis- charged the surety is also. (Ferry v. Burchard, 21 Conn. 597.) But there are cases when the surety can- not take advantage of the release of the principal. A distmction is drawn as regards the reasons which dis- charge the principal, if they effect the debt or contract itself, as fraud, violence, or other reason avoiding the obligation the surety is discharged with the principal, but if they are personal to the ^^rincipal, as insolvency, minorit}^ and the like, the surety will not be released. (Baldwin v. Gordon, 12 Martin [La.] O. S. 378.) A release of the principal by the creditor without reserva- tion will release the surety, since he has no right of action against such released principal. (Trotter v. Strong, 63 111. 272.) But the creditor may reserve his LIABILITY OF SURETY. 197 rights against the surety and release the principal, and yet hold the surety. (Green v. Wynn, L. R. 4 Ch. App. Cas. 204.) And where the surety is fully indem- nified he will not be discharged by the creditor releas- ing tlie principal. (Moore v. Paine, 12 Wend. 123.) The discharge of the principal by act of law, as under a bankrupt or insolvency law, will not discharge the sui-ety. (Cowper v. Smith, 4 M. & W. 519; Wolf v. StLx, 99 U. S. 1; Lackey v. Steere, 121 111. 598.) The authorities are divided as to the liability of the surety where the f»rincipal, who is named in the instrument, does not sign it at all. In a number of cases it is held that the surety is not liable, and in others he is held not to be released by such failure to sign.* A surety for an infant or married woman is, in gen- eral, bound though such principal set up his or her disa- bility and be discharged. The courts holding that the incapacity of the principal might be the very reason why a surety was required. (Bank v. Dillon, 30 Vt. 122; Weed Sewing Machine Co. v. Maxwell, 63 Mo. 486.) Sec. 895. NECESSITY FOR DEMAND ON PRINCIPAL AND NOTICE OF DEFAULT TO GUARANTOR.— "The authorities are agreed *Bean v. Parker, 17 Mass. 591 ; People v. Hartley, 21 Cal. 685; Johnston v. Kimball Twp., 39 Mich. 187; State v. Austin, 35 Minn. 51, hold that the surety will not be bound, while the fol- lowing hold the contrary: State v. Bowman, 10 Ohio 445 ; State V. Peyton, 32 Mo. App. 522; Cahill's Appeal, 48 Mich. 616; Trustees of Schools v. Sheik, 119 111. 579; Mcintosh v. Hurst, 6 Mont. 287. 198 SURETYSHIP AND GUARANTY; that, where the liability of the guarantor depends upon a contingeney, it is necessary that notice of default should be given to the guarantor within a reasonable time after demand ; and demand should be made of the princij)al at or very soon after maturity. (Clay v. Edgerton, 19 Ohio St. 553; Montgomery v. Kellogg, 43 Miss. 486.) "But where the guaranty is absolute, the authorities are divided, some holding that the guarantor's liability becomes absolute at maturity, without any demand on the principal or notice of default to hmiself (Brown v. Curtis, 2 N. Y. 228; Voltz v. Harris, 40 111. 159), and others, claiming that in order to make sure of the lia- bility of the guarantor in any case, demand must be made of the principal, and notice of default sent to the guarantor, within a reasonable time after maturity."* Where principal is insolvent when the debt becomes *Tiedeman, Com. Pap., Sec. 421 ; Douglass v. Re3'nolds, 7 Pet. 126- Second Nat. Bank v. Gay lord, 34 la. 248; Newton Wagon Co. V. Diers, 10 Neb. 285. "But this requirement of de- mand and notice is never considered an absolute condition prece- dent to the liability of the guarantor. The guarantor is dis- charged from, liability on account of the failure of demand and notice, only when such failure results in some loss or damage to the guarantor, which he could have avoided, had he received notice of the principal's default within a reasonable time after maturity. If he has sustained no loss, he Is liable, notwithstand- ing the failure of demand and notice. For example, the guaran- tor is liable, notwithstanding the want of notice. If the principal was insolvent at and before maturity of the paper, because the law presumes that the guarantor suffers nothing in such case." (Tiedeman, Com. Pap., Sec. 421.) LIABILITY OF SURETY. 199 due no notice of his default need be given the guar- antor. (Wolfe V. Brown, 5 Ohio St. 304.) So, where the guarantor's promise is unconditional, and made after the debt was due from the principal, no notice of de- mand on principal and default need be given to hold the guarantor. (Munro v. Hill, 25 S. C. 476; Read V. Cutts, 7 Greenl., Me. 186.) The guarantor may waive demand and notice of default, and a subsequent promise to pay the debt made by the guarantor will be treated as a waiver of demand and notice. (Wads- worth V. Allen, 8 Gratt. 174; Reynolds v. Douglass, 12 Pet. 523.) But where the advances are made to the principal on a letter of credit given by the guarantor, by the weight of authority, demand of payment must be made on the principal, and notice of default given to the guarantor, unless the principal be insolvent at the date of maturity. (Douglas v. Reynolds, 7 Pet. 113.) Notice of default, when necessary to be given, should be given within a reasonable time, and this depends upon the circumstances of each case. The question what con- stitutes reasonable time would be a question for the jury under instruction from the court. (Brandt, Sur. & Guar., Sec. 203; Lowry v. Adams, 22 Vt. 160.) Proof that notice was given may be inferred from cir- cumstances, and any notice coming to the guarantor, whether from the creditor or not, will be sufficient to charge him. (Griffin v. Rewbert, 2 Rich. Law, N. S. 410; Oaks v. Weller, 16 Vt. 63.) The notice need not be in writing or any particular form, unless specified in 200 SURETYSHir xVND GUARANTY. the contract. (Lee v. Briggs, 39 Mich. 592; Brandt, Sur. & Guar., Sec. 204.) Sec. 896. LIABILITY OF BLANK INDORS- ERS AND ACCOMMODATION PARTIES TO COMMERCIAL PAPER.— Accommodation par- ties, as a rule, unless they have indicated the fact of their suretyship in signing, will assume the same lia- bilities, and are in general, entitled to the same rights of demand and notice of non-payment, except the prin- cipal, as if their apparent character of drawer, drawee, payee and mdorser was real,* "There is another class of indorsers not in general subject, like those above mentioned, to the law relating to commercial paper. Thus: A executes his note pay- able to B or order, or to B alone, and then, before its negotiation by B, X, in no way apparently connected with the note as holder or transferor, indorses his name in blank on the note, and then B or his assignee, sues upon it. The question arises, when and for what pur- pose did X do this? Such an outside blank indorse- ment on a bill or note does not come within the law *Swan's Treatise, 15th cd., p. 578: "Even an accommodation drawer is entitled to notice of demand and non-payment if he had reason to expect his principal would provide funds to meet the bill ; and the accommodation indorsers and parties to such bill of exchange are liable to the holder and each other separately, and in the order in which they have become apparently parties to the bill." Id. : As between themselves they may show their intention to be liable as co-sureties. And such accommodation indorsers on a promissory note are prima facie co-sureties. (Williams v. Blos- som, 11 Ohio 62; Douglas v. Waddle, 1 Ohio 413.) LIABILITY OF SURETY. 201 relating to indorsers of commercial paper, and is open, in general, to construction to the intent and liability of X, and to i^arol evidence to show the relation of X to the transaction." (Swan's Treatise, p. 579.) f "It is, however," says Mr. Brandt, "well settled that the agreement upon which tlie blank indorser of an- other's obligation signed, and the liability which he in- tended to assume, may (at least between the original parties, or those parties and a holder with notice), be f "The English rule is that where one who appears as a prin- cipal party is a surety for another, who appears to be a second- ary party, drawer or indorser, this fact may be shown by parol evidence, and the party who is in fact a surety will be entitled to all the rights and privileges of a surety, as against any holder who knew the fact. This is the equitable rule, enforced in all English courts, in which equitable pleas are admissible; but, ac- cording to the common law rule as laid down by Lord Mansfield, the parties to commercial paper sustain the liabilities and enjoy the privileges and rights, wliich are incident to their ostensible characters, and no others. According to this rule it is not per- missible to show by parol evidence that the drawer or indorser is the principal debtor, and that the maker or acceptor is the accom- modation party or surety, in order to bind the subsequent holder, who knew the fact. In the United States a few highly respect- able authorities have adopted the English equitable rule. (Guild V. Butler, 127 Mass. 386.) But the weight of authority in this country favors the English common law rule. (Gano v. Heath, 36 Mich. 441 ; Summerhill v. Tapp, 52 Ala. 227.) The principal reason for holding to the common law inile is, that the party who is ostensibly the primary debtor can always protect himself against any act of indulgence to the ostensibly secondary, but actually primary obligor, by paying the debt himself, and recov- ering the sum so paid of the real primary debtor," (Tiedeman, Com. Pap., Sec. 422.) 202 SURETYSHIP AND GUARANTY. shown by parol evidence, and he will be held only ac- cording to such agreement and intention." (Sur. & Guar., Sec. 182, citing Sanford v. Norton, 14 Vt. 228; Chandler v. Westfall, 30 Tex. 475, etc.) OF THE DISCHARGE OF THE SURETY OR GUARANTOR. Sec. 897. WAY^S IN WHICH SURETY OR GUARANTOR MAY^ BE DISCHARGED.— In general, the surety or guarantor may be discharged by payment of the obligation for which he is liable; by the creditor giving an extension of time to the principal; by the alteration, without his consent, of his contract; by the fraud, concealment and the like acts on the part of the creditor; and by the creditor releasing, or negli- gently losing security for the debt. Each of these forms of discharges will be briefly discussed in their order. Sec. 898. DISCHARGE OF SURETY OR GUARANTOR BY PAYMENT.— In general the liability of the surety or guarantor ceases when the debt of the principal is paid. (Petefish, Skiles & Co. v. Watkins, 124 111. 384.) But where a payment is made by the principal and accepted by creditor and after- wards, without fault of the creditor, such payment is set aside, as a fraudulent preference, the surety will not be discharged. (Watson v. Poague, 42 la. 482.) When payments are made by the principal on his general in- debtedness to the creditor, the rule as to their applica- tion is practically the same as that given in a previous section as to payments on notes. (Ante, Sec. 832.) When the debt is once paid it cannot be revived by LIABILITY OF SURETY. g03 an agreement between principal and creditor otherwise applying the sum, so as to bind the surety. (Gibson V. Rix, 32 Vt. 824.) And if funds have been appropri- ated by the principal to the payment of the debt, they cannot be diverted to the payment of any other debt of the principal without the consent of the surety. (Mel- lendy v. Austin, 69 111. 15.) The creditor holding se- curity is regarded as a trustee for the purpose of its distribution, and must apply it according to the trust. (Hidden v. Bishop, 5 R. I. 29.) And it held that the surety is discharged for payment on behalf of the prin- cipal, regardless of the source of the money, and an- other advancing it to the principal cannot hold the surety. (Felch v. Lee, 15 Wis. 265.) A valid tender of the money due on the debt by the principal, after the debt is due, if not accepted by the creditor, w^ill discharge the surety. Otherwise, the courts say, the creditor would have the power to keep the surety under the cloud of the debt any length of time. (Johnson v. Ivey, 4 Cold. [Tenn.] 608; Spurgeon v. Smitha, 114 Ind. 453.) So where the creditor accepts part payment from the principal in full satisfaction of the debt the surety is discharged. (Heitz v. Atlee, 67 la. 483.) Sec. 899. DISCHARGE OF SURETY OR GUARANTOR BY GIVING TIME.— The surety or guarantor obligated to pay the debt of another will be discharged if the creditor, without the consent of the surety or guarantor, by an agreement upon sufficient consideration, with the principal, extend the time of pay- S04 SURETYSHIP AND GUARANTY. ment or performance for a definite time; and this whether the extension is given before or after the debt is due, or after judgment taken upon it. 1. The Consideration. — The agreement for an exten- sion of time between principal and creditor to operate as a discharge must be founded upon a sufficient con- sideration the same as any simple contract. Without a consideration the contract is not binding and the surety not precluded from proceeding against the principal. (Ford V. Beard, 31 Mo. 459; Zane v. Kennedy, 73 Pa. St. 182.) A mere voluntary or passive delay by the creditor, however long continued, will not release the surety. (Whiting v. Clark, 17 Cal. 407.) And it is held that the j^ayment of interest when due, or part payment of the debt when due, wall not be a sufficient consideration to support the contract for an extension of time as such payments are due to the creditor any- way. (Roberts v. Stewart, 31 Miss. 604; Johnston v. Thompson, 4 Watts 446.) But the payment of interest in advance, or the payment of any part of the debt before due, will be a sufficient consideration, as this is an advantage to the creditor. (Uhler v. Applegate, 26 Pa. St. 140; Mayer v. Lanfrom, 86 111. 513.) And in the case of interest being paid in advance it is held in many cases that such payment operates as a prima facie agreement to extend the time of payment of the debt for the period for w^iich interest was paid, with- out further evidence. (Woodburn v. Carter, 50 Ind. 376; Crosby v. Wyatt, 10 N. H. 318; Contra, Hosea V. Rowley, 57 Mo. 357.) The agreement to pay in- LIABILITY OF SURETY. 205 terest for the period of the extension is sometimes held to be a sufficient consideration, though at no higher rate than the obligation previously drew. (McComb v. Kittridge, 14 Ohio 348.) It being considered a val- uable right to have money placed at interest. The pay- ment of an increased rate of interest is sufficient. (Huff V. Cole, 45 Ind. 300.) The payment of usurious inter- est is held to be a sufficient consideration for an exten- sion. (Turrill v. Boynton, 23 Vt. 142.) But the agreement to paj^ usurious interest is not sufficient, since it is void. (Hunt v. Postlewait, 28 la. 427.) And where the statute of the State declared all con- tracts infected with usury void, the actual payment of usury was held not to he sufficient consideration to sup- port an agreement for an extension of time so as to discharge the surety. (Vilas v. Jones, 1 N. Y. 274; Irvine v. Adams, 48 Wis. 468.) 2. For a Definite Time. — The extension of time must be definite, otherwise the hands of the creditor are not tied, the contract being void for uncertainty. When the extension relied on was to wait "awhile longer," it was held void for uncertainty and the surety not re- leased. (Jenkins v. Clarkson, 7 Ohio 72.) But an extension of time "to the summer" or "to the fall" was held sufficiently certain and definite. (Abel v. Alex- ander, 45 Ind. 523.) But an extension of the time of payment until "some time in the summer" was held too indefinite. (Miller v. Stein, 2 Pa. St. 286.) The surety may consent to an extension of the time of pay- ment, and in such case will not be discharged. (Treat 206 SURETYSHIP AND GUARANTY. V. Smith, 54) Me. 112.) And the surety after harmg been discharged b}^ the giving of time to the principal, may bind himself by a new promise to pay the debt. If he knows the facts of his discharge by the giving of time no new consideration need ap2)ear for the j)rom- ise, but it must be upon consideration if he does not know of his discharge. (X. II. Savings Bank v. Col- cord, 15 N. H. 119; Williams v. Boyd, 75 Ind. 28G; Bramble v. Ward, 40 Ohio St. 267.) Sec. 900. SAME SUBJECT— EXCEPTIONS AND OTHER PRINCIPLES.— To the rule that the surety will be discharged by giving time to the principal several exceptions exist: Thus where the surety is fully indemnified by property of the principal put under his control to meet his obligation, such surety will not be discharged by an extension of time granted to the principal by the creditor. (Kleinhaus v. Hencr- ous, 25 O. St. 667.) The surety is regarded as the principal, or as holding property appropriated to the payment of the debt of the princij^al. ( Smith v. Steele, 25 Vt. 427.) So the giving of time to the surety by an agreement between creditor and princij^al, as by the creditor agreeing that he shall not be sued for a stated time after the debt is due, does not affect the liabilities of the surety or principal. (Emery v. Richardson, 61 Me. 99.) But a solidary co-surety would be discharged from one-half the debt by giving time to the other. (Gosserand v. Lacour, 8 La. Ann. 75.) The agree- ment to give time may be express or implied if car- LIABILITY OF SURETY. 207 ried out according to its terms. (Osbom v. Low, 40 Ohio St. 347.) The surety is discharged though the agreement for an extension of time is not made until after the debt is due (Wheaton v. Wheeler, 27 Minn. 464), or after judgment taken. (Pilgrim v. Dykes, 24 Tex. 383.) The taking of a new note from the principal by the creditor which note falls due on a later date than the original obligation signed by the surety, will discharge the surety, as it amounts to an extension of time. (Chicasaw Co. v. Pitcher, 36 la. 593.) Otherwise where the new note falls due before the original. (Robinson y. Dale, 38 Wis. 330.) The taking of collateral security, as a tiiist deed or mortgage security, will not, in general, discharge the surety, though it matures after the time of payment of the debt, if it does not amount to an extension of the time of payment. (Burke v. Crueger, 8 Tex. 66; Ger- man Ins. Co. V. Vahle, 28 111. App. 557.) But this rule is only prima facie and gives place to an express agreement for an extension of time on taking such se- curity. The agreement for extension of time in order to work a discharge of the surety must be made by the creditor or his lawfully authorized agent. And where the creditor reserves remedies against the surety in giv- ing time to the principal the surety is not discharged. (Morse v. Huntington, 40 Vt. 488.) When the surety pleads an extension of time by the creditor as a discharge, he must set up the facts of the g08 SURETi'-SIIIP AND GUARANTY. case and not a mere conclusion of law. (Tracy v. Quillen, 65 Ind. 249.) Sec. 901. DISCHARGE OF SURETY OR GUARANTOR BY ALTERATION OF THE CONTRACT.— The giving of time by the creditor to the principal is an alteration of the surety's contract and is the chief reason of his being discharged. (Lane & Saylor v. Scott & Culver^ 57 Tex. 367.) Other altera- tions by the parties to the contract, of its terms, will, in like manner, discharge the surety. (Ilobbs v. Rue, 4 Pa. St. 348.) Thus, by changing the date of a note without the consent of the surety, the holder will dis- charge such surety. (Miller v. Gilleland, 19 Pa. St. 119.) So where the principal adds "with interest from date," to a note written without interest when signed by the surety, the latter is discharged. ( Kountz v. Hart, 17 Ind. 329.) The addition of a new party to a note after the execution and delivery by the surety, without his consent, though a benefit to such surety, will dis- charge him. (Bank v. Penick, 2 T. B. Monr. Ky. 98.) Otherwise if the signature of new surety was added before delivery. (Graham v. Rush, 73 la. 451.) And, in general, any material or essential feature of the surety's contract altered by a party to the instrument, will work a discharge of the surety.* The surety may *"No principle of law is better settled at this day than that, the undertaking of the surety being one strictissimi juris, he can- not, either at law or in equity, be bound farther or otherwise than he is by the very terms of his contract. . . . Neither is it of any consequence that the alteration in the contract is trivial, LIABILITY OF SURETY. 209 ratify the alteration after it is made and will then be hound. (Pelton v. Preseott, 13 la. 567.) Where the contract of the surety is for the conduct of the principal in an office or position of trust, and after the surety has become bound a change is made in the duties of such principal, the surety will be discharged, (Gass V. Stinson, 2 Sumner 453; Miller v. Stewart, 9 Wheat. 680.) Where the bond of the surety was for the honesty and faithfulness of an assistant book- keeper, and such book-keeper was made to perform the duties of note teller and discount clerk and defaulted in the performance of the latter duties, the surety was held to be discharged. (Natl. Bank of Baltimore v. Gerke, 68 Md. 449.) Sec. 902. DISCHARGE OF SURETY OR GUARANTOR BY FRAUD, MISREPRESEN- TATION, CONCEALMENT, ETC.— The fraud, misrepresentation, or concealment, by the creditor, or by the principal with his knowledge or consent, of ma- terial facts which would, if known to the surety, have nor even that it is for the advantage of the surety. . . . Non haec in foedera veni is an answer in the mouth of the surety from which the obhgee can never extricate his case, however innocently or by whatever kind intention to all parties he may have been actuated." (Lumpkin, J., in Bethune v. Dozier, 10 Ga. 235.) In Nichols v. Palmer, 48 Wis. 110, where a lease with surety thereon was for three years, and by an agreement between lessor and lessee it was changed to two years, the surety was discharged. But where the agreement between lessor and lessee reduced the rent the surety was not discharged. (Preston v. Huntington, 67 Mich. 139.) 210 SURETYSHIP AND GUARANTY. kept him from signing the contract, or which have the effect of increasing his Hability, will discharge the suret}'- from his obligation. (]Monroe v. Anderson Bros., Qo la. 692; Putnam v. Schuyler, 4 Ilun 16G.) Thus a misrepresentation as to the use to which the note signed by the surety was to be put, was held to discharge the surety. (Ham v. Greve, 34 Ind. 18.) And if the surety's signature is obtained on condition that another shall also sign as surety, such condition being agreed to or known to the creditor who takes the obligation, if unperformed, it w^ll discharge the surety. (Cov/an V. Baird, 77 N. C. 201.) And, in general, where the surety signs upon a condition such condition must be comjolied with or he will not be bound. (Jones V. Keer, 30 Ga. 93; Brandt, Sur. & Guar., Sec. 403.) This rule is subject to the exception that the fraud or misrepresentation of the principal in inducing the surety to sign will not release such surety, unless the creditor have notice of the fraud or of the condition which has not been fulfilled. (Rothermal v. Hughes, 134 Pa. St. 510; Whitcomb v. Miller, 90 Ind. 384.) It is the misrepresentation of an existing fact, and not of a mere unexecuted intention that will discharge the principal. So where the retiring partner induced the other to as- sume the debts by representing that he would forever retire from the like business, and did not do so, it was held not to be such a fraud as would discharge the surety. (Gage v. Lewis, 68 111. 604.) The concealment on the part of the obligee which will work a discharge of the surety must be material, LIABILITY OF SURETY. 211 that is, a concealment of some fact or circumstance im- mediately affecting the liability of the surety, and bear- ing directly upon the particular transaction to which the suretyship attaches. (Brandt, Sur. & Guar., Sec. 419; Comstock V. Gage, 91 111. 328.) Where it is the duty of a person having knowledge of facts to disclose them, concealment or failure to disclose them will be consid- ered fraudulent. Thus it is held that when the obligee knows that the person for whose acts he is taking se- curity is a defaulter it is his duty to inform the surety of the fact. (Screwmen's Ben. Assoc, v. Smith, 70 Tex. 168.) A bank taking a bond for the conduct of a person in their employ is bound to disclose the fact if he is known to have made default hefore, or the surety will be discharged. (Franklin Bank v. Cooper, 39 Me. 542; Third Natl. Bank v. Owen, 101 Mo. 558.) And likewise where there is a continuing guaranty for the honesty of an employee, who has made a default, he must be dismissed, or the surety's consent secured to his being retained upon full notice of the facts. (Rob- erts V. Donovan, 70 Cal. 108; estate of Rapp v. The Phoenix Ins. Co., 113 111. 390; Dinsmore v. Tidball, 34 Ohio St. 411.) Sec. 903. DISCHARGE OF SURETY OR GUARANTOR BY CREDITOR RELIN- QUISHING SECURITY.— It is an equitable prin- ciple arising from the relation of principal and surety, that the property of the principal pledged for the pay- ment of his debt, should be applied to the pay- ment of such debt so as to relieve the surety from lia- 212 SURETYSHIP AND GUARANTY. bility, and the creditor having proi^erty pledged to him by the principal for this purpose by relinquishing his lien upon the pledged property so that it cannot be applied to the j^^yment of the debt will discharge the surety. (Port v. llobins, 35 la. 208.) The cred- itor holding a lien or pledge of property of the prin- cipal is regarded as a trustee of the property, to be applied according to the purpose of the trust, and this is true when the lien is secured after the surety has be- come bound. And since the surety by paying the debt is subrogated to all the securities which the creditor has at the time for the payment of the debt, the release of any part of such security by the creditor is such a damage to the surety as will work a discharge pro taiito of his obligation. (Guild v. Butler, 127 Mass. 386; Cummings v. Little, 45 Me. 183.) The surety may agree to, or request the release and will then be bound; but he is not obliged to object to the release by the creditor if he has knowledge of such party's intention. (Bro\vn v. Abbott, 110 111. 162; Polak v. Everett, L. R. 1, Q. B. Div. 669.) In a case where the contractor of a building gave surety to the owner for the performance of his contract, and the owner was to pay the contract price in various installments, the last being due sixty days after the completion of the work, it was held that such owner having knowledge of mechanics' lien suits being filed and subsequently paying the contractor the sums due on the contract, thereby discharged the surety under LIABILITY or SURETY. 213 the principle stated above. (Taylor v. Jeter, 23 Mo. 244.) And the creditor by wasting or rendering unavail- able the mortgaged security of the principal will thereby discharge the surety. (Phares v. Barbour, 49 111. 370.) If the creditor by relinquishing security for the debt materially alters the contract of the surety, such surety is fully discharged. (Polak v. Everett, siqira; Watts V. Shuttleworth, 7 H. & N. 353.) If the surety's contract is not changed, he is only released to the ex- tent of the security released. (McMullen v. Hinkle, 39 Miss. 142; Brandt, Sur. & Guar., Sec. 429.) The creditor must have a lien on the property re- leased or such an interest in it as will charge him as trustee if the release is to operate to discharge the surety. And where the release of the property by the creditor in no wise injures the surety or alters his con- tract, it will not discharge the surety. (Brandt, Sur. & Guar., Sees. 430, 431; Coates v. Coates, 33 Beav. 249.) Where a bank holding a note of principal and surety receives a deposit from the principal, the author- ities are divided as to its duty to retain such money and apply it to the payment of the note.* The release by the creditor of a valid levy, or execu- *WiIson V. Dawson, 52 Ind. 513, is a case where the money of the principal was deposited on a special agreement, and though sufficient to pay a note with surety then due at the bank, its being paid out according to the agreement by the bank did not discharge the surety. The opposite opinion is maintained in several cases. (McDowell v. Bank, 1 Harr. (Del.) 369.) 214. SURETYSHIP AND GUARxVNTY. tion against the property of the principal, b}'- which the surety loses the right to hold the property for the pay- ment of the debt, will discharge the surety to the value of the property levied upon. (Dixon v. Ewing's Admr., 3 Ohio 280.) Likewise the release by the creditor of an attachment on property of the principal to the damage of the surety will discharge the surety pro tanto, as such attachment is regarded as a lien held by the creditor and must be protected for the benefit of the surety. (City of ^laquoketa v. Willey, 35 la. 323.) The mere dismissal of a suit by the creditor against the principal in which no attachment or other lien has been secured will not discharge the surety. (Somerville v. Marbury, 7 Gill & Johns []\Id.] 275.) When there are several sureties liable for the same debt, and the creditor releases one of them without ma- terially altering the contract, the others are generally held released only to the extent that such released surety would have been liable to contribute to them. ( Jemison V. Governor, 47 Ala. 390; Dodd v. Winn, 27 Mo. 501.) Sec. 904. SAME SUBJECT— NEGLIGENT LOSS OF COLLATERAL SECURITY.— The creditor being held to be a trustee of the property of the principal in his hands for the benefit of the surety, his negligence or carelessness as regards such proj^erty resulting in a loss will discharge the surety to the extent of such loss. The creditor in such cases must use due diligence in preserving such property according to the circumstances of the case. As regards collateral se- curity in the way of claims or obligations against third LIABILITY OF SURETY. 215 parties, the creditor is bound to use such dihgence and take such steps as will render them available for the purpose for which they were assigned, and negligence or inaction resulting in a loss will release the surety. (Crim V. Fleming, 101 Ind. 154; Kemmerer v. Wilson, 31 Pa. St. 110.) Thus where the assignee of a note as collateral security was notified of the impending insol- vency of the maker, and warned to sue or surrender the note, and he did not do so, the debt being lost he was held responsible for the amount of the note. (Bonta V. Curry, 3 Bush 678.) And where the creditor had received a mortgage on personal property from the principal to secure a note previously signed by a surety, and negligently let the principal dispose of such mort- gaged property he thereby discharged the surety. (City Bank v. Young, 43 N. H. 457.) So the creditor who has a lien or security for a debt will discharge the surety by not taking the steps necessary to preserve or perfect such lien on the principal's property, as by neg- lecting to make the proper parties defendant in case of the death of the principal (Saulet v. Trepagnier, 2 La. Ann. 427) , or to record a mortgage. (Burr v. Boyer, 2 Neb. 265.) But the creditor is not required to pre- sent a claim to the personal representatives of a deceased principal, and though the remedy is lost against the estate by such delay, the surety will not be discharged. It being said that the creditor is under no greater obli- gation to present his claim against the estate than he would have been to sue the principal if still alive. (Brandt, Sur. & Guar., Sec. 448.) CPIAPTER III. OF THE RIGHTS OF SURETIES AND GUARANTORS CONTRIBUTION AND SUBROGATION. Sec. 905. IN GENERAL.— The rights of sureties and guarantors, generally speaking, are the following: 1. The right to indemnity from the principal on pay- ment of the debt or obligation. 2. The rights which they have against the creditor at law and in equity to prevent the creditor from doing acts to their prejudice, and which have been covered in the preceding chapter. 3. Rights against third persons to hold property of the principal to indemnify them against ^prospective or pos- sible damage. 4. Rights as against each other for con- tribution between co-sureties. 5. The equitable right to be subrogated to the position and the rights of the creditor upon payment of the principal's debt. This chapter will be devoted to a brief discussion of these rights and the principles governing them. Sec. 906. THE RIGHT TO INDEMNITY FROM THE PRINCIPAL.— The principal being the real debtor, and the guarantor or surety only being responsible for his default, the law imjilies a promise on the part of the principal to indemnify the surety, and a right of action immediately accrues to the surety or guarantor against the i)rincipal upon payment of the debt- (Wilson v. Crawford, 47 la. 469; Kimmel v. Lowe, 28 Miim. 265.) 216 RIGHTS OF SURETIES. 217 The right of action by the guarantor or surety against the principal does not accrue until he pays the debt of the principal. (Cotton v. Alexander, 32 Kan. 339; In re Estate of Hill, 67 Cal. 238.) This being so, the suretj^ could not bring an attachment or hold property in his hands not appropriated for the payment of the debt, until he had actually paid the debt. (Den- nison v. Soper, 33 la. 183; Ingalls v. Dennett, 6 Greenl., Me. 79.) The surety may pay the debt before due and sue the principal for indemnity after it has become due. (White V. Miller, 47 Ind. 385.) The action for in- demnity should be brought in the name of the surety and not in the name of his obligee. (Hardware Co. V. Deere, etc., Co., 53 Ark. 140.) No demand or notice need be made or given to the principal by the surety who has paid the debt before suit is brought for in- demnity. The contract of indemnity is said to arise at the moment when the surety contracts his obligation, and is broken the moment the surety is damnified. (Ward V. Henry, 5 Conn. 595; Brandt, Sur. k Guar., Sec. 210.) The surety need not pay the debt of the principal in cash, but any form of payment accepted by the cred- itor will answer to support his right to sue the principal for indemnity. Thus the surety may pay with his note, by the delivery of property, or a mortgage thereon to the creditor will constitute a payment. ( Sapp v. Aiken, 68 la. 699; Peters v. Barnhill, 1 Hill, Law 237; Mc- Vicar v. Royce, 17 Up. Can. [Q. B.] 529.) A few cases hold that the note would have to be paid before SI'S SURETYSHIP AND GUARANTY. the surety could sue the principal for indemnity. (Stone V. Hammell, 83 Cal. 547.) But where the surety gets a compromise from the creditor and extinguishes the debt for less than its full amount, he cannot recover from the principal more than the amount of the settlement with interest and costs. (Coggeshall v. Ruggles, 62 111. 401; Hicks v. Bailey, 16 Tex. 229; Feamster v. Withrow, 12 W. Va. 611.) To recover costs made, the surety must have had reason for making them. (Carpenter v. Minter, 72 Tex. 370.) So the surety cannot recover indirect or consequential damages for his loss by reason of having to pay the debt of the principal, or for sacrificing his property, or for being imprisoned, but simply the amount actually paid out mth necessary costs. (Powell v. Smith, 8 Johns. 249; Vance v. Lancaster, 3 Haywood [Tenn.] 130.) But by agreement with the principal he may recover a stipulated sum for the use of his credit. (Perrine v. Hotchkiss, 58 Barb. 77.) Sec. 907. SAME SUBJECT— OTHER PRIN- CIPLES. — The surety may pay a part of the debt when due, or pay it in installments, and recover after each payment a like sum from the princi})al. (Davies V. Humphreys, 6 M. & W. 153.) As regards the prin- cipal's right to exemi>tion or the claim of third parties to the principal's property, the surety's right to in- demnity relates back to the time when he signed the contract and became surety, and his equity against the principal's property will be protected from damage by the claims of subsequent creditors. (Barney v. Grover, RIGHTS OF SURETIES. 219 28 Vt. 391; Rice v. Southgate, 16 Gray 142.) The surety's action against the principal is generally that of assumpsit^ and if there are two or more principals, unless stipulated to the contrary, the surety may sue all of them, or any one of them for indemnity. ( Hulett V. Soullard, 26 Vt. 295 ; Babcock v. Hubbard, 2 Conn. 536.) Where one of several joint guarantors pays the debt he may maintain an action against the principal. (Lowry v. Lumberman's Bank, 2 Watts & Serg. 210.) A payment made by several oo-sureties from their in- dividual money, cannot be recovered by them in a joint suit against the principal. (Sevier v. Roddie, 51 Mo. 580.) But if such payment is made from a joint fund, as where the sureties borrow the money on a joint note, they may join in the suit for indemnity. (Pearson v. Parker, 3 N. H. 366.) A mere volunteer, who has become surety without the request of the principal express or implied, cannot com- pel indemnity from the principal upon payment of the debt. (Carter v. Black, 4 Dev. & Bat. [N. C] 425.) A surety who pays the debt of the principal may recover the same though the principal has been dis- charged in bankruptcy or under an insolvent act, unless such act expressly includes a provision for the adjust- ment of claims of sureties liable at the time of the dis- charge. (Cake V. Lewis, 8 Pa. St. 493; Lipscomb v. Grace, 26 Ark. 231.) But a discharge of the principal after the debt has been paid by the surety will bar the claim of the surety for indemnity. (Smith v. Kinney, 6 Neb. 447.) 220 SURETYSHIP AND GUARANTY. The surety may without paying the debt, and even before called u^^on to pay bj" the creditor, file a bill in equity praying that the principal be compelled to pay the debt. (Phila. & Reading R. R. Co. v. Little, 41 N. J. Eq. 519.) And where the contract of surety with the principal expressly provides that the surety shall be saved harmless from liabilit\^ as well as indem- nified, he may maintain an action at law against the principal without paying the debt. (Belloni v. Free- born, 63 N. Y. 383.) In equity the surety may fore- close a mortgage on the property of the principal be- fore paying the debt from his own money. (Kramer V. Farmers' Mechanics Bank, 15 Ohio 253.) The surety must take care that the principal is liable for the debt he pays, or he cannot recover indemnity. (Hollinsbee v. Ritchey, 49 Ind. 261.) The claim to indemnity being valid, the surety may set-off such claim against a demand which the administrator of the in- solvent estate of the deceased principal may have against him. (Beaver v. Beaver, 23 Pa. St. 167.) And the surety may purchase property of the principal sold on execution by reason of a joint judgment against him and the principal. (Carlos v. Ansley, 8 Ala. 900.) The claim of the surety for indemnity against the principal may be barred by the statute of limitations. The statute is held generally to begin to run from the time of the payment of the debt by the surety and not from the time that the debt becomes due. (Thayer v. Daniels, 110 Mass. 345.) But where the creditor has a judgment against the principal, which is assigned to RIGHTS OF SURETIES. g^l the surety on payment of the debt, the surety may re- cover indemnity for the payment of the judgment though the recovery on the original debt would have been barred by the statute of lipiitations. (Morrison V. Page, 9 Dana [Ky.] 428.) Sec. 908. RIGHTS OF THE SURETY OR GUARANTOR AGAINST THE CREDITOR.— This topic would include the different acts of the cred- itor which prejudice the surety and operate to discharge him, as giving time to the principal, and the like, which were discussed in the preceding chapter. In addition to these rights of the surety, by the weight of authority it is held that the surety may set-off a debt due by the creditor to the principal when sued by the creditor on the suretyship obligation. (Andrews v. Varrell, 46 N. H. 17; Hollister v. Davis, 54 Pa. St. 508; Coffin v. McLean, 80 N. Y. 560.) The contrary of this rule is held in a number of cases. (Gillespie v. Torrance, 25 N. Y. 306; Thalheimer v. Crow, 13 Col. 397.) In some States, as Ohio, it is provided by statute that the surety may compel the creditor to proceed against the principal on notice to him, after the debt is due. There is also a number of authorities holding the surety may, in the absence of a statutory provision, by verbal or written notice to the creditor demand that he sue the principal, and if this is not done, and the prin- cipal becomes insolvent thereafter, the surety will be discharged. (King v. Baldwin, 17 Johns. 384; Col- grove V. Tallman, 67 N. Y. 95.) But the great ma- jority of cases hold that the creditor need not comply 22J2 SURETYSHIP AND GUARANTY. with such notice from the surety in the absence of a statute providing for it. (Jenkins v. Clarkson, 7 Ohio 72; Halstead v. Brown, 17 Ind. 202; Inkster v. Natl. Bank, 30 Mich. 143; Dane v. Corduan, 24 Cal. 157.) Sec. 909. RIGHTS OF SUHP^TY" OR GUAR- ANTOR AGAINST THIRD PERSONS.— As against third persons the surety has a right to hold prop- erty of the principal mortgaged to him for his indemnity before the debt is due or paid, or take a conveyance of property from the principal on agreeing to j^ay the debt. (McWhorter v. Wright, 5 Ga. 555; Bellume v. Wallace, 2 Rich. Law [S. C] 80.) A judgment lien of the surety against the principal obtained before pay- ing the debt is valid against the claims of creditors of the principal. (JNIiller v. Howry, 3 Pen. & Watts 327.) Sec. 910. OF THE RIGHT TO CONTRIBU- TION. — Where there are two or more sureties equally liable for the debt of the principal, and one of them i^ays the debt, he may compel "contribution," or a ])ayment of their just share from each of the other sureties who are equally liable, called co-sureties. The creditor is not bound to look to all the sureties jointly, but may compel payment from any one, and his elec- tion to do so gives rise to the principle of contribution.* ♦"Natural justice says that one surety, having become so with other sureties, shall not have the whole debt thrown upon him by the choice of the creditor, in not resorting to remedies in his power, without having contribution from those who entered into the obligation equally with him. The obligation of co-sureties to contribute to each other is not founded in contract between RIGHTS OF SURETIES. 223 The surety to enforce contribution from the co-sure- ties, must have paid the debt, but he need not wait until judgment has been taken against him before paying. (Backus V. Co^ne, 45 Mich. 584; Bright v. Lennon, 83 N. C. 183.) Sec. 911. SAME SUBJECT— WHO ARE CO- SURETIES. — Where all of the sureties sign the same insftrument and become equally liable thereon, there is no question of their being co-sureties. But there may be two or more sureties for the same principal who are not co-sureties. If several persons become bound for the same duty or obligation of the same principal, though at different times, by different instruments and without the knowledge of each other, yet they are generally con- sidered as co-sureties. (Woodworth v. Bowes, 5 Ind. 276; Deering v. Earl of Winchelsea, 2 Bos. & Pul. 270; Pickens v. Miller, 83 N. C. 543.) In the last case an administrator who had given bond when first appointed, eight years afterwards gave an additional bond with other sureties, and both sets of sureties were held to be co-sureties. But where an officer held over his term and them, but stood upon a principle of equity until that principle of equity had been so long and so generally acknowledged and en- forced, that persons in placing themselves under circumstances to which it applies may be supposed to act under the dominion of contract, implied from the universality of that principle. For a great length of time equity exercised its jurisdiction exclusively and individually; the jurisdiction assumed by courts of law is comparatively of very modern date." (Bibb, C. J., in Lansdale V. Cox, 7 T. B. Monr. 401. See also: Van Winkle v. Johnson, 11 Ore. 469; Jeffries v. Ferguson, 87 Mo. 244.) Si24< SURETYSHIP AND GUARANTY. gave bond for the full term, and then being re-elected gave bond for the expiration of the term with new sure- ties, the sureties on the different bonds were held not to be co-sureties. (Boone Co. v. Jones, 58 la. 373.) And where a person signing a note after the principal and surety had signed, added to his signature, "security for the above parties," he was held not to be a co-surety, since he had qualified his contract so as to become a surety for the whole, after the other two. (Plarris v. Warner, 13 AVend. 400.) So, by the weight of author- ity, successive accommodation indorsers of negotiable instruments are not co-sureties, in the absence of an agreement to that effect. (Brandt, Sur. & Guar., Sec. 260; Hillegas v. Stephenson, 75 Mo. 118; McGurk v. Huggett, 56 Mich. 187.) Parol evidence may be in- troduced to show that the indorser of a promissory note is a co-surety with the surety signing with the maker. (Nurre v. Chittenden, 56 Ind. 462.) And it is a gen- eral rule that parol evidence will be admitted to show the real relation subsisting between several parties bound for the performance of a written obligation. And a parol agreement of one surety to indemnify the other may be shown to defeat the right to contribution. (Brandt, Sur. & Guar., Sec. 261; Craythome v. Swin- burne, 14 Ves. 160.) When legal proceedings have been commenced against the principal for the collection of the debt, and a new surety becomes bound at such time for the payment of the debt, he is not regarded as a co-surety, but as a surety for the principal from whom the original RIGHTS OF SURETIES. 225 surety may collect the debt after payment on default of the principal. (Friberg v^. Donovan, 23 111. Aj^p. 58.) Where one of the sureties has done something that would make it inequitable for him to recover contribu- tion from the other surety, contribution will not be en- forced, since it is an equitable right in its foundation, and he who would have equity must do what equity de- mands. (Dennis v. Gillespie, 24 Miss. 581.) Where one of the sureties by stifling competition bought the land of the principal for less than it was worth, and on payment of the debt, he was held not entitled to con- tribution from the co-surety. So the surety who be- comes so at the request of another upon promise of in- demnity, is not a co-surety from whom contribution can be enforced. {Turner v. Davies, 3 Esp. 478.) Like- wise the surety of a surety is not a co-surety, and is not generally liable to contribution. (Adams v. Flan- nagan, 36 Vt. 400.) Sec. 912. SAME SUBJECT— OTHER PRIN- CIPLES CONCERNING CONTRIBUTION.— When one of several co-sureties afterwards becomes the principal by assignment, with the knowledge and consent of the other sureties, he is no longer a co-surety, but liable for the whole debt to a co-surety who has been compelled to pay it. (Gray v. McDonald, 19 Wis. 213.) In the case of a co-surety, as in the case of an indi- vidual surety, care must be taken on paying the debt to see that the principal and the other sureties are liable, for if they are not contribution cannot be recovered. 226 SURETYSHIP AND GUARANTY. (Russell V. Failor, 1 Ohio St. 327.) Indemnity from the principal secured by one co-surety after all signed and before the debt has been paid, and without any pre- vious agreement for indemnity, inures to the benefits of ,all the sureties, and the holder is a trustee for all. (Sei- bert V. Thompson, 8 Kans. 65 ; McCune v. Belt, 45 Mo. 174!.) Such a surety on paying the debt out of the in- demnity fund, could recover from the co-surety one-half the amount remaining after exhausting the fund. ( Cur- jier V. Fellows, 27 N. H. 366.) The surety with in- demnity must not release his lien or negligently lose it, or he will thereby discharge his co-surety to the extent that he is injured. (Ramsey v. Lewis, 30 Barb. 403; Carpenter v. Kelly, 9 Ohio 106.) If a co-surety obtain indemnity from the principal after the debt has been paid by the co-sureties in equal proportion, it is for his individual benefit, since the payment by each of his pro- portion annulled the equitable right to contribution, and each became a separate creditor of the principal. (Harrison v. Phillips, 46 Mo. 520.) Sec. 913. SAME SUBJECT— OTHER EQUIT- ABLE RIGHTS AGAINST CO-SURETIES.— A surety w^io is called upon to pay the debt may before paying file a bill in equity to compel his co-surety to contribute to the payment, and also in a proper case re- strain such co-surety from disposing of his property until the joint obligation was discharged. (Brandt, Sur. & Guar., Sec. 275.) Where one of two co-sureties consents to give time to the principal, and the other does not, and the one RIGHTS OF SURETIES. 227 consenting afterwards has to pay the debt, he cannot enforce contribution, since he is regarded as standing in the shoes of the creditor and affected in the same way by giving time to the principal. (Cameron v. Boulton, 9 Up. Can. [C. P.] 537.) Costs and expenses may be recovered in an action for contribution, where they were made in the interests of, or by the common neglect of, the several sureties. (Davis v. Emerson, 17 Me. 64; Fletcher v. Jackson, 23 Vt. 581.) The proportion which the co-surety may recover from each of the others in an action for contribution, is a pro rata amount of the sum paid by him ascertained by dividing the whole amount by the number of solvent co-sureties. (Burroughs v. Lott, 19 Cal. 125.) This is the equitable rule. At law, as a general rule, the surety can recover from the solvent co-sureties only their pro- portionate share ascertained by dividing the whole sum paid by the whole number of sureties, regardless of those who are insolvent. ( Acers v. Curtis, 68 Tex. 423. ) Where the co-sureties are bound in different amounts for the same obligation, as where one is bound for $2,000 and another for $18,000, and a default is made for $2,000, they are liable in proportion to the amount of the obliga- tion signed by them, and the one liable for $2,000 can recover eight-ninths of the amount from the other. ( Ar- mitage v. Pulver, 37 N. Y. 494.) The suit for contribution may be brought at law or in equity. (Broughton v. Wimberly, Q5 Ala. 549.) ■Where two or more co-sureties jointly pay the debt, they may join in a suit for contribution, but if each pays sep- 228 SURETYSHIP AND GUARANTY. arately they cannot join in sudi action. (Dussol v. Bnigniere, 50 Cal. 456; Lombard v. Cobb, 14 Me. 222.) When each pays separately they have separate actions against the co-surety for indemnity. (Atkinson v. Steward, 2 B. Monr. 348.) Since the insolvent co- sureties are not considered when contribution is asked in an equity court, they are not considered necessary parties, neither is the insolvent principal nor the repre- sentatives of insolvent deceased co-sureties necessary parties. (Brandt, Sur. & Guar., Sec. 292.) Sec. 914. SUBROGATION AN EQUITABLE RIGHT.— "The right of the surety to demand of the creditor whose debt he has paid, the securities he holds against the principal debtor, and to stand in his shoes, does not depend at all upon any request or contract on the part of the debtor with the surety, but grows rather out of the relations existing between the surety and the creditor, and is founded not upon any contract, express or implied, but springs from the most obvious principles of natural justice."* Subrogation, by which is meant the right of the surety or guarantor upon payment of the debt of the principal to the creditor, to be substituted for, or placed in the position of the creditor as regards all securities, liens, or other advantages which the creditor is holding against the principal, is strictly an equitable doctrine, and must be enforced in a court of equity. (Smith v. Harrison, 33 Ala. 706.) While a mere stranger or volunteer can- *Johnsoii, J., in Mathew v. Aiken, 1 N. Y. 595. RIGHTS OF SURETIES. 229 not by the payment of the debt of another be entitled to subrogation, the surety or guarantor of a debt is en-, titled to subrogation upon pajment of the debt without any stipulation for it. (Burton v. Mill, 78 Va. 468; Miller v. Stout, 5 Del. Ch. 259.) The payment by the surety discharges the debt as to the creditor but it re- mains in force as to such surety against the debtor, and equity by the doctrine of subrogation, aims to compel the party in duty bound to pay the debt to do so, hence it transfers to the surety paying, the original evidences of the debt, any judgment in which the debt has been merged, all collateral securities or liens held by the cred- itor, and a right to compel their assignment to him from the creditor. (Dunphy v. Gorman, 29 111. App. 132; McCormick's Admrs. v. Ii*win, 35 Pa. St. 111.) Sec. 915. PREREQUISITES TO THE RIGHT OF SUBROGATION.— All persons who occupy the situation of sureties or guarantors, whether technically called such or not, are, without doing any act signifying their intention to elect or accept the privileges of the right, subrogated to the rights of the creditor against the principal upon pa5rment of the debt. (Frow, Jacobs k Co.'s Estate, 73 Pa. St. 459; Brandt, Sur. & Guar., Sec. 299.) If, by laches or delay in asserting the right of subrogation the surety has allowed others to secure bona fide claims to the property, he will be held to have lost his right. (Gring's Appeal, 89 Pa. St. 336.) The surety must generally pay the debt of the princi- pal to be entitled to subrogation, but the form of pay- ment is unimportant, and he may pay by note and en- 230 SURETYSHIP AND GUARANTY. force subrogation though the notes given in pajTuent are not paid. (Stedman v. Freeman, 15 Ind. 8G.) The surety upon being subrogated to the rights of the cred- itor stands in his place, and cannot chiim any greater rights than the creditor would have had. So the surety may waive his right to subrogation. (T^^us v. De Jar- nette, 26 Ala. 280.) The surety being entitled to subro- gation to all the securities which the creditor acquires from the principal, a release of such securities b}^ the creditor or their negligent loss by him, will discharge the surety to the extent that such securities would have paid the debt of the principal. (Nelson v. Munch, 28 Minn. 314.) Sec. 916. now THE RIGHT TO SUBROGA- TION ENFORCED.— The surety upon payment of the debt to the creditor, may compel the creditor to as- sign to him all the securities or obligations of the princi- pal which he may have, if they are not voluntarily given up by the creditor. (Morgan v. Seymour, 1 Reports in Ch. 120; Springer's Admr. v. Springer, 43 Pa. St. 518.) Sec. 917. WHEN SUBROGATION WILL BE ALLOWED. — In general, to be entitled to subroga- tion, the surety must have paid the whole debt, and a part payment will not give him the benefit of subroga- tion, as this would give separate interest in the same debt to surety and creditor. (Hollingsw^orth v. Floyd, 2 liar. & Gill. [Md.] 87.) And subrogation will not be allowed when it would be inequitable, or to the prejudice of a creditor in reference to the debt for which the surety is liable. (Crump v. McMurtry, 8 Mo. 408; Henley RIGHTS OF SURETIES. 231 V. Stemmons, 4 B. Monr. 131.) Though the debt is paid to the creditor, it is still regarded as subsisting so far as may be necessary to support the assignment of collateral security held by such creditor to the surety. This is regarded as an imperative exception to the rule that payment discharges a debt as against the co-debtors in order to make subrogation possible and practicable. If the debt was held to be entirely discharged, all the collateral securities held by the creditor would be like- wise discharged, and their assignment to the surety would be defeated. (Edgerly v. Emerson, 23 N. H. 555.) So for the purpose of obtaining indemnity from the principal, the surety after payment is regarded as at once subrogated to all the rights, remedies and securi- ties of the creditor and entitled to all his liens, priorities and means of payment against the principal. (Brandt, Sur. & Guar., Sec. 304.) By taking a separate indemnity from the principal for his security with knowledge that the creditor holds a mortgage given by the principal to secure the debt, the surety is held to lose his right to subrogation. (Coop- er V. Jenkins, 32 Beav. 337.) Other cases hold that the surety may be subrogated to after acquired securities by the creditor though he has taken a separate in- demnity. (Brandt, Sec. 307.) A surety who becomes such during the prosecution of a remedy for the debt against the principal is not entitled to subrogation, at least as regards any prior surety, or prior interest in the property which he seeks ^32 SURETYSHIP AND GUARANTY. to reach bj^ subrugation. (Patterson v. Pope, 5 Dana [Ky.] 241.) Subrogation extends to enable the surety paying to enforce the rights of the creditor against a co-surety. While equity restrains a surety from collecting more from any co-surety than his just j^roportion, the right of subrogation allows him to collect that much the same as the creditor might do it. (Lidderdale v. Robinson, 2 Brock. 159.) Sec. 918. SAME SUBJECT— IN CASE OF A JUDGMENT.— As regards the right of the surety who pays the debt after the same has been reduced to a judgment to be subrogated to such judgment, there is a conflict among the authorities. If the j^ayment is made with intention of extinguishing the judgment it will of course have that effect and defeat subrogation. But if no such intention apj^ears the better oi^inion is said to be, that the judgment is discharged as regards the creditor's personal rights thereto, but kept alive as between all parties for the purpose of enforcing the rights of the surety. In the absence of apparent in- tention in the payment it will be presumed to be the intention of the surety to keep the judgment alive for subrogation thereunder. (Neilson v. Fry, 16 Ohio St. 376; Richter v. Cummings, 60 Pa. St. 44fl; Brandt, Sur. & Guar., Sec. 310.) So it is lield that if the surety pays the amount of the judgment and takes an assign- ment of it, he may be subrogated to the rights of the creditor under it, since his intention not to extinguish the judgment is manifested by the assignment. (Neal RIGHTS OF SURETIES. 233 V. Nash, 23 Ohio St. 483; Thompson v. Palmer, 3 Rich. Eq. 139.) But there are eases which deny the right of a surety to be subrogated to a judgment which he has paid for the principal, it being considered as exting- uished by such payment, and this has been held in cases where the surety took an assignment of such judgment when paying it. (Laval v. Rowley, 17 Ind. 36; Tiddy V. Harris, 101 N. C. 589; Chandler v. Higgins, 109 111. 602.) So by the weight of authority the surety who pays a specialty debt of the principal, that is, one under seal, is entitled to rank as a specialty creditor being subro- gated to the right of the foiTner creditor, unless a con- trary intention is manifested at the time of the payment. (Lumpkiii V. Mills, 4 Ga. 343.) Sec. 919. EXTENT OF THE RIGHT OF SUBROGATION.— The surety entitled to subroga- tion is generally entitled to all the securities which the creditor may hold, this is said to be the equitable prin- ciple and based on natural justice. "A note, bond, mortgage, pledge and judgment are all equally securi- ties for the deibt and collateral to it. If the payment by the surety extinguishes one of them, why does it not extinguish them all? The reasoning which makes a distinction is highly technical and certainly has no foundation in equity." (Brandt, Sur. & Guar., Sec. 314, citing Gerber v. Sharp, 72 Ind. 553.) In England, by the Mercantile Law Amendment Act (19 and 20 Victoria, ch. 97, sec. 5), parliament has provided that the surety upon payment shall have the right to have 234. SURETi^SHIP AND GUARANTY. assigned to him or a trustee for him, "every judgment, specialty or other security which shall be held by the creditor," and this whether the judgment is deemed satisfied at law by the payment or not. The surety is entitled to be subrogated to the rights under a mortgage given by the principal to the creditor in respect to the debt, and may with or without a formal assignment of such mortgage have it foreclosed, in his own name, and apply the proceeds to indemnify him- self. (Gossin V. BrowTi, 11 Pa. St. 527; McLean v. Towle, 3 Sandf. Ch. 117; Beaver v. Slanker, 94 111. 175.) And it is held that a party indemnifying the surety, and who has paid the debt for which the surety was bound, is entitled to subrogation to the same extent as the surety would have been. (Rittenhouse v. Levering, 6 Watts & Serg. 190.) So a third person taking property of the principal charged with the lien of the surety on subrogation will be regarded as a trustee of such property and subject to all tlie e({uities which the surety acquires by subroga- tion, if taken with notice of the facts. (Drew v. Lock- ett, 32 Beav. 499.) The sureties of officers, administrators, guardians, and the like, are entitled to be subrogated to such riglits as the obligee may have against the principal. And the sureties of a guardian may be subrogated to the reme- dies of the ward against such guardian before judgment and execution against him, if they are legally bound to pay, or where the principal is insolvent before payment. RIGHTS OF SURETIES. 235 (Brandt, Sur. & Guar., Sees. 317-319; Fishback v. Weaver, 34 Ark. 569.) To be subrog-ated to the lien of the State or county, where such lien is statutory, the surety must allege and prove their right of subroga- tion and the extent of it. (Watts v. Eufaula Natl. Bank, 76 Ala. 474.) Otherwise the surety is entitled to be subrogated to the rights of the State or county and have them enforced for his benefit as in the case of in- dividual creditors. (Boltz's Estate, 133 Pa. St. 77.) A surety for a part of a debt is not entitled to be subrogated to a security given the creditor by the prin- cipal at another time, and for a separate and distinct part of the same debt. (Wade v. Coope, 2 Simons 155.) And it is held that the surety will receive the creditor's right to set aside a fraudulent conveyance by the prin- cipal of his property, though such conveyance was made before the surety paid the debt. (Tatum v. Tatum, 1 Ired. Eq. 113.) Sec. 920. WHEN CREDITOR ENTITLED TO SECURITIES HELD BY THE SURETY. — Securities given by the principal to the surety for indemnity against the payment of the debt, are general- ly subject to the equitable claim of the creditor and may be taken for his indemnity, though they did not influence him in giving credit to the principal, or were not known of by him. (Kramer & Rahm's Appeal, 37 Pa. St. 71; Owens V. Miller, 29 Md. 144.) The creditor may take such security without having exhausted his remedies at law, or reducing his debt to a judgment. (Kinsey v. McDearmon, 5 Cold. 392.) The surety is regarded as 236 SURETYSHIP AND GUARANTY. a trustee for the benefit of the creditor, and such trust subsists until the ddbt is paid, and may be enforced against any one taking the trust property with notice of its character. (Eastman v. Foster, 8 Met. 19; Car- penter V. Brown, 42 Miss. 28.) And it is held that the creditor would be entitled to a judgment confessed by the principal in favor of the surety after the surety had been discharged. (Crosby v. Crafts, 5 Hun 327.) But it is held that where the indemnity fund or security given by the principal to the surety is "against a con- tingent liability," there can be no substitution in favor of the creditor until the liability has become absolute. "If a mortgage or other security is given to the surety, not to secure the debt or provide a fund for its pay- ment, but to save harmless from a contingent liability or loss, that contingency must come or the injury be sustained before a right to the indemnity inures to the creditor." (Per Simrall, J., in Osborn v. Noble, 46 Miss. 449.) It is also held that indemnity given by a stranger to the surety, or by a co-surety, cannot be claimed by the creditor by subrogation. (Taylor v. Farmer's Bank, 87 Ky. 398; Hampton v. Pliipps, 108 U. S. 260.) Nor can the creditor be subrogated to personal indemnity given the surety, that is, not given as a pledge for the payment of the debt, after such surety has been discharged, since the possibility of the surety being damnified has ceased with his discharge. (Constant v. Matteson, 22 111. 546.) NEGOTIABLE INSTRUMENT CODE OF OHIO. As enacted April 17, 1902; in effect January 1, 1903. SUBDIVISION I. NEGOTIABLE INSTRU- MENTS IN GENERAL. RE-SUBDIVISION I. FORM AND INTERPRETATION. Sec. 3171. [Form of negotiable instrument.'] An in- strument to be negotiable must conform to the following requirements : 1. It must be in writing 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 determinable future time; 4. Must be payable to order or to bearer ; and 5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. Sec. 3171a. [Certainty as to sum; what constitutes.] The sum payable is a sum certain within the meaning of this chapter although it is to be paid: ^37 J238 APPENDIX. 1. With interest; or 2. By stated installments; or 3. By stated installments with a provision that upon default in payment of any installment or of interest, the whole shall become due; or 4. With exchange, whether at a fixed rate or at the current rate; or 5. With costs of collection or an attorney's fee, in case payment shall not be made at maturity. Sec. 3171b. [When promise is unconditional.^ An unqualified order or promise to pay is unconditional within the meaning of this chapter, though coupled with : 1. An indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount; or 2. A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional. Sec. 3171c. [Determinable future time; what con- stitutes. 1 An instrument is payable at a determinable future time within the meaning of this chapter, which is expressed to 'be payable : 1. At a fixed period after date or sight; or 2. On or before a fixed or determinable future time specified therein; or 3. On or at a fixed period after the occurrence of APPENDIX. ^39 a specified event, which is certain to happen, though the time of happening be uncertain. An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. Sec. 3171d. [Additional provisions not affecting ne- gotiability. ^ An instrument which contains an order or promise to do any act in addition to the payment of money is not negotiable. But the negotiable character of an instrument otherwise negotiable is not affected by a provision which: 1. Authorizes the sale of collateral securities in case the instrument be not paid at maturity ; or 2. Authorizes a confession of judgment if the in- strument be not paid at maturity; or 3. Waives the benefit of any law intended for the advantage or protection of the obligor; or 4. Gives the holder an election to require something to be done in lieu of payment of money. But nothing in this section shall validate any pro- vision or stipulation otherwise illegal. Sec. 31 Tie. [Oimssions; seal; particular money.] The validity and negotiable character of an instrument is not affected by the fact that: 1. It is not dated; or 2. Does not specify the value given, or that any value has been given therefor; or 3. Does not specify the place where it is drawn or the place where it is payable; or 240 APPENDIX. 4. Bears a seal ; or 5. Designates a particular kind of current money in which payment is to be made. But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the con- sideration to be stated in the instrument. Sec. 3171f. [When paijahle on demand.'\ An in- strument is payajble on demand: 1. Where it is expressed to be payable on demand, or at sight, or on jjresentation ; or 2. In which no time for payment is expressed. Where an instrument is issued, accepted, or indorsed when overdue, it is, as regards the person so issuing, accepting, or indorsing it, payable on demand. Sec. 3171g. [When imyahle to order. ^ The mstru- ment is paj^able to order w^here it is dra\\Ti payable to the order of a specified person or to him or to his order. It may be drawn paj^able to the order of: 1. A payee who is not maker, drawer, or drawee; or 2. The drawer or maker; or 3. The drawee; or 4. Tw^o or more payees jointly; or 5. One or some of several payees; or 6. The holder of an office for the time being. Where the instrument is payable to order the payee must be named or otherwise indicated therein with rea- sonable certainty. APPENDIX. 241 Sec. 3171h. [When payable to hearer. 1 The instru- ment is payable to bearer: 1. When it is expressed to be so payable; or 2. When it is payable to a person named therein or bearer; or 3. When it is payable to the order of a fictitious or non-existing person, and such fact was known to the person making it so payable; or 4. When the name of the payee does not purport to be the name of any person ; or 5. When the only or last indorsement is an indorse- ment in blank. Sec. 3171i. [Terms when sufficient.] The instru- ment need not follow the language of this chapter, but any terms are sufficient which clearly indicate an inten- tion to conform to the requirements hereof. Sec. 3171 j. [Date; presumption as to.] Where the instrument or an acceptance or any indorsement thereon is dated, such date is deemed prima facie to be the true date of the making, drawing, acceptance or indorsement as tlie case may be. Sec. 3171k. [Antedated and postdated.] The instru- ment is not invalid for the reason only that it is ante- dated or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires the title thereto as of the date of delivery. Sec. 31711. [When date may he inserted.] Where an instrument expressed to be payable at a fixed period 242 APPENDIX. after date is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance and the instrument shall be pay- able accordingly. The insertion of a wrong date does not avoid the instrument in the hands of a subsequent holder in due course; but as to him, the date so inserted is to be regarded as the true date. , Sec. 3171m. [Blanks; tchen way he filled.] Where the instrument is wanting in any material particular, the person in possession thereof has a prima facie authority to complete it by filling up the blanks therein. And a signature on a blank paper delivered by the person making the signature in order that the paper may be converted into a negotiable instrument operates as a prima facie authority to fill it up as such for any amount. In order, however, that any such instrument when com- pleted may be enforced against any person who became a party thereto prior to its com2)letion, it must be filled up strictly in accordance with the authority given and within a reasonable time. But if any such instrument after completion is negotiated to a holder in due course, it is valid and effectual for all purposes in his hands, and he may enforce it as if it had been filled up strictly in accordance with the authority given and within a rea- sonable time. Sec. 3171 n. [Incojiiplete instrument not delivered.^ Where an incomplete instrument has not been delivered it will not, if completed and negotiated without author- ity, be a valid contract in the hands of any holder, as APPENDIX. 243 against any person whose signature was placed thereon hefore deHvery. Sec. 317I0. [Delivery; when effectual; when pre- sumed.l Every contract on a negotiable instrument is incomplete and revocable until delivery of the instru- ment for the purpose of giving effect thereto. As be- tween immediate parties, and as regards a remote party, other than a holder in due course, the delivery, in order to be effectual, must be made either by or under the authority of the party making, drawing, accepting or endorsing, as the case may be; and in such case the de- livery may be shown to have been conditional, as for a special purpose only, and not for the purpose of trans- ferring the property in the instrument. But where the instrument is in the hands of a holder in due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is conclusively presumed. And where the instrument is no longer in the possession of a party whose signature appears thereon, a valid and intentional delivery by him is presumed until the con- trary is proved. Sec. 3171p. [Construction where instrument is am- biguous.'] Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: 1. Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the Avords is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount. S44 APPENDIX. 2. Where the instniment provides for the payment of interest without specii'ying the date from which in- terest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof. 3. Where the instrument is not dated, it will be con- sidered to be dated as of the time it was issued; 4. Where there is a conflict between the written and printed provisions of the instrument, the written pro- visions will prevail ; 5. Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election; G. Where a signature is so placed upon the instru- ment that it is not clear in what capacity the person making the same intended to sign, he is to be deemed an indorser ; 7. Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. Sec. 3171q. [Liahility of persons signing in trade or assumed name.'] No person is liable on the instru- ment whose signature does not appear thereon, except as herein otherwise expressly provided. But one who signs in a trade or assumed name will be liable to the same extent as if he had signed in his o\vii name. Sec. 3171r. [Signature hy agent; authority, how shown.] The signature of any party may be made by a duly authorized agent. No particular form of ap- pointment is necessary for this purpose, and the author- APPENDIX. 245 ity of the agent may be established as in other cases of agency. Sec. 3171s. \_Liahility of persons signing as agents etc.] Where the instrument contains or a person adds to his signature words indicating that he signs for or on behalf of a principal, or in a representative capacity, he is not liable on the instrument if he was duly author- ized; but the mere addition of words describing him as an agent, or as filling a representative character without disclosing his principal does not exempt him from per- sonal liability. Sec. 3171t. [Signature by procuration; effect o/.] A signature by "procuration" operates as notice that the agent has but a limited authority to sign, and the principal is bound only in case the agent in so signing acted within the actual limits of his authority. Sec. 3171u. [Effect of indorscinent hy infant or cor- poration.] The indorsement or assignment of the instru- ment by a corporation or by an infant passes the prop- erty therein, notwithstanding that from want of capac- ity the corporation or infant may incur no liability there- on. Sec. 3171v. [Forged signature; effect of.] Where a signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment there- of against any party thereto, can be acquired through or under such signature, unless the party against whom 246 APPENDIX. it is sought to enforce such right is precluded from set- ting up the forgery or want of authority. RE-SUBDIVISIOX II. CONSIDERATION. Sec. 3171w. [Presumption of consideration. ~\ Every negotiable instrument is deemed i)rima facie to have been issued for a valuable consideration; atid every per- son whose signature appears thereon to have become a party thereto for value. Sec. 3171x. [Consideration; what constitutes.] Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt consti- tutes value ; and is deemed such whether the instrument is payable on demand or at a future time. Sec. 3171y. [What constitutes holder for value.] Where value has at any time been given for the instru- ment, the holder is deemed a holder for value in respect to all parties who became such prior to that time. Sec. 3171z. [When lien on instrument constitutes holder for value.] Where the holder has a lien on the instrument, arising either from contract or by implica- tion of law, he is deemed a holder for value to the extent of his lien. Sec. 3172. [Effect of want of consideration.] Ab- sence or failure of consideration is matter of defense as against any person not a holder in due course and partial failure of consideration is a defense pro tanto, whether the failure is an ascertained and liquidated amount or otherwise. APPENDIX. 247 Sec. 3172a. [Liability of accommodation party. 1 An accommodation party is one who has signed the in- strument as maker, drawer, acceptor, or indorser, with- out receiving value therefor, and for the purpose of lend- ing his name to some other person. Such a person is liable on the instrument to a holder for value, notwith- standing such holder at the time of taking the instru- ment knew him to be only an accommodation party. RE-SUBDIVISION III. NEGOTIATION. Sec. 3172b. [What constitutes negotiation.] An in- strument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is nego- tiated by the indorsement of the holder completed by delivery. Sec. 3172c. [Indorsement; how made."] The in- dorsement must be written on the instrument itself, or upon a paper attached thereto. The signature of the indorser without additional words is a sufficient indorse- ment. Sec. 3172d. [Indorsement must he of entire instru- ment.!^ The indorsement must be an indorsement of the entire instrument. An indorsement which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally, does not operate as a negotiation of the instrument. But where the instru- 248 APPENDIX. ment has been paid in part, it may be indorsed as to the residue. Sec. 3172e. [Kinds of indorsement,] An indorse- ment may be either special or in blank ; and it may also be either restrictive or (lualified or conditional. Sec. 3172f. [Special indorsement; indorsement in blank.] A special indorsement specifies the person to whom, or to whose order, the instrument is to be pay- able ; and the indorsement of such indorsee is necessary to the further negotiation of the instrument. An in- dorsement in blank specifies no indorsee, and an instru- ment so indorsed is payable to bearer, and may be ne- gotiated by delivery. Sec. 3172g. [Blank indorsement; how changed to special indorsement.] The holder may convert a blank hidorsement into a special indorsement by writing over the signature of the indorser in blank any contract con- sistent with the character of the indorsement. Sec. 3172h. [When indorsement restrictive.] An in- dorsement is restrictive which either: 1. Prohibits the further negotiation of the instru- ment; or 2. Constitutes the indorsee the agent of the indors- er; or 3. Vests the title in the indorsee in trust for or to the use of some other person. But the mere absence of words implying power to negotiate does not make an indorsement restrictive. Sec. 3172i. [Effect of restricting indorsement; rights APPENDIX. 249 of indorsee.'] A restrictive indorsement confers upon the indorsee the right 1. To receive payment of the instrument. 2. To bring any action thereon that the indorser could bring. 3. To transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement. Sec. 3172J. [Qualified indorsement.'] A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse," or any words of similar import. Such an indorsement does not impair the negotiable character of the instru- ment. Sec. 3172k. [^Conditional indorsement.] Where an indorsement is conditional a party required to pay the instrument may disregard the condition and make pay- ment to the indorsee or his transferee, whether the con- dition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated, will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally. Sec. 31721. [Indorsement of instrument payable to hearer.] Where an instrument payable to bearer is in- dorsed specially, it may nevertheless be further nego- tiated by delivery, but the person indorsing specially is 250 APPENDIX. liable as indorser to only such holders as make title through his indorsement. Sec. 3172m. \^Indorsemcnt icJicre payable to two or more persons-l Where an instrument is payable to the order of two or more payees, or indorsees who are not partners, all must indorse, unless the one indorsing has authority to indorse for the others. Sec. 3172n. [Effect of instrument drawn or indorsed to a person as cashier.] Where an instrument is drawn or indorsed to a person as "cashier" or other fiscal of- ficer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer; and may be negotiated by either the in- dorsement of the bank or corporation or the indorse- ment of the officer. Sec. 31720. [Indorsement where name is misspelled, et cetera.] Where the name of a payee or endorsee is wrongly designated or misspelled, he may indorse the histrument as therein described, adding, if he think fit, his proper signature. Sec. 3172i). [Indorsement in representative capaci- ty.] Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability. Sec. 3172q. [Time of indorsement; presumption.] Except where an indorsement bears date after the ma- turity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue. Sec. 3172r. [Place of indorsement; presumption.] APPENDIX. 251 Except where the contrary appears every indorsement is presumed prima facie to have been made at the place where the instrument is dated. Sec. 3172s. [Continuation of negotiable character,'] An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or dis- charged by payment or otherwise. Sec. 3172t. [Striking out indorsement.'] The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument. Sec. 3172u. [Transfer without endorsement; effect of.] Where the holder of an instrument payable to his order transfers it for value without indorsing it, the transfer vests in the transferee such title as the trans- ferer had therein and the transferee acquires in addi- tion the right to have the indorsement of the transferer. But for the purpose of determining whether the trans- feree is a holder in due course, the negotiation takes ef- fect as of the time when the indorsement is actually made. Sec. 3172v. [When prior party may negotiate in- strument] Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this Chapter, reissue and further negotiate the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable. 252 APPENDIX. RE-SUBDIVISION IV. RIGHTS OF HOLDER. Sec. 3172w. [Rights of holder to sue; 'payment.'] The holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course discharges the instrument. Sec. 3172x. [What constitutes a holder in due course.] A holder in due course is a holder who has taken the instrument under the following conditions: 1. That it is complete and regular upon its face. 2. That he became the holder of it before it was overdue, and without notice that it had been previously 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 or defect in the title of the person negotiating it. Sec. 3172y. [When person not deemed holder in due course.] Where an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course. Sec. 3172z. [Notice before full amount j^aid.] Where the transferee receives notice of any infirmity in the in- strument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore paid by him. Sec. 3173. [When title defective.] The title of a APPENDIX. 253 person who negotiates an instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circum- stances as amount to a fraud. Sec. 3173a. [What constitutes notice of defect. '\ To constitute notice of an infirmity in the instrument or de- fect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith. Sec. 3173b. [Rights of holder in due course.'] A holder in due course holds the instrument free from any defect of title of prior parties, and free from defenses available to prior parties, among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. Sec. 3173c. [When subject to original defenses.] In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter. Sec. 3173d. [Who deemed holder in due course.] Every holder is deemed prima facie to be a holder in due course; but when it is sho^vn that the title of any person who has negotiated the instrument was defective. 254 APPENDIX. the burden is on the holder to prove that he or some person under whom he claims ac(iuired the title as a holder in due course. But the last mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title. RE-SUBDIVISION V. LIABILITIES OF PARTIES. Sec. 3173e. [Liahility of maker.] The maker of a negotiable instrument by making it engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse. See. 3173f. [Liability of draiver.] The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse; and engages that on due presentment the instrument will be accepted and paid, or both, according to its tenor, and that if it be dis- honored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the instrument an express stipulation negativing or limiting his own lia- bility to the holder. Sec. 3173g. [Liahility of acceptor.'] The acceptor by accepting the instrument engages tliat he will pay it according to the tenor of his acceptance and admits: 1. The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument, and, 2. The existence of the payee and his then capacity to indorse. APPENDIX. 255 Sec. 3173h. [When person deemed indorser.] A person placing his signature upon an instrument other- wise than as maker, drawer or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity. Sec. 3173i. [Liability of irregular indorser.] When a person not otherwise a party to an instrument places thereon his signature in blank before delivery, he is lia- ble as indorser in accordance with the following rules: 1. If the instrument is payable to the order of a third person, he is liable to the payee and to all subse- quent parties. 2. If the instrument is payable to the order of the maker or drawer, or is payaible to bearer, he is liable to all parties subsequent to the maker or drawer. 3. If he signs for the accommodation of the payee, he is liable to all parties subsequent to the payee. Sec. 3173 j. [Warranty 'where negotiation by de- livery, etc.] Every person negotiating an instrument by delivery or by a qualified indorsement warrants : 1. That the instrument is genuine and in all respects what it purports to be. 2. That he has a good title to it. 3. That all prior parties had capacity to contract. 4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless. But when the negotiation is by delivery only, the war- 256 APPENDIX. ranty extends in favor of no holder other than the im- mediate transferee. The provisions of j^aragraph numbered three of this section do not apply to persons negotiating public or corporate securities, other than bills and notes. Sec. 3173k. [LiahiUtij of general indorser.'] Every indorser who indorses without qualification, warrants, to all subsequent holders in due course : 1. The matters and things mentioned in paragraphs numbered one, two and three of the next preceding sec- tion ; and 2. That the insti-ument is at the time of his indorse- ment valid and subsisting. And, in addition, he engages that on due presentment, it shall be accepted or paid or both, as the case may be, according to its tenor, and that if it be dishonored and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any sub- sequent indorser who may be compelled to pay it. Sec. 31731. [Liability of indorser where paper ne- gotiable by delivery.] Where a person places his in- dorsement on an instrument negotiable by delivery he incurs all the liabilities of an indorser. Sec. 3173m. [Order in which indorsers are liable.] As respects one another, indorsers are liable prima facie in the order in which they indorse; but evidence is ad- missible to show that as between or among themselves they have agreed otherwise. Joint payees or joint in- APPENDIX. 257 dorsers who indorse are deemed to indorse jointly and severally. Sec. 3173n. [Liabilitij of an agent or hroker.~\ Where a broker or other agent negotiates an instrument without indorsement, he incurs all the liabilities pre- scribed by section thirty-one hundred and seventy-three j (3173J) of this chapter, unless he discloses the name of his principal, and the fact that he is acting only as agent. RE-SUBDIVISION VI. PRESENTMENT FOR PAYMENT. Sec. 3173o. [Effect of want of demand on principal debtor.'] Presentment for payment is not necessary in order to charge the person primarily liable on the in- strument ; but if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, and has funds there available for that purpose, such ability and willingness are equivalent to a tender of payment on his part. But except as herein otherwise provided, presentment for payment is neces- sary in order to charge the drawer and indorsers. Sec. 3173p. [Presentment where instrument is not payable on demand and where payable on demand.'} Where the instrument is not payable on demand pre- sentment must be made on the day it falls due. Where it is payable on demand, presentment must be made within a reasonable time after its issue except that in the case of a bill of exchange, presentment for payment will be sufficient if made within a reasonable time after the last negotiation thereof. UoH APPENDIX. Sec. 3173q. [W^liat constitutes a sufficient present- ment.^ Presentment for payment, to be sufficient, must be made: 1. By the holder or by some person authorized to receive pajment on his behalf. 2. At a reasonable hour on a business day. 3. At a proper place as herein defined. 4. To the person primarily liable on the instru- ment, or if he is absent or inaccessible, to any person found at the place where the presentment is made. Sec. 3173r. [Place of presentment.^ Presentment or payment is made at the proper place: 1. Where a place of payment is specified in the in- strument and it is there presented. 2. Where no place of payment is specified, but the address of the person to make payment is given in the instrument and it is there presented. 3. Where no place of payment is specified and no address is given and the instrument is presented at the usual place of business or residence of the person to make payment. 4. In any other case if presented to the person to make payment wherever he can be found, or if presented at his last known place of business or residence. Sec. 3173s. [Instrument must he exliihited.^ The instrument must be exhibited to the person from whom payment is demanded, and when it is paid must be de- livered \r^ to the party paying it. APPENDIX. 259 Sec. 3173t. [Presentment where instrument pay- able at bank.^ Where the instrument is payable at a bank, j^resentment for payment must be made during banking" hours, unless the person to make pajTiient has no funds there to meet it at any time during the day, in which case presentment at any hour before the bank is closed on that day is sufficient. Sec. 3173u. [Presentment wliere principal debtor is dead.] WTiere the person primarily liable on the in- strument is dead, and no place of payment is specified, presentment for payment must be made of his personal representative, if such there be, and if with the exercise of reasonable diligence, he can be found. Sec. 3173v. [Presentment to persons liable as part- ners.] Where the persons primarily liable on the in- strument are liable as partners, and no place of pay- ment is sj^ecified, presentment for payment may be made to any one of them, even though there has been a dissolution of the firm. Sec. 3173w. [Presentment to joint debtors.] Where there are several persons, not partners, primarily liable, on the instrument, and no place of jDayment is specified, presentment must be made to them all. Sec. 3173x. [When presentment not required to charge the drawer.] Presentment for payment is not required in order to charge the drawer where he has no right to expect or require that the drawee or acceptor will pay the instrument. Sec. 3173y. [When presentment not required to charge the indorser.] Presentment for payment is not 260 APPENDIX. required in order to charge an indorser where the in- strument was made or accepted for his accommodation, and he has no reason to expect that the instrument will be paid if presented. Sec. 3173z. [When delay in making presentment is excusedJ^ Delay in making presentment for payment is excused when the delay is caused 'by circumstances beyond the control of the holder, and not imputable to his default, misconduct or negligence. When the cause of delay ceases to operate, presentment must be made with reasonable diligence. Sec. 3174. [When presentment may he dispensed with.^ Presentment for payment is dispensed with: 1. Where, after the exercise of reasonable diligence, presentment as required by this cha2:>ter can not be made. 2. Where the drawee is a fictitious person. 3. By waiver of presentment, express or implied. Sec. 3174a. [When instrument dishonored by non- payment.^ The instrument is dishonored by non-pay- ment when: 1. It is duly presented for payment and payment is refused or cannot be obtained; or, 2. Presentment is excused and the instrument is overdue and unpaid. Sec. 3174b. [Liability of person secondarily liable, when instrument dishonored.] Subject to the provi- sions of this chapter, when the instrument is dishon- ored by non-payment, an immediate right of recourse APPENDIX. 261 to all parties secondarily liable thereon accrues to the holder. Sec. 3174c. [Time of maturity.'\ Ever)'- negotiable instrument is payable at the time fixed therein without grace. When the day of maturity falls upon Sunday, or a holiday, the insti-ument is payable on the next succeeding business day. Instruments falling due on Saturday are to be presented for payment on the next succeeding business day, except that instruments pay- able on demand may, at the option of the holder, be presented for payment before twelve o'clock noon on Saturday when that entire day is not a holiday. Sec. 3174d. [Time; how computed.] Where the in- strument is payable at a fixed period after date, after sight, or after the happening of a specified event, the time of payment is determined by excluding the day from which the time is to begin to run, and by including the date of payment. Sec. 3174e. [Rule where instrument payable at bank.] Where the instrument is made payable at a bank, it is equivalent to an order to the bank to pay the same for the account of the principal de^btor thereon. Sec. 3174f. [What constitutes payment in due course.'] Payment is made in due course when it is made at or after the maturity of the instrument to the holder thereof in good faith and without notice that his title is defective. 262 APPENDIX. RE-SUBDIVISION VII. NOTICE OF DISHONOR. Sec. 3174g. [To whom notice of dishonor must he given.'l Except as herein otlienvise provided, when a negotiable instrument has been dishonored by non-ac- ceptance or non-payment, notice of dishonor must be given to the drawer and to each indorser, and any drawer or indorser to whom such notice is not given is discharged. Sec. 3174h. [By whom given.~\ The notice may be given by or on behalf of the holder, or by or on behalf of any party to the instrument who might be compelled to pay it to the holder, and who, upon taking it up, would have a right to reimbursement from the party to whom the notice is given. Sec. 3174i. [Notice given hy agentJ] Notice of dis- honor may be given by an agent either in his OAvn name or in the name of any party entitled to give notice, whether that party be his principal or not. Sec. 3174 j. [Effect of notice given on behalf of holder. 1 Where notice is given by or on behalf of the holder, it enures for the benefit of all subsequent holders, and all prior ^^arties who have a right of recourse against the party to whom it is given. Sec. 3174k. [Effect where notice is given by party entitled thereto.^ Where notice is given by or on be- half of a party entitled to give notice, it enures for the benefit of the holder and all parties subsequent to the party to whom notice is given. Sec. 31741. [When agent may give notice. 1 Where APPENDIX. 263 the instrument has been dishonored in the hands of an agent, he may either himself give notice to the parties liable thereon or he may give notice to his principal. If he give notice to his j)rincii)al he must do so within the same time as if he were the holder, and the j^rincipal upon the receipt of such notice has himself the same time for giving notice as if the agent had been an inde- pendent holder. Sec. 3174m. [When notice sufficient.'] A written notice need not be signed, and an insufficient written no- tice may be supplemented and validated by verbal com- munication. A misdescription of the instrument does not vitiate the notice unless the party to whom the notice is given is in fact misled thereby. Sec. 3174n. [Form of notice.'] The notice may be in writing or merely oral, and may be given in any terms which sufficiently identify the instrument, and indicate that it has been dishonored by nonacceptance or non- pa}Tnent. It may in all cases be given by delivering it personally or through the mails. Sec. 31740. [To whom notice may he given.] No- tice of dishonor may be given either to the party himself or to his agent in that behalf. Sec. 3174p. [Notice where party is dead.] When any party is dead and his death is known to the party giving notice, the notice must be given to a personal rep- resentative, if there be one, and if with reasonable dili- gence he can be found. If there be no personal repre- sentative, notice may be sent to the last residence or the last place of business of the deceased. ^64 APPENDIX. Sec. 3174q. [Notice to partners.~\ Where the par- ties to be notified are partners, notice to any one partner is notice to the firm even though there has been a dissolu- tion. Sec. 3174r. [Notice to persons jointly liahle.~\ No- tice to joint parties who are not partners must be given to each of them unless one of them has authority to re- ceive such notice for the others. Sec. 3174s. [Notice to bankrupt.} Where a party has been adjudged a bankrupt or an insolvent, or has made an assignment for the benefit of creditors, notice may be given either to the party himself or to his trustee or assignee. Sec. 3174t. [Time within wJiich notice must be given.^i Notice may be given as soon as the instrument is dishonored ; and unless delay is excused as hereinafter provided must be given within the times fixed by this chapter. Sec. 3174u. [Where parties reside in same lAace.l Where the person giving and the person to receive no- tice reside in the same place notice must be given within the following times: 1. If given at the place of business of the person to receive notice, it must be given before the close of busi- ness hours on the day following. 2. If given at his residence, it must be given before the usual hours of rest on the day following. 3. If sent by mail, it must be deposited in the post- office in time to reach him in usual course on the day fol- lowing. APPENDIX. 265 Sec. 3174v. [Where parties reside in different places. 1 Where the person giving and the person to receive notice reside in different places, the notice must be given within the following times: 1. If sent by mail, it must be deposited in the post- office in time to go by mail the day, following the day of dishonor, or if there be no mail at a convenient hour on that day, by the next mail thereafter. 2. If given otherwise than through the postofRce, then within the time that notice would have been re- ceived in due course of mail if it had been deposited in the postofRce within the time specified in the next pre- ceding paragraph of this section. Sec. 3174jw. [When sender deemed to have given due notice. 1 Where notice of dishonor is duly ad- dressed and deposited in the postoffice, the sender is deemed to have given due notice, notwithstanding any miscarriage in the mails. Sec. 3174x. [Deposit in postoffice; what consti- tutes.~\ Notice is deemed to have been deposited in the postoffice when deposited in any branch postoffice or in any letter box under the control of the postoffice de- partment. Sec. 3174y. [Notice to subsequent party; time of.'] Where a party receives notice of dishonor, he has, after the receipt of such notice, the same time for giving no- tice to antecedent parties that the holder has after the dishonor. Sec. 3174z. [Where notice must he sent.] Where a party has added an address to his signature, notice of 266 APPENDIX. dishonor must be sent to that address ; but if he has not given such address then the notice must be sent as fol- lows : 1. Either to the postoffice nearest to his place of resi- dence, or to the postoffice where he is accustomed to re- ceive his letters; or, 2. If he live in one place, and have his place of busi- ness in another, notice may be sent to either place; or, 3. If he is sojourning in another place, notice may be sent to the place where he is sojourning. But where the notice is actually received by the party wdthin the time specified in this chapter it will be suf- ficient though not sent in accordance with the require- ments of this section. Sec. 3175. [Waive?' of notice.'] Notice of dishonor may be waived either before the time of giving notice has arrived or after the omission to give due notice, and the waiver may be express or implied. Sec. 3175a. [Whom affected hij waiver.'] Where the waiver is embodied in the instrument itself it is binding upon all parties; but where it is written above the sig- nature of an indorser, it binds him only. Sec. 3175b. [Waiver of protest.] A waiver of pro- test whether in the case of a foreign bill of exchange or other negotiable instrument, is deemed to be a waiver not only of a formal protest, but also of presentment and notice of dishonor. Sec. 3175c. [When notice is dispensed with.] No- tice of dishonor is dispensed with when, after the exer- APPENDIX. 267 else of reasonable diligence, it can not be given to or does not reach the parties sought to be charged. Sec. 3175d. [Delay in giving notice; how excused.'] Delay in giving notice of dishonor is excused when the delay is caused by circumstances beyond the control of the holder, and not imputable to his default, misconduct or negligence. When the cause of delay ceases to oper- ate, notice must be given with reasonable diligence. Sec. 3175e. [When notice need not he given to drawer.] Notice of dishonor is not required to be given to the drawer in either of the following cases: 1. Where the drawer and drawee are the same per- son; 2. Where the drawee is a fictitious person or a per- son not having capacity to contract. 3. Where the drawer is the person to whom the in- strument is presented for payment. 4. Where the drawer has no right to expect or re- quire that the drawee or acceptor will honor the instru- ment. 5. Where the drawer has countermanded payment. Sec. 3175 f. [When notice need not he given to in- dorser.] Notice of dishonor is not required to be given to an indorser in either of the following cases: 1. Wliere the drawee is a fictitious person, or a per- son not having capacity to contract, and the indorser was aware of the fact at the time he indorsed the instru- ment ; 268 APPENDIX. 2. Where the indorser is the person to whom the in- strument is presented for payment; 3. Where the instrument was made or accepted for his accommodation. Sec. 317 5 g. [Notice of nonpayment where accept- ance refused.^ Where due notice of dishonor hy non- acceptance has heen given, notice of a subsequent dis- honor by nonpayment is not necessary, unless in tlie meantime the instrument has been accepted. Sec. 3175h. [Effect of oinission to give notice of non- acceptance. ~\ An omission to give notice of dishonor by nonacceptance does not prejudice the rights of a holder in due course subsequent to the omission. Sec. 3175i. [When protest need not he made; when must he made.~\ Where any negotiable instrument has been dishonored it may be protested for nonacceptance or nonpayment as the case may be; but the protest is not required except in the case of foreign bills of ex- change. RE-SUBDIVISION VIII. DISCHARGE OF NEGOTIABLE INSTRUMENTS. Sec. 3175 j. [Instrument; how discharged.^ A ne- gotiable instrument is discharged: 1. By payment in due course by or on behalf of the principal debtor; / 2. By payment in due course by the party accommo- dated, where the instrument is made or accepted for ac- commodation ; APPENDIX. 269 3. By tlie intentional cancellation thereof by the holder ; 4. By any other act which will discharge a simple contract for the payment of money; 5. When the principal debtor becomes the holder of the instrument at or after maturity in his own right. Sec. 3175k. [JVhen person secondarily liable on, dis- charged.^ A person secondarily liable on the instru- ment is discharged: 1. By any act which discharges the instrument; 2. By the intentional cancellation of his signature by the holder; 3. By the discharge of a prior party; 4. By a valid tender of payment made by a prior party; 5. By a release of the principal debtor, unless the holder's right of recourse against the party secondarily liable is expressly reserved; 6. By any agreement binding upon the holder to ex- tend the time of payment, or to postpone the holder's right to enforce the instrument, unless made with the as- sent of the person secondarily liable, or unless the right of recourse against such party is expressly reserved. Sec. 31751. [Right of party who discharges instru- ment. 1 Where the instrument is paid by a party sec- ondarily liable thereon, it is not discharged; but the party so paying it is remitted to his former rights as re- gards all prior parties, and he may strike out his own 270 APPENDIX. and all subsequent indorsements, and again negotiate the instrument excej^t: a ' 1. Where it is payable to the order of a third per- son, and has been paid by the drawer; and, 2. Where it was made or accepted for accommoda- tion, and has been paid by the party accommodated. Sec. 3175m. [Renunciation by holder.'] The holder may expressly renounce his rights against any party to the instrument, before, at or after its maturity. An absolute and unconditional renunciation of his rights against the principal debtor made at or after the ma- turity of the instrument discharges the instrument. But a renunciation does not affect the rights of a holder in due course without notice. A renunciation must be in writing, unless the instrument is delivered up to the per- son primarily liable thereon. Sec. 3175n. [Cancellation; u7iintentional; burden of proof,] A cancellation made unintentionally or under a mistake, or without authority of the holder, is inoper- ative ; but where an instrument or any signature thereon appears to have been cancelled the burden of proof lies on the party who alleges that the cancellation was made unintentionally, or under a mistake or without author- ity. Sec. 31750. [Alteration of instrument; effect of.] Where a negotiable instrument is materially altered without the assent of all parties liable thereon, it is avoided, except as against a party who has himself made, APPENDIX. 271 authorized or assented to the alteration and subsequent indorsers. But when an instrument has been materially altered and is in the hands of a holder in due course, not a party to the alteration, he may enforce payment thereof ac- cording to its original tenor. Sec. 3175p. [What coiistitutes a material alteration.'] Any alteration which changes : 1. The date; 2. The sum payable, either for principal or interest; 3. The time or place of payment ; 4. The number or the relations of the parties; 5. The medium or currency in which payment is to be made; or which adds a place of payment where no place of payment is specified; or any other change or addition which alters the effect of the instrument in any respect, is a material alteration. SUBDIVISION II. BILLS OF EXCHANGE. RE-SUBDIVISION I. FORM AND INTERPRETATION. Sec. 3175q. [Bill of eocchange defined.] A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. Sec. 3175r. [Bill not an assignment of funds in hands of drawee.] A bill of itself does not operate as 272 APPENDIX. an assignment of the funds in the hands of the drawee available for the paj^ment thereof, and the drawee is not liable on the bill unless and until he accepts the same. Sec. 3175s. [Bill addressed to more than one drawee.^ A bill may be addressed to two or more drawees jointly, whether they are partners or not, but not to two or more drawees in the alternative or in succession. Sec. 3175t. [Inland and foreign hills of exchange.'] An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within this state. Any other bill is a foreign bill. Unless the con- trary appears on the face of the bill, the holder may treat it as an inland bill. Sec. 3175u. [When hill may he treated as promis- sory note.] Where in a bill, drawer and drawee are the same person, or where the drawee is a fictitious per- son, or a person not having capacity to contract, the holder may treat the instrument, at his option, either as a bill of exchange or a promissory note. Sec. 3175v. [Referee in case of need.] The drawer of a bill and any indorser may insert thereon the name of a person to whom the holder may resort in case of need, that is to say, in case the bill is dishonored by nonac- ceptance or nonpayment. Such person is called the referee in case of need. It is in the option of the holder to resort to the referee in case of need or not as he may see fit. APPENDIX. 273 RE-SUBDIVISION II. ACCEPTANCE. Sec. 317 5w. [Acceptance; how made, etc.'] The ac- ceptance of a bill is the signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money. Sec. 3175x. [Holder entitled to acceptance on face of hill.] The holder of a bill presenting the same for acceptance may require that the acceptance be written on the bill, and if such request is refused, may treat the bill as dishonored. Sec. 3175y. [Acceptance hy separate instrument.'] Where an acceptance is written on a paper other than the bill itself, it does not bind the acceptor except in fa- vor of a person to whom it is shown and who, on the faith thereof, receives the bill for value. Sec. 3175z. [Prornise to accept; when equivalent to acceptance.] An unconditional promise in writing to accept a bill before it is dra^vn is deemed an actual ac- ceptance in favor of every person who, upon the faith thereof, receives the bill for value. Sec. 3176. [Time allotted drawee to accept.] The drawee is allowed twenty-four hours after presentment in which to decide whether or not he will accept the bill, but the acceptance, if given, dates as of the day of pre- sentation. Sec. 3176a. [Liability of drawee retaining or de- stroying bill] Where a drawee to whom a bill is dc- 274 APPENmX. livered for acceptance destroys the same, or refuses within twenty-four hours after such dehvery, or within such other period as the holder may allow, to return the bill accepted or nonaccepted to the holder he will be deemed to have accepted the same. Sec. 3176b. [Acceptance of incomplete &///.] A bill may be accepted before it has been signed by the drawer, or while otherwise incomplete, or when it is overdue, or after it has been dishonored by a previous refusal to ac- cept, or by nonpayment. But when a bill payable after sight is dishonored by nonacceptance and the drawee subsequently accepts it, the holder, in the absence of any different agreement, is entitled to have the bill accepted as of the date of the first presentment. Sec. 3176c. [Kinds of acceptances. 1 An acceptance is either general or qualified. A general acceptance assents without qualification to the order of the drawer. A qualified acceptance in express terms varies the effect of the bill as drawn. Sec. 3176d. [What constitutes a general accept- ance.'] An acceptance to pay at a particular place is a general acceptance, unless it expressly states that the bill is to be paid there only and not elsew^here. Sec. 3176e. [Qualified acceptance.] An acceptance is qualified which is: 1. Conditional, that is to say, which makes payment by the acceptor dependent on the fulfillment of a condi- tion therein stated; 2. Partial, that is to say, an acceptance to pay part only of the amount for which the bill jr, drawn; APPENDIX. ^75 3. Local, that is to say, an acceptance to pay only at a particular place ; 4s, Qualified as to time; 5. The acceptance of some one or more of the drawees but not of all. Sec. 3176f. [Rights of parties as to qualified accept- ance. 1 The holder may refuse to take a qualified ac- ceptance, and if he does not obtain an unqualified ac- ceptance he may treat the bill as dishonored by nonac- ceptance. Where a qualified acceptance is taken, the drawer and indorsers are discharged from liability on the bill, unless they have expressly or impliedly authorized the holder to take a qualified acceptance or subsequently assent thereto. When the drawer or an indorser re- ceives notice of a qualified acceptance, he must, within a reasonable time, express his dissent to the holder or he will be deemed to have assented thereto. RE-SUBDIVISION III. PRESENTMENT FOR ACCEPTANCE. Sec. 3176g. [When presentment for acceptance must be made.^ Presentment for acceptance must be made: 1. Where the bill is payable after sight, or in any other case, where presentment for acceptance is neces- sary in order to fix the maturity of the instrument; or, 2. Where the bill expressly stipulates that it shall be presented for acceptance; or, 3. Where the bill is drawn payable elsewhere than at the residence or place of business of the drawee. In no other case is presentment for acceptance neces- sary in order to render any party to the bill liable. 276 APPENDIX. Sec. 3176h. [When failure to present releases drawer and indorser.] Except as herein otherwise provided, the holder of a hill which is required hy the next preceding section to he presented for acceptance, must either pre- sent it for acceptance or negotiate it within a reasonable time. If he fail to do so, the drawer and all indorsers are discharged. Sec. 3176i. [Presentment; how made.} Present- ment for acceptance must be made by or on behalf of the holder at a reasonable hour, on a business day and before the bill is overdue, to the drawee or some person authorized to accept or refuse acceptance on his behalf; and, 1. Where a bill is addressed to two or more drawees who are not partners, presentment must be made to them all, unless one has authority to accept or refuse accept- ance for all, in which case presentment may be made to him only. 2. Where the drawee is dead, i^resentment may be made to his personal representative. 3. Where the drawee has been adjudged a bankrupt or an insolvent or has made an assignment for the bene- fit of creditors, presentment may be made to him or to his trustee or assignee. Sec. 3176J. [On what days presentment may be made.} A bill may be presented for acceptance on any day on which negotiable instruments may be presented for payment under the provisions of section thirty-one hundred and seventy-three (q) (3173g), and thirty-one APPENDIX. 277 hundred and seventy-four (c) (3174c) of this chapter. When Saturday is not otherwise a holiday, presentment for acceptance may be made before twelve o'clock noon on that day. Sec. 317Gk. [Presentment when time is insufficient. 1 Where the holder of a bill drawn payable elsewhere than at the place of business or the residence of the drawee has not time, with the exercise of reasonable diligence, to present the bill for acceptance before presenting it for payment on the day that it falls due, the delay caused by presenting the bill for acceptance before presenting it for payment is excused and does not discharge the drawers and indorsers. Sec. 31761. [WJiere presentment is excused.'] Pre- sentment for acceptance is excused and a bill may be treated as dishonored by nonacceptance, in either of the following cases: 1. Where the drawee is dead, or has absconded, or is a fictitious person, or a person not having capacity to contract by bill. 2. Where, after the exercise of reasonable diligence, presentment can not be made. 3. Where, although presentment has been irregular, acceptance has been refused on some other ground. Sec. 3176m. [When dishonored by nonacceptance. 1 A bill is dishonored by nonacceptance: 1. When it is duly presented for acceptance and such an acceptance as is prescribed by this chapter is refused or cannot be obtained; or. 278 APPENDIX. 2. When presentment for acceptance is excused, and the bill is not accepted. Sec. 3176n. [Dutij of holder rchcre bill not accept- ed.'} Where a bill is duly presented for acceptance and is not accepted within the prescribed time, the per- son presenting it must treat the bill as dishonored by nonacceptance or he loses the right of recourse against the drawer and indorsers. Sec. 31760. [Eights of holder xichere hill not ac- cepted. ~\ When a bill is dishonored by nonacceptance, an immediate right of recourse against the drawer and indorsers accrues to the holder and no presentment for payment is necessary. RE-SUBDIVISION IV. PROTEST. Sec. 3176p, [In what cases protest necessary. 1 Where a foreign bill appearing on its face to be such is dishonored by nonacceptance, it must be duly protested for nonacceptance, and where such a bill, W'hich has not previouslj^ been dishonored by nonacceptance is dishon- ored by nonpayment, it must be duly protested for non- payment. If it is not so protested, the drawer and in- dorsers are discharged. Where a bill does not appear on its face to be a foreign bill, protest thereof in case of dishonor is unnecessary. Sec. 3176q. [Protest; how made.'] The protest must be annexed to the bill, or must contain a copy thereof, and must be under the hand and seal of the notary mak- ing it, and must specify: APPENDIX. 279 1. The time and place of presentment. 2. The fact that presentment was made, and the manner thereof. 3. The cause or reason for protesting the bill. 4. The demand made, and the answer given, if any, or the fact that the drawee or acceptor could not be found. Sec. 3176r. [Protest; by whom made.] Protest may be made by: 1. A notary public; or 2. By any respectable resident of the place where the bill is dishonored in the presence of two or more cred- ible witnesses. Sec. 3176s. [Protest; when to be made.] When a bill is protested, such protest must be made on the day of its dishonor, unless delay is excused as herein pro- vided. When a bill has been duly noted, the protest may be subsequently extended as of the date of the noting. Sec. 3176t. [Protest; where made.] A bill must be protested at the place where it is dishonored, except that when a bill drawn payable at the place of business or residence of some person other than the drawee has been dishonored by nonacceptance, it must be protested for nonpayment at the place where it is expressed to be payable, and no further presentment for payment to, or demand on, the drawee is necessary. Sec. 3176u. [Protest both for nonacceptance and nonpayment.] A bill which has been protested for non- 280 APPENDIX. acceptance may be subsequently protested for nonpay- ment. Sec. 3176v. [Protest before maturity where acceptor insolvent. ~\ Where the acceptor has been adjudged a bankrupt or an insolvent or has made an assignment for the benefit of creditors, before the bill matures, the holder may cause the bill to be protested for better security against the drawer and indorsers. Sec. 3176vv. [When protest dispensed with.'] Pro- test is dispensed with by any circumstances which would dispense with notice of dishonor. Delay in noting or protesting is excused when delay is caused by circum- stances beyond the control of the holder and not im- putable to his default, misconduct or negligence. When the cause of delay ceases to operate, the bill must be noted or protested with reasonable diligence. Sec. 3176x. [Protest where hill is lost, et cetera.] Where a bill is lost or destroyed or is wrongly detained from the person entitled to hold it, protest may be made on a copy or written particulars thereof. RE-SUBDIVISION V. ACCEPTANCE FOR HONOR. Sec. 3176y. [When bill may be accepted for honor.] Where a bill of exchange has been protested for dis- honor by nonacceptance or protested for better security and is not overdue, any person not being a party already liable thereon may, with the consent of the holder, inter- vene and accept the bill supra protest for the honor of any party liable thereon or for the honor of the person for whose account the bill in drawn. The acceptance APPENDIX. 281 for honor may be for part only of the sum for which the bill is drawn; and where there has been an acceptance for honor for one party, there may be a further accept- ance by a different person for the honor of another party. Sec. 3176z. [Accepta7ice for honor; Jiow made.'\ An acceptance for honor supra protest must be in writing and indicate that it is an acceptance for honor, and must be signed by the acceptor for honor. Sec. 3177. [When deemed to be an acceptance for honor of the drawer.] Where an acceptance for honor does not expressly state for whose honor it is made, it is deemed to be an acceptance for the honor of the drawer. Sec. 3177a. \_Liahility of the acceptor for honor.] The acceptor for honor is liable to the holder and to all parties to the bill subsequent to the party for whose honor he has accepted. Sec. 3177b. [Agreement of acceptance for honor.] The acceptor for honor by such acceptance engages that he will on due presentment pay the bill according to the terms of his acceptance, provided it shall not have been paid by the drawee, and provided, also, that it shall have been duly presented for payment and protested for non- payment and notice of dishonor given to him. Sec. 3177c. [Maturity of bill payable after sight; accepted for honor.] Where a bill payable after sight is accepted for honor, its maturity is calculated from the date of the noting for nonacceptance and not from the date of the acceptance for honor. Sec. 3177d. [Protest of bill accepted for honor^ et ^82 APPENDIX. cetera.'] Where a dishonored bill has been accepted for honor supra protest or contains a reference in case of need, it must be protested for nonpayment before it is presented for payment to the acceptor for honor or ref- eree in case of need. Sec. 3177e. [Presentment for payment to acceptor for honor; how made.} Presentment for payment to the acceptor for honor must be made as follows: 1. If it is to be presented in the place where the pro- test for nonpayment was made, it must be presented not later than the day following its maturity. 2. If it is to be presented in some other place than the place where it was protested, then it must be for- warded within the time specified in section thirty-one hundred and seventy-four (v) (3174r;). Sec. 3177f. [When delay in making presentment is excused.} The provisions of section thirty-one hundred and seventy-three (z) (31732) apply where there is de- lay in making presentment to the acceptor for honor or referee in case of need. Sec. 3177g. [Dishonor of bill by acceptor for honor.} When the bill is dishonored by the acceptor for honor, it must be protested for nonpayment by him. RE-SUBDIVISION VI. PAYMENTS FOR HONOR. Sec. 3177h. [Who may make payment for honor.} Where a bill has been protested for nonpayment any person may intervene and pay it supra protest for the APPENDIX. 283 honor of any person liable thereon or for the honor of the person for whose account it was drawn. Sec. 3177i. [Payment for lionor; how made.'] The payment for honor supra protest in order to operate as such and not as a mere voluntary payment must be at- tested by a notarial act of honor which may be appended to the protest or form an extension to it. Sec. 3177J. [Declaration before payment for honor.'] The notarial act of honor must be founded on a declara- tion made by the payer for honor, or by his agent in that behalf declaring his intention to pay the bill for honor and for whose honor he pays. Sec. 3177k. [Preference of parties offering to pay for honor.] Where two or more persons offer to pay a bill for the honor of different parties, the person whose payment will discharge most parties to the bill is to be given the preference. Sec. 31771. [Effect on subsequent parties where bill is paid for honor.] Where a bill has been paid for honor all parties subsequent to the party for whose honor it is paid are discharged, but the payer for honor is subro- gated for, and succeeds to, both the rights and duties of the holder as regards the party for whose honor he pays and all parties liable to the latter. Sec. 3177m. [Where holder refuses to receive pay- ment supra protest.] Where the holder of a bill refuses to receive payment supra protest, he loses his right of recourse against any party who would have been dis- charged by such payment. Sec. 3177n. [Bights of payer for honor.] The payer 284 APPENDIX. for honor, on paying to the holder the amount of the bill and the notarial expenses incidental to its dishonor, is entitled to receive both the bill itself and the protest. RE-SUBDIVISION VII. BILLS IN A SET. Sec. 31770. [Bills in sets constitute one hill.] Where a bill is drawn in a set, each part of the set being num- bered and containing a reference to the other parts, the whole of the parts constitutes one bill. Sec. 3177p. [Rights of holders where different parts are negotiated.] Where two or more parts of a set are negotiated to different holders in due course, the holder whose title first accrues is as between such holders the true owner of the bill. But nothing in this section af- fects the rights of a person who in due course accepts or pays the part first presented to him. Sec. 3177q. [Liability of holder who indorses two or more parts of a set to different persons.] Where the holder of a set indorses two or more parts to different persons, he is liable on every such part, and every in- dorser subsequent to him is liable on the part he has himself indorsed, as if such parts were separate bills. Sec. 3177r. [Acceptance of bills drawn in sets.] The acceptance may be written on any part and it must be written on one part only. If the drawee accepts more than one part, and such accepted parts are negotiated to different holders in due course, he is liable on every such part as if it were a separate bill. Sec. 3177s. [Payment by acceptor of bills drawn in sets.] When the acceptor of a bill drawn in a set pays APPENDIX. ^85 it without requiring the part bearing his acceptance to be delivered up to him, and that part at maturity is out- standing in the hands of a holder in due course, he is liable to the holder thereon. Sec. 3177t. [Effect of discharging one of a set.] Except as herein otherwise provided, where any one part of a bill drawn in a set is discharged by payment or oth- erwise, the whole bill is discharged. SUBDIVISION III. PROMISSORY NOTES AND CHECKS. RE-SUBDIVISION I. FORM AND INTERPRETATION. Sec. 3177u. [Promissory note defined.'] A nego- tiable promissory note within the meaning of this chap- ter is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer. Where a note is drawn to the maker's own order, it is not com- plete until indorsed by him. Sec. 3177v. [Chech defined.] A check is a bill of exchange drawn on a bank i:)ayable on demand. Ex- cept as herein otherwise provided, the provisions of this chapter applicable to a bill of exchange payable on de- mand apply to a check. Sec. 3177w. [Within what time a check must he pre- sented.] A check must be presented for payment within a reasonable time after its issue or the drawer will be 286 APPENDIX. discharged from liability thereon to the extent of the loss caused by the delay. Sec. 3177x. [Certification of check; effect of.] "\^Tiere a check is certified by the bank on which it is drawn, the certification is equivalent to an acceptance. Sec. 3177y. [Effect where the holder of check pro- cures it to he certified.] Where the holder of a check procures it to be accepted or certified, the drawer and all indorsers are discharged from liability thereon. Sec. 3177z. [Where check operates as an assign- ment.] A check of itself does not operate as an assign- ment of any part of the funds to the credit of the drawer with the bank, and the bank is not liable to the holder unless and until it accepts or certifies the check. SUBDIVISIOX IV. GENERAL PROVISIONS. Sec. 3178. [Definitions and meaning of terms.] In this chapter, unless the context otherwise requires: "Acceptance" means an acceptance completed by de- livery or notification; "Action" includes counter-claim and set-off; "Bank" includes any person or association of persons carrying on the business of banking whether incorpo- rated or not; "Bearer" means the person in possession of a bill or note which is payable to bearer; "Bill" means a bill of exchange, and "Note" means negotiable promissory note; APPENDIX. 287 "Delivery" means transfer of possession, actual or constructive, from one person to another; "Holder" means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof; "Indorsement" means an indorsement completed by delivery ; "Instrument" means negotiable instrument; "Issue" means the first delivery of the instrument, complete in form, to a person who takes it as a holder; "Person" includes a body of persons, whether incor- porated or not; "Value" means valuable consideration; "Written" includes printed and "writing" includes print; [95 v. 196, April 17, 1902; in effect January 1, 1903.] Sec. 3178a. [Person primarily liable on instrument. '\ The person "primarily" liable on an instrument is the person who by the terms of the instrument is absolutely required to pay the same. All other parties are "sec- ondarily" liable. Sec. 3178b. [Reasonable time; what constitutes.] In determining what is a "reasonable" time or an "un- reasonable time" regard is to be had to the nature of the instrument, the usage of trade or business (if any) , wdth respect to such instruments, and the facts of the particu- lar case. Sec. 3178c. [Time; how computed; when last day falls on holiday.'] Where the day or the last day for do- ing any act herein required or permitted to be done falls 288 APPENDIX. on Sunday, or on a holiday, the act maj^ be done on the next succeeding secular or business day. Sec. 3178d. [Application of chapter.'] The pro- visions of this chaj^ter do not apply to negotiable instru- ments made and delivered prior to the taking effect hereof. Sec. 3178e. [Laxic merchant; rchen governs.] In any case not provided for in this cha^^ter, the rules of the law merchant shall govern. SUBDIVISION V. HOLIDAYS. Sec. 3178f. [Holidays.] The following days, viz.: 1. The first day of January, known as New Year's day; 2. The twenty-second day of February, known as Washington's birthday ; 3. The thirtieth day of May, known as Decoration or Memorial day; 4. The fourth day of July, known as Independence day; 5. The first INIonday of September, known as Labor day; 6. The twenty-fifth day of December, known as Christmas day; 7. Any day appointed and recommended by the gov- ernor of this State or the president of the United States as a day of fast or thanksgiving ; and 8. Any day which may hereafter be made a legal holiday, shall, for the purposes of this chapter, be holi- APPENDIX. 289 days; but if said days firstly (1), secondly (2), thirdly (3), fourthly (4), sixthly (6) and eighthly (8) herein be the first day of the week known as Sunday the next succeeding secular or business day shall be a holiday. SUBDIVISION VI. PATENT RIGHT NOTES. Sec. 3178g. [Note given for patent right, how to be written, et cetera.~\ A promissory note, or other nego- tiable instrument, the consideration for which consists in whole or in part, of the right to make, use, or vend a patented invention, or an invention claimed to be pat- ented, shall have written or printed prominently and legibly, across the face thereof, and above the signature thereto, the words "Given for a patent right;" such in- strument in the hands of any purchaser or holder, shall be subject to the same defenses as it would be in the hands of the original o\vner or holder; and any person who purchases or becomes the holder of a promissory note, or other negotiable instrument, knowing it to have been given for the consideration aforesaid, shall hold the same subject to such defenses, although the words "given for a patent right" are not written or printed upon its face. QUESTIONS FOR STUDENTS. The questions are numbered to correspond with the sections in this book. The answers and references for further study may be obtained by referring to the corresponding sections. NEGOTIABLE INSTRUMENTS. CHAPTER I. THE SUBJECT INTRODUCED AND DEFINED. 746. Explain fully what is meant by "negotiable in- struments." How do they differ from simple contracts at common law as regards assignment? 747. What may be said of the history of negotiable paper? What form of commercial paper was first used in England? What was necessary in England to es- tablish the negotiability of promissory notes? Is there such a statute in your State? 748. State what is the purpose answered by nego- tiable instruments. 749. Name the different forms of commercial or ne- gotiable paper. 750. Define a bill of exchange; explain the differ- ence between foreign and inland bills. 751. Write out a bill of exchange with yourself as drawer. Explain who is drawer, drawee, payee, in- dorser, acceptor, indorsee, and holder. 752. Define a promissory note, and distinguish it from a bill of exchange. 753. Write out a promissory note with yourself as 291 292 NEGOTIABLE INSTRUMENTS. maker. Xame and explain the different parties to a promissory note. 7o4. Define a elieck, and distinguish it from a bill of exchange. Write out a check upon your local banker in the customary form. 755. Repeat the essentials of negotiability as given by Professor Walker. 756. Xame the writers on Negotiable Instruments, or Commercial Paper. CHAPTER II. ESSENTIALS OF BILLS AND NOTES. 757. What can you say as regards the bill or note being in writing; bearing date; and signature? What is meant by ante-dating and post-dating, and what ef- fect do they have upon the note or bill? 758. Is it necessary to give the name of the maker or drawer in the instrument? What will take the place of the name? If the signature of the maker is in the alternative what is the effect? Explain what is meant by, and distinguish between joint, several, and joint and sev^eral notes. What may be said as to the name of the drawee in the bill? 759. What is the effect if no person is stated as payee? May an instrument be made payable to bearer, or to a stated officer? If the name of the payee is left blank by whom may it be filled up? 760. In what must bills be payable, state fully? Is a note negotiable which calls for "gold coin" in pay- ment? 761. What may be said about the validity of a bill when amount is payable in money of foreign denomina- QUESTIONS FOR STUDENTS. S93 tion? What is meant by dollars and cents in the United States? 762. Where should the amount payable be stated? In case of a difference will the marginal figures or the words in the body of the instrument govern? 763. What can you say about the necessity of cer- tainty in the sum payable? 764. Are notes written with "current exchange;" for the pajTnent of attorney fees, or costs of collection, valid under the rule as to certainty in the amount paya- ble? What is the effect of a stipulation allowing the holder to confess judgment against the maker on de- fault? 765. What can you say as to the necessity of the sum being payable without conditions? Give examples of what are, and what are not, considered conditions at- taching to the sum payable. 766. What is the general rule as to a note payable "on or before" a given date being negotiable? In part payments of installments? 767. What is meant by words of negotiability, and why are they necessary? What are the words ordinarily used to indicate negotiability? Are such words neces- sary by statute in your State? 768. Give other examples of words of negotiability. 69. What may be said as to the necessity of con- sideration for the bill, and its statement in the instru- ment? 770. What may be said as to inserting a place of payment? 294 NEGOTIABLE INSTRUMENTS. 771. What is the effect of a seal on conmiereial pa- per? 772. What is the necessity as regards witnesses to the sig-nature of maker or drawer? What can you say as to the dehvery of the hill ? What is the presumption as regards delivery, and how may this presumption he rehutted? AX'liat is an "escrow," and may commercial jjaper he so delivered? 773. What is the effect of notes and hills executed inhlank? Who may fill them up? Whom do they hind? 774!. What in general is sufficient to constitute the promise to pay in a hill? Illustrate your answer. CHAPTER III. THE PARTIES. 775. What general rules apply to bills as regards the caj^acity of the parties to make them? 776. What can you say as regards commercial pa- per executed by an infant? Is the contract void or void- able? If the note was given for necessaries what may be recovered? What is the effect when the infant is made payee? What is the effect of the ratification of such paper? 777. What can you say as to the validity of commer- cial paper executed by an insane person? 778. At conmion law what was the capacity of a married woman to execute a valid ])ill? What is the ef- fect of modern statutes in this regard? 779. Can an Alien Enemy be a party to valid com- mercial paper? Why not? QUESTIONS FOR STUDENTS. 295 780. State fully and explain when partners have im- plied power to execute commerical paper in the firm name. What is the effect of partnership paper im- properly issued in the hands of a bona fide holder? What is the proper form of firm signature? 781. Into what general classes are corporations di- vided? Distinguish between the several classes of cor- porations. What governs the power of a corporation to issue commercial paper? 782. What is meant by "ultra vires" contracts? What is the effect of paper issued ultra vires? Explain fully. What is the implied power of a corporation to be payee or indorsee of a bill? 783. By whom may corporations be represented? Discuss the implied power of cashier, president, or sec- retary to act for the corporation. What may be said as to the proper form of a corporate signature? How must bills payable to a corporation be indorsed? 784. Discuss the power of public or municipal cor- porations to make and receive commercial paper. What is the better rule as to the extent of the implied power of a municipal corporation to issue negotiable paper for borrowed money? 785. Who has power to represent the municipal cor- porations in the issuing of commercial paper? 786. Discuss the power of Trustees, Guardians, and Executors to issue commercial paper in their representa- tive capacity. What is their power to indorse or trans- fer the paper of the estate? J296 NEGOTIABLE INSTRUMENTS. CHAPTER IV. tup: CONSIDERATION. 787. What is the general rule as regards a consid- eration for commercial paper? 788. Discuss the meaning of a valuable considera- tion, giving examples of such a consideration for a ne- gotia])le instrument. Give some examples of what are not valuable considerations. 789. Give instances of who are considered holders of commercial paper for value. What may be said as to the consideration when a note is taken for a pre-exist- ing debt, or for collateral security? Mention the rules laid down by JNIr. Daniel. 790. What is meant b}^ a bona fide holder for value without notice? Give illustrations. What does notice include? What is the effect of a bill being overdue at the time of transfer? What is the status of a holder with notice who has taken from one without notice? What is meant by immediate parties; remote parties? What defenses are available against remote parties? How is privity between parties created? 791. Explain what is meant by accommodation pa- per. What rights has the accommodation party against the holder of the note to which he has become a party? What are his rights in such bill before its negotiation? 792. Discuss the effect of absence of consideration, or a failure of consideration, upon the note. When is partial failure a defense and against whom? What is the effect when the consideration is illegal? When void? QUESTIONS FOR STUDENTS. 297 793. Explain and discuss the effect of fraud or duress upon the validity of the note affected with it. Who may retain a bill effected with fraud against the rightful owner? CHAPTER V. ACCEPTANCE AND TRANSFER CONSIDERED. 794. State the purpose of acceptance. 795. What is the meaning and effect of acceptance? Who becomes the primary debtor by acceptance? 796. State fully what bills must be presented for acceptance. 797. Discuss presentment for acceptance as regards, who may make, where, when, and within what time. "WTiat is means by reasonable time? 3Iay the drawee demand to see the bill? What is the necessity of the presentment being final? 798. Give four cases in which presentment may be excused. 799. Discuss the acceptance as regards, who may accept, when he may accept, what the holder may re- quire of the acceptor, and when the acceptance is com- pleted so as to be irrevocable. What is the usual form of accej)tance? When will an accej^tance be implied? 800. Explain what is meant by, and discuss, accept- ances for honor, or supra protest. What must the ac- ceptor supra protest do to have recourse? If conditional acceptance is consented to by the holder, what must he do to hold other parties liable? 801. Explain and discuss fully presentment for pay- 298 NEGOTIABLE INSTRUMENTS. ment. When is a bill dishonored by non-payment? When is 2^1'esentment for payment unnecessary? TRANSFER. 802. State generally, in what ways bills may be transferred. 803. Explain and discuss transfer by act of law. 804. Explain and discuss transfer by assignment. If indorsement is subsequently obtained, what governs as regards the time when it operates as a negotiation? 805. What is the meaning of transfer by negotia- tion, and what are the incidents and privileges as given by Benjamin in his edition of Chalmer's Bills and Notes? When is a bill negotiable? 806. Name and describe the two modes of negotia- tion. Where must the indorsement be written? 807. State the different kinds of indorsements. How may a blank or general indorsement be converted into a special one, and what is the effect? 808. Explain and discuss (a) qualified, (b) condi- tional, and (c) restrictive indorsements. What is the effect of the restrictive indorsement on the indorsee? 809. Who must negotiate the bill? Explain what is meant by the de facto holder. 810. To whom may a bill be indorsed? 811. AVhen may a bill be negotiated? What is the presumption as to when it was negotiated? 812. What may be said as to the negotiation of over- due paper? When are bills payable in installments deemed overdue? In your State is a set-off or counter- QUESTIONS FOR STUDENTS. 299 claim an equity attaching to an overdue bill? When is lack of consideration for the transfer not an equity at- taching to the overdue bill? 813. What does the indorser warrant on negotia- tion? What may be said as to the rights of the indorsee? What may be shown as against the de facto holder to defeat his suit ? When and how may an action be main- tained upon a lost bill? CHAPTER VI. DUTIES OF THE HOLDER. 814. What are the general duties of the holder of a bill? 815. What is the rule to ascertain the proper date for presentment? Explain the effect of days of grace, or holidays on the date of maturity of the bill. 816. What may be said as to the mode of present- ment? PROTEST. 817. Explain the meaning and purpose of protest. What is the effect of failure to protest a bill? 818. Explain what is meant by noting for protest. Of what does the noting consist? 819. State what the certificate of protest should con- tain. Where should the bill be protested? What law governs in case of conflict? 820. What facts are evidenced by the notarial cer- tificate? What, if any, statutes in your State in regard to this? 821. How may protest be waived or dispensed with? aOO NEGOTIABLE INSTRUMENTS. 822. Explain protest for better security; for dis- honor supra protest. NOTICE OF DISHONOR. 823. Explain and discuss the meaning and purpose of notice of dishonor. What is the effect of a failure to give due notice? 824. What are the elements of due notice? Describe each fully. When notice is pro2)erly given by the holder for whose benefit will it inure? 825. What is the rule as regards the time given a party other than the holder to give notice of dishonor? When is the drawee or acceptor deemed the agent of the holder to give notice? 826. State and explain the seven instances when no- tice of dishonor will be dispensed with as given by Ben- jamin in his edition of Chalmer's Bills and Notes. 827. What are the excuses for delay in the giving of notice? 828. By what laws is the instrument governed as re- gards notice of dishonor in case of conflict? . PAYMENT. 829. What may be said as to the duty of the holder to accept paj^ment and deliver the bill? How is pay- ment distinguished from a sale or ti-ansfer of the bill? 830. State who may make or receive payment. 831. When is a payment properly made, and what is the effect of such a payment? When the payment is I QUESTIONS FOR STUDENTS. 301 made by one other than the primary obligor what is its effect? 832. Give the three rules as to the application or ap- propriation of a payment when there are two or more bills held by the holder. 833. Explain and discuss when the payment by bill will be considered absolute or conditional. What is the effect of the conditional payment on the original bill? What are the duties of the holder as regards the bill taken in conditional payment? CHAPTER VII. LIABILITIES OF PARTIES AND SPECIAL FORMS OF DISCHARGES. 834. Explain and discuss the liability of the drawee to the drawer, and to the holder before acceptance. 835. Explain the liability of the acceptor to the holder. What is the acceptor precluded from denying as against a holder in good faith? For what is the ac- ceptor liable by refusing to pay the accepted bill? 836. Explain and discuss fully the liability of the drawer or indorser to the holder. Who are considered indorsers generally? What is the indorser precluded from setting up as against the holder in good faith? What is the extent of indorser's liability on dishonor of the bill? 837. Explain and discuss what is meant by exchange and re-exchange. Are promissory notes within the rule as to exchange? 838. What may be said as to the rate of interest re- coverable after maturity? 302 NEGOTIABLE INSTRUMENTS. 830. Discuss the liability assumed by a person who transfers a bill by delivery only. What facts does he warrant to the transferee? 840. What may be said of the liability cf the person accommodated to the accommodation party? 841. What is meant by a discharge of a bill, and what will operate as such discharge? 842. What is mentioned as a discharge of a surety to a bill? 843. Explain what is meant by a forgery; by an al- teration. What is the meaning of a spoliation? What is the effect of a material alteration? Of an immaterial alteration? What may the holder who has materially altered a bill recover? When are bona fide holders pro- tected from the effect of forgeries or material altera- tions ? 844. At common law what is the time Hmit within which a suit can be brought on a bill? When does time begin to run as regards the various parties to the bill? What if any statute in your State in regard to the time within which suit may be brought on a bill? CHAPTER VIII. PROMISSORY NOTES AND CHECKS SPE- CIALLY CONSIDERED. 845. Wlmt can you say regarding the form and in- terpretation of a promissory note? Give examples of what are and what are not deemed promissory notes. 846. What may be said as to the negotiability of promissory notes? Wh«n will the note be deemed over- due? QUESTIONS FOR STUDENTS. 303 847. Describe the liability of the maker of a prom- issory note. What does he warrant to the bona fide holder? CHECKS. 848. Give Tiedeman's definition of a check. What is the effect of a check drawn against a bank in which the drawer has no funds? What is the usual form of a check? When is a check payable which is post-dated? 849. What is meant by a certified check? What change in the liability of the bank is made by its certi- fying a check? How, and by whom may checks be certified ? 850. Are checks negotiable instruments? What is the effect of the payee adding his name to the check at the time of payment? 851. Explain the duties of the holder of a check as regards presentment for payment, notice of dishonor and protest. When will the drawer be discharged by failure to present for payment or to give notice of dis- honor? 852. Give the rules governing the time within which the check must be presented for payment. What ex- cuses may be alleged to excuse delay in presentment for payment? 853. When will a check not known to have been dishonored be deemed overdue? Give examples. 854. Explain who may draw checks against de- posits. 855. When will death or bankruptcy of the drawer revoke a check? 304 NEGOTIABLE INSTRUMENTS. 85G. Ex})lain tlic rights and duties of the banker as regards the funds of depositors. \Miat is the re- sponsibility of tlie bank to these drawers in case funds are paid out on a forged indorsement? ISliiy tlie bank recover money paid to a j^erson on an altered check? Give reason for your answer. What may be said as to tile duty of the bank to know the signatures of its depositors? May the holder of a check sue the bank for a refusal to pay when in funds? Give reason for answer. INIay tlie bank offset an account against the holder of a check? 857. Discuss and explain the rights and liabilities of the drawer of a check. What becomes of the check when paid? 858. AVliat is the general rule applicable when a check is given in payment of a debt? CHAPTER IX. PAPER MONEY, COUPON BONDS, AND QUASI- NEGOTIABLE PAPER. 859. IMention the various kinds of paper money in use in the United States, and give the general charac- teristics of such money as negotiable instruments. What does the transferor of a bank-note warrant? 8G0. Give Tiedeman's definition of a coupon bond. What is the nature of the coupon? Who may issue coupon bonds? What, in general, are the rights of a holder of a coupon bond? 801. Explain the method of transfer, presentment for payment and discharge of coupon bonds. After QUESTIONS FOR STUDENTS. 305 maturity, may interest be collected on the bond or coupon? 862. Who may bring an action on the bond? May the coupon be sued on? If the bond is invalid, may the original consideration be recovered? What defenses may be set up by a municipal corporation in an action on its bonds? 863. Explain what is meant by a certificate of de- posit, and discuss its effect as a negotiable instrument. 864. What is meant by a bill of lading being quasi- negotiable? Explain fully the features of a negotiable instrument possessed by a bill of lading. What if any statute in your State regarding bills of lading as ne- gotiable instruments? 865. Mention the negotiable characteristics of cer- tificates of stock. 866. What may be said as to warehouse receipts possessing some of the features of negotiable paper? Are warehouse receipts negotiable by statute in your State? 867. Define and explain letters of credit and cir- cular notes. THE LAW OF SURETYSHIP AND GUARANTY. CHAPTER I. THE CONTRACT DEFINED AND EXPLAINED. 868. Define Suretyship and Guaranty; and explain and distinguish between them. Which is bound with the principal? 869. What may be said of the essentials necessary to the contract of suretyship or guaranty? What can you say of the antiquity of such contracts? 870. In general, who may become sureties or guar- antors? In case an individual becomes a surety con- trary to a statute or rule of court will his obligation be binding? 871. State whether or not a consideration is neces- sary to the contract of guaranty or suretyship. Dis- cuss what will and what will not be deemed a sufficient consideration to hold the surety or guarantor. 872. What is the effect of a bond given when not required, or in a different form from the one ^^rescribed? Illustrate. 873. When may the name of the surety be left from the written obligation and he still be bound? When will the contract of suretyship or guaranty be implied? 874. When is parol evidence admissible to show that a party of a joint or joint and several note is a surety? 306 QUESTIONS FOR STUDENTS. 307 If the creditor knows of the fact of suretyship and does an act that would discharge surety, what is the effect? What is the rule as to the admissibility of parol evi- dence where the party has added "surety" to his name? Where he has added "principal?" 875. Give the general rule as to the surety being estopped to deny recitals of fact in his written obliga- tion. 876. Discuss the principles governing the question of the negotiability of guaranties. 877. Explain when an offer of guaranty must be accepted, and when it will be deemed unnecessary. 878. What m.ay be said as to the form or character of the guaranty? May it be oral? How is it determined whether or not a guaranty is continuing or not? Give illustrations. 879. Discuss the limitations which apply to the sure- ty's contract as regards time, act or amount. Give il- lustrations. 880. Give the section of the statute of frauds that affects the contract of the surety or guarantor. Discuss the principles governing the question whether the con- tract is within or without the statute of frauds. Illus- trate when the contract must be in writing, and when it need not be in writing. Where the surety promises to pay the debt of another from such other's property, need the contract be in writing? 881. Explain the effect of the surety's contract when it is within the statute of frauds, and not in writing. When may a part of an oral promise be valid? 308 SURETYSHIP AND GUARANTY. CHAPTER II. LLUJILITY OF SURETY OR GUARANTOR — HOW DISCHARGED, ETC. 882. What is the general rule as to the interpreta- tion of the contract of the surety or guarantor? What may be said as to guarantor and suretj'' being favorites of the law? When will the contract have a retroactive effect? 883. When may the surety or guarantor be sued with the 2)rincipal, and before the creditor's remedies against the principal are exhausted? What was the Roman Law on this question? When the guaranty is to insure the collection of a debt, or of the collectibility of a note, what must the creditor do before suing the guarantor? 884. Explain the meaning of due diligence as ap- plicable to the action of the creditor in attempting to collect from the principal. What will excuse delay on the part of the creditor in proceeding against the prin- cipal? When is he excused from looking to the prin- cipal? 885. Explain fully the liability of the suretj'- for the payment of overdue notes, and for the rent of a tenant who holds over. Illustrate. 886. In general, what is the extent of the surety's liability for a debt or on a bond? When may he be charged with interest? 887. State the extent of a surety's liabilit}^ for a dis- counted note. If the note signed by the surety is di- verted from its purpose, what is its effect? QUESTIONS FOR STUDENTS. 309 888. Explain and discuss the liability of the surety on general and particular guaranties. Give illustra- tions. What is the effect of a guaranty given to one and acted on by several? Bound for several and credit is given to one? What is the general rule as to the extent of the surety's obligation? 889. Give special illustrations of the liability of the surety. 890. Explain when the death of the guarantor or surety will revoke the contract. When will the death of the guarantor revoke a continuing guaranty? 891. Explain when the surety may be sued jointly with the principal. When he cannot be sued jointly. 892. Give instances when a court of equity will charge a surety not chargeable at law. When it will not. 893. The law of what place governs the liability oi the surety? 894. W^hat is the effect on the liability of the surety when the principal is not bound, or is discharged? What distinction is made as regards the reasons which dis- charge the principal? If the surety is indemnified, will he be discharged? 895. What may be said as to the necessity of demand on the principal for payment, and notice of default to the guarantor? What is said of the necessity of demand and notice where the guaranty is absolute? When is notice and demand unnecessary? What notice must be given when necessary, and within what time? 896. Discuss the rules applicable to determine the 310 SURETYSHIP AND GUARANTY. liability of blank indorsers and accommodation parties to commercial paper. To what extent is parol evidence admissible in such cases? 897. In general, what are the methods by which surety or guarantor may be discharged from his obliga- tion? 898. Explain and discuss the discharge of the surety by payment of the debt for which he was responsible. What eflfect has a valid tender of the amount of the debt in money upon the liability of the surety? 899. Explain and discuss fully the discharge of the surety by the creditor giving time to the principal; as regards, 1, the consideration; 2, the time. 900. State some exceptions when the surety is not discharged by the creditor giving time to the principal. When will the taking of a new note for the debt of the principal discharge the surety? Will the taking of col- lateral security by the creditor discharge the surety? What must the surety set up to be discharged? 901. Explain and discuss fully the discharge of the surety or guarantor by the creditor altering the con- tract of the surety. Give illustrations of alterations working a discharge of the surety. Of alterations not working a discharge. 902. Discuss and explain fully the discharge of the surety by fraud, misrepresentation or concealment, and the like on the part of the creditor, or by the principal with the knowledge and consent of the creditor. Give illustrations. 903. Discuss and explain the discharge of the surety QUESTIONS FOR STUDENTS. 311 by the creditor relinquishing securities obtained from the principal for the payment of the debt. What is the status of a creditor holding a pledge or lien on property of the principal? Will the surety be discharged pro tanto in case the security released is less than the amount of the debt? Give examples. 904. When will the negligence or carelessness of the creditor in dealing with collateral security for the debt discharge the surety? Give examples. CHAPTER III. OF THE RIGHTS OF SURETIES AND GUAR- ANTORS — CONTRIBUTION AND SUBROGATION. 905. Mention the rights of sureties and guarantors. 906. Who is the real debtor in the contract of sure- tyship? What promise is implied from this real debtor? When does the surety have an action for indemnity against the principal? Is demand or notice necessary prior to suit? How may the debt be paid by the surety? In case of a compromise of the debt by the surety, what amount can he recover from the principal? Can he recover costs? Consequential damages? 907. If the surety pays in installments, what are his rights? When does the surety's right to indemnity commence as against the principal's demand of exemp- tion or the claims of third parties ? What are the rights of a volunteer surety? Of the surety after the principal has been discharged in bankruptcy? What are the sure- ty's rights in equity before paying the debt of the prin- cipal? If the principal was not liable and the surety 812 SURETYSHIP AND GUARANTY. pays may he recover indemnity? ^lay the claim of the surety for indemnity be barred by the statute of limita- tions? When does the statute begin to run? 908. Explain and discuss the rights of the surety as against the creditor. In your State is there any statute authorizing the surety to notify the creditor to commence proceedings against the principal? 909. Explain the nature of the rights of surety or guarantor as against third persons. 910. What is meant by the right to contribution? What is a pre-requisite to the enforcement of contribu- tion? 911. Explain who are considered co-sureties. Give illustrations. To what extent may parol evidence be used to charge or release one from contribution as co- surety? When will the surety be denied the right to enforce contribution from the co-sureties? 912. If one of the sureties becomes the principal, what is the effect? If the principal or co-surety is not liable for the debt paid by the surety what is the effect? If indemnity is taken by one co-surety to whose benefit will it inure? Does it matter whether such indemnity is taken before or after the debt is paid? 913. Mention the other equitable rights of the co- surety before paying the debt. How is the amount re- coverable by the surety who pays the debt from each of the co-sureties determined? What is the rule where the sureties are bound in different amounts for the same obligation? Where may the suit for contribution be brought, and who are proper parties? QUESTIONS FOR STUDENTS. 313 914. What is the nature of subrogation? Explain fully what is meant by the right to subrogation. To what extent is the rule that payment discharges a debt modified by the principle of subrogation? 915. Who is generally entitled to subrogation? How may the right be defeated? What is necessary to be done before it may be enforced? 916. If denied by the creditor, how may the right to subrogation be enforced by the surety? 917. Must the whole debt be paid before the right to subrogation is complete? When will the right not be allowed? Why is not collateral security held by the creditor discharged by the payment of the debt by the surety? What is the effect of taking a separate indem- nity on the right to subrogation? May the surety pay- ing enforce the rights of the creditor against a co-surety under the principle of subrogation? 918. Explain the holdings of the authorities as re- gards the right of a surety paying the debt after it has been reduced to a judgment to be subrogated to the position of the creditor as regards such judgment. 919. Does the right to subrogation cover all the se- curities held by the creditor? How is this question set- tled in England? What are the sureties' rights in a mortgage held by the creditor as security, under the principle of subrogation? Is the surety of a surety entitled to subrogation? What effect will notice of the surety's right to subrogation have when third persons take the property held by the creditor as collateral, with knowledge of its character? What may be said of the 3U SURETYSHIP AND GUARANTY. right to be subrogated to securities and remedies by sureties for administrators, guardians, and the like'? 920. Explain and discuss the right of the creditor to be subrogated to securities held by the surety from the principal. What is the rule when such security is given the surety to indemnify him from a contingent liability? If the surety receives the indemnity from a stranger, can the creditor claim subrogation? ABBREVIATIONS. (see also the abbreviations given in previous numbers.) Admr., Admrs. — Administrator, Administrators. Ads. — Ad sec tarn; at the suit of. A. & E., or Ad. & El. — Adolphus and Ellis' Reports, Eng- lish King's Bench. B. & A., or B. & Aid., or Bam. & Aid. — Bamewall and Alderson's Reports, English King's Bench. B. & P., or Bos. & Pul. — Bosanquet & Puller's Reports, Eng- lish Common Pleas. Barr. — Barr's Reports, Penna. Supreme Court, Pa. St. Vols. 1-10. Benj.'s Chalmers B., N. & C. — Benjamin's Chalmers Bills, Notes and Checks. Bing. — Bingliam's Reports, English Common Pleas. Bing. N. C. — Bingham's New Cases, Eng. Common Pleas. Black (Ind.) — Black's Reports, Indiana Supreme Court, Ind. Reports, Vols. 30-55. Bligh (H. L.) — BHgh's Reports, English House of Lords. Brock. — Brockenborough's Reports, Marshall's U. S. Circuit Court Decisions. Bush (Ky.) — Bush's Reports, Kentucky Court of Appeals. C. B. N. S. — Common Bench Reports, New Series, English. C. & K. — Carrington and Kirwan's Reports, EngHsh Nisi Prius. Caine's — Caine's Reports, N. Y. Supreme Court. Cal. — California State Reports, Supreme Court. Car. & M. — Carrington and Marshman's Reports, Eng. Nisi Prius. Cranch — Cranch's Reports, United States Supreme Court. Co. or Co. Rep. — Coke's Report. 315 316 ABBREVIATIONS. Cont. or Contra — Contra; to the contrary. (jonn. — Connecticut Supreme Court of Errors Reports. Cold, or Coldw. — Coldwell's Reports, Tennessee Supreme Court. Cromp. & Jer. — Crompton and Jervis's Reports, English Exchequer. Dana — Dana's Reports, Kentucky Court of xVppeals. Day — Day's Reports, Connecticut Supreme Court of Errors, Conn. Reports, vols. 1-21. Daniel or Daniel's Neg. Inst. — Daniel's Negotiable Instru- ments. Den. or Denio — Denio's Reports, N. Y. Supreme Court and Court of Appeals. Dev. & Bat. — Deveraux and Battle's Reports, North Caro- lina Supreme Court, law and equity. Dillon. Mun. Corp. — Dillon's Municipal Corporations. Eng. (Akr.) — English's Reports, Arkansas Supreme Court; Arkansas Reports, vols. 6-13. Ex. or Exch. — English Exchequer Reports, Et al. — Et Alius; and another. Ex rel. — Ex relatione; upon the information. Gray — Gray's Reports, Massachusetts Supreme Court; Mass. Supreme Court, vols. 67-82. Gill and J. or Gill and John. — Gill & Johnson's Reports, Maryland Court of Appeals. Harr. (Del.) — Harrington's Reports, Delaware Superior Court and Court of Errors and Appeals. Haywood, (Tenn.) — Haywood's Reports, Tennessee Supreme Court of Errors and Appeals. Heisk. — Heiskell's Reports, Tennessee Supreme Court. Hen. & Mum. — Hening & Mumford's Reports, Virginia Court of Appeals. Hilt.— Hilton's Reports, N. Y. Common Pleas. Hurl. & Gor.— Hurtstone's & Gordon's Reports Eng. Ex- chequer. Humph. — Humphrey's Reports, Tennessee Supreme Court. Id. or idem. — The same. ABBREVIATIONS. 317 L. J. C. P. — Law Journal New Series, English Common Pleas. L. R. — ^Law Reports, Eng. Chancery Appeal Case. L. R. Q. B. D. — Law Rep. Queen's Bench Division Eng. Supreme Court of Judicature. M. & M. — Moody & Malkin's Nisi Prius Cases, English Courts. McCord L. — McCord's Law Reports, South Carolina Con- stitutional Court and Court of Appeals. Mich. — Michigan Reports, Supreme Court. Miss. — Mississippi Reports, High Court of Errors and Ap- peals, and Supreme Court. Nat. or Natl. — National. N. Y. S. C, or N. Y. Supr. C— New York Supreme Court Reports. Nott & M.— Nott & McCord's Reports, S. C. Constitutional Court. Parson's N. & B. — Parson's Notes and Bills. Pen. — Pennington's Reports, New Jersey Supreme Court. Penr. & Watts — Penrose and Watts' Reports, Penna. Supreme Court. Rich. Law — Richardson's Law Reports, South Carolina Ct. of Appeals. Rich. Eq. — Richardson's Equity Reports, S. C. Court of Appeals. Sm. Lead. Cas. — Smith's Leading Cases. Smith, E. D., or E. D. Smith— E. D. Smith's Reports, N. Y. Common Pleas. Saund. — Saunder's Reports, English King's Bench. Sandf. Ch. — Sandford's Chancery Reports, New York Chan- cery. Sur. & Guar. — Suretyship and Guaranty. Taunt. — Taunton's Reports, English Common Pleas. Tiedeman, Com. Pap. — ^Tiedeman's Commercial Paper. Tenn. — Tennessee Reports, Supreme Court. Upp. Can. — Upper Canada Reports, Queen's Bench. Va. — ^Virginia Reports, Supreme Court. Vr. or Vroom — Vroora's Reports, N. J. Supreme Court and Errors and Appeals. 318 ABBREVIATIONS. Wels., Hurl. & Gor. — Welsby, Hurlstone, and Gordon's Re- ports, English Exchequer. Wils. — Wilson's Reports, Eng. King's Bench. Willes — Willes' Reports, English Courts. Wood's C. C. — Wood's U. S. Circuit Court Reports. Y. & C. — Younge & Collyer's Reports, Exchequer Equity, English. Yerg. — Yerger's Reports, Tennessee Supreme Court. Zabr. — Zabriskie's Reports, N. J. Supreme Court and Errors and Appeals. CASE BOOK— VOL. VI. ILLUSTRATIVE CASES ON NEGOTIABLE INSTRUMENTS AND PRINCIPAL AND SURETY Selected and Arranged to Complement Vol. VI, Cyclopedia of Law BY CHARLES E. CHADMAN, LL. M. PUBLISHERS DE BOWER-ELLIOTT COMPANY CHICAGO, U. S. A. Copyright, 1907 By Frkdkkick J. Drake & Co. Chicago CONTENTS. PART I. NEGOTIABLE INSTRUMENTS. CHAPTER I. HISTORY, DEFINITION AND PURPOSE OF ZSTEGOTIABLE INSTRUMENTS. PAGE Goodwin v. Robarts j^. . 1 CHAPTER II. ESSENTIALS OF BILLS AND NOTES. Taylor v. Dobbins 7 Brown v. The Butchers ' and Drovers ' Bank 7 De La Courtier v. Bellamy 8 M'Call V. Taylor 9 Brown v. Oilman 11 Hasbrook v. Palmer 13 Rhodes v. Lindley 15 Smith V. Nightingale 17 Dodge V. Emerson 18 Bank v. Armstrong 20 ^Rlaule V. Crawford 23 Benjamin v. Tillman 2^ Poplewell V. "Wilson 28 Burson v. Huntington 28 Currier v. Lockwood 41 Wheatley v. Strobe 49 iii IV CONTENTS CHAPTER III. THE PARTIES. CHAPTER IV. THE CONSIDERATION. PAGE Widoe V. Webb ^._.. 54 CHAPTER V. ACCEPTANCE AND TRANSFER CONSIDERED. Luff V. Pope 61 Price V. Neal 64 Montelius v. Charles 66 Cheek v. Roper 70 Davis V. Clarke 71 Coolidge et al. v. Payson ef al 74 Spaulding v. Andrews 81 Spear v. Pratt 82 Hough V. Loring 84 Petit V. Benson 87 Hoare et al. v. Cazenove et al 87 Curtis V. Sprague 92 French v. Turner 94 Hull V. Conover 98 Hotel Co. V. Bailey 98 Harris v. Bradley 104 Erwin v. Downs 105 Fish V. First National Bank of Detroit 106 Watson V. Chesire 107 Claflin V. Wilson 113 CHAPTER VI. DUTIES OP THE HOLDER. Lawrence v. Langley 116 Musson V. Lake 118 Salt Springs National Bank v. Burton 136 Carter v. The Union Bank 141 Lawson v. The Farmers ' Bank of Salem 143 Morgan v. Bank of Louisville 154 CONTENTS - V CHAPTER VII. LIABILITIES OP PARTIES AND SPECIAL FORMS OF DISCHARGES. PAGE Price V. Neal 158 Hotel Co. V. Bailey 158 Ex Parte Clarke 158 Dumont v. Williamson 159 Merriam v. Wolcott 163 Mead v. Young 166 Harsh et al. v. Klepper 172 PART II. CASES ON THE LAW OF SURETYSHIP AND GUARANTY. CHAPTER I. THE CONTRACT DEFINED AND EXPLAINED. Campbell v. Sherman (Hornet's Appeal) 179 Saint et al. v. Wheeler & Wilson Mfg. Co 182 Smith V. Shelden et al 199 Aud V. Magruder 203 Kimball v. Newell 208 Trimble v. Rudy 212 Davis et al. v. Wells, Fargo & Co 214 Union Bank of Louisiana v. Coster's Executors 224 Hooker et al. v. Russell 232 Gibbs et al. v. Blanchard 235 CHAPTER II. LIABILITY OP SURETY AND GUARANTOR — HOW DISCHARGED, ETC. Smith et al. v. Van Wyck 242 The People of the State of New York v. Backus et al 244 McMurray et al. v. Noyes 250 Roberts v. Hawkins 252 Taylor et al. v. Wetmore et al 259 Morrison et al. v. Arons et al 262 Aetna Ins. Co. v. Fowler et al 265 VI CONTENTS PAGE Russell V. Annable 2G8 Davis et al. v. Wells, Fargo & Co 271 Sawyer v. Brownell 271 Spurgeon v. Smitha et al 273 Deering v. Moore 277 Dodd V. Winn 279 McComb V. Kittridge 282 Pearl v. Deacon 285 Pain V. Packard et al 288 CHAPTER III. OF THE RIGHTS OP SURETIES AND GUARANTORS — CONTRIBUTION AND SUBROGATION. Lansdale v. Cox 290 Johnson v. Johnson 292 Moore v. Bruner 295 Emmert v. Thompson 297 CASES ON Negotiable Instruments AND PRINCIPAL AND SURETY. PART I. NEGOTIABLE INSTRUMENTS. CHAPTER I. HISTORY, DEFINITION AND PURPOSE OF NEGOTIABLE INSTRUMENTS.* GOODWIN V. ROBARTS. Law Reports 10 Court of Ex. 76; Law Reports 10 Court of Ex. Chamber, 337; House of Lords 1 App. Cas. 476. 1875-6. CocKBURN, Chief Justice, Bills of exchange are known to be of comparative modern origin, having been first brought into use, so far as it is at present known, by the Florentines in the twelfth, and by the Venetians about the thirteenth century. The use of them gradually found its way into France, and, still later, and but slowly, into England. We find it stated in a law tract by Mr. Macleod, entitled ' ' Specimen of a Digest of the Law of Bills of Exchange," printed, we believe, as a report to the govern- ment, but which, from its research and ability, deserves to be produced in a form calculated to insure a wider circulation, that Richard Malynes, a London merchant, who published a work called the "Les Mercatoria," in 1622, and who gives a full ac- count of these bills as used by the merchants of Amsterdam, Hamburg, and other places, expressly states that such bills were * See Sees. 746-756, Vol. 6, Cyclopedia of Law. 1 2 HISTORY, DEFINITION, ETC. not used in England. There is reason fo fhink, however, that this is a mistake. Mr. Maeleod shows that promissoiy notes, payable to bearer, or to a man and his assigns, were known in the time oi" Edward IV, Indeed, as early as the statute of 3 Rich. II., eh. 3, bills of exchange are referred to as a moans of convey- ing money out of the realm, though not as a process in use among English merchants. But the fact that a London mer- chant, writing expressly on the law merchant, was unaware of the use of the bills of exchange in this country, shows that th.^.t use at the time he wrote must have been limited. According to Professor Story, who herein is, no doubt, perfectly right, "the introduction and use of bills of exchange," as indeed it was everywhere else, "seems to have been founded on the mere prac- tice of merchants, and gradually to have acquired the force of a custom." "With the development of English commerce the use of these most convenient instruments of commercial traffic would, of course, increase ; yet, according to Mr. Chitty, the earliest case on the subject to be found in the English books is that of Martin v. Boure, (1603) (Cro. Jac, 6, (1603)) in the first James I. Up to this time the practice of making these bills negotiable by in- dorsement had been unknown, and the earlier bills are found to be made payable to a man and his assigns, though in some instances to bearer. But about this period — that is to say, at the close of the six- teenth or the commencement of the seventeenth century — the practice of making bills payable to order, and transferring them by indorsement, took its rise. Hartmann, in a very learned work on bills of exchange, recently published in Germany, states that the first known mention of the indorsement of these instruments occurs in the Neapolitan Pragmatica of 1607. Slavery, cited by Mons. Nougruier, in his work, "De Lettres des Change," had assigned to it a later date, namely, 1620. From its obvious con- venience tliis practice speedily came into general use, and, as part of the general custom of merchants, received the sanction of our courts. At first the use of bills of exchange seemed to have been confined to foreign bills between English and foreign merchants. It was afterwards extended to domestic bills between traders, and finally to bills of all persons, whether traders or not. (Chitty Bills (8th ed.) 13.) GOODWIN V. ROBARTS. 3 In the meantime, promissory notes had also come into use, dif- fering herein from bills of exchange : That they were not drawn upon a third party, but contained a simple promise to pay by the maker, resting, therefore, upon the security of the maker alone. They were at first made payable to the bearer, but when the practice of making bills of exchange payable to order, and mak- ing them transferable by indorsement, had once become estab- lished, the practice of making promissory notes payable to order, and of transferring them by indorsement, as had been done with bills of exchange, speedily prevailed. And for some time the courts of law acted upon the usage with reference to promissory notes, as well as with reference to bills of exchange. In 1680, in the case of Sheldon v. Hentley (2 Show., 160), an action was brought on a note under seal by which the defendant promised to pay to bearer £100, and it was objected that the note was void because not payable to a specific person. But it was said by the court: "Traditio facit chartam loqui, and by the delivery he (the maker) expounds the person before meant; as when a merchant promises to pay to the bearer of the note, any one that brings the note shall be paid." Jones, J., said that "it was the custom of merchants that made that good. ' ' In Bromwich v. Lloyd (2 Lutw., 1582), the plaintiff declared upon the custom of merchants in London on a note for money payable on demand, and recovered; and Treby, C. J., said that bills of exchange were originally between foreigners and mer- chants trading with the English. Afterwards, when such bills came to be more frequent, then they were allowed between merchants trading in England, and afterwards between any traders whatsoever, and now between any persons, whether trading or not; and therefore the plaintiff need not allege any custom, for now those bills were of that general use that upon an indebitatus assumpsit they may be given in evidence upon the trial." To which Powell, J., added: "On indebita- tus assumpsit for money received to the use of plaintiff the bill may be left to the jury to determine whether it was given for value received." In Williams v. Williams, Garth. 269, where the plaintiff brought his action as indorsee against the payee and in- dorser of a promissory note, declaring on the custom of mer- chants, it was objected on error that, the note having been made 4 HISTORY, DEFINITION, ETC. in London, the custom, if any, should have been laid as the cus- tom of London. In was answered "that this custom of merchants was part of the common law, and the court would take notice of it ex-officio ; and therefore it was needless to set forth the custom specially in the declaration, but it was sufficient to say that such a person 'secundum usum et consuetudinem mercatorum,' drew the bill. " And the plaintiff' had judgment. Thus far the practice of merchants, traders and others of treat- ing promissory notes, whether payable to bearer or order, on the same footing as bills of exchange, had received the sanction of the courts, but, Holt having become chief justice, a somewhat un- seemly conflict arose between him and the merchants as to the negotiability of promissory notes, whether payable to order or to bearer; the chief justice taking what must now be admitted to have been a nari-ow-minded view of the matter, setting his face strongly against the negotiability of these instruments, contrary, as we are told by authority, to the opinion of Westminster Hall, and in a series of successive cases persisting in holding them not negotiable by indorsement or delivery. The inconvenience to trade arising therefrom led to the passing of the statute of 3 and 4 Anne, c. 9, whereby promissory notes were made capable of being assigned by indorsement or made payable to bearer, and such assignment was thus rendered valid beyond dispute or difficulty. It is obvious from the preamble of the statute, which merely recites that ' ' it had been held that such notes were not within the custom of merchants," that these deci- sions were not acceptable to the profession or the country. Nor can there be much doubt that by the usage prevalent amongst merchants these notes had been treated as securities negotiable by the customary method of assignment, as much as bills of ex- change, properly so-called. The statute of Anne may, indeed, practically speaking, be looked upon as a declaratory statute, con- firaiing the decisions prioi- to the time of Lord Holt. We now arrive at an epoch when a new form of security for money, namely, goldsmiths' or bankers' notes, came into general use. Holding them to be part of the currency of the country as cash, Lord Mansfield and the court of king's bench had no diffi- culty in holding in INIillcr v. Race (1 Burrows, 452 (1758)), that the property in such a note passes, like that in cash, by delivery, GOODWIN V. ROBAKTS. 5 and that a party taking it bona fide, and for value, is conse- quently entitled to hold it against a former owner from whom it has been stolen. In like manner it was held, in Collins v. Martin (1 Bos. & P. 648 (1797)), that where bills indorsed in blank had been depos- ited with a banker, to be received when due, and the latter had pledged them with another banker as security for a loan, the owner could not bring trover to recover them from the holder. Both these decisions, of course, proceeded on the ground that the property in the bank note payable to bearer passed by delivery, that in the bill of exchange by indorsement in blank, provided the acquisition had been made bona fide. A similar question arose in Wookey v. Pole (Barn. & Aid., 1 ( 1818 ) ) , in respect of an exchequer bill, notoriously a security of modern growth. These securities being made in favor of blank or order, contained this clause, ' ' if the blank is not filled up, the bill will be paid to bearer. ' ' Such an exchequer bill having been placed, without the blank being filled up, in the hands of the plaintifi^'s agent, had been deposited by him with the defendants, on a bona fide advance of money. It was held by three judges of the queen's bench — (Bayley, J., dissentiente) — that an ex- chequer bill was a negotiable security, and judgment was there- fore given for the defendants. The judgment of Holroyd, J., goes fully into the subject, pointing out the distinction between money and instruments which are the representatives of money and other forms of property. "The courts," he says, "have con- sidered these instruments either promises or orders for the pay- ment of money, or instruments entitling the holder to a sum of money, as being appendages to money, and following the nature of their principal." After referring to the authorities, he pro- ceeds: "These authorities show that not only money itself may pass, and the right to it may arise, by currency alone, but, further, that these mercantile instruments, which entitle the bearer of them to money, may also pass, and the right to them may arise, in like manner, by currency or delivery. These de- cisions proceed upon the nature of the property (i. e., money) to which such instruments gives the right, and which is in itself current, and the effect of the instruments, which either give to g HISTORY, DEFINITION, ETC. tliL'ir holders, merely as such, a right to receive the money, or specify them as the persons entitled to receive it." Another very remarkable instance of the efficacy of usage is to be found in much more recent times. It is notorious that, with the exception of the Bank of England, the system of bank- ing has recently undergone an entire change. Instead of the banker issuing his own notes in return for the money of the cus- tomer deposited with him, he gives credit in account to the de- positor, and leaves it to the latter to draw upon him, to bearer or order, by what is now called a "check." Upon this state of things the general course of dealing between bankers and their customers has attached incidents previously unknown, and these, by the decisions of the courts, have become fixed law. Thus, while an ordinary drawee, although in possession of funds of the drawer, is not bound to accept, unless by his own agreement or consent, the banker, if he has funds, is bound to pay on presen- tation of a check on demand. Even admission of funds is not suf- ficient to bind an ordinary drawee, while it is sufficient with a banker ; and the money deposited with a banker is not only money lent, but the banker is bound to pay it when called for by the draft of the customer. See Pott v. Clegg, 16 Mees. & W., 321. Besides this, a custom has grown up among bankers themselves of marking checks as good for the purposes of clearance by which they become bound to one another. Though not immediately to the present purpose, bills of lading may also be referred to as an instance of how general mercantile usage may give effect to a writing which without it would not have had that efit'eet at com- mon law. It is from mercantile usage, as proved in evidence, and ratified by judicial decision in the great case of Liekbarrow v. Mason (2 Term. R. 63), that the efficacy of bills of lading to pass the property in goods is derived. It thus appears that all these instruments, which are said to have derived their negotiability from the law merchant, had their origin, and that at no very remote period, in mercantile usage, and were adopted into the law by our courts as being in conform- ity with the usages of trade; of which, if it were needed, a further confirmation might be found in the fact that according to the old form of declaring on bills of exchange, the declaration al- ways was founded on the customs of merchants. CHAPTER II. ESSENTIALS OF BILLS AND NOTES. Must he in writing, mid sighted * TAYLOR V. DOBBINS. 1 Strange, 399. 1716. In case upon a promissory note, the declaration ran, that the defendant made a note, et nianu sua propria scripsit. Exception was taken, that since the statute he should have said that the de- fendant signed the note, but the Court held it well enough, be- cause laid to be wrote with his own hand, and there needs no sub- scription in that case, for it is sufficient his name is in any part of it. I, F. S., promise to pay, is as good as I promise to pay, subscribed F. S. BROWN V. THE BUTCHERS' AND DROVERS' BANK. 6 Hill, 443. 1844. On error from the Superior Court of the city of New York, where the Butchers' and Drovers' Bank sued Brown as the in- dorser of a bill of exchange, and recovered judgment. The in- dorsement was made with a lead pencil, and in figures, thus, ' ' 1, 2. 8.," no name being written. Evidence was given strongly tending to show that the figures were in Brown's handwriting, and that he meant they should bind him as indorser, though it also appeared he could write. The Court below charged the jury that, if they believed the figures upon the bill were made by Brown, as a substitute for his proper name, intending thereby to bind himself as indorser, he was liable. Exception. The jury found a verdict for the plaintiffs below, on which judgment was rendered, and Brown thereupon brought error. * See Sec. 757, Vol. 6, Cyclopedia of Law. 7 8 ESSENTIALS OF BILLS AND NOTES. Nelson, C. J. It has been expressly decided that an indorsement written in pencil is sufficient : Geary v. Physic, 5 Barn. & Cress. 234 ; and also that it may be made by a mark : George v. Surrey, 1 Mood & Malk. 51G. In a recent case in the K. B. it was held that a mark was a good signing within the statute of frauds ; and the Court refused to allow an inquiry into the fact whether the party could write, saying that would make no difference : Baker V. Dening, 8 Adol. & Ellis, 94; and see Harrison v. Harrison, 8 Ves. 186 ; Addy v. Grix, lb. 504. These cases fully sustain the ruling of the Court below. They show, I think, that a person may become bound by any mark or designation he thinks proper to adopt, provided it be used as a substitute for his name, and he intend to bind himself. Judgment affirmed. The Date is Not Essential to a Bill or Note* DE LA COURTIER v. BELLAIVIY. Reported in 2 Showers 411. 1683. Action on the case on a bill of exchange from parts beyond the seas, payable at double usance from the date thereof : custom alleged accordingly ; and the fact was alleged to be, that the party beyond the sea drew such a bill such a day, and the same was afterward presented to, and accepted by the defendant. And exception was taken, that the date of the bill was not set forth. And per totam Curiam held, it was well enough, and they would intend it dated at the time of drawing it. Judgment for the plaintiff. * See Sec. 757, Vol. 6, Cyclopedia of Law. Also Michigan Ins. Co. V. Leavenworth, 30 Vt. 11; Cowing v. Altman, 71 N. Y. 441. McCALL V. TAYLOR. 9 Parties to a Bill or Note should he Ascertainable* M'CALL V. TAYLOR. 19 Common Bench, 301; 115 Eng. C. L., 301. 1865. This was an action upon an instrument in the following form, which was declared on as a bill of exchange and also as a promis- sory note: ''£300.00. "Four months after date, pay to my order the sum of Three hundred pounds, for value received. "To Captain Taylor, "Ship Jasper." Across this document was written, in the handwriting of the defendant, the words "Accepted, William Taylor." There was also a count for goods sold and delivered, and the ordinary pleas. The cause was tried before Byles, J., at the sittings at Guild- hall after the last Hilary Term. The plaintiff was a ship-chan- dler and provision merchant. The defendant was the captain (and it was suggested owner also) of the ship Jasper. It ap- peared that the plaintiff had, in September, 1862, pursuant to orders received through one Milne, the ship's broker, delivered goods to the amount of 299?. 19s. 2d. on board that vessel for San Francisco, and had received in payment a bill at six months accepted by one Bailey, which bill was not paid at maturity; and that the instrument declared on was given to the plaintiff by Milne about six months afterwards. It also appeared that Bailey had been debited for the goods in the plaintiff's books, and that an invoice had been delivered charging Bailey as the debtor. There was no evidence whatever to show that the defendant had any interest in the goods. Per Curiam. I am of opinion that this rule should be dis- charged. The instrument in question is declared upon as a bill of exchange, and also as a promissory note. It was in this form, "Four months after date, pay to my order the sum of three hundred pounds, for value received, ' ' and it was addressed to the See Sec. 758-759, Vol. 6, Cyclopedia of Law. 10 ESSENTIALS OF BILLS AND NOTES. defendant, but it had no date and no drawer's name. Across it was written an acceptance by the defendant. The question is, whether the holder of this document has a right to declare on it either as a bill of exchange or as a promis- sory note. It is clearly not a bill of exchange, and in form it is not a promissory note. If I could be clearly satisfied that I should be giving effect to the intention of the parties by holding this instrument to be a promissory note, I would endeavor so to construe it. But I am aware of no case, and the industry of the learned counsel has discovered none, which warrants us in hold- ing this to be either the one or the other. It is an inchoate and imperfect instrument. If the holder had authority to make it a complete instrument either as a bill or a note, he was at liberty to do so; but, if he had no such authority, he might if he attempted to do so render himself liable to a charge of forgery. The case of Stoessiger v. The South Eastern Rail- way Company seems to me to be precisely iu point, without going into any of the other cases. Nothing is clearer to my mind than that, in the ordinary case of an acceptance with the drawer's name in blank, it is important, in order to con- stitute a contract, that it should be known who is to be the drawer. It may have been important here that the instrument should be filled up as a bill drawn by the owner of the ship or the broker upon the captain. And it may be that the plaintiff had no authority to add his name as the drawer. But, Avhatever may have been the particular circumstances under which this docu- ment was given, I act upon the case I have referred to. As it stands, the thing is inchoate and incomplete, and affords no foundation for the holder to sue upon it. WiLLES, J. I am entirely of the same opinion. Byles, J. I am of the same opinion. I thought at the trial, and still think, that the instrument in question could not be declared on as either a bill of exchange or a promissory note. It is not like a bill accepted in blank. Montague Smitpi, J. I also think this case is not distinguish- able from Stoessiger v. The South Eastern Railway Company, supra. There, upon an instrument precisely similar to this, ex- cept that there it was dated, Ld. Campbell says: ''It is not a bill of exchange; there is neither drawer nor payee. Nor is it a prom- BROWN V. OILMAN. 11 issory note to pay any one who might happen to be bearer ; that Cruttenden should become liable generally to the bearer, was quite contrary to his intention." So here, I think we should be going entirely against the intention of the defendant if we were to hold him liable upon this instrument as upon a promis- sory note payable to bearer. Rule. Discharged. BROWN V. GILMAN. 13 Mass. 158. 1816. Action of assumpsit on the following writing: "Boston, 15th May, 1810. ''Good for one hundred and twenty-six dollars on demand. Gilman & Hoyt." Parker, C. J., delivered the opinion of the Court. The ques- tion in this case is whether the plaintiff can recover without showing any title to the promise declared upon; or any rela- tion or connection with the debtor, from which a presumption might be drawn, that the promise declared on was made to him. We put out of the case the circumstances proved at the trial, which probably had some influence in producing the non-suit. Those circumstances were proper for the consideration of the jury, if it were necessary to give them any weight. We de- termine altogether upon the character of the paper, upon the production of which the plaintiff is willing to rest his cause. It is not a negotiable promissory note. If it were, and had the name of the promisee on the back, the possession of it would be sufficient prima facie evidence of the plaintiff's title. It is not a note payable to bearer, which would be sufficient evidence of a promise to pay the holder unless suspicion was thrown upon his title by the maker. It is not then any contract known in the law which ex propria vigore constitutes a promise to whomsoever shall produce it. Its legal effect is nothing more than that of a memorandum between the parties to it to operate as a promise to pay money, 12 ESSENTIALS OF BILLS AND NOTES. as a receipt for money, or as proof of a sum of money to be accounted for, according to the evidence offered, to show the intention of both parties when it is made. On a count for money lent, money had and received, etc., it would be con- clusive evidence of so much due, unless the party signing it should prove that it was given with a different intent. The present plaintiff' has not shown that it was given to him. It may have been picked up in the street, or he may have pur- loined it from the rightful owner. Authorities have been read to show that where a contract in writing has been made and signed, but the name of the party contracted with omitted, the omission may be supplied by ex- trinsic evidence. Of this we have no doubt where the name was omitted by mistake or a wrong name inserted. And the authori- ties go no further. This paper was never intended to contain the name of any one but the signer. It was a personal acknowl- edgment betw'een him and the person to whom it was delivered. That person alone can maintain an action upon it. It is not expedient to widen the field of negotiable paper. Certainly none can be considered as such but that which has acquired the quality by statute, by usage, or by the terms of the contract; and this paper, in the form in which it is now sued, has not the sanction of either of these sources of authority. A contract expressed in this form, "I. 0. U.," was held in England not to be a promissory note, until an evasion of the stamp duties caused a different determination. Much learning has been shown in the argument, by the coun- sel on both sides, but the case does not seem to require it ; since, according to kno^\^l rules and the common understanding of mercantile contracts, this imports no promise to the holder without evidence to show that it was actually given to him, or at least some subsisting connection shown, from which that fact might be fairly inferred. The motion to set aside the non-suit is overruled. HASBROOK V. PALMER. 13 Must be Payable in Money Only* HASBROOK V. PALMER. 2 McLean, 10. 1839. Opinion of the Court. This action is brought by the plaintiffs as assignees on a promissory note, payable at New York, in New York funds or their equivalent. The defendants demur specially, and for cause of demurrer state that it is not averred in said declaration of what value the said New York funds or their equivalent in the declaration were at the time and place of payment, and that said note is not negotiable. The Michigan statute in regard to the negotiability of promis- sory notes is similar to the statute of Anne, which has been generally adopted in this country. And the principal question under this demurrer is, whether the note on which this action is brought, being payable in New York funds or their equivalent, is negotiable. The plaintiffs rely on the decision in the case of Keith v. Jones, 9 John. Rep. 120, where it was held that a note pay- able to A., or bearer, in ''New York State bills or specie," was negotiable within the statute, upon the ground that the bills mentioned meant bank paper, which, in conformity with general usage and understanding, are regarded as cash; and, there- fore, that the meaning was the same as if payable in lawful current money of the State. And also on the case of Judah v. Harris, 19 John. Rep. 144, where it was decided that a promis- sory note, payable at a particular place, in the bank-notes cur- rent in the city of New York, was negotiable within the statute. And it is insisted that the promise to pay in New York funds, or their equivalent, is equivalent to an undertaking to pay in lawful current money of the State of New York. That it is generally understood New York funds means specie, or a cur- rency equal to specie, and that the drawer of the note promises, substantial^, to pay in current New York money. In support of the demurrer it is contended that to be nego- tiable a note must be for the pajonent of money only, and this * See Sec. 760-762, Vol. 6, Cyclopedia of Law. 14 ESSENTIALS OF BILLS AND NOTES. is laid down in Chitty on Bills (ed. 1839), 152. He says it is the first and principal requisite, and is established by foreign as well as English law, that a bill or note must be for the pay- ment of money only. That it cannot be for the delivery or pay- ment of merchandise, or other things in their nature susceptible of deterioration and loss and variation in value; nor can it be for pajTuent in good East India bonds or for the payment of money by a bill or note: Clarke v. Percival, 2 Bar. & Adol. G60 ; Bui. N. P. 272. A promissory note not payable in cash or specific articles is not negotiable: Matthews v. Haughton, 2 Fairf. 377; Johnson v. Laird, 3 Blackf. Rep. 153. A note payable to A. B., or order, in good merchantable whiskey, at trade price, cannot be sued by an assignee or bearer in his own name: Rhodes v. Lindlcy, Ohio Rep. condensed, 465. A note for a certain sum, payable to A. or order, "in foreign bills" (meaning thereby bills of country banks), has been held not to be a good promissory note within the statute, and conse- quently not negotiable: Jones v. Sales, 4 Mass. Rep. 245. In the case of Lieber and Colsin v. Goodrich, 5 Cowen Rep. 186, the Court held a note payable in Pennsylvania or New York paper currency is not a promissory note for the payment of money within the statute. And in the case of MeCorraick v. Trotter, 10 Serg. & Raw. Rep. 94, the Court decided that a promissory note payable to A. B., or order, for five hundred dollars, in notes of the chartered banks in Pennsylvania, was not a negotiable note on which the indorsee can sue in his own name. In South Carolina it has been decided that paper medium is not money ; and that, therefore, a note payable in naper medium is not assignable within the statute of Anne and their Act; and on a verdict for the assignee of such a note judgment was arrested : Large v. Kohne, 1 McCord, 115 ; McElarin v. Nesbit, 2 Nott & McCord Rep. 519. The cases cited in the 9th and 19th of John. Rep. seem not to be sustained by the current of decisions in this country and in England; and it is difficult to distinguish those eases from the decisions cited so as to maintain their consistency. If this, RHODES V. LINDLEY. 15 indeed, were practicable, it is not necessary to the decision of the question raised by this demurrer. What is understood in this State by New York funds or their equivalent, may be a matter of doubt; nor does it seem to be of a nature which can be resolved by evidence, so far as regards the question under consideration. The term New York funds, it is presumed, may embrace stocks, bank notes, specie, and every description of currency which is used in commercial transactions. But whether is meant the funds of the State generally or of the City of New York is not clear. The presumption is in favor of the latter, but this is by no means certain. In this respect, as well as what constitutes New York funds, the face of the note is indefinite. It is, indeed, susceptible of different interpretations, and for this reason it cannot be considered a negotiable instrument within the statute. It is not a note, in the language of the decisions, payable in money. It is payable in New York funds or their equivalent. Now what is equivalent to New York funds? The answer is their value, their value in specie or in current paper which passes at a discount. Might not the drawer pay this note in this description of paper, making up the discount? Would not this, in the language of the contract, be equivalent to New York funds ? It would be equivalent if of equal value. The demurrer must he sustained. RHODES V. LINDLEY. 3 Ohio, 51. 1827. This was an action of assumpsit, upon a note of hand given by the defendant, to Hezekiah Rhodes or bearer, promising to pay fifty dollars, at a day subsequent, "in good merchantable whisky, at trade price. ' ' The declaration set forth in terms, an assignment and delivery of the note to the plaintiff, and claimed to recover as bearer. The defendant demurred, and assigned as a cause of demurrer, that the note was not negotiable. 16 ESSENTIALS OF BILLS AND NOTES. The court of common pleas in Trumbull county gave judg- ment for the plaintiff, and the defendant obtained this writ of error, which was adjourned here for final decision. At the common law, this paper was not assignable; neither is it assignable under our statute. The plaintiff admits this; but claims to recover, on the ground, that being made payable to bearer, any person, who is the actual bona fide owner, may main- tain the action as bearer. Were it a note for money, this posi- tion would be a correct one. But that doctrine has never been applied to executory contracts for the delivery of property, or for the performance of any particular act. The case of Geddings v. Byington (2 Ohio, 228), decided upon the circuit, at Ashtabula, is supposed to have settled this doc- trine differently. This inference is deducted, not from the point decided, but from some remarks of the judge in giving the opinion. These were only intended to apply to a note for the payment of money, made payable to a payee or bearer. It was only to that point that the attention of the court was directed in argument. The negotiable character of the note w^as not made a subject of inquiry by either party. The plaintiff in error claimed a reversal, on the ground that the right of the original payee did not appear, by the declaration, to have passed to the holder, by assignment, delivery, or otherwise, and that ground being considered sufficient for the purpose, the judg- ment was reversed without further examination. In this case, the direct question is presented, whether such a contract as this can be so transferred as to authorize a third person to maintain a suit in his own name. Our unanimous opinion is that no such right can be transferred. The judgment must be reversed, and judgment be given for defendant. SMITH V. NIGHTINGALE. 17 Must Be for the Payment of a Sum Certain* SMITH V. NIGHTINGALE. 2 Starhie, 375; 3 Eng. C. Law Reports, 452. 1818. This was an action by the plaintiffs in right of the wife, as administratrix of James Eastling. The declaration contained a count upon a promissory note alleged to have been made by the defendant, on the 12th of October, 1807, for the payment of £65 to James Eastling', payable three months after the date: the declaration contained also the money counts, and a count upon an account stated. It appeared that Eastling had been employed by the defend- ant as a servant in husbandry, and that the defendant having in his hands monies belonging to James Eastling-, gave him the following promise in writing, upon which the first count in the declaration was founded: ''October 12, 1807. "I promise to pay to James Eastling, my head carter, the sum of £65, with lawful interest for the same, three months after date, and also all other sums which may be due to him." On the part of the defendant it was objected, that this in- strument could not be considered as a promissory note, since it was not made for the payment of any certain sum, and that it could not be given in evidence under the count upon an account stated, since it was an agreement, and for a larger sum than £20, and ought to be stamped. The plaintiff con- tended that it was certain to the extent of £65, and therefore that to that extent the plaintiff was entitled to consider it as a promissory note ; but that, at all events, it was evidence of an account stated, and that no stamp was essential to a mere ac- knowledgment of a debt. Lord Ellenborough was of opinion, that the instrument was too indefinite to be considered as a promissory note: is con- tained a promise to pay interest for a sura not specified, and not otherwise ascertained than by reference to defendant 's books ; * See Sec. 763-764, Vol. 6, Cyclopedia of Law. 18 ESSENTIALS OF BILLS AND NOTES. and that since the whole constituted one entire promise, it could not be divided into parts. He also held, that since the instru- ment contained an agreement to pay the money, it could not be received in evidence as an acknowledgment without a stamp. The plaintiff was non-suited. DODGE V. EMERSON. 34 Me. 96. 1852. Assumpsit, by the indorsee against the makers of a note pay- able to the Protection Insurance Company or order, for "$271.25, with such additional premium as may arise on policy No. 50, issued at the Calais agency." Appleton, J. No principle of law is more fully established by authority, and the universal concurrence of the commercial world, than that to make a written promise a valid promissory note it must be for a fixed and certain, and not for a variable, amount. In France it is so determined by the Code Napoleon. It is the recognized mercantile law of continental Europe. In England and in this country it has received the sanction of repeated and well-considered adjudications: Story on Promis- sory Notes, § 20. Without this essential requisite, a written promise, though in terms payable to order, is to be regarded as a simple contract and not negotiable. The defendants in this case have promised to pay two several simis; one certain and definite, the other uncertain and con- tingent. The defendants' liability being for both these sums, is obviously for an unascertained and indefinite amount. It is insisted in argument that the plaintiff may abandon all claim for the additional premium, which is uncertain, and proceed only for the certain sum expressed in the contract. Un- doubtedly he may take judgment for any sum less than the amount due, and in that mode abandon a portion of his legal claims, but that still leaves the contract in its original state, and can in no way affect its legal construction. He could not erase the clause relating to the additional premium, without DODGE V. EMERSON. 19 thereby making such an alteration in the instrument declared on as would discharge the defendants. In Smith v. Nightingale, 2 Stark, R. 375, the promise was to pay the payee sixty-five pounds and all other sums that may be due him, and it was claimed for the plaintiff, to whom the interest in the contract had passed by indorsement, that he might disregard the latter clause and recover on the certain sum set forth in his contract as indorsee, but the Court decided otherwise: Davis v. Wilkinson, 10 Adol. & El. 98. The inquiry is made by the counsel for the plaintiff, whether the clause providing for the payment of an additional sum, introduced after the promise to pay the sum fixed and certain, controls that sum so as to make it in any event uncertain. The amoimt due to the plaintiff is uncertain. Whether the con- tract is to be regarded as a promise to pay one sum, which shall be the aggregate composed of a certain and of an uncertain sum, the amount of which is to be ascertained at some subse- quent time, or a promise to pay two sums, one fixed and the other uncertain, is perfectly immaterial. In either case there is no precise and ascertained amount due by the contract, and it cannot be regarded as a promissory note. If it was not in its origin, it cannot be made one by any abandonment, which the plaintiff may deem it advisable to make of any portion of the sum due him. The contract declared on not being in its char- acter negotiable, the action cannot be maintained by the present plaintiff. Plaintiff non-suit.* * Provision for the Payment of Attorney's Fees. — The fact that it contains a provision for the payment of interest without naming the amount of interest will not render it uncertain in amount, for the legal rate will be collected. Upon the question whether a condition to pay "collection or attorney's fee" in addition to the amount named affects the negotiability of these contracts or not, there is much conflict of authority. Some of the states have sustained the negotiability of these instruments; others have held that the condition destroys the negotiability of the instrument; while still others have held that the rtipulation renders the contract void. A careful examination of all the authorities, especially of the more recent decisions, will show that the weight of authority is found in favor of the doctrine that the negotiability of a commercial contract is in no way affected by a stipulation for the payment of reasonable collection or attorney's fee. 20 ESSENTIALS OF BILLS AND NOTES. The Sum of Money Must Be Payable Without Conditions* BANK V. ARMSTRONG. 25 Minn. 530. 1879. The plaintiff, a corporation, sued the defendant in the late Court of Common Pleas of Ramsey County, upon the follow- ing instrument : "$43.33. St. Paul, July 31, 1873. "On or before December 1, 1875, for value received in one AVilliams combined reaper, I promise to pay to the order of the Williams IMower and Reaper Co., with current exchange on New York city, at the First National Bank in St. Paul, forty- In the following states commercial contracts are sustained where such stipulation is added: Oregon, Arkansas, Mississippi, Minnesota, Iowa, Louisiana, Kansas, Illinois, Dakota, Nebraska, as well as by the courts of the United States. Benn v. Kutzschan, 24 Or., 28; 32 Pac. R., 7G3; Overton v. Mathews, 35 Ark., 147; Meacham v. Pinson, 60 Miss., 226; Hamilton Gin Co. v. Sinker, 74 Tex., 52; Dietrich v. Bayhi, 23 La. An., 767; Harris Mnfg. Co. v. Anfinson, 31 Minn., 182; Schles- inger v. Arline, 31 Federal Rep., 648; Farmers' Nat. Bk. v. Sutton & Co., Fed. R., 191; Sperry v. Horr, 32 Iowa, 184; Seaton v. Scoville, 18 Kan., 433; Hurd v. Dubuque Bk., 8 Neb., 10. The attention of the student is called to the case of Bowie v. Hall, 1 L. R. A., 546; also 69 Md., 433. In the following states the contracts containing such stipula- tions have been sustained but are not negotiable. They may be enforced as common law contracts. Pennsylvania, Missouri, North Carolina, Minnesota, Wisconsin, California and Maryland. They are denied negotiability upon the ground that the amount to be paid is uncertain. Johnson v. Speer, 92 Pa. St., 227; First Nat. Bk. v. Gay, 63 Mo., 33; First Nat. Bk. v. Bynum, 84 N. Carolina, 24; Jones v. Raditz, 27 Minn., 240; Savings Bank v. Strother, 28 S. C, 504; Adams v. Seaman, 82 Cal., 637; First Nat. Bk. v. Larsen, 60 Wis., 211; Maryland & Co. v. Newman, 60 Md.. 584; 45 Am. R. 750. Whi'.e in the following cases the courts have held that such stipulations are absolutely void: Bullock v. Taylor, 39 Mich., 138; Myer v. Hart, 40 Mich., 517; Wright v. Travers, 73 Mich., 494; Alt- man v. Rellershofer, 68 Mich., 287; Tinsley v. Hoskins, 111 N. C, 340; Gaar v. Louisville Banking Co.. 11 Bush (Ky.), 182; Kemp v. Claus, 8 Neb., 24; State v. Taylor, 10 Ohio, 378; Walker v. Woolen, 54 Ind., 163; Maynard v. Mier, 85 Ind., 317. — Johnson on Bills and Notes, 91, * See Sees. 765-6, Vol. 6, Cyclopedia of Law. BANK V. ARMSTRONG. 21 three 33-100 dollars, with interest at twelve per cent, from date until paid, but if paid at or before maturity, seven per cent, per annum. "This note to become due upon the removal of the maker, notwitlistanding- the above period of payment has not expired! The sale and purchase of said Williams combined reaper, the property for which this note is given, are upon the express' con- dition that the title and ownership of said property shall remain in the said the Williams Mower and Reaper Co., and shall not pass to any one, by or through me, until this note and interest are paid in full; and the delivery thereof at this time is sub- ject to the same condition. The said the Williams Mower and Reaper Co. shall, in the meantime, have the right to take pos- session of said property, wherever it may be found, at any time they may deem themselves insecure, even before the maturity of this note ; and if not paid when due, I will pay five per cent, extra cost for collection. "Daniel Armstrong." A jury was waived, and the action was tried before Brill, J., who found that in January, 1875, the instrument was, for a valuable consideration, sold and indorsed and delivered by the Williams Mower and Reaper Company to the plaintiff ; that the consideration for the instrument was a combined reaper and mower sold and delivered by the company to the defendant, at the time it was given, and on the conditions therein men- tioned; that at the time of the sale, and to induce the defend- ant to purchase, the company warranted and represented to the defendant that the machine was a good and perfect machine and would do good work, both as a reaper and mower, on de- fendant's farm in Washington County, and the defendant ac- cepted and purchased it, relying on such representation and war- ranty; that the machine was not a good or perfect machine, and could not be used as a reaper, and could not be made to do good work as a reaper, and was worthless and of no value; but that the plaintiff had no knowledge of such warranty or of the character and quality of the machine before its pur- chase of the instrument in suit. As a conclusion of law the Court held that the instrument was not a negotiable promissory note, and ordered judgment for the defendant, which was entered and the plaintiff appealed. 22 ESSENTIALS OF BILLS AND NOTES. Cornell, J. The promise upon which a recovery is sought in this action, as upon a negotiable promissory note, forms but a part of the written instrument which was made and executed by the defendant as an entirety. In determining the character and legal effect of such promise, regard must be had to the whole instrument and all its provisions, and not to the facts alone that the promise was put in the form of a negotiable promissory note, payable to order, and was designated as a note in the instrument. Thus considered, it is obvious that the de- fendant's obligation was not such an independent, absolute, and unconditional one, for the payment of a precise and definite sum of money at all events, and without any contingency, as is essential to the validity of commercial paper: 1 Parson's Bills & Notes, 30, 42 ; Story Prom. Notes, § 22. It appears upon the face of the instrument that the defendant's obligation to the Williams Mower and Reaper Company, the assignor of the plaintiff, was upon the sole condition and consideration that the reaper therein mentioned as belonging to the company, the possession of which was then conditionally delivered to him, should, by a proper transfer of title from the company, become his absolute property whenever and as soon as his said obliga- tion was fulfilled in accordance with the terms of the contract. It also expressly provided that the title and ownership of the reaper should remain in the company until full payment of the so-called note and interest, and that the delivery of the prop- erty at that time was subject to this condition, and to the right of the company to retake possession at any time it might deem itself insecure. Defendant's promise, therefore, was not an ab- solute and unconditional one to be kept in any event; for it depended upon the contingency of an observance by the com- pany of the sole condition on which it rested, that an absolute transfer of the property with good title would be made when- ever the promise was performed. The promise of payment and the implied obligation to transfer the title was mutual, and as each w^as the sole consideration for the other, and both were to be performed at the same time, they were concurrent con- ditions of the same agreement, in the nature of mutual con- ditions precedent, so that inability or refusal to perform the one would excuse performance as to the other: Benjamin on MAULE V. CRAWFORD. 23 Sales, 451 and 480. If, prior to any default on the part of the defendant, the company had retaken possession of the prop- erty and disposed of it, so that upon the maturity of the de- fendant's obligation an observance of the condition on its part had become impossible, there can be no doubt that, under such circumstances, no action could have been maintained against him upon his promise. An obligation of this character is al- together too uncertain to serve the purpose of commercial paper, as the representative of money in business transactions. It car- ries into the hands of every holder notice of the existence of a condition that may result in defeating any recovery upon it, and, therefore, cannot have accorded to it the privileges attach- ing to that kind of paper. Judgment affirmed. To Be Negotiable, Instrument Must Contain ''Words of Negotia- bility." MAULE V. CRAWFORD. 14 Eun, 193. 1878. Appeal from a judgment in favor of the plaintiff entered upon a verdict directed by the Court, and an order denying a motion for a new trial made upon the minutes of the justice and the exceptions. The action was brought upon a promissory note in the follow- ing words and figures: ''April 1, 1875. "Eight months after date we promise to pay to Mr. George Harse the sum of two hundred and seventy-five dollars, for value received. "$275.00." "John Crawford, "Sarah Crawford." The defendant's answer was as follows: < I ■ 1. Alleges for a first separate and distinct defense that the note mentioned in the complaint, and upon which this action is brought, was given for a loan of two hundred and fifty 24 ESSENTIALS OF BILLS AND NOTES. dollars upon which the said George Harse wrongfully, unlaw- fully, and corruptly reserved the sum of twenty-five dollars as usuriou.^ interest or bonus, for the loan or use of the said sum of two hundred and fifty dollars for the period of eight mouths, specified in the said note. "2. And for a second separate and distinct defense, the de- fendant alleges that before this action thcn-e was paid on account of said note the sura of one hundred and seven dollars." Upon the trial the first defense was stricken out, on the ground that it was not alleged that the alleged usurious interest or bonus was reserved in pursuance of an agreement to that effect. Gilbert, J. The county Judge erred in ruling that a pay- ment upon the note in a suit before the transfer thereof to the plaintiff, did not bind the latter without notice. The reverse is the established rule of law. The statute (1 R. S. 768, § 1), defines what shall give to a promissory note the quality of negotiability. It must be payahle to another person or his order, or to the order of another person, or to hearer. The note in suit was payable to George Ilarse only, and was, there- fore, not negotiable. The plaintiff took it subject to all equities existing between the original parties, for an assignee of a chose in action stands in no better position than his assignor, in respect to anything w^hich occurred before the assignment. I think also that the Court erred in striking out the defense of usury. The plaintiff should have demurred: Lathrop v. Godfrey, 3 Hun, 742; National Bank of the Metropolis v. Or- cutt, 48 Barb. 256. That part of the answer was neither sham nor frivolous. On the contrary I think it is by no means clear that it should have been held bad on demurrer. It is averred that a note for $275 was given for a loan of $250, and that the payee thereof, wrongfully, unlawfully, and corruptly reserved the sum of $25 as usurious interest for the loan of said sum of $250 for the period of eight months. Proof of a loan of $250 and a demand by the lender of a note for $25 more than the sum loaned, as compensation for, or interest upon the same, and a compliance with such demand by the borrower, certainly would have warranted the jury in finding that a usurious contract to that effect w'as made. It is not necessary that a formal agreement, either verbal or written, BENJAMIN V. TILL.,IAN. 25 should be set forth iu so many words. It is enough to allege the facts as they occurred, and if such facts justify the infer- ence of a usurious contract, the answer ought to be held suffi- cient: Mercli. Ex. Nat. Bank v. Com. Warehousing Co., 49 N. Y. 638. No stricter rule of pleading- should be adminis- tered in a case of usury than in any other case. In the case of Nat. Bank v. Lewis, 10 Hun, 468, it was held that the answer did not allege an agreement between the parties. We might doubt the correctness of that construction of the answer in that ease, but there can be no question that in pleading usury, a usurious agreement must be in substance averred. No demurrer to the answer in this case having been interposed, we think it should have been held sufficient to admit the evidence of the usury which was offered. The order denying a new trial, and the judgment must be reversed with costs. Judgment and order denying neiv trial reversed, and new trial granted with costs to abide the event. Consideration Need Not Be Stated in Bill as Note Unless Be-' quired by Statute/'^ BENJAMIN V. TILLMAN. 2 McClean, 213. 1840. Opinion of the Court. This is an action of assumpsit, the general counts for money had and received, lent, etc., only, being contained in the declaration. The plaintiff offered in evidence a bill drawn by him pay- able to Lansing, and accepted by defendant, but which did not contain the words value received, and on that ground, it was objected to. The question is, whether this bill is evidence under the money counts. A bill, as well as a note, is prima facie evidence for money * See Sec. 769, Vol. 6, Cyclopedia of Law, 26 ESSENTIALS OF BILLS AND NOTES. had and received by the drawer or maker to the use of the holder; and, on acceptance, is evidence of money had and received by the acceptor to the use of the drawer : 1 Salk. 283 ; Grant v. Vaughan, 3 Burr. 1516; Bayl. (5th ed.) 357; 7 Wheat. 35 ; 3 Gill & Johns. Rep. 369 ; Pattock v. Harris, 3 Term Rep. 174; Vese v. Lewis, 3 Term Rep. 182. It was decided, in Ilardress, 485, that debt would not lie by the payee of a bill of exchange against the acceptor. And in the case of Gibson v. Minet, 1 II. Bla. 602, Eyre, C. J., said, "that the presumption of evidence which a bill of exchange affords has no application to the assumpsit for money paid by the payee or holder of it, to the use of the acceptor; and that it must be a very special case which will support such an as- sumpsit:" 3 East. 177. In the case of Barlow v. Bishop, 1 East. 434, 435, it was held, that the plaintiff can, in no case, recover under the general count, unless money has actually been received by the party sued, and for the use of the plaintiff'; and, also, in the case of Wayman v. Bend, 1 Camp. 175. In the case of Raborg v. Peyton, 2 Wheat. Rep. 385, the Court say — "prima facie, every acceptance affords a presump- tion of funds of the drawer in the hands of the acceptor; and is, of itself, an express appropriation of those funds for the use of the holder." And, again, "we are, therefore, of opinion that debt lies upon a bill of exchange by an indorsee of the bill against the acceptor, when it is expressed to be for value received. ' ' In the case of Smith v. Smith, 2 John. Rep. 235, and Saxton ct al. V. Johnson, 10 John. Rep. 418, it was settled that a note not negotiable was admissible in evidence under the count for money had and received. As between each party to a bill of exchange, or negotiable promissory note, and every other party, there is a sufficient privity in laAv, and as such negotiable contract is presumed to be a cash transaction, and, as a money consideration, is pre- sumed to pass at the making, and at each indorsement of the instrument, each party liable to pay is held responsible, as for so much money had and received to the use of the party who is, for the time, the holder, and entitled to recover. Shaw, BENJAMIN V. TILLMAN. 27 Chief Justice: Ellsworth v. Brewer, 11 Pick. 316; State Bank V. Hurd, 12 Mass. Rep. 172; Butler v. Wright, 20 John. Rep. 367. It will be seen from the above citations that there is great contrariety in the authorities, as to what shall be evidence under the money counts. The more modern English authorities, which, however, are not altogether consistent, limit the evidence to a money transaction between the parties on the record, whilst the American authorities give a more liberal view, and many of them require nothing more than an indebtment. In the case under consideration the plaintiff being the drawer of the bill which the defendant accepted in favor of Lansing, and the plaintiff, being now the holder of the bill, is prima facie entitled to recover. And we think that the acceptance is an admission by the acceptor, that he has received from the drawer the amount of the bill. It is, however, contended that as the words "value received" are omitted in the bill, that it does not afford prima facie evi- dence of indebtment. But the law is well settled that, in a negotiable instrument these words are not necessary: Grant v. Da Carta, 3 Maul. & Sel. 352. A declaration on a bill of ex- change was demurred to because it was not stated to have been given for value received, but the Court said it was a settled point that it was not necessary, and gave judgment for the plaintiff: Poplewell v. Wilson, 1 Stra. 264; Claxton v. Swift, 2 Shaw, 496, 497 ; Maekleod v. Snee, Lord Raym. 1481 ; Chitt. on Bills (ed. 1839), 182. Where a note or bill is not declared on, but is used as evi- dence under the money counts, it is said to be less conclusive than where the action is founded upon it. That it is used as a paper from which the jury may infer so much money was lent, paid, or had and received, or that an account was stated: Storey v. Atkins, 2 Stra. 725. The jury found for the plaintiff. Judgment. 28 ESSENTIALS OF BILLS AND NOTES. POPLEWELL V. WILSON. 1 Strange, 263. 1719. Error of a judgment in C. B., in case upon a promissory note entered into by A. to pay so much to B. for a debt due from C. to the said B. And it was objected, that this note not being for value received, it was not within the statute, and prima facie the debt of another and is no consideration to raise a promise. Per Curiam. But the court held it to be within the statute, being an absolute promise, and every way as negotiable as if it had been generally for value received. And the judgment was affinned. There Must Be a Delivery of the Instrument to Make it Binding on the Maker or Drawer* BURSON v. HUNTINGTON. 21 Mich., 415; 4 American Dec, 497. 1870. This cause was brought into the Circuit Court for the County of Kalamazoo by appeal from the judgment of a Justice of the Peace, in an action in which Walter S. Huntington was plaintiff, and John W. Burson defendant. The justice's transcript states that the plaintiff declared verb- ally on the common count in assumpsit and upon a promissory note, which was filed at the time of declaring, and of which the following is a copy, viz. : "Schoolcraft, Mich., Apr. 12th, 1866. "Ninety days from date, fur value received, 1 promise to pay A. N. Goidwood, or order, one hundred and twelve dollars, and fifty cents, with interest. "John W. Burson." Indorsed on the bade, 'A. N. Gold WOOD." i i * See Sec. 772, Vol. 6, Cyclopedia of Law. BURSON V. HUNTINGTON. 29 The defendant filed an affidavit denying the delivery of the note, and also a plea and notice in writing. The defendant, in the affidavit filed, with his plea and notice, deposed "that the written instrument, declared on in this cause by said plaintiff, was never delivered by this defendant, to the said A. N. Goldwood, mentioned in said written instrument, nor to any other person for the said A. N. Goldwood, or any other person, and that this defendant never authorized any other person to deliver the written instrument for him (this defendant), to the said A. N. Goldwood, or to any other person; and defendant further says that this deponent never placed any United States internal revenue stamps upon said written in- strument, and never authorized any other person to do so for him, or to cancel the same ; that said written instrument was taken from the house of this defendant, in this defendant's absence from the same, by the said A. N. Goldwood, without the knowledge or consent of the deponent at the time. ' ' On the trial before the justice, the jury found a verdict for the defendant, and the plaintiff appealed. On the part of the defense in the Circuit Court, it was shown that Ellen Burson had been sv/orn as a witness before the jus- tice, and that she had since died; "That Goldwood came to the house of defendant and told defendant he had come to finish up that matter. They sat down, and Goldwood wrote this note. Defendant signed it. Goldwood said he wanted security or a signer. Defendant said he would go out and see his uncle. His uncle was at the barn at the time. Defendant laid the note on the table, and told plaintiff' not to touch it until he came back. Defendant went out of the house to the barn, and before he returned, Goldwood picked up the note and started out doors with it. She told Goldwood to let the note be on the table until defendant came back. Goldwood said he was going to take the note, or proposed to have it, or something to that effect, and went off with it. He started towards Kalamazoo. She said there was no stamp on the note at the time Goldwood took it away." The counsel for the defendant then asked the court to charge the jury: 1st. That if they find that A. N. Goldwood, the payee named in the note, took this note after it was drawn and signed by 30 ESSENTIALS OF BILLS AND NOTES. defendant, without the knowledge, and against the will and consent of the defendant, and before the defendant had deliv- ered the note to any person, the note thus obtained would be void in the hands of said Goldwood. 2d. That such note would be void in the hands of any subse- quent holder, deriving possession of the same from said Gold- wood, whether for value or not. 3d. If the jury shall find that the plaiutilf had notice of the means and manner used by A. N. Goldwood, as above stated, in getting possession of the note at the time he indorsed and delivered it to the plaintiff, the plaintiff could not be considered an innocent holder of the note. 4th. That whether the plaintiff in this cause had such notice, or not, is a question of fact to be found by the jury from all the testimony in the case. That the fact of the plaintiff having such notice need not be proved by positive testimony, but may be proved by circumstances. 5th. That this note in suit, if drawn and signed by the de- fendant, and if not afterwards delivered by him or by his authority to some other person, has no legal existence, and is therefore void. And thereupon the Court charged the jury as follows: The present is an action of assumpsit, brought to recover the principal and interest moneys claimed to be due upon a negotiable promissory note. The plaintiff' claims to be the holder of said note by purchase. The action is brought in the form prescribed by statute. The declaration consists of the common counts, with a copy of the note appended. The de- fendant having failed to deny the execution of the note on oath or by affidavit duly filed, it becomes unnecessary for the plaintiff to prove such execution on the trial of the case. By offering the note in evidence, then proving it to have been in- dorsed and delivered to him, the plaintiff" in such case makes out a prima facie case for its recovery. The real questions raised upon this trial are those stated in the defense set up, and had reference almost solely to the doc- trine of our commercial law and the rights of the parties inter- ested in negotiable or commercial paper. As between first par- ties to such paper, as maker, payee, the right of defense is BURSON V. HUNTINGTON. 31 generally as ample in range, as the facts which would invalidate the contract or claim ; as, for instance, illegality, fraud, want or failure of consideration or any unwarrantable means for obtain- ing it. A like rule prevails in an action between the maker and a subsequent indorser, or holder, coming into possession or ownership after the note has matured, and become due and pay- able by its terms. The same rule governs also as between the maker and holder by purchase before maturity and for value, but with notice of existing infirmities in the paper, or its surroundings, which would invalidate the same, as, for instance, that the note had been given upon the sale and purchase of intoxicating liquor in this state. But when the action is between the maker and dona fide holder for value of negotiable paper, purchased before its ma- turity and without notice that the same is different, such holder is not subject to equities that may exist between first parties. The law commercial protects such holder from the defenses which might be set up, as between the parties. In general terms facts going to impeach or invalidate the paper cannot be resorted to on the defense. The rule itself is one of commercial necessity in order to impart confidence and steady value to this class of papers in commercial and business transactions. The counsel for defendant has presented to the court a series of seven requests to charge the jury, and to which the court will now direct your attention. As to the first request, the court declines to charge as requested, but modifies the request to charge (in this form provisionally) that if a party negli- gently allows his negotiable note to get into circulation, or if after it has passed from his possession he either acknowledged or by silence acquiesced in a claim of its validity, by the holder ; to which refusal to charge as requested, and also to said modifica- tion of the request, the counsel for defendant excepted. As to the second request, the court declines to charge as requested ; to which refusal to charge as requested in said second request, the counsel for defendant excepted. As to the third request, the court charges you as requested, with the addition, that if they also find that Goldwood obtained 32 ESSENTIALS OF BILLS AND NOTES. the note by unlawful means of which the plaintiff had notice, then the plaiutifi' cannot bo considered an innocent holder of the note. To the charge contained in the addition made by the court to the request, counsel for defendant excepted. As to the fourth request, the court charges as requested. As to the fifth request, the court charges that such note would be invalid in a suit between the original parties, but in the hands of an innocent holder for value before maturity and without notice, the rule would be subject to the qualifications and limitations already expressed in this charge. To the refusal of the court to charge as stated in this request, and to the charge as given by the court in relation thereto, counsel for defendant excepted. The jury found a verdict for the plaintiff, and judgment being entered thereon, the defendant brings the cause into this court by writ of error. Per Curiam. The defendant below having appeared before the justice and pleaded to the plaintiff's declaration, and twice obtained adjournments of this cause, it was too late, on the trial of the appeal in the circuit, to make any objection for want of proper service of the summons. After joining issue upon the merits, it was immaterial whether there had, in fact, ever been a summons issued. There was no error, therefore, in overruling the defendant's objection to the introduction of evidence upon this ground. The note declared upon was filed with the justice at the time of declaring; and by the statute (Comp. L., § 3767), the plaintiff was therefore entitled to read the note in evidence without prov- ing its execution, unless defendant denied its "execution on oath" at the time of pleading. Defendant pleaded the general issue, with a notice that he would prove that the note was obtained from him by fraud and without consideration, and other facts substantially the same as set forth in his affidavit made and filed with the plea and notice. This affidavit simply denied the delivery of the note by the defendant, or any other person on his behalf, to the payee or any other person for him or that defendant ever placed any stamp upon it or authorized any other person to do so, or to cancel such stamp, and stated that the paper was taken from BURSON V. HUNTINGTON. 33 deponent's house, in his absence from the same, by the payee, without the knowledge or consent of deponent. It is unnecessary to determine here whether the exception of the note under this statute would include its delivery as a part of the execution ; since, granting the affirmative, the signature certainly constitutes a part of its execution, and the affidavit being special, — not denying the execution generally, but merely the delivery and the affixing and canceling of the stamp, — admits, by a very clear implication, his signature to the instru- ment, and clearly indicates that he intends to contest only the delivery, the stamping and canceling of the stamp, and not his signature ; otherwise, he would have denied the execution gener- ally and brought himself within the language of the statute. The plaintiff, therefore, was not bound to prove such portion of the execution as was not denied, but admitted, viz. : the signa- ture of the defendant. The case upon the trial stood in all respects as if the signa- ture of the defendant had been admitted in open court. And this admission is to have at least as full effect as the clearest proof of such signature. Now proof of such signature, together with the fact that the note is in the hands of, and produced by, the plaintiff (the indorsement being proved as it was here), furnishes strong presumptive evidence of delivery by the maker to the payee; and this is, in fact, all the proof ordinarily given by the plain- tiff of such delivery when the execution of the note is denied. It establishes a prima facie case upon this point; and it is for the defendant, if he contests the fact of delivery, to sustain his denial by proof. The indorsement by the payee having been proved, there was, therefore, no error in allowing the note to be read in evidence. We think the court erred in striking out the testimony of the witness, Fletcher, showing what the sister of the defend- ant testified to on the trial of this cause before the justice, she having since died. The ground upon which this was stricken out seems to have been, because the witness did not recollect the precise words of the former testimony, though he stated that he recollected and gave the substance. We think the ob- 34 ESSENTIALS OF BILLS AND NOTES. jection, under such circumstances, untenable, and that the evi- dence was admissible. (See 1 Greenl. Ev. Sec. 165, and authori- ties cited.) An additional ground of objection was stated, viz.: that plaintiff was shown to be a hojia fide holder of the note; but the court could not have stricken out the evidence on this ground, as there was some evidence of circumstances tending to show he was not such hona fide holder, and the court left this question to the jury. But this note was indorsed by Goldwood, the payee, to the plaintiff, before maturity, for a valuable consideration, and as plaintiff" claims, in good faith and without notice of a want of delivery or of consideration, or any other circumstance tending to invalidate it in the hands of Goldwood; and his evidence tended to show this, though there was evidence of some circum- stances tending to show that he had notice of the circumstances under which the paper had been obtained. There was also evidence on the part of the defendant, strongly tending to show that the note never was delivered by the de- fendant, but that Goldwood, to whose order it was drawn, was endeavoring to sell to the defendant a patent right, or the right of certain territory under it, and that the parties had so far progressed towards the making of an arrangement to this end, that it was understood and verbally agreed that Goldwood was to give him a deed of certain territory, upon defendant's exe- cuting to him a note for the amount, with some other person signing it as surety. That the parties being in the defendant's house, and defendant's sister being present, Goldwood wrote this note, and defendant signed it; but as a surety was to be obtained, he laid the note on the table and went out to find his uncle for that purpose, telling Goldwood, as he went out, not to touch it till he came back ; but that while defendant was gone, Goldwood picked up the paper and started out doors with it; that defendant's sister then told him to let the note be on the table till defendant should come back, to which Gold- wood replied he was going to have the note, and went off with it, without giving any deed of territory or anything else for it. That the note, at this time, was not stamped, and defendant never stamped or authorized it to be stamped; that some four days after, Goldwood wrote to defendant requesting him to come BURSON V. HUNTINGTON. 35 immediately to Kalamazoo ''and sign stamp on the note," and saying if defendant was not there by Tuesday evening "I shall consider that you refuse your signature, and shall act accord- ingly. ' ' The evidence also tended to show that defendant called upon Goldwood about that time, while the latter had the note, and demanded it, accusing him of stealing it, to which Gold- wood replied, "Never mind, we can fix that up," and said he was ready to do as he had agreed, and wanted defendant to get another signer, and he would give him a deed of territory; but defendant said he did not want the deed, but wanted the note. Goldwood refused to return the note, or to give a deed till he got another signer. These facts, if found by the jury, would show, not only that the note was never delivered to the payee, and that it therefore never had a legal existence as a note between the original par- ties, but that there was yet no completed or binding agreement of any kind, and was not to be until defendant should choose to get a surety on the note, and the payee should give him a deed of territory. Until thus completed, the defendant had a right to retract. As a general rule, a negotiable promissory note, like any other written contract, has no legal inception or valid existence, as such, until it has been delivered in accordance with the purpose and intent of the parties. Delivery is an essential part of the making or execution of the note, and it takes effect only from delivery (for most pur- poses) ; and if this be subsequent to the date, it takes effect from the delivery and not from the date.* This is certainly true as between the original parties. But negotiable paper differs from ordinary written contracts in this respect : that even a wrongful holder, between whom and the maker or indorser the note or indorsement would not be valid, may yet transfer to an innocent party, who takes it in good faith, without notice and for value, a good title as against the maker or indorser. And the question in the present case is, how far this principle will dispense with delivery by the maker. When a note payable to bearer, which has once become opera- tive by delivery, has been lost or stolen from the owner, and * 1 Pars, ubi supra. 36 ESSENTIALS OF BILLS AND NOTES. has snbsqiicntly come to tho hands of a bona fide holder for value, the hitter may recover against the maker, and all in- dorsers ou the paper when in the hands of the loser; and the loser must sustain the loss.f In such a case there was a complete legal instrument; the maker is clearly liable to pay it to some one; and the question is only to whom. But in the case before us, where the note had never been delivered, and therefor had no legal inception or existence as a note, the question is whether he is liable to pay at all, even to an innocent holder for value. The wrongful act of a thief or a trespasser may deprive the holder of his property in a note which has once become a note, or property, by delivery, and may transfer the title to an inno- cent purchaser for value. But a note in the hands of the maker before delivery is not property, nor the subject of ownership, as such; it is, in law, but a blank piece of paper. Can the theft or w'rongful seizure of this paper create a valid contract on the part of the maker against his will, where none existed before ? There is no principle of the law of contracts upon which this can be done, unless the facts of the case are such that, in justice and fairness, as between the maker and the innocent holder, the maker ought to be estopped to deny the making and delivery of the note. But it is urged that this case falls within the general principle which has become a maxim of law, that when one of two inno- cent persons must suffer by the acts of a third, he who has enabled such third person to occasion the loss, must sustain it. This is a principle of manifest justice when confined within its proper limits. But the principle as a rule, has many exceptions ; and the point of difficulty in its application consists in deter- mining w^hat acts or conduct of the party sought to be charged, can properly be said to have "enabled the third person to occa- sion the loss," within the meaning of the rule. If I leave my horse in the stable, or in the pasture, I cannot properly be said to have enabled the thief to steal him, within the meaning of this t In the case of Burson v. Huntington, however, the note had never as yet received any vitality as a contract, for the reason that all the requisites necessary to give it an existence had not yet been complied with. BURSON V. HUNTINGTON. 37 rule, because he found it possible to steal him from that particu- lar locality. And upon examination it will be found that this rule or maxim is mainly confined to cases where the party who is made to suffer the loss, has reposed a confidence in the third person whose acts have occasioned the loss, or in some other intermediate person whose acts or negligence have enabled such third person to occasion the loss; and that the party has been held responsible for the acts of those in whom he had trusted upon grounds analogous to those which govern the relation of principal and agent ; that the party thus reposing confidence in another with respect to transactions, by which the rights of others may be affected, has, as to the persons to be thus affected, constituted the third person his agent in some sense, and hav- ing held him out as such, or trusted him with papers or indicia of ownership which have enabled him to appear to others as principal, as owner, or as possessed of certain powere, the person reposing this confidence is, as to those who have been deceived into parting with property or incurring obligations on the faith of such appearances, to be held to the same extent as if the fact had accorded with such appearances. Hence, to confine ourselves to the question of delivery, the authorities in reference to lost or stolen notes which have become operative by delivery, have no bearing upon the question. If the maker or indorser, before delivery to the payee, leaves the note in the hands of a third person as an escrow, to be delivered upon certain conditions only, or voluntarily deliver it to the payee, or (if payable to bearer) to any other person for a special purpose only, as to be taken to, or discounted by a particular bank, or to be carried to any particular place or person, or to be used only in a certain way, or upon certain conditions not apparent upon the face of the paper, and the person to whom it is thus entrusted violate the confidence reposed in him, and put the note into circulation ; this, though not a valid delivery as to the original parties, must, as between a bona fide holder for value, and the maker or indorser, be treated as a delivery, ren- dering the note or indorsement valid in the hands of such bona fide holder; or if the note be sent by mail, and get into the wrong hands ; as the party intended to deliver to some one, and selects his own mode of delivery, he must be responsible for the 38 ESSENTIALS OF BILLS AND NOTES. result. These principles are too Avell settled to call for the cita- tion of authorities, and manifestly it will make no difference in this respect, if the note or indorsement were signed in blank, if the makei- or indorsor part with the possession, or authorize a clerk or agent to do so, and it is done.* And when the maker or indorser has himself been deceived by the fradulent acts or representations of the payee or others, and thereby induced to deliver or part with the note or indorse- ment, and the same is thus fradulently obtained from him, he must, doubtless, as between him and an innocent holder for value, bear the consequences of his own credulity and want of caution. He has placed a confidence in another, and by putting the papers into his hands, has enabled him to appear as the owner, and to deceive others. Cases of this kind are numerous; but they have no bearing upon the wrongful taking from the maker, when he never voluntarily parted with the instrument. Much confusion, however, has arisen from the general language used in the books and sometimes by judges, in reference to cases where the maker has voluntarily parted with the posses- sion, though induced to do so by fraud; when it is laid down as a general rule, that it is no defense for a maker, as against a hona fide holder, to show that the note was wrongfully or fraud- ulently obtained, without attempting to distinguish between cases where the maker has actually and voluntarily parted with the possession of the note, and those where he has not. We do not assert that the general rule we are discussing — • that "where one of two innocent parties must suffer," etc.— must be confined exclusively to cases where a confidence has been placed in some other person (in reference to delivery) and abused. There may be cases where the culpable negligence or recklessness of the maker in allowing an undelivered note to get into circulation, might justly estop him from setting up non- delivery; as if he were knowingly to throw it into the street, or otherwise leave it accessible to the public, with no person present * Parsons on Bills and Notes, 109 to 114, and cases cited, espe- cially Putnam v. Sullivan, 4 Mass., 45. which was decided expressly upon the ground of the confidence reposed in the third person, as to the filling up, and in the clerlis as to the delivery. BURSON V. HUNTINGTON. 39 to guard against its abduction under circumstances when he might reasonably apprehend that it would be likely to be taken. Upon this principle the case of Ingham v. Primrose (7 C. B. (N. S.), 82), was decided, where the acceptor tore the bill into halves (with the intention of canceling it) and threw it into the street, and the drawer picked them up in his presence, and afterwards pasted the two pieces together and put them into circulation.* But the case before us is one of a very different character. No actual delivery by the maker to any one for any purpose. The evidence tends to show that when he left the room in his own house, the note being on the table, and his sister remaining there, he did not confide it to the custody of the payee, but told him not to take it, and no final agreement between them had yet been made, and no consideration given. Under such cir- cumstances he can no more be said to have trusted it to the payee's custody or confidence, than that he trusted his spoons or other household goods to his custody or confidence ; and there was no more apparent reason to suppose he would take and carry off the one, than the other. The maker, therefore, cannot be held responsible for any negligence ; there was nothing to prove negligence, unless he was bound to suspect, and treat as a knave, a thief or a criminal, the man who came to his house apparently on business, because he afterwards proved himself to be such. This, we think, would be preposterous. We therefore, see no ground upon which the defendant could be held liable on a note thus obtained, even to a hoim fide holder for value. He was guilty of no more negligence than the plaintiff who took the paper, and the plaintiff shows no rights or equities superior to those of the defendant. Such, we think, must be the result upon principle. We have carefully examined the cases, English and American, and are * See also by analogy Foster v. Mackinnon, Law Rep. 4 Com. B., 704. See also the cases where the execution and delivery were ob- tained through fraud and misrepresentation, Chapman v. Rose, 56 N. Y., 137; Page v. Krekey, 137 N. Y., 313; Clark v. Pease, 41 N. H., 414; Walker v. Ebert, 29 Wis., 194; De Camp v. Hanna, 29 Ohio St., 467; Oreen v. Wilkie, 66 N W. Rep., 1046; Puffer v. Smith; 22 Mich., 479. 40 ESSENTIALS OF BILLS AND NOTES. satisfied there is no adjudged case in the English courts, so far as their reports have reached us, which would warrant a recov- ery in the present case. Some dicta may be found, the general language of which might sustain the liability of the maker ; such as that of Alderson Baron in Marston v. Allen, (8 M. and W., 494), cited by Duer. J., in Gould v. Segee (5 Duer. (N. Y.), 260), and that used by AV^illiams J., in Ingham v. Primrose, (7 C. B. (N. S.), 82). But a reference to the cases will show that no such question was involved, and that these remarks were wholly outside of the case. On the other hand, Hall v. Wilson, (16 Barb. 548, 555-556), contains a dictum fully sustaining the views we have taken. There are, however, two recent American cases, where the note or indorsement was obtained without delivery, under circum- stances quite as wrongful as those in the present case, in one of which the maker, and in the other the indorser, was held liable to a bona fide holder for value: Shipley v. Carroll, et al., (45 111. 285), (case of maker) and Gould v. Segee (5 Duer (N. Y.) 266). But in neither of these cases can we discover that the court discussed or considered the real principle involved; and w'e have been unable to discover anything in the cases cited by the court to warrant the decision. It is possible that the case in Illinois may depend somewhat upon their statute, and the note being made as a mere matter of amusement, and the making not being justified by any legitimate pending business, the maker might perhaps justly be held responsible for a higher degree of diligence, and therefore more justly chargeable with negligence under the particular circumstances, than the maker in the pres- ent case. There is another case, Worcester Co. Bank v. Dorchester & Milton Bank (10 Cush. 488), where bank l)ills were stolen from the vault of the bank, which though signed and ready for use, had never been yet issued, and on which a bona fide holder for value was held entitled to recover. This, we are inclined to think, was correct. The court intimated a doubt whether the same rule should apply to bank bills as to ordinary promissory notes, and as to the latter, failed to make any distinction between the question of delivery and questions affecting the rights of the parties upon notes which have become effectual by delivery. But CURRIER V. LOCKWOOD. 41 we think bank bills which circulate universally as cash, passing from hand to hand perhaps a hundred times a day, without such inquiries as are usual in the cases of ordinary promissory notes of individuals, stand upon quite different grounds. And, con- sidering the temptations to burglars and robbers, where large masses of bank bills are known to be kept, and the much greater facility of passing them off to innocent parties, without detection or identification of the bills or the parties, and that the special business of banks is dealing in, and holding the custody of money and bank bills ; it is not unreasonable to hold them to a much higher degree of care, and to make them absolutely re- sponsible for their safe keeping. "We do not therefore regard this case as having any material bearing upon the case before us. We think the Circuit Court erred in refusing lo charge upon this point, as requested by the defendant below. We do not think there was any error in refusing to charge that the want of a stamp on a note would be such circumstance of suspicion as to put the indorsee upon inquiry in taking the note. Under our decisions the note would be valid and could be enforced in our courts without a stamp. Some other minor questions were raised, but we do not think they will be likely to arise upon a new trial. The judgment must be reversed with costs, and a new trial awarded. The other justices concurred. What Words are Sufficie7it to Constitute the Promise or Order* CUKRIER V. LOCKWOOD. W Connecticut, 349. 1873. An action in assumpsit upon a written instrument described as a note, with the common counts; brought originally before a justice of the peace and appealed to the Court of Common Pleas of Fairfield county, and tried in that court, upon the gen- eral issue, closed to the court, with notice that the action was * See Sec. 774, Vol. 6, Cyclopedia of Law. 42 ESSENTIALS OP BILLS AND NOTES. barred by the statute of limitations. The suit was brought June 1, 1872. In the special counts the plaintiff averred "that the defendant, in and by a certain writing or note, under his hand by him well executed, dated the 22d day of January, 1863, promised the plaintiffs to pay to them for value received, the sum of seventeen dollars and fourteen cents, as by the said writing or note ready in court to be shown appears." Upon the trial the plaintiffs offered in court the following writing : "$17.14. Bridgeport, Jan. 22d, 1863. "Due Currier & Barker seventeen dollars and fourteen cents, value received. Frederick Lockwood." At the time the note was given the plaintiffs were partners under the name of Currier & Barker. To this evidence the defendant objected, upon the ground that there was a fatal variance between the evidence offered and the special count in the declaration, and the court excluded the same as evidence to prove the special count, but admitted it to prove an indebtedness under the common counts. It was proved that sometime within three years before the bringing of the suit, Barker, one of the plaintiffs, met the defend- ant in the street, and reminded him of the note, and that the defendant said, "I will give you a ton of coal for it," and no reply being made, passed along on his way. It was further proved that, about the time the suit was brought, the defendant came into Barker's store and said to him, "Have you that note?" or "Where is that note?" and "I wish to settle it," or words to that effect, and that Barker told him that the note was in Mr. Steven's hands and he could settle with him, and that the defendant replied, "The note is outlawed and good for nothing, and you can go ahead if you want to." It was further proved that the note was given for clothing purchased of the plaintiffs by the defendant, which had not been paid for. The plaintiff's claimed, first, as a matter of law, that the writ- ing was a promissory note, not negotiable under the statute, CURRIER V. LOCKWOOD. 43 and was not barred until seventeen years from its date; also, second, that the facts proved an acknowledgment of the debt, and a new promise, which took it out of the statute of limita- tions. The defendant claimed adversely to each of these claims. The court ruled adversely to the claims of the plaintiffs, and held that the debt was barred by the statute of limitations, and rendered judgment for the defendant to recover his costs. The first question in this case is whether the writing sued upon is a promissory note within the meaning of those words in the statute of limitations. The statute is as follows: "No action shall be brought on any bond or writing obligatory, con- tract under seal, or promissory note not negotiable, but within seventeen years next after an action shall accrue." The instru- ment sued upon is as follows: "$17.14. "Bridgeport, Jan. 22d, 1863. "Due Currier & Barker seventeen dollars and fourteen cents, value received. Frederick Lockw^ood. ? ) Promissory notes not negotiable are by the statute above recited put upon the footing of specialties in regard to the period of limitation, and for most other purposes such notes have been regarded as specialties in Connecticut. The instru- ment however to which this distinction has been attached is the simple express promise to pay money in the stereotyped form familiar to all. The writing given in evidence in this case is a due bill and nothing more. Such acknowledgments of debts are common and pass under the name of due bills. They are informal memoranda, sometimes here as in England in the form of "I. 0. U. " They are not the promissory notes which are classed with specialties in the statute of limitations. The law implies indeed a promise to pay from such acknowledg- ments, but the promise is simply implied and not expressed. It is well said by Smith, J., in Smith v. Allen (5 Day (Conn), 337), "Where a writing contains nothing more than a bare acknowledgment of a debt, it does not in a legal construction import an express promise to pay; but where a writing imports not only the acknowledgment of a debt but an agreement to pay it, this amounts to an express contract. ' ' In that case the words "on demand" were held to import 44 ESSENTIALS OF BILLS AND NOTES. and to be an express promise to pay. That ease adopts the correct principle, namely, that to constitute a promissory note there must be an express as eontra-distinj^uished from an im- plied promise. The words "on demand" are here wanting. The words "value received," which are in the writing signed by the defendant, cannot be regarded as equivalent to the words "on demand." The case of Smith v. Allen went to the extreme limit in holding the writing then given to be a promissory note, and we do not feel at liberty to go further in that direction than the court then went. The writing then not being a promissory note, the plaintiff's action is barred by the six years clause of the statute, unless re- vived by a new promise to pay. The offer of the defendant to give a ton of coal for the note was not accepted. It was a mere offer of compromise, and clearly no acknowledgment to take the case out of the statute. The conversation between the parties, recited in the motion, taken together as one transaction, was held by the Court of Common Pleas not to be sufficient evidence of a new promise. The result of the interview was a refusal to pay. The opening of the conversation on the part of the defendant would seem to admit the justice of the plaintiff's demand. The expression of a wish "to settle the note" would seem to imply that it was justly due; but the word "settle" is somewhat equivocal, and taking the whole interview together, we think the Court of Common Pleas made no mistake in law in deciding as it did. A new trial is not advised. In this opinion Park and Carpenter, Js., concurred. Foster, J. That the paper before us is more correctly de- scribed as a due bill, than as a promissory note, is unquestion- able. That it would be regarded among business men, in the daily transactions of life, as conferring the same rights, and imposing the same liabilities, as a promisvsory note, seems to me equally unquestionable. It was so regarded by the parties to it ; it was so treated and so spoken of whenever it was alluded to. This is manifest from the record; "The defendant came into the store of said Barker (one of the plaintiffs), and said to him: 'Have you that note?' or 'Where is that note?' and that CURRIER V. LOCKWOOD. 45 he 'wished to settle it.' Barker told him 'the note was in Mr. Steven's hands, etc' " Any writing importing a debt, and an obligation to pay it, especially if it contains the words "for value received," is, in the popular judgment, a note. This in- strument is clearly of that character. It was clearly the intent of the parties so to make it, and it is evident that they supposed they had so made it. To hold otherwise would seem to be con- trary to the understanding and intent of the parties. But it is claimed that this instrument is not, in law, a promis- sory note, and that the legislature, in passing the statutes of limitation, could never have intended to put such contracts on a footing with specialties. Now if we examine the various works on bills of exchange and promissory notes, we do not find that the learned authors of those treatises agree upon any exact and precise definition cf a promissory note. Chitty, Bayley, Byles, Story, and Par- sons, however, all agree that no particular words are necessary to make a bill or note. "It is sufficient if a note amount to an absolute promise to pay money." (Chitty on Bills, 428). Chan- cellor Kent, following substantially Mr. Justice Bayley, says, "A note is a written promise, by one person to another, for the payment of money, at a specified time, and at all events." (3 Com., 74). Judge Parsons says, "A promissory note is, in its simplest form, only a written promise. " ( 1 Parsons on Notes and Bills, 14). These definitions imply that a note must contain an express promise to pay. And Mr. Justice Story says: "But it seems that, to constitute a good promissory note, there must be an express promise upon the face of the instrument to pay the money; for a mere promise implied by law, founded upon an acknowledged indebtment, will not be sufficient." (Story on Prom. Notes, 14). Courts of the highest authority, however, both in England and in this country, hold otherwise; nor are all the text-writers so to be understood. "No precise words of contract are necessary in a promissory note, provided they amount, in legal efi'ect, to a promise to pay." (Byles on Bills, 8). "It is settled that a note need not contain the words ' promise to pay, ' if there are other words of equivalent import. " ( 1 Par- sons on Notes and Bills, 24). What words are of "equivalent 46 ESSENTIALS OF BILLS AND NOTES. import" and are sufficient to raise a promise to pay, has occa- sioned mueh discussion. "The distinction between the cases on this point," says Mr. Justice Story, in a note on the section above quoted, "is extremely nice, not to say sometimes very un- satisfactory." As lon^- ago as 1795, C. J. Eyre, sitting at Nisi Prius, held an "I. 0. U. eiuht guineas," to be merely an acknow- ledgment of a debt, and neither a promissory note nor a receipt. (Fisher v. Leslie, 1 Esp., 425). In 1800, in the case of Guy v. Harris (Reported in Chitty on Bills, 526), Ld. Eldon, whose authority is certainly not inferior to that of C. J. Eyre, held a similar paper to be a promissory note, and ruled it out when olit'ered in evidence, because it had not a stamp. "I owe my father £470. elas. Israel : ' ' — This paper was ofTered in evidence before Ld. Ellenborough, and he said: "I entertain some doubts whether this paper ought not to have been stamped as a promis- sory note, but on authority of Fisher v. Leslie (1 Esp., 245), I will receive it in evidence, though unstamped." (Israel v. Israel, 1 Camp., 499. Childers v. Boulnois, Dow. & Ry., Nis. Prius cases, 8, decided by C. J. Abbot, is to the same effect. See also Tomp- kins V. Ashby, 6 Barn. & Cres., 541 ; 9 Dow. & Ry., 543 ; 1 Mees & Wels., 32; S. C). If a time be named for payment, these instruments are differently construed (2 Mees. & Wels., 74). In Brooks v. Elkins, "I. 0. U. £20, to be paid on the 22d inst.," was held to be either a promissory note, or an agreement for the payment of £10 and upwards, and in either case required a stamp. "I. 0. U. £85, to be paid May 5th," was held to be a good promissory note (Waithman v. Elzee, 1 Car. & Kirw., 35). The cases are numerous where an instrument has been held to be a good note without an express promise to pay. "I do acknowledge myself to be indebted to A. in £10, to be paid on demand for value received." On demurrer to the declaration, the court, after solemn argument, held that this was a good note within the statute (Cashborne v. Dutton, 1 Selwyn, Nisi Prius, 320). In the case of Morris v. Lee (1 Esp., 426), the words were, "I promise to be accountable to J. S., or order, for £50, value received by me," and it was held a good promissory note. The court say they "will take the word accountable as much as if it had been pay. ' ' They also notice the words value received. CURRIER V. LOCKWOOD. 47 Fortescue, J. said, "This is a debt, being for value received, and said on account." (8 Mod., 362; I Strange, 629; 2 Ld. Raym., 1396), S. C. Tui'ning to the American cases, we find in our own court the case of Smith v. Allen (5 Day, 337). This was brought on a paper in these words: "Due John Allen $94.91, on demand." The declaration counted on a promissory note, and alleged a promise to pay in the usual form, setting out the note in the declaration. The defendants demurred, and the Superior Court held the declaration sufficient. On writ of error brought, the Court of Errors sustained the decision. Here was manifestly no express promise to pay ; but the court held that there was one implied, and so sustained the claim of the plaintiff. The difference between this and the case at bar is very slight. This contains the words "on demand," that at bar the words "value received." The one by its terms is due on demand, and the promise to pay is, therefore, implied by law, the other is, in legal effect, due on demand, and it is dif- ficult to see a good reason why the law does not as readily imply a promise to pay such a debt, as one due on demand by its own terms. Besides a valuable consideration is expressed in the case at bar by the words "value received," while none is expressed in the case of Smith v. Allen. Since the case of Edgerton v. Edgerton (8 Conn., 6), and the case of Bristol v. Warner (19 Conn., 7), it is quite clear that, by the law of this state, a promissory note, not negotiable, and not purporting on its face to be for value received, does not imply a consideration. Smith V. Allen and the case at bar, are alike in omitting the words, "or order," and "or bearer," and so are alike non- negotiable. Such notes however are regarded as within the statute of 3 and 4 Anne (Smith v. Kendall, 6 T. R., 123). Passing from this decision in our own court to the courts of New York, where we are accustomed to find questions of mer- cantile and commercial law as ably discussed and as intelligently decided as in any of our sister states, we find the case of Russell- V. Whipple (2 Cow., 536). The suit was on this paper, "Due S., or bearer, $10. ' ' This differs from the case at bar in adding the words "or bearer," and omits the words "value received." 48 ESSENTIALS OF BILLS AND NOTES. The court says it was a promissory note, and that the case was too plain for argument. In Kimball v. Iluutinyrlon (10 Wend., G75), this paper, "Due R. $325, payable on demand," was held admissible in evidence as a promissory note. Judge Nelson says: "The acknowledg- ment of indebtedness, on its face, implies a promise to pay the plaintiffs, and the payment by its terms is to be in money, abso- lutely, on demand." In Luqueer v. Prosser (1 Hill, 259), Judge Cowan says: "If there be in legal effect an absolute promise that money shall be paid, all the rest is a dispute about words. * * * The whole inquiry is, does the paper import an engagement that money shall be paid, absolutely? If it do, no matter by what words, it is a good note." In Sackett v. Spencer (29 Barb., 180), this paper, "Due S. or bearer, $340, for value received with interest," the court says "is a good promissory note, and if it specifies no time of pay- ment, it is, in legal effect, payable immediately, and without grace." In Franklin v. March (6 N. Ilamp., 3G4), the Supreme Court of New Hampshire held this paper, "Good to R. C. or order, for $30, borrowed money, " to be a good promissory note. In addition to the cases above cited, the following are very strong authorities to sustain the claim that this is a promissory note (Cummings v. Freeman, 2 Humph., (Tenn.) 143, where the note read "Due J. F. $200— borrowed Oct. 21"; Harrow v. Dugan, 6 Dana, 341 ; Flemming v. Burge, 6 Ala., 373 ; Finney V. Shirley, 7 Mo., 42; McGowan v. West, id., 569; Lome v. Mur- phy 9, Geo., 338). In Johnson v. Johnson (1 Ala., 263), the court say: "The acknowledgment of a debt, due for a valuable consideration, clearly implies a promise to pay it on request." The record discloses the fact that the paper before us was given for the purchase of clothing, and that the price of it has never been paid. Our statute of limitation bars all right of action upon it, unless it is recognized as a promissory note. So to recognize it will in my opinion do much less violence to law, than will be done to justice if we permit this defendant thus to escape the payment of an honest debt for the necessaries of life. WHEATLEY v. STROBE. 49 I would admit the paper offered in evidence in support of the first count in the declaration. In this opinion Phelps J., concurred.* WHEATLEY v. STROBE. 12 Cal. 92. 1859. This was an action of assumpsit to recover a sum of money. The facts as they appear in the opinion of the Court, are as follows : As appears from the record in this case, Strobe was indebted to Wheatley, and Wheatley to Howel, and Howel to Wilcoxson & Co. To pay his debt Wheatley gave Howel an order on Strobe for $236, payable to bearer. This order is not set forth in the record, but is admitted by counsel to be in the following form: ''Sac City, July 18, 1857. "Mr. Strobe: Please pay the bearer of these lines two hun- dred and thirty-six dollars, and charge the same to my account. "E. D. Wheatley.'' On the 25th of July the order was presented to Strobe, and by him was verbally accepted. No acceptance in writing was made. Soon afterward Wilcoxson & Co., whose demand against Howel was in judgment, and upon which they had previously issued execution, garnished the debt, if any, due by Strobe to Howel, by virtue of this order. Subsequently Wheatley com- menced the present suit against Strobe to recover the original * Due Bills. — In some jurisdictions an ordinary due-bill such as: "due A"; "I. O. U.". have been held to be good promissory notes. Jacquin v. Warren, 40 111., 459; Lee v. Balcon, 9 Colo., 216; Fleming V. Burge, 6 Ala., 373; Brady v. Chandler. 31 Mo., 28; St. Louis R. R. Co. V. Camden Bk., 47 Ark., 545. In order to amount to a promissory note the words used must at least be words from which a promise to pay money can be implied. Price V. Jones. 105 Md., 543; Strickland v. Holbrook, 75 Cal., 268. — Johnson on Bills and Notes 72n. 50 ESSENTIALS OF BILLS AND NOTES. debt. Strobe admitted the orijiinal indebtedness, but set np the order, his verbal acceptance, and the garnishment of Wil- coxson & Co., and prayed that Ilowel and Wilcoxson & Co. might be made parties, and he be allowed to pay the amount into Court. Wilcoxson & Co. filed a petition of intervention, setting up substantially the same facts, with the additional fact that the order was given for a debt due by ^Vheatley to Ilowel, and asserting a right to the amount of the debt by virtue of their garnishment, and praying judgment in their favor for the same. The plaintiff demurred to the answer of Strobe; the demurrer was sustained, and, with the judgment entered thereon, the petition of intervention was denied. Defendant appealed to this Court. Field, J. Upon the facts in this case the appellants make two points. First. That the verbal acceptance of Strobe was sufficient to render him liable to Howel upon the order of Wheatley; and. Second. If this be untenable, that the order operated as an equitable assignment of the demand against Strobe, which thus became subject to attachment as the property of Ilowel. The first of these points cannot be sustained. The order possesses all the requisites of an inland bill of exchange. It contains a direction for the payment of money by one person to another, absolutely and at all events. As no time is specified it is to be taken as payable at sight. No further particulars than these are essential to constitute a bill of exchange. The insertion of the w'ord "please" does not alter the character of the instrument. This is the usual term of civility and does not necessarily imply that a favor is asked : Story on Bills, § 33 and notes; 3 Kent, 74. The order being a bill of exchange the written acceptance of Strobe was necessary to charge him as acceptor under the statute. His verbal acceptance was insufficient : Act concerning Bills of Exchange, § 6. Upon the order, therefore, he is not liable. But the second point is well taken. The order, though not available as a bill of exchange against Strobe for want of accept- ance, operated as an equitable assignment of the demand of Wheatley to Howel. It was given for an antecedent debt, and WHEATLEY v. STROBE. 51 for the full amount of the demand against Strobe; the con- sideration was valuable, and there was no splitting of the amount due into distinct and different causes of action; and in such cases it is well settled that an order, whether accepted or not, operates as an assignment of the debt, or fund against which it is drawn. The want of a written acceptance does not affect the right of Howel to the money due, but only the mode of enforcing it. With the acceptance he could have sustained an action upon the order; without it he must recover upon the original demand by force of the assignment. Under the old common-law practice, the action could only be maintained in the name of the assignor for the benefit of the assignee, but under our system it may be brought in the name of the assignee as the party beneficially interested. Courts of Law, equally with Courts of Equity, gave effect to assignments like the one under consideration, by con- trolling the proceeds of the judgments recovered for the benefit of the assignee : Mandeville v. Welch, 5 Wheat. 227 ; Corser v. Craig, 1 Wash. C. C. 527; Blin v. Prince, 20 Vt. 25; Wheeler v. Wheeler, 9 Cowen, 34; Nesmith v. Drum, 8 Seargt. & Watts, 9 ; Robins v. Bacon, 3 Greenl. 346 ; Adamson v. Robinson, 1 Pick. 461. After the delivery and presentation of the order, the debt due by Strobe could not be reached on attachment issued by the creditors of Wheatley. As against any attempt by them to enforce its payment upon any such proceeding, the order would be an effectual protection ; and we do not perceive why it should not equally avail as against the suit of the assignor himself, unless it is made to appear that such suit is prosecuted for the benefit of the assignee: Drake on Attach., chap. 37; Black v. Paul, 10 Mo. 103; Lovely v. Caldwell, 4 Ala. 684; Corser v. Craig, 1 Wash. C. C. 424. In this State all actions are required, with some few specified exceptions, to be brought in the name of the real party in inter- est : Prac. Act, § 4. In the present case, upon the facts alleged in the answer, and which are admitted by the demurrer to be true, it is clear that the plaintiff is not the real party in interest, and there is no allegation in the complaint that the suit is prosecuted for the benefit of Howel. A judgment recovered by 52 ESSENTIALS OF BILLS AND NOTES. Wheatley after tlu> presentation of the order without notice to the assignee, would be no protection to the defendant against a suit by the assignee for the same demand. The position of the defendant is not unlike that of a party summoned as garnishee, after receiving notice of an assignment by his creditor of the demand ; if he fails in answering to set up the assignment and judgment in consequence passes against him as a debtor of the assignor, it will not afford protection against a suit by the assigTiee : Nugent v. Opdyke, 9 Robinson, 453 ; Crayton v. Clark, 11 Ala. 787 ; Foster v. White, 9 Porter, 221. Upon the facts set up in the answer, we are of opinion that the prayer of the defendant should have been granted; that he should have had leave to deposit the amount in suit in Court, and that process should have issued to bring in Howel, and that Wilcoxson & Co. should have been allowed to intervene. The rights between the plaintiff and Howel to the demand due by Strobe, should be first determined, and afterward the claim asserted by the intervenors disposed of. This claim, of course, can only be a matter for consideration in case the money is adjudged to have been at the time of the alleged attaclunent the property of Ilowel : Van Buskirk, Adm. v. Roy, 8 ITow. Prac. 425. Judgment reversed, and cause remanded for further proceed- ings. CHAPTER III. THE PARTIES.* * See Sees. 775-786, Vol. 6, Cyclopedia of Law, and cases there cited. Also see the cases under Infancy. Husband and Wife, Partnerships, Corporations, etc., in other numbers of this series of Case Books. 53 CHAPTER IV. THE CONSIDERATION.* Effect of Illegality in Consideration.] WIDOE V. WEBB. 20 Ohio St., 431; 5 Am. Rep., 664. 1870. The original action out of which the present proceeding in error arises, was brought by the present plaintiff against the defendant before a justice of the peace, and, by appeal from his judgment, came into the court of common pleas of Morrow county. The suit was upon a promissory note, made and de- livered by the defendant to the plaintiff for $50 45-100, and the petition was in the usual form. The defendant answered that the sole consideration of said note was spirituous liquors sold by the plaintiff' to the defendant, which had not been inspected according to law, and which were so sold to be drank on the premises where sold, in violation of law. The subject-matter of this defence was traversed by reply, in which the plaintiff averred that the note was given for goods, groceries, and provisions sold by plaintiff to defendant before the date of the note. The issue made by these pleadings was tried by a jury and a verdict found for the defendant, which the plaintiff moved to set aside and grant him a new trial, on the ground of error in the charge of the court to the jury, and that the finding of the jury was against the law, and against the manifest weight of the evidence. This motion was overruled, and judgment entered on the verdict, to which plaintiff excepted. * See Sees. 787-793, Vol. 6, Cyclopedia of Law. Also Benjamin v. Tillman, and Poplewell v. Wilson, ante Ch. II. t See Sec. 792, Vol. 6, Cyclopedia of Law. 54 WIDOE V. WEBB. 55 Prom a bill of exceptions taken by the plaintiff, it is shown that the defendant testified upon the trial that the note in suit was given for a balance of an account that had been running for a year and a half preceding the date of the note , that not less than three-fourths of the account was for spirituous liquors bought and drank by him from time to time at plaintiff 's grocery, including therein, however, ale and beer; and that part of the account was for cigars, tobacco, and lunches. Other witnesses called by the defendant testified that they had seen defendant purchase and drink spirituous liquors at plaintiff's grocery and get the same charged in his account, and that they had frequently seen him purchase at plaintiff's grocery and have charged to his account all kinds of groceries for family use. On plaintiff' 's behalf, both he and his clerk testified that the account which formed the consideration of the note was for groceries purchased out of the plaintitt^s store, and that no part of the consideration was for spirituous liquors, to their knowl- edge. Thereupon counsel for plaintiff asked the court to charge the jury "that if the consideration of the note in controversy was an account for spirituous liquors in part, sold by plaintiff to defendant, the plaintiff would be entitled to recover so much in this action as the price and value of the groceries so sold." This charge the court refused to give, and instructed the jury that if any part of the consideration for the note w^as intoxicat- ing liquors sold to defendant by the plaintiff in violation of the statute prohibiting the sale of intoxicating liquor to be drank on the premises where sold, the plaintiff could not recover; the law being, that when any part of the entire consideration of a promise is illegal, the w^hole contract is void. To which charge of the court and refusal to charge as re- quested, the plaintiff excepted. The plaintiff subsequently filed his petition in error in the district court, asking for a reversal of the judgment of the court of common pleas, on the grounds of error in the refusal to charge as requested, and in the charge given to the jury, and in over- ruling the motion to set aside the verdict and grant him a new trial. The district court affirmed the judgment of the common 56 THE CONSIDERATION. pleas. And to reverse that judgment of affirmance the present petition in error is prosecuted. * * * The evidence in this ease tended to show that the consideration of the note sued upon was an existing indebtedness of the de- fendant to the phiintiff on account for goods, etc., sold and de- livered by the plaintiff to the defendant, the items of which had accrued at various times during the period of eighteen months preceding the date of the note. Some of these items were for necessary family groceries and some for spirituous liquors, sold to be drank at the place where sold; in violation of the statute. The court instructed the jury that, if any of the items for spirituous liquors thus illegally sold entered into and formed part of the consideration of the note, then the plaintiff could not recover; the law being that when any part of the entire consideration of a promise is illegal the whole contract is void. And the question before us is : Did the court err in so instruct- ing the jury as to the law applicable to the ease? The concurrent doctrine of the text-books on the law of con- tracts is, that if one of two considerations of a promise be void merely, the other will support the promise; but that if one of two considerations be unlawful, the promise is void. When, however, for a legal consideration, a party undertakes to do one or more acts, and some of them are unlawful, the contract is good for so much as is lawful, and void for the residue. When- ever the unlawful part of the contract can be separated from the rest it will be rejected, and the remainder established. But this cannot be done when one of two or more considerations is unlawful, whether the promise be to do one lawful act, or two or more acts, part of which are unlawful ; because the whole consideration is the basis of the whole promise. The parts are inseparable. (Metcalf on Contr., 246; Addison on Contr., 905; Chitty on Contr., 730; 1 Parsons on Contr., 456; 1 Parsons on Notes and Bills, 217; Story on Prom, Notes, § 190; Byles on Bills, 111; Chitty on Bills, 94.) Whilst a partial want or failure of consideration avoids a bill or note only pro tanto, illegality in respect to a part of the consideration avoids it in toto. The reason of this distinction is said to be founded, partly at least, on grounds of public policy, and partly on the technical notion that the security is entire, and WIDOE V. WEBB. 57 cannot be apportioned; and it has been said with much force, that where parties have woven a web of fraud or wrong, it is no part of the duty of courts of justice to unravel the threads and separate the sound from the unsound. (Story on Prom, Notes, and Byles on Bills, supra.) And, in general, it makes no difference as to the effect, whether the illegality be at common law, or by statute. (See authorities, supra. ) This doctrine is abundantly sustained by the whole current of the decisions on the subject, both in England and in this country. (Featherstone v. Hutchinson, Crokes EL, 200; Robin- son V. Bland, 2 Burr. R., 1077 ; Scott v. Gilmore, 3 Taunt., 226 ; Thomas v. Williams, 10 Barn. & Cress., 664; Jones v. Waite, 35 E. C. L. (5 Bing., N. C, 341) ; Armstrong v. Toler, 11 Wheat., 258; Bates v. Watson, 1 Sneed, 376; Orr v. Lacey, 2 Douglass, 230 ; 9 Verm., 23 ; Deering v. Chapman, 22 Maine, 488 ; Careleton v. Woods, 8 Foster (N. H.), 290; Hinds v. Chamberlain, 6 N. H., 225 ; Hinman v. Woodruff, 11 Verm., 582 ; Perkins v. Cummings, 2 Gray, 258 ; 8 Sm. & Marsh., 624 ; Loomis v. Newhall, 15 Pick., 159; Crawford v. Morreil, 8 Johns., 253.) Quite a number of these cases cannot be distinguished from the case under consideration. Robinson v. Bland was the case of a suit on a biU of exchange given in part for money lost at play, and in part for money lent. The declaration contained special counts on the bill, and the common count for money lent, and it was held no recovery could be had on the bill, because part of its consideration was money lost at play, which was illegal ; but as to the money lent, the plaintiff was allowed to recover on the common count. In Scott V. Gilmore (3 Taunt., 226), the suit was also on a bill of exchange, given by the drawer to the keeper of a coffee house, in payment for the balance of a debt, part of which was for small sums of money loaned, and part for spirits sold in vio- lation of the statute, and it was held by Ch. J. Mansfield, that the security being entire could not be apportioned, and since it was given partly for a consideration not merely void, but illegal, the whole bill was void. Heath, J., said: "Perhaps it might be different if for part of the bill there were no consideration." The case of Deering v. Chapman, supra, was a suit on a promis- 58 THE CONSIDERATION. sory note in which part of the consideration was, as here, for spirituous liquors previously sold in violation of a statute, and several of the other cases cited arc of the same character. In each of them, the whole note was held to be tainted and utterly void. In none of them does a distinction appear to have been taken between the case where the note w^as given at the time the illegal transaction took place, which entered into the considera- tion of the note, and was the immediate inducement to its exe- cution, and the case where the note was subsequent!}^ given for the purpose of carrying out or securing the performance of the original illegal contract. On the contrary, they clearly proceed on the principle, that whenever the subject-matter of the con- tract can be traced back, between privies, to an original illegal contract, the substituted security is void. (xVdams et al. v. Rowan ct al., 8 Smedes & Marsh., 624.) The application of these principles to the present case com- pels us to say, that the instruction given the jury by the court, upon the trial, was correct, and the judgment was properly affirmed by the district court. The suit was upon a promissory note alone — upon a single and entire promise. This note was given in settlement of an account embracing transactions between the parties for a period of eighteen months. The evidence tended to show that whilst some of these transactions were proper and legal, yet many of the items of the account were for intoxicating liquors sold by the plaintiff to the defendant in direct violation of the provisions of a highly penal statute. The contract evidenced by the note was illegal and void, because these sales of liquors, which formed a part of its consideration, were clearly illegal. With respect to the items of the plaintiff's account which were unconnected with the illegal sales, he might well have maintained an action on the original contracts of sale, even after the giving of this note. For being utterly void it dis- charged none of the just indebtedness of the defendant. But he chose to sue upon the note which was prima facie evidence of indebtedness to the extent of the whole sum promised to be paid, and thus attempted to throw upon the defendant the burden of showing how much of it was given upon an illegal consideration, and upon the court the task of separating the WIDOE V. WEBE. 59 sound from the unsound. If this effort should result in his losing what was justly due him, we can but repeat what was said in a similar case : " It is but a reasonable punishment for including with his just due that which he had no right to take." We are not unaware of a seeming conflict between the con- clusion at which we have arrived, and the third point in the syl- labus of the case of Doty v. The Knox County Bank (16 0. St., 133). We are by no means satisfied that the judgment in that ease was erroneous. The question there arose upon a petition to vacate a judgment which had been rendered at a previous term against Doty and in favor of the bank for upwards of $4,000, by confession on a warrant of attorney. The suit had been brought on a bill of exchange for $4,000, and it appeared upon the hearing of the petition for vacation, that a portion of a prior bill for $1,800 entered into and formed part of the con- sideration of the bill upon which judgment had been entered. And that, in the previous discounting of the $1,800 bill, some foreign bank bills of a less denomination than ten dollars had been paid out by the bank, contrary to the provisions of the statute upon that subject. The court below held that the bill of $1,800, by reason of the premises, was wholly void, and the bank thereupon remitted upon its judgment so much of the $1,800 as had entered into the consideration of the bill on which judgment had been entered. The residue of this bill w^as found to have a good and valid consideration, to wit, other and previous bills of exchange on which Doty was justly in- debted. The statute forbade the vacating of the judgment until it should be adjudged that there was a valid defence to the action; and the question was whether, after this remittitur, the judgment thus reduced should be wholly vacated, and the bank be required to bring its action on the valid bills which had entered into the consideration of the bill in suit, and as to which there was no defence. The court refused to vacate the judgment hi toto, and drive the parties into further litigation, which was required neither by considerations of justice, nor the provision of the statute, and would have left the parties where they then stood. It is not every defence which might be available when set up by answer, at the proper time, that will require a judgment CO THE CONSIDERATION. to be vacated in order that it may be interposed. In the case referred to, the judgment of the court below was affirmed by this court. Whilst we think that judgment may well be up- held, yet as to the third point of the syllabus which holds that, in so far as the prior illegal bill entered into the consideration of the renewed bill, the latter was merely rendered void pro tanto for want of consideration, a majority of the court, upon full consideration, think it cannot be reconciled with the current of the authorities, and that, in so far as it conflicts with the present decision, it is untenable. The judgment of the district court is affirmed. Day, J., concurred in the judgment of affirmance, but not in the modification of the case of Doty v. The Knox County Bank. CHAPTER V. ACCEPTANCE AND TRANSFER CONSIDERED.* The Purpose of Acceptance to Bind the Drawee.\ LUFF V. POPE. 5 Hill, 413. 1843. On the merits it appeared that the action was brought upon the following instriunent: ''New York, Dec. 9, 1838. "Thirty days after sight pay Henry Pope or his order sixty- six dollars and ninety-seven cents, and place the same to account of yours, ''Abm. Bell. ' ' To Mr. Martin Luff, New York. ' ' The draft was presented to the defendant for acceptance two days after its date, and was duly protested by a notary for non- acceptance. The plaintiff proved that he had a demand against Bell, and on calling for payment Bell said he had funds in the hands of the defendant, and thereupon made this draft for the amount of the plaintiff's demand. On presenting the draft the defendant said he would pay it by the 1st of February or the 1st of March; but he refused to accept it, or to make any promise in writing. The plaintiff" gave evidence tending to show that the defendant had funds of Bell in his hands sufficient to pay the bill, and the defendant gave rebutting evidence. The defendant moved for a non-suit, on the ground that there was no acceptance in writing, and because the defend- ant positively refused to accept the bill. The motion was denied by the Justice, on the ground that he did not think this a bill of exchange within the meaning of the statute. He said it was known to all the parties that the instrument was drawn on a particular fund, and he regarded it as a transfer of a chose * See Sees. 794-813, Vol. 6, Cyclopedia of Law. t See Sec. 794-5, Vol. 6, Cyclopedia of Law. 61 62 ACCEPTANCE AND TRANSFER CONSIDERED. in action. The jury were afterward charged that if this was a bill of exchange within the common acceptation of business men the plaintitt' could not recover for want of a written ac- ceptance. But if it was only an order or instrument in writing to transfer so much of the specific fund of Bell in the hands of Luff as would pay BelPs debt to Pope, then it was not within the statute, and the defendant was liable, provided he had funds. The jury found for the plaintiff as before mentioned. Judg- ment of affirmance having been perfected in the Superior Court, the defendant in the Marine Court brought error. Bronson, J. On the merits, the judgment of the Marine Court was clearly erroneous, and should have been reversed. There is no color for the argument that the instriunent on which the plaintiff sued was not a bill of exchange. A bill of exchange is a written order or request by one person to another for the payment, absolutely and at all events of a specified sum of money to a third person. Now what have we here? Bell requests Luff, thirty days after sight, to pay a specified sum of money to Pope. It is payable absolutely, and without reference to any particular fund; and if it be not a bill of exchange the writ of man cannot devise one. The Justice thought it was not a bill, but only "an order or instrument in writing," because it was said at the time, and the proof tended to establish the fact, that Luff had funds in his hands belonging to Bell. It would be enough to say that a written instrument which is perfectly plain and explicit on its face cannot be changed into something else by anything which the parties said at the time of making it, nor by any inquiry into extrinsic facts. It must speak for itself. But the notion that there cannot be a bill of exchange Avhere the drawee has funds, if it be not entirely new, cannot date back further than 1836. It con- tradicts the very theory, and all the right use of a bill of ex- change, which is always supposed to be drawn on funds. In- calculable mischief has resulted from the modern practice of drawing without funds, which is little better than a fraudulent use of the instrument. And although such bills have been tolerated, we have not yet gone so far as to make it unlawful to pursue the old-fashioned honest course of drawing where the means for payment have already been provided. LUFF V. POPE. 63 Whether the payee takes the bill in satisfaction of a debt due from the drawer, or advances the money for it, cannot be a mat- ter of any importance as between him and the drawee. It does not affect the nature of the instrument. The statute requires that the acceptance should be in writing: 2 R. S. 768, § 6. Here there is not only the want of any writing, but the defendant positively refused to accept, and the bill was protested for non-acceptance. And yet the defendant has been held liable. An examination of this case in all its facts would go very far to confirm the policy of the statute. But it is enough that we cannot repeal it, and until that is done the plaintiff cannot recover. He must take his remedy against the drawer; and if Bell has any money in the hands of the de- fendant, which is very questionable, he must sue for it. It is a chose in action which cannot be transferred so as to give the assignee a right to sue in his own name, except in the form of an accepted bill of exchange. To give a parol promise to pay the effect of a written acceptance of the bill would be no better than a device to get around the statute and defeat all the valuable ends which it was designed to accomplish. If Quin v. Hanford, 1 Hill, 82, does not support, it certainly does not con- flict with this doctrine. In Harrison v. Williamson, 2 Edw. Eep. 430, 438, the Vice-Chancellor said: ''A bill of exchange has not the effect of an assignment of the money for which it is drawn in the hands of a drawee; unless, perhaps, where it is drawn upon a particular fimd, and then, indeed, by the law merchant, it loses its character as a bill of exchange." He undoubtedly alluded to a class of cases, some of which are cited in Quin v. Hanford, where an order, either not payable in money or else drawn on a particular fund, has, after acceptance or promise of payment, been allowed to operate as an equitable assignment of the fund. And see Morton v. Naylor, 1 Hill, 583. This has been done upon a very liberal construction of the acts of the parties for the advancement of justice. But those cases have nothing to do with a bill of exchange proper, which is an instrument of a peculiar nature, and governed by its own laws. Although it is used for the purpose of transferring funds, and has that effect in the result, it never operates as an assignment to the payee of any particular money in the hands of 64 ACCEPTANCE AND TRANSFER CONSIDERED. the drawee. If the latter accepts the bill, the payee or other holder may sue upon the contract of acceptance. But if the drawee refuse to accept, there is no contract between him and the holder, and no action will lie. And this is so although the drawee had funds, and ought, in justice to the drawer, to have paid the bill. We think all these judgments are erroneous, and they must therefore be reversed. Judgments reversed. PRICE V. NEAL. 3 Burrows, 1354. 1762. This was an action upon the case brought by Price against Neal ; wherein Price declares that the defendant Edward Neal was indebted to him in 80L for money had and received to his the plaintiff's use; and damages were laid to lOOL The general issue was pleaded ; and issue joined thereon. It was proved at the trial, that a bill was drawn as follows: "Leicester, 22 November, 1760. Six weeks after date pay Mr. Rogers Ruding or order forty pounds, value received for Mr. Thomas Ploughfor; as advised by. Sir, your humble servant Benjamin Sutton. To Mr. John Price in Bush-lane, Cannon- street, London; indorsed 'R. Ruding, Antony Topham, Ham- mond and Laroehe. Received the contents, James Watson and Son: witness Edward Neal.' " That this bill was indorsed to the defendant for a valuable consideration; and notice of the bill left at the plaintiff's house, on the day it became due. Wliereupon the plaintiff sent his servant to call on the defendant, to pay him the said sum of 40Z. and take up the said bill : which was done accordingly. That another bill was drawn as follows: "Leicester, 1st February, 1761. Sir, six weeks after date pay Mr. Rogers Rud- ing or order forty pounds, value received for ]\Ir. Thomas Plough- for; as advised by. Sir, your humble servant Benjamin Sutton. To Mr. John Price in Bush-lane, Cannon-street, London. ' ' That PRICE V. NEAL. 65 this bill was indorsed, "H. Ending, Thomas Watson and Son. Witness for Smith, Right & Co." That the plaintife accepted this bill, by writing on it, "accepted John Price;" and that the plaintiff wrote on the back of it, "Messieurs Freame & Barclay, pray pay forty pounds for John Price." That this bill so accepted was indorsed to the defendant for a valuable consideration, and left at his bankers for payment: and was paid by order of the plaintiff, and taken up. Both these bills were forged by one Lee, who has been since hanged for forgery. The defendant Neal acted innocently and ho7ia fide, without the least privity or suspicion of the said forgeries or of either of them ; and paid the whole value of those bills. The jury found a verdict for the plaintiff, and assessed damages 801. and costs 40s. subject to the opinion of the court upon this question: — "Whether the plaintiff', under the circumstances of this case, can recover back, from the defendant, the money he paid on the said bills, or either of them. " * * * It is an action upon the case, for money had and received to the plaintiff's use. In which action, the plaintiff can not recover the money, unless it be against conscience in the defendant, to retain it: and great liberality is always allowed, in this sort of action. But it can never be thought unconscientious in the defendant, to retain this money, when he has once received it upon a bill of exchange indorsed to him for a fair and valuable considera- tion, which he has bona fide paid, without the least pri\y or suspicion of any forgery. Here was no fraud; no wrong. It was incumbent upon the plaintiff, to be satisfied, "That the bill drawn upon him was the drawer's hand," before he accepted or paid it; but it was not incumbent upon the defendant, to inquire into it. Here was notice given by the defendant to the plaintiff of a bill drawn upon him: and he sends his servant to pay it and take it up. The other bill, he actually accepts: after which acceptance, the defendant innocently and hoiia fide discoimts it. The plaintiff lies by, for a considerable time after he has paid these bills; and then found out "That they were forged;" and the forger 66 ACCEPTANCE AND TRANSFER CONSIDERED. comes to be hanged. He made no objection to them, at the time of paying them. Whatever neglect there was, was on his side. The defendant had actual encouragement from the plaintiff him- self, for negotiating the second bill, from the plaintiff's having without any scruple or hesitation paid the first : and he paid the whole value, hona fide. It is a misfortune which has happened without the defendant's fault or neglect. If there was no neglect in the plaintiff", yet there is no reason to throw off' the loss from one innocent man upon another innocent man : but, in this case, if there was any fault or negligence in any one, it certainly was in the plaintiff, and not in the defendant. Rule. — That the postea be delivered to the defendant. Presentment for Acceptance — When and How to he Made* MONTELIUS V. CHARLES. 76 III. 303. 1875. Mr, Justice Scott, This action was upon an inland bill of exchange, in the name of a remote assignee, against the drawers. One important question is whether the holders had been guilty of such laches before presenting it to the drawee for payment, as would bar a recovery against the drawers. Defendants were engaged in the banking business at Piper City, in this State. On the 8th day of September, 1873, on the application of James McBride, they drew their draft on the Franklin Bank of Chicago, payable at sight, to the order of John Strank, who then resided at Canton in Dakota, It was on the same day deposited in the post-oiffce, directed to the payee at Canton, who received it after some delay, attrib- utable alone to the fault of the mails. Having passed through the hands of several holders, it was presented on the 13th day of October, 1873, to the bank for payment, which, being re- fused, it was protested and notice given through the post-office to the drawers and the several indorsers. In the meantime the * See Sees. 796-798, Vol. 6, Cyclopedia of Law. MONTELIUS V. CHARLES. 67 Franklin Bank, on which the draft had been drawTi, had failed and gone into bankruptcy. The law is settled by an unbroken line of decisions that all drafts, whether foreign or inland bills, must be presented to the drawee within a reasonable time, and in case of non-payment notice must be given promptly to the drawer, to charge him. But what is a reasonable time under all the circumstances is sometimes a most difficult question. The general doctrine is each case must depend on its own peculiar facts, and be judged accordingly. In Strong v. King, 35 111. 9, it was declared to be a general rule, the holder of a sight draft must put it in circulation or present it for payment, at farthest, on the next business day after its reception, if within the reach of the person on whom it is drawn. In the case at bar, the draft was put in circula- tion, and the point is made, the mere fact it was not presented for payment until after the lapse of thirty-five days, is per se such laches on the part of the holders as would discharge the drawers. In Muilman v. D'Eguino, 2 H. Black. 565, Eyre, C. J., said : ' ' Courts have been very cautious in fixing any time for an inland bill, payable at a certain period after sight, to be presented for acceptance, and it seems to me more necessary to be cautious with respect to foreign bills payable in that manner. If, instead of drawing their foreign bills payable at usances in the old way, merchants choose, for their own con- venience, to draw them in this manner and make the time commence when the holder pleases, I do not see how the Courts can lay down any precise rule on the subject. I think, indeed, the holder is bound to present the bill in a reasonable time, in order that the period may commence from which the payment is to take place. The question what is a reasonable time, must depend on the peculiar circumstances of the case, and it must always be for the jury to determine whether laches is imputable to the plaintiff." BuLLER, J.: "Due diligence is the only thing to be looked at, whether the bill be a foreign or an inland one, and whether it be payable at sight, at so many days after, or in any other manner. But here I must observe that I think a rule may 68 ACCEPTANCE AND TRANSFER CONSIDERED. thus far be laid down with reo:ard to all bills paj^able at sijiht, or at a certain time after sight, namely, that they on^iht to be put in circulation. Ti" they are circulated the parties are known to the world and their credit is looked to; and if a bill drawn at three days' sifjht were kept out in that way for a year, I cannot say there would be laches. But if, instead of putting it in circulation, the holder were to lock it up for any length of time, I should say he was guilty of laches.'' Bills, both inland and foreign, having the ({uality of nego- tiability, are intended in some degree, to be used as a part of the circulation of the country, and are indispensable in the conduct of extended commercial transactions. They afford a safe and convenient mode of making payments of indebted- ness between distant points. Banking houses that for a con- sideration, issue such bills, must be understood to do so in accordance with the known custom of the country — that they will be put in circulation for a limited period. If this were not so their value would be greatly depreciated, and their utility in commercial transactions would be destroyed. Were it understood the purchaser of such a bill was bound to make all possible dispatch to present it to the drawee or lose his recourse on the drawer, no prudent man would feel safe in taking one. He may know the drawer from whom he pur- chases the bill, and be willing to rely on his responsibility, but in many instances he has and can have no knowledge of the drawer's correspondent, the drawee. Commercial usage has, therefore, placed the responsibility upon the drawer, and he is presumed, in consideration of the premium paid, to as- sume all risks as to the solvency of the drawee for such rea- sonable time as the bill shall be kept in circulation. There can be no doubt, if the holder locks it up and keeps it out of circulation, he assumes all risks, and in case the bill is dis- honored, his laches in that regard would bar a recovery against the drawer. Such bills are not issued with a view to be held as a permanent security, with a continuing liability on the drawer. Illustrative of the law of this branch of the case, is Shute V. Bobbins, 3 C. & P. 80. The difficulty is to determine for what length of time such a bill may be kept in circulation, consistently with a continuing MONTELIUS V. CHARLES. 69 liability on the drawer. The rule adopted, as we have seen, is, it must be presented in a reasonable time under all the circumstances. But Courts, not infrequently, experience great perplexity in making a distinction between a reasonable time for the presentation of such paper and laches on the part of the holder. Every case differs so essentially in its facts, it has given rise to many apparently contradictory decisions, but through all of them is noticeable the efforts of the Courts to ascertain whether the bill was kept in circulation for only a reasonable period in the regular course of business. When that fact is once established the liability of the drawer is regarded as con- tinuing. It wnll be found the decisions differ only in what the various Courts deemed reasonable in each particular case. In Robinson v. Ames, 20 Jolms. 147, the bill declared on was drawn on the 6th of March, but not presented for pay- ment to the drawees until the 20th of May. In the meantime the drawees had failed, but in a well-reasoned opinion the Court came to the conclusion there was no such laches as would dis- charge the drawer. In Jordon v. Wheeler, 20 Tex. 698, the bill in suit was put in circulation and indorsed by defendants without having been presented for acceptance before it came to the hands of the plaintiff; that a little more than a month elapsed before he presented it for payment, and that was declared to be accord- ing to usage. In Nichols v. Blackmore, 27 Tex. 586, the Court was of opinion a delay of forty-seven or forty-eight days was not such laches as would forfeit the right of the holder to recourse against the drawer in default of payment by the drawees. Many other cases of the same import might be cited, but these are sufficient for our present purpose. They establish, beyond doubt, the fact, there is no fixed period in w^hich the bill must be presented for payment, but that each case must be decided on its own peculiar facts in the light of commercial usage. In the case at bar the bill was immediately put in circula- tion. It was mailed to the payee on the day it bore date, to his proper address in Dakota. Some delay occurred, attrib- utable to interruption in the transmission of the mails, but 70 ACCEPTANCE AND TRANSFER CONSIDERED. this fact eould not be imputed to the payee as laches. On the receipt, the payee immediately undertook and availed of the first opportunity to negotiate the bill. It was kept in circula- tion, and no delay was suffered other than that incident to the transaction of business in a sparsely populated territory like Dakota. The facts and circumstances proven show no laches on the part of any holder that would operate to discharge the drawers. Aside from the presumption that will be indulged, the drawers must have known the bill was liable to be put in circulation for a limited period. The evidence, though conflicting, war- ranted the Court in finding the draft was sold with the knowl- edge that it was to be sent to the payee in Dakota. That being so, on every principle of justice, waiving all consideration of commercial usage, defendants ought to be held to have taken upon themselves the risk of the failure of the drawee for such reasonable time as it would take the bill to go there and be returned in the usual course of business, all things considered, and to be presented to the drawee at Chicago. We entertain no doubt their obligation is to this extent. It would be ab- surd to suppose it was within the contemplation of the drawers the bill was to be sent directly to the drawee at Chicago for payment. The law imposed no such duty upon the party pro- curing it. He could rightfully send it to his creditor and be guilty of no laches. No error appearing in the record, the judgment will be affirmed. Judgment affirmed. CHEEK v. ROPER. 5 Esp. 175. 1805. 'Assumpsit on a bill of exchange against defendant as drawer. The declaration stated in the usual form that the defendant drew his bill of exchange for £60 on one J. Hammond, tanner, in Bristol, which was duly shown, and presented to the said DAVIS V. CLARKE. 71 Hammond for his acceptance, etc., who refused to accept or pay the same, by reason whereof the defendant became liable. To prove the fact of the bill having been presented to Ham- mond for his acceptance, the plaintiff proved that the bill was sent by the witness, who was called, who carried it to the place which was described to him as Hammond's house, he offered it to some person in a tan-yard, who refused to accept it; but he did not know Hammond's person, nor could he swear that the person to whom he offered the bill was he, or represented himself to be so. Lord Ellenborough said that the allegation respecting the bill was a material one, as the drawer could only become liable on the acceptor's default, which default must be proved. That the evidence here oft'ered proved no demand on Hammond, and was therefore insufficient, so that the plaintiff could not recover on the bill. Some evidence must be given of an application to the party first liable. The Acceptance Considered. — 1. Wlio May Accept.* DAVIS V. CLARKE. 6 Adolphus & Ellis, N. 8., 16; 6 Queen's Bench, 16; 51 Eng., C. L., 15. 1843. Assumpsit. The first count stated that ''one John Hart," on the 8th day of March, 1838, "made his bill of exchange in writing and directed the same to the defendant, and thereby required the defendant to pay to him or his order 100?.," value received, at twelve months after date, which had elapsed before the commencement, etc.; "and the defendant then accepted the said bill, and the said John Hart then indorsed the same to plaintiff;" averment of notice to defendant, promise by him to pay plaintiff, and that he did not pay. There was also a count on an account stated. The first plea denied the acceptance ; the second the promise ; * See Sec. 799, Vol. 6, Cyclopedia of Law. 72 ACCEPTANCE AND TRANSFER CONSIDERED. the third alleged a discharge of the defendant by the Insol- vent Debtor's Court. The replication joined issue on the first two pleas, and tra- versed the discharge alleged in the third ; on which traverse issue was joined. On the trial, before Parke, B., at the Essex Summer assizes, 1843, a written paper, in the following terms, was given in evidence on behalf of the jilaintiff. *«£100. "London, 8th March, 1838. "Twelve months after date pay to me or my order one hun- dred pounds, value received. "To Mr. John Hart. John Hart." Across the face of this instrument Avas written the follow- ing: "Accepted. "H. J. Clarke. "payable at 319 Strand." This writing across the face was proved to be the defendant's handwriting. No other evidence being produced, the learned baron directed a non-suit. In Michaelmas term, 1843, Petei-sdorff obtained a rule nisi for a new trial. The defendant has not accepted the bill described in the declaration : the instrument produced is indeed no bill of ex- change. In Gray v. Milner (8 Taunt., 739), where the instru- ment was not addressed to any one, but had only a place of payment added, and in other respects resembled the document here proved, the acceptor was held liable, as having admitted himself, by the acceptance, to be the party pointed out by the place of pa> ment. Here the drawer addresses himself ; and the instrument more nearly resembles a promissory note. It may be that the defendant might have been sued as a surety. This principle of Gray v. Milner (8 Taunt., 739), applies. The defendant, by his acceptance, estops himself from disputing his own character and the nature of the instrument. In Pol- hill V. Walter (3 B. & Ad., 114), indeed, it was said that no one could be liable as acceptor, unless he were the person to whom tilt' bill was addressed, or an acceptor for honor. But the question of acceptance in this form was npt then distinctly DAVIS V. CLARKE. 73 before the court. Here it may be contended that the defendant identifies himself as the person addressed under the name of John Hart. The judge at nisi prius was requested, but re- fused, to allow an amendment, by calling the instrument a promissory note made by the defendant; the writing the name was a new making, according to the principle of Penny v, In- nes. (1 C. M. & R., 439 ; S. C, 5 Tyrwh., 107 ; he referred also to Jackson v. Hudson, 2 Camp., 447.) Lord Denman, C. J. There is no authority, either in English law or the general law merchant, for holding a party to be liable as acceptor upon a bill addressed to another. We must take it on this instrument that the defendant is different from the party to whom it is addressed. Polhill v. "Walter (3 B. & Ad., 114), and Jackson v. Hudson (2 Camp., 447), are au- thorities showing that the defendant here cannot be sued as acceptor. In Jackson v. Hudson, Lord Ellenborough treated an acceptance by a party not addressed as "contrary to the usage and custom of merchants." No previous ease seems to be exactly like this. In Jackson V. Hudson (2 Camp., 447), there was one acceptance by the party to whom the bill was addressed, prior to the acceptance by the defendant. In Gray v. Milner (8 Taunt., 739), no party was named in the address; and I must say that the decision in that case appears to me to go to the extremity of what is con- venient. It may be considered as having been decided on the ground that the acceptance was not inconsistent with the ad- dress, so that the acceptor might be deemed to have admitted himself to be the party addressed. But here another person, the drawer himself, is named in the address. I do not know that a party may not address a bill to himself, and accept, though the proceeding would be absurd enough. Then it is said that the defendant is estopped: but that cannot be sup- ported where the instrument shows, on its face, that he cannot be the acceptor. The only question is, whether the defendant is such an ac- ceptor as is described in the declaration; that is of a bill of exchange directed to him. No doubt this can be so only where he is the drawee; but here the bill is not addressed to the de- 7-4 ACCEPTANCE AND TRANSFER CONSIDERED. fendant at all. This is therefore not an acceptance within the custom of merchants. The safe course is to adhere to the mercantile rule that an acceptance can be made only by the party addressed, or for his honor. Here the last is not pretended ; and the first can not be presumed. If the John Hart addressed is different from the John Hart who draws, there is still no acceptance; if the same, then the instrument is a promissory note and not a bill of ex- change. Rule. Discharged. 2. Form of Acceptance.— May he Verbal Unless Required by Statute to he in Writiiig. COOLIDGE ET AL. v. PAYSON ET AL. 2 Wheaion's Rep., 66; Condensed Reports U. S., vol. 4, p. 33. 1817. l\Tr. C. J. Marshall. This suit was instituted by Payson & Co., as indorsers of a bill of exchange drawn by Cornthwaite & Gary, payable to the order of John Randall, against Coolidge & Co. as the acceptors. At the trial the holders of the bill on which the name of John Randall was indorsed, offered, for the purpose of prov- ing the indorsement, an affidavit made by one of the defend- ants in the cause, in order to obtain a continuance, in which he referred to the bill in terms which, they supposed, implied a knowledge on his part that the plaintiffs were the rightful owners. The defendants objected to the bill's going to the jury Avithout further proof of the indorsement; but the court determined that it should go with the affidavit to the jury, who might be at liberty to infer from thence that the indorsement was made by Randall. To this opinion the counsel for the de- fendants in the Circuit Court excepted, and this court is divided on the question whelhc^r the exception ought to be sustained. On the trial it appeared that Coolidge & Co. held the pro- ceeds of part of the cargo of the Hiram, claimed by Corn- COOLIDGE V. PAYSON. 75 thwaite & Gary, which had been captured and libelled as lawful prize. The cargo had been acquitted in the District and Cir- cuit Courts, but, from the sentence of acquittal, the captors had appealed to this court. Pending the appeal Cornthwaite & Gary transmitted to Coolidge & Co. a bond of indemnity, executed at Baltimore with scrolls in the place of seals, and drew on them for two thousand seven hundred dollars. This bill was also payable to the order of Randall, and indorsed by him to Payson & Co. It was presented to Coolidge & Co., and protested for non-acceptance. After its protest Coolidge & Co. wrote to Cornthwaite & Cary a letter, in which, after acknowledging the receipt of a letter from them, with the bond of indemnity, they say, "This bond, conformably to our laws, is not executed as it ought to be ; but it may be otherwise in your state. It will therefore be necessary to satisfy us that the scroll is usual and legal with you instead of a seal. We notice no seal to any of the signatures." "We shall write our friend Williams by this mail, and will state to him our ideas respecting the bond, which he will probably determine. If Mr. W. feels satisfied on this point, he will inform you, and in that case your draft for two thousand dollars will be hon- ored." On the same day Coolidge & Co. addressed a letter to Mr. Williams, in which, after referring to him the question respect- ing the legal obligation of the scroll, they say, "You know the object of the bond, and, of course, see the propriety of our having one, not only legal, but signed by sureties of unques- tionable responsibility, respecting which we shall wholly rely on your judgment. You mention the last surety as being responsible; what think you of the others?" In his answer to this letter, Williams says, "I am assured that the bond transmitted in my last is sufficient for the pur- pose for which it was given, provided the parties possess the means ; and of the last signer, I have no hesitation in express- ing my firm belief of his being able to meet the whole amount himself. Of the principals I cannot speak with so much con- fidence, not being well acquainted with their resources. Under all circumstances, I should not feel inclined to withhold from them any portion of the funds for which the bond was given." 76 ACCEPTANCE AND TRANSFER CONSIDERED. On the day on which this letter was written, Cornthwaite & Gary called on "Williams, to inciuire whether he had satisfied Coolidge & Co. respecting the bond. Williams stated the sub- stance of the letter he had written, and read to him a part of it. One of the firm of Parson & Co. also called on him to make the same inciuiry, to whom he gave the same informa- tion, and also read from his letter book the letter he had written. Two days after this, the bill in the declaration mentioned was drawn by Cornthwaite & Cary, and paid to Payson & Co. in part of the protested bill of two thousand seven hundred dollars, by whom it was presented to Coolidge & Co., who re- fused to accept it, on which it was protested, and this action brought by the holders. On this testimony, the counsel for the defendants insisted that the plaintiffs were not entitled to a verdict. The court instructed the jury, that if they were satisfied that "Williams, on the application of the plaintiffs, made after seeing the letter from Coolidge & Co. to Cornthwaite & Cary, did declare that he was satisfied with the bond referred to in that letter, as well with respect to its execution, as to the suffi- ciency of the obligors to pay the same; and that the plain- tiffs, upon the faith and credit of the said declaration, and also of the letter to Cornthwaite & Cary, and without having seen or known the contents of the letter from Coolidge & Co. to "Williams, did receive and take the bill in the declaration men- tioned, they were entitled to recover in the present action : and that it was no legal objection to such recovery that the promise to accept the present bill was made to the drawers thereof, previous to the existence of such bill, or that the bill had been taken in part payment of a pre-existing debt, or that the said AVilliams, in making the declarations aforesaid, did exceed the private instructions given to him by Coolidge & Co. in their letter to him. To this charge the defendants excepted. A verdict was given for the plaintiffs, and judgment rendered thereon, which judg- ment is now before this court on a writ of error. The letter from Coolidge & Co. to Cornthwaite & Carey eon- tains no reference to their letter to "Williams which might sug- gest the necessity of seeing that letter, or of obtaining inforraa- COOLIDGE V. PAYSON. 77 tion respecting its contents. They refer Cornthwaite & Gary to Williams, not for the instructions they had given him, but for his judgment and decision on the bond of indemnity. Under such circumstances, neither the drawers nor the holders of the bill could be required to know, or could be affected by, the private instructions given to Williams. It was enough for them, after seeing the letter from Coolidge & Co. to Cornthwaite & Cary, to know that Williams was satisfied with the execution of the bond and the sufficiency of the obligors, and had informed Coolidge & Co. that he was so satisfied. This difficulty being removed, the question of law which arises from the charge given by the court to the jury is this: Does a promise to accept a bill amount to an acceptance to a person who has taken it on the credit of that promise, although the promise was made before the existence of the bill, and although it is drawn in favor of a person who takes it for a pre-existing debt? In the ease of Pillans & Rose v. Van Mierop & Hopkins (1765), (3 Burr., 1663), (1765), the credit on which the bill was drawn was given before the promise to accept was made, and the promise was made previous to the existence of the bill. Yet in that case, after two arguments, and much consideration, the Court of King's Bench (all the judges being present and con- curring in opinion) considered the promise to accept as an ac- ceptance. Between this case and that under consideration of the court, no essential distinction is perceived. But, it is contended, that the authority of the case of Pillans & Rose v. Van Mierop & Hopkins is impaired by subsequent decisions. In the ease of Pierson v. Dunlop et al., (Cowp., 571), the bill was drawn and presented before the conditional promise was made on which the suit was instituted. Although, in that ease, the holder of the bill recovered as on an acceptance, it is supposed that the principles laid down by Ld. Mansfield, in delivering his opinion, contradict those laid down in Pillans & Rose v. Van Mierop & Hopkins. His lordship observes, ''it has been truly said, as a general rule, that the mere answer of a merchant to the drawer of a bill, saying, 'he will duly honor it,' is no acceptance, unless accompanied with circumstances 78 ACCEPTANCE AND TRANSFER CONSIDERED. which may induce a third person to take the bill by indorse- ment; but if there are any such circumstances, it may amount to an acceptance, though the answer be contained in a letter to the drawer." If the case of Pillans & Rose v. Van Mierop & Hopkins had been understood to lay down the broad principle that a naked promise to accept, amounts to an acceptance, the ease of Pier- son V. Dunlop certainly narrows that principle so far as to require additional circumstances proving that the person on W'hom the bill was drawn, was bound by his promise, either be- cause he had funds of the drawer in his hands, or because his letter had given credit to the bill, and induced a third person to take it. It has been argued, that those circumstances to which Ld. Mansfield alludes, must be apparent on the face of the letter. But the court can perceive no reason for this opinion. It is neither warranted by the words of Ld. Mansfield, nor by the circumstances of the case in which he used them, "The mere answer of a merchant to the drawer of a bill, saying he will duly honor it, is no acceptance unless accompanied with cir- ciunstances, " etc. The answer must be "accompanied with cir- cumstances;" but it is not said that the answer must contain those circumstances. In the case of Pierson v. Dunlop, the answer did not contain such circumstances. They were not found in the letter, but were entirely extrinsic. Nor can the court perceive any reason for distinguishing between circum- stances which appear in the letter containing the promise, and those which are derived from other sources. The great motive for construing a promise to accept, as an acceptance, is, that it gives credit to the bill, and may induce a third person to take it. If the letter be not shown, its contents, whatever they may be, can give no credit to the bill; and if it be shown, an absolute promise to accept will give all the credit to the bill which a full confidence that it will be accepted can give it. A con- ditional promise becomes absolute when the condition is per- formed. In the ease of Mason v. Hunt (1779) (1 Doug., 296 (1779) ), Ld. Mansfield said, "there is no doubt but an agreement to accept may amount to an acceptance ; and it may be couched COOLIDGE V. PAYSON. 79 in such words as to put a third person in a bettor condition than the drawee. If one man, to give credit to another, makes an absolute promise to accept his bill, the drawer, or any other person, may show such promise upon the exchange to get credit ; and a third person, who should advance his money upon it, would have nothing to do with the equitable circumstances which might subsist between the drawer and acceptor." What is it that "the drawer, or any other person, may show upon the exchange?" It is the promise to accept — the naked promise. The motive to this promise need not, and cannot be examined. The promise itself, when shoAvn, gives the credit; and the merchant who makes it is boimd by it. The cases cited from Cowper (Cowper, 571), and Douglass are, it is admitted, cases in which the bill is not taken for a pre-existing debt, but is purchased on the credit of the promise to accept. But in the case of Pillans v. Van Mierop, the credit was given before the promise was received or the bill drawn; and in all cases the person who receives such a bill in payment of a debt, will be prevented thereby from taking other means to obtain the money due to him. Any ingredient of fraud would, unquestionably, affect the whole transaction; but the mere cir- cumstance, that the bill was taken for a pre-existing debt had not been thought sufficient to do away with the effect of a promise to accept. In the case of Johnson and another v. Collings (1800) (1 East, 98 (1800) ), Ld. Kenyon shows much dissatisfaction with the previous decisions on this subject ; but it is not believed, that the judgment given in that case would, even in England, change the law as previously established. In the case of Johnson v. Collings, the promise to accept was in a letter to the drawer, and is not stated to have been shown to the indorser. Consequently, the bill does not appear to have been taken on the credit of that promise. It was a mere naked promise, unaccompanied with circumstances which might give credit to the bill. The counsel contended, that this naked promise amounted to an acceptance; but the court determined otherwise. In giving his opinion, Le Blanc, J., lays down the rule in the words used by Ld. Mansfield, in the case of Pierson V. Dunlop. 80 ACCEPTANCE AND TRANSFER CONSIDERED. Ld. Kenyon said, in that case, that "this was carrying- the doctrine of implied acceptances to the utmost verge of the law; and he doubted whether it did not even go beyond it. In Clarke and others v. Cock (4 East, 57), the judges again ex- press their dissatisfaction with the law as established, and their regret that any other act than a written acceptance on the bill had ever been deemed an acceptance. Yet they do not under- take to overrule the decisions which they disapprove. On the contrary, in that case (Clarke v. Cock), they unanimously de- clared a letter to the drawer promising to accept the bill, which was shown to the person who held it, and took it on the credit of that letter, to be a virtual acceptance. It is true, in the case of Clarke v. Cock, the bill was made before the promise was given, and tlu' judges, in their opinions, use some expressions which indicate a distinction between bills drawn before and after the date of the promse; but no case has been decided on this distinction; and in Pillans & Rose v. Van Mierop & Hop- kins, the letter was written before the bill was drawn. The court can perceive no substantial reason for this distinc- tion. The prevailing inducement for considering a promise to accept, as an acceptance, is that credit is thereby given to the bill. Now, this credit is given as entirely by a letter written before the date of the bill as by one wi-itten afterwards. It is of much importance to merchants that this question should be at rest. Upon a review of the cases which are re- ported, this court is of opinion, that a letter written within a reasonable time before or after the date of a bill of exchange, describing it in terms not to be mistaken, and promising to accept it, is, if shown to the person who afterwards takes the bill on the credit of the letter, a verbal acceptance binding the person who makes the promise. This is such a case. There is, therefore, no error in the judgment of the Circuit Court, and it is affirmed with costs. Judgment affirmed. SPAULDING V. ANDREWS. 81 SPAULDING V. ANDREWS. 48 Pa. St. 411. 1864. Strong, J. The plaintiff in error was sued by an indorsee, upon an alleged parol acceptance of an inland bill. The evi- dence of acceptance was, that soon after the bill was drawn the payee, who was then the holder, presented it for acceptance, and received for answer from Spaulding, the drawee, that it was contrary to his mode of business to accept a draft. When told what the payee wished to do with the bill, and urged to accept in writing, Spaulding replied that it was not his cus- tom to accept in writing, his word was as good as writing, and that the draft would undoubtedly be paid at its maturity. Soon after, when again applied to for an acceptance in writing, he re- plied: "The draft would be paid at maturity. You know me, and you may rely upon it, the draft will be paid ; it will certainly be paid at maturity," adding, "he had a running ac- count with the drawer, and there would be funds in his hands before the draft matured." When first applied to he also said "he would take a memorandum of the draft and place it to the account of Lambert" (the drawer). After this evidence had been given the Court permitted the draft to be laid before the jury, and instructed them, that if they believed Spaulding promised to pay the draft at maturity the plaintiff (who be- came an indorsee after this alleged parol acceptance) was en- titled to recover. In all this there is no error of which the plaintiff in error can complain. That a parol acceptance of a bill is binding upon the acceptor, in all cases not regulated by statute, is beyond doubt, and that a promise to pay a draft when it shall mature is an acceptance is equally certain. Nor can it be doubted that the evidence of acceptance in this case was exceedingly strong and unimpeached. It is said that even if there was a promise to pay the draft there was no promise to Andrews, who obtained it after the acceptance. But an acceptance is a promise to pay any one who may thereafter become the holder. And the legal effect is the same, whether it be in j^arol or in writing. Nor does it make any difference when a parol acceptance is given, if it be 82 ACCEPTANCE AND TRANSFER CONSIDERED. after the bill is drawn. It inures to the benefit of all parties to the bill. It may be given to the drawer or any other party to the bill, after it ha.s been indorsed away, and even after it has become due. It may even be given to a person by whose direction and on whose account the bill was drawn, though he be no party to thi' l)ill and although the bill had been pre- viously indorsed. See Byles on Bills, 147, 148, and cases cited, especially Fairlee v. Herring. 3 Bink. 625. If a bill comes into a man's hands with a parol acceptance, though he does not know of that acceptance, he may avail himself of it afterward when it comes to his knowledge. If not, then he has not all the advantages previous holders had. Of courae, if there was an acceptance of the bill, it was not a promise to pay the debt of another. The acceptor is the pri- mary debtor, and the Statute of Frauds does not require his engagement to be in writing. Judgment affirmed. SPEAR V. PRATT. 2 Hill, 582. 1842. Assumpsit, tried at the Onondaga Circuit, in September, 1841, before Moseley, C. J. The action was against the defendant, Frederick Pratt, as acceptor of a bill of exchange, payable to the order of the plaintiffs. The defendant's name was written across the face of the bill ; and the question was, whether this was such an acceptance as is required by the statute. It was admitted that the defendant, at the time of the acceptance, was a resident of this State. His counsel insisted at the trial that the acceptance was insufficient ta charge him, but the Circuit Judge, being of a different opinion, directed the jury to find for the plaintiff's, which they accordingiy did; and the defen- dant 's counsel, having excepted, now moved for a new trial upon a bill of exceptions. CowEN, J. Any words written by the drawee on a bill, not putting a direct negative upon its request, as "accepted," "pre- sented," "seen," the day of the month, or a direction to a SPEAR V. PRATT. 83 third person to pay it, is prima facie a complete acceptance, by the law merchant: Bayley on Bills, 163, Am. ed. of 1886, and the cases there cited. Writing his name across the bill, as in this case, is a still clearer indication of intent, and a very com- mon mode of acceptance. This is treated by the law merchant as a written acceptance — a signing by the drawee. "It may be," says Chitty, "merely by writing the name at the bottom or across the bill," and he mentions this as among the more nsual modes of acceptance: Chitty on Bills, 320, Am. ed. of 1839. It is supposed that the rule has been altered by 1 R. S. 757, 2d ed., § 6. This reciuires the acceptance to be in writing, and signed by the acceptor or his agent. The acceptance in ques- tion was, as we have seen, declared by the law merchant to be both a writing and signing. The statute contains no declara- tion that it should be considered less. An indorsement must be in writing and signed; yet the name alone is constantly holden to satisfy the requisition. No particular form of ex- pression is necessary in any contract. The customary import of a word, by reason of its appearing in a particular place and standing in a certain relation, is considered a written ex- pression of intent quite as full and effectual as if pains had been taken to throw it into the most labored periphrase. It is said the revisers, in their note, refer to the French law as the basis of the legislation which they recommended; and that the French law requires more than the drawee's name — the word accepted at least. That may be so ; but it is enough for us to see that both the terms and the spirit of the Act may be satisfied short of that word, and more in accordance with the settled forms of commercial instruments in analogous cases. The whole purpose was probably to obviate the inconveniences of the old law, which gave effect to a parol acceptance. New trial denied. 84 ACCEPTANCE AND TRANSFER CONSIDERED. 3. Accep4ance May Be Implied. IIOUCII V. LORING. 24 Pick. 254. 1837. Assumpsit on an order or draft for the sum of $50, dated New York, April 3, 1834, drawn by Eliza Woolcutt on the de- fendant, in favor of the plaintiff. At the trial in the Court of Common Pleas, before Strong, J., it was proved by the deposition of W. W. Morse, that the draft was sent to Boston to be collected, while the defendant Avas absent on a journey to New York ; that the witness, who said he was the agent of the plaintiff, informed the defendant in New York that the draft had been made and sent to Massachusetts, and produced to the defendant a discharge from the draft and requested him to pay it; that the defendant looked at the dis- charge, and replied that "he would rather pay it in the regular way, when presented," and that "he would meet it at the Con- cord Bank, or pay to any person who should present it;" that the defendant returned home, and soon afterward the draft was sent back from Massachusetts; that the plaintiff then gave the draft to the witness with his name indorsed thereon, and re- quested him to enclose it to the defendant and to ask him to send a fifty-dollar bill by mail; that the witness did so, by a letter dated April 15, 1834, but received no answer ; and that he after- ward wrote to the defendant again and again on the subject, without receiving any reply. By the deposition of Henry Hutchinson it appeared that the deponent received at New York a letter from the defendant, dated May 26, 1834, in which was the following clause: "I received an order from Mr. jMorse, drawn by Eliza for fifty dollars, which will be disposed of some way or other when I am there." The Judge ruled that this evidence proved a conditional ac- ceptance of the order by the defendant, but that it did not ap- pear from the evidence that the condition had been complied with by the plaintiff; and he instructed the jury that if they believed the witnesses, they must find for the defendant. TVi jury returned a verdict for the defendant. HOUGH V. LORING. 85 The plaintiff excepted to the instruction, that it did not ap- pear from the testimony that the condition on which the order was accepted had been complied with. Putnam, J. Taking it to be true that this was originally a conditional acceptance, and that the condition was not per- formed, yet there are other facts proved in the case upon which the jury might have found a verdict for the plaintiff. If the condition were waived and an absolute acceptance were made after the conditional one, it is very clear that the subsequent absolute acceptance should bind the defendant to pay the bill. The defendant originally refused to accept a discharge of the bill, which was executed by the plaintiff; but said "he would rather pay it in the regular way when presented, ' ' and that ' ' he would meet it at the Concord Bank, or pay to any person who should present it." He did not mean to trust to the discharge which was produced ; but he meant to take up the draft, to have the draft in his own possession, before he paid it. Well, the plaintiff afterward sent the draft, indorsed by him, on the 15th of April, 1834, in a letter addressed to the defendant, which the defendant received. Upon the receipt of that letter and draft, the defendant might have insisted, if he had pleased, upon the performance of the strict terms of the condition, viz., that some person should come and present it and give it up, upon payment; or he might consider the sending the draft with a blank indorsement as a presentation ; and having the draft itself so indorsed, he might intend to accept and pay it. If he intended to insist upon the original terms, he was bound to answer the let- ter of the 15th of April in a reasonable time, to the end that the plaintiff', the holder of the bill, might take his further remedy, by complying literally with the condition originally proposed. He was requested to send the fifty-dollar bill by the mail in payment. He might have answered that he would do no such thing, but that if the holder would authorize any person to come to him and receive the money, he would pay it, and in the mean- time hold the draft, for the use of the holder. But he did not take such a course. On the contrary, he kept the bill, and the money also, and refused to answer the repeated letters of the agent of the plaintiff upon the subject. He has retained the draft and the money ever since. But on the 26th of May, 1834, 86 ACCEPTANCE AND TRANSFER CONSIDERED. he acknowledged b}- his letter that he had received the order drawn by Eliza (the drawer) for $50, "which will be disposed of some way or other when I am there." Now he makes no objection as to the want of a due and regular presentation or acceptance of the draft; but, on the contrary, agrees to make some disposition, which may fairly mean to pay the same when he shoidd be at New York. Now if there was a waiver of the original condition, and such consent afterward as amounted to a presentation and acceptance, it renders the acceptor liable; and it is not for him afterward to postpone the pajnnent, or make any terms when or where he will pay. He became liable to pay as upon an absolute acceptance. Thus, in Chitty on Bills (Story's ed. 147) it is stated that an acceptance may be implied as well as express. It may be implied and inferred from the drawee's keeping the bill a great length of time, or by any other act which gives credit to the bill, and induces the holder not to protest it and induces him to consider it as accepted: Clavey v. Dolbin. Cas. temp. Hardw. 278; Harvey v. Martin, 1 Campb. 425. Now, here the holder had no reason to suppose that the bill was not accepted, as it was retained by the defendant in the manner stated. We all think that the facts, whether the defend- ant waived the condition originally made, and whether he did not so conduct himself afterward as should by implication bind him as an absolute acceptor of the draft, were proper to be left to the jury. The jury might well infer an absolute acceptance from the facts disclosed in this report, if not contradicted or explained by other evidence. If there were such an implied acceptance, it could not be recalled: Thornton v. Dick, 4 Esp. R. 272. We are all of opinion that the verdict should be set aside and a new trial be had at the bar of this Court. PETIT V. BENSON. 87 4. TJie Holder is Entitled to an Absolute and Unconditional Acceptance, But May Accept Less and It WHl he Binding on the Drawer. PETIT V. BENSON. Comberhach, 452. 1679. A bill was drawn upon the defendant, who accepted it by in- dorsement, in this manner: "I do accept this bill to be paid, half in money and half in bills. ' ' And the question was, whether there could be a qualification of an acceptance ; for it was alleged that this writing upon the bill was sufficient to charge him with the whole sum. But it was proved by divers merchants that the custom among them was quite otherwise, and that there might be a qualification of an acceptance; for he that may refuse the bill totally, may accept it in part. But he to whom the bill is due may refuse such acceptance, and protest it so as to charge the first drawer; and though there be an acceptance, yet after that he hath the same liberty of charging the first drawer as he before had. Acceptances for Honor, or Supra Protest.* HOARE ET AL. v. CAZENOVE ET AL. 16 East's Rep., 391. 1812. In an action by the indorsees of the bill of exchange herein- after set forth against the acceptors, the declaration contained the usual averments (the 1st count averring that the bill was presented for payment to the drawees and refused, the 2d count omitting that averment), and charged that the bill having been refused acceptance by the drawees, and being thereupon duly protested for non-acceptance, the defendants, having notice thereof, accepted the bill for the honor of the first indorsers. The defendants pleaded the general issue ; and at the trial before Ld. Ellenborough, Ch. J. (1811), a verdict was found for the plaintifi's for 816L, subject to the opinion of the court on the following case. The bill of exchange stated in the declaration was drawn by * See Sec. 800, Vol. 6, Cyclopedia of Law. 88 ACCEPTANCE AND TRANSFER CONSIDERED. S. Ilanbury at Hamburgh, on the 23d of July, 1810, upon Penn and Ilanbury of London, in favor of Quevremont Balloydier & Co., for SOOl. sterling-, at 130 days after date. It was specially indorsed by Quevremont Ballcydier & Co., to Perier Freres; by them to F. Farmbacher, all of whom reside abroad ; by F. Farm- bacher to Greft'uhle, Freres & Co., who reside here ; and by the latter to the plaint ill's, who are bankers in London. The first of the set of bills was transmitted, with the first special indorsement only, to the defendants, to procure acceptance : and they accord- ingly presented it for acceptance to Penn & Ilanbury, who re- fused; whereupon the defendants caused a protest to be duly made for non-acceptance. The second of the set of bills was afterwards transmitted, indorsed so as to pass the property of Greffuhle, Freres & Co., with a reference upon the face of the bill to the defendants in the case of need. Greffuhle, Freres & Co. applied to the defendants for the first bill, and to know if it had been accepted: upon which the defendants delivered the first bill to them with the following acceptance by themselves: ''accepted under protest for the honor of the first indorsers." The bill became due on the 3d of December, 1810, but was not presented to the drawees, Penn & Ilanbury, for payment; nor was it proved to have been protested for non-payment. The defendants refused to pay the bill, in consequence of orders from the first indorsers. If the plaintiffs were entitled to recover, the verdict was to stand ; if not, a non-suit was to be entered. This case was argued in 1811, and the court reserved it for further consideration. Ld. Ellenborougii, Ch. J., delivered the judgment. This was an action founded upon a set of bills of exchange for 8001., accepted by the defendants for the honor of the fir.st indorsers. The set was drawn by Samuel Ilanbury at Ham- burgh, 23d July, 1810, upon Penn & Ilanbury of London, and was payable to Quevremont Balleydier & Co., at 130 days after date. The first of the set was transmitted to the defendants, that they might procure acceptance, but Penn & Ilanbury re- fused to accept, and the defendants caused it to be protested for non-acceptance. The second of the set was indorsed to Grefifuhle, Freres & Co. ; they applied it to the defendants for the first, and the defendants delivered to them the first, accepted by them- HOARE V. CAZENOVB. 89 selves, for the honor of the first indorsers, that is to say, Quevre- mont Balleyclier & Co. The bill became due the 3d of December, 1810, but was not presented to Penn & Hanbury, the drawees, for payment at maturity, nor protested for non-payment. In the first count it was stated, contrary to the fact, that it was presented to the drawees for payment, and refused: in the sec- ond count this averment was wholly omitted. The defendants (in consequence of orders from the first indorsers), refused to •pay it. The question, in this case, is, whether a presentment to the drawees, Penn & Hanbury, for payment at maturity, and a pro- test for non-pa}Tnent by them is, or is not essential as a previous requisite to the maintaining an action against these defendants, the acceptors for the honor of the first indorsers; and this de- pends upon the nature and obligation of an acceptance for the honor of the drawer or indorser. If an acceptance in these terms be an engagement by the person giving it, that he will pay the bill when it becomes due. and entitles the holder to look to him in the first instance, without a previous resort to any person, the plaintiffs are in that case entitled to recover upon their second count ; but if such an acceptance be in its nature qualified, and amount to a collateral engagement only, i. e., an undertaking to pay if the original drawee, upon a presentment to him for pay- ment, should persist in dishonoring this bill, and such dishonor by him should be notified, by protest, to the person who has accepted, for the honor of the indorser, then the necessary steps have not been taken upon this bill, and the plaintifi's cannot re- cover. And such, after much consideration, we are of opinion is the case. It is remarkable that no directly adjudged case upon this question is to be found ; although the custom of merchants rela- tive to this subject, is stated in the case of Brunetti v. Lewin, 1 Lutw., 896 (1781), in K. B., affirmed in error in the Ex- chequer Chamber, in favor of the original plaintiff, Brunetti. Lutwytch, in his report, says that he could not discover that any exception was taken to the validity of the custom, which he states as shortly this, "that if any merchant (for the honor of him to whom a foreign bill of exchange was first payable, and who had first indorsed the bill to another) shall pay the said 00 ACCEPTANCE AND TRANSFER CONSIDERED. bill to the last indorsee of it, the bill being before then protested for non-pa>Tnent, then the merchant to whom the bill was first payable, and who first indorsed the bill, shall have an action against the merchant who first took upon himself the obligation to pay the bill for the honor of the drawer (the bill having been first protested likewise for non-acceptance, for value of the bill and all charges)." Thus two protests, i. e., for non-paj-ment as well as non- acceptance were ui this case held necessary by the custom of merchants. The immediate point argued in error appears to have been whether it was sufficiently shown, agreeably to the custom alleged, that pajnnent was, in that case, in fact made to the last indorsee, so as to found the claim of the first indorser, to pajTnent to be made by the acceptor for honor, with the terms of the custom ; but it certainly was also open to the plaintiff in error, to have insisted upon the validity of any part of the custom alleged; of which custom the protest for non-payment previously to the payment to the indorsee, and the subsequent claim upon the acceptor for honor, was a material part. In that case the undertaking for the honor of the drawer w-as not in the form of an acceptance upon the bill, but of *'a note in writing for the honor of the drawer to pay the bill upon return ; ' ' but this, "according to Pothier on Bills of Exchange" (4 Des Avals), is a mode substituted by "recent usage in the place of a signature by the person giving the caution on the bill itself;" and though the mode be different, the effect is for all substantial purposes the same. Malyne, p, 273, in his 5th observation, says (speaking of the acceptor for the honor of the bill, whom he had just mentioned in his foregoing observation), "if this man at the time doth pay the said bill, because the party upon whom it was directed doth not, yet he is to first make, before he doth pay the same, a protest, with a declaration that he hath paid the same for the honor of the bill of exchange, whereby to receive the money again of him that hath made the bill of exchange. But it may be said that according to this position in Malyne, though a protest may be necessary to be made against the drawee by the acceptor for honor, to entitle him to recover against the party for whose honor he has accepted, yet that such protest for non-payment is not HOARE V. CAZENOVE. 91 equally necessary to be made against the drawee, to enable any other holder to recover against the acceptor for honor himself. But the next observation, in same page of Malyne, lays down the obligation more generally, and as attaching upon every holder of a bill (whether accepted, or not accepted, in whose hands it remains unpaid, up to the time of the appointed pajonent), the duty of making a protest for the non-payment of it. His words are these : "If a bill of exchange be accepted, and nevertheless not paid, and that it be not accepted, as aforesaid, and remaineth unpaid, then must you cause the notary to make a second protest (assuming that the bill had been already protested for non- acceptance) for the non-payment of it." Pothier said : ' ' When after a protest made for want of accep- tance on the part of him upon whom the bill is drawn, a third person has intervened, and has accepted the bill for the honor of the drawer, or some indorser, all agree that at the expiration of the time of grace, the protest ought to be made not only to him upon whom the bill is drawn, and who has refused to accept it, but to the third person, who has accepted it for honor." I am aware that Beawes in his Lex Mercatoria, p. 421 s. 43, says, "He that accepts a bill upon protest, puts himself absolutely in the stead of the first acceptant, and is obliged to make the pay- ment without any exception, and the possessor {i. e., the holder) hath the same right and law against such an acceptor as he would have had against the first intended one, if he had ac- cepted." The literal sense of these words certainly seems to place this writer at variance with the authorities above cited; and if that were necessarily the case, one would not be disposed very readily to surrender the custom of merchants, as alleged on record, and not questioned in error in the case of Brunetti v. Lewin (1 Lutw., 896), and the positions which are to be found in Malyne and Pothier (the latter, a most learned and eminent writer upon every subject connected with the law of contracts, and intimately acquainted with the law merchant in particular). The use and convenience, and, indeed, the necessity of a pro- test upon foreign bills of exchange, in order to prove, in many cases, the regularity of the proceedings thereupon, is too obvious to warrant us in dispensing with such an instrument in any case where the custom of merchants, as reported in the authorities 92 ACCEPTANCE AND TRANSFER CONSIDERED. of law, appears to have reciuired it. Ami, indeed, the reason of the thing, as well as the strict law of the ease, seems to render a second resort to the drawee proper, when the unaccepted bill still remains with the holder ; for effects often reach the drawee, who has refused acceptance in the first instance, out of which the bill may and would be satisfied, if presented to him again when the period of payment had arrived. And the drawer is entitled to the chance of benefit to arise from such second de- mand, or at an}' rate to the benefit of that evidence which the pro- test affords, that the demand has been made duly without effect, as far as such evidence may be available to him for purposes of ulterior resort. Upon the whole, therefore, we are of opinion that the postea must be delivered to the defendants. Transfer of Bills and Notes — Methods and Effect Thereof * — By Delivery. CURTIS V. SPRAGUE. 51 Cal. 239. 1876. Appeal from the District Court, First Judicial District, County of Santa Barbara. January 19, 1865, the defendant, Thomas Sprague, made, exe- cuted, and delivered his promissory note to the plaintiff', Den- nis, in the words and figures following, to wit : "$2400. "January 19, 1865. "On the 1st of November, proximo, I promise to pay to Thomas Dennis, or order, two thousand four hundred dollars, for value received, in United States gold coin, with interest at the rate of one and one-half per cent, per month. "Thomas Sprague." At the time of the making and delivery of the note, the de- fendant Iluse guaranteed its payment by indorsing the same. When the note fell due, Dennis failed to make demand of pay- * See Sees. 802-813, Vol. G, Cyclopedia of Law. CURTIS V. SPRAGUE. 93 ment and give notice of non-payment. Afterward, and about the month of September, 1866, Huse made a payment on the note, and said to the payee: "Mr. Dennis, I am responsible for that note." Dennis after this indorsed the note in blank, and delivered it to F. Maguire. Subsequently, Maguire assigned the note to Dennis by indorsement, without recourse, and redelivered the same to him. Afterward, Dennis delivered the note to the plaintiff, Curtis, without receiving any value, but with an agree- ment that Curtis should bring suit and divide with him what he recovered. The plaintiff recovered judgment, and the defendant appealed. By the Court: 1. The statement made by Huse, the guar- antor, to Dennis, the payee, after the maturity of the note, that "I am responsible for that note," is, in substance, a promise to pay it. It is clear from the evidence that he then had full knowledge of the laches of the holder, in failing to demand pay- ment of the maker, on the day the note matured ; and it is well settled that a promise by an indorser or guarantor, after matu- rity, to pay the note, with notice of the laches, dispenses with the necessity of proving demand and notice : Keyes v. Fenster- maker, 24 Cal. 333; Sigerson v. Matthews, 20 How. 496. The Court below, therefore, properly held that Huse was not re- leased by a failure of the plaintiff' to prove demand and notice. 2. There was no error in the refusal of the Court below to non-suit the plaintiff on the motion of the defendants. When the note was delivered to Curtis, it had on the back the blank indorsement of Dennis, the payee; and "the first effect of an indorsement in blank, is to make the paper payable, not to the transferee as indorsee, but as bearer:" 2 Parsons on Notes and Bills, 19. Curtis, therefore, acquired the legal title to the note, with a corresponding right of action, when it was delivered to him by the payee, indorsed in blank. AVe attribute no impor- tance to the fact that the note had before been delivered by Dennis with the blank indorsement to Maguire, and that the latter had redelivered it to Dennis, with a special assignment. The title would have been as effectually reinvested in Dennis by merely delivery, without the assignment, as with it ; and when Dennis afterward delivered the note to Curtis, there was no need that he should again indorse it in blank, in order to 94 ACCEPTANCE AND TRANSFER CONSIDERED. convey the legal title, as the blank indorsement already on it was effectual for that purpose. 3. The legal title and right of action being wholly in Curtis, the Court erred in permitting Dennis to be joined as a co- plaintiff. But it was an error which has wrought no substan- tial injury to the defendants. Nevertheless, in order to preserve a proper consistency in the record, we deem it better to remand the cause for further proceedings. It is therefore ordered that the judgment be reversed and the cause remanded, with an order to the Court below to vacate the order allowing Dennis to be joined as a co-plaintiff", and to enter a judgment on the findings in favor of the plaintiff' Curtis. By Indorsement. FRExXCH V. TURNER. 15 Indiana, 59. 1860. The first count states in substance, that on November 6, 1852, one John Bodle executed and delivered to Abel C. Pepper, a mortgage on certain land, therein described, to secure the pay- ment of $1,100, evidenced by ten promissory notes of that date, each for $110 ; one payable in a year from date, and one maturing each year thereafter until they all become due, with interest pay- able annually. That in September, 1854, Pepper assigned and transferred the mortgage and notes, by indorsement on the mortgage, to the defendant, Turner. That Turner, in January, 1858, for value received, transferred the mortgage and notes to the plaintiff, by indorsement in writing on the mortgage. The mortgage and notes, together with the assignment, are set out. The assignment from Turner to the plaintiff, on the mortgage, is as follows, viz. : "For value received, I hereby assign the withm mortgage and notes, therein described, to John J. French. "January 2, 1858. (Signed) Moses Turner." It is averred that the note which became due on November 6, 1858, and the interest on the other not due, remain due and un- paid. That, for the notes which matured before November 6, FRENCH V. TURNER. 95 1858, lie foreclosed the mortgage and the mortgaged premises were sold for $600 being fifty dollars less than the amount of the judgment, interest and cost. That Bodle, at the time of the execution of the notes and mortgage, had no property subject to the execution except the mortgaged premises, nor did he have at the time of the maturity of any of the notes. That he is still wholly and notoriously insolvent, having no property subject to execution, and that an action against him would be unavailing, wherefore, etc. The second count alleges, that the defendant, professing to be the holder of the ten promissory notes (described in the first count), secured by the mortgage on, etc., for value received, sold the said ten promissory notes to the plaintiff, by indorsement on the mortgage (as in the first count) ; and that before the said assignment, the defendant received full payment and satisfac- tion of the first of said series of promissory notes, to-wit: the one payable on November 6, 1853, and all interest thereon, from the said Bodle, which interest at the time of the assignment amounted to $30, making, of principal and interest on the note, at the time of the assignment, $140, which the defendant refuses to pay. The third count alleges, that ''the defendant professing to be the holder of the ten promissory notes and mortgage, and that the payment of the notes was secured by the mortgage, induced the plaintiff to purchase the same for a valuable consideration, fully equal to the principal sum mentioned in the notes and in- terest accrued thereon ; and thereupon the defendant, in pursu- ance of said sale, by an instrument in writing indorsed on the said mortgage, assigned the notes and mortgage to the plaintiff. That at the same time the defendant, by an instrument in writ- ing, executed contemporaneously with the assignment, cove- nanted and agreed with the plaintiff that the notes were secured by mortgage. And in consideration that the plaintiff would re- ceive the notes without indorsement, the defendant then and there agreed by parol, and undertook and promised the plain- tiff, that if he could not collect the same from Bodle, the defend- ant would pay the plaintiff the sum of money mentioned in the notes. The foreclosure of the mortgage ; the insufficiency of the mortgaged premises to pay the debt; the insolvency of Bodle, 96 ACCEPTANCE AND TRANSFER CONSIDERED. and that the note due November 6, 1858, with the interest thereon, remains due and unpaid, are averred, substantially as in the first count. Per Curiam. — The first count is evidently based upon the supposition that the defendant is liable as an indorser of the notes. This, however, is not the case. In order to render him thus liable, the indorsement of the notes must have been made "thereon" (1 R. S., 1852, p. 378), or perhaps, "on another paper annexed thereto (called in French Allonge), which is sometimes necessary when there are many successive indorsements to be made." (Story on Bills, § 204. See also Rex v. Bigg, 1 Strange, 18; Arnot v. Symonds, 85 Pa. St., 99; Moxon v. Pulling, 4 Camp., 50; Young v. Glover, 3 Jurist, (N. S.), 637; Badgley v. Votrain, 68 111., 25.) The indorsement in question, made upon the mortgage, refers to the notes as being therein described, and is not upon the notes, or upon any paper attached to them. Such an assignment could not operate to transfer the legal title to the notes. It would con- vey an equitable title, authorizing the assignee, under our code, to sue thereon in his own name, but it does not place the as- signor in the condition of a legal indorser. By such an assign- ment, the assignor does not warrant the solvency of the maker of the notes. It is no more effectual for that purpose than a parol assignment would be, an assignment made by the delivery of the notes. The ease is analogous to the transfer of a bill payable to bearer, by delivery. "If it is payable to the bearer, then it may be transferred by mere delivery. But, although it may be thus transferred by mere delivery, there is nothing in the law which prevents the payee of a bill, payable to himself or bearer, from transferring it, if he chooses, by indorsement. In such a ease, he will incur the ordinary liability of an indorser, from which, in the case of a mere transfer by deliverj^ he is ordinarily exempt. On the transfer of a bill, payable to the bearer, by delivery only, without indorsement, the person making the trans- fer to be deemed a party to the bill; although he may in some eases incur a limited responsibility to the person to whom he immediately transfers it, founded upon particular circumstances, as, for example, upon his express or implied guaranty of its genuineness and his title thereto. Story on Bills, § 200. FRENCH V. TURNER. 97 The defendant not being liable upon the notes as indorser thereof it follows, that the first count is bad, and the demurrer thereto was properly sustained. The second count we also deem defective. Admitting that the defendant impliedly warranted that the note thus transferred had not been paid to him, which would seem to be the case, still he is not liable on the contract of assignment. The plaintiff could only sue to recover what he paid for the assignment of the note, as for money paid upon a consideration that had failed. If property was given for the assignment, then he could only sue for the property, as for property sold and delivered ; and if the assignment was for a prior debt then the prior debt only could be sued for. (Story on Prom. Notes, § § 117, 118 and notes.) Here, the consideration paid for the assignment, and to be recovered, if any thing, is not set out. Nothing more is averred in this respect than that the assignment was made "for value received." In what the value was received whether in money, and if so, how much, or property, or by way of satisfaction of a precedent debt does not appear. There is, evidently, not enough stated to show what the plaintiff paid and, therefore not enough to show what he w^as entitled to recover. The instrument in writing therein mentioned, executed con- temporaneously with the assignment, by which, as is alleged, the defendant agreed that the notes were secured by mortgage, is not set out and therefore the ease stands as if the allegations in that respect were stricken out. The parol agreement made, as is alleged, contemporaneously wath the written assignment, can not be admitted to vary or extend the effect of the assignment as written. The doctrine in this respect is stated in the case of McClure v. Jeffrey (8 Ind., 79), as follows: "The rule is, that all oral negotiations or stipulations between the parties which preceded or accompanied the execution of the instrument are to be regarded as merged in it, and the latter is to be treated as the exclusive medium of ascertaining the agreement to which the contractors bound themselves." The demurrers, we think, were correctly sustained, and the judgment must be affirmed. The judgment is ajfirmed with costs. 98 ACCEPTANCE AND TRANSFER CONSIDERED. nULL V. CONOVER. 35 Ind. 372. 1871. Downey, C. J. This suit was commenced by William Con- over against the appellant, before a justice of the peace, where there was judgment for the defendant. The plaintiff appealed to the Circuit Court, where the death of William Conover was suggested, and his executors made parties plaintiffs in his stead. There was judgment in the Circuit Court for the plaintiffs, from which the defendant appealed to this Court. The first point presented to us is, that the cause of action is insufficient. It consists of the following note : ''$150.00. Covington, June 15, 1868. "Eighteen months after date I promise to pay to the order of Hiram Abdill one hundred and fifty dollars, value received, without any relief from valuation or appraisement laws. In- terest from date six per cent. "Daniel Hull." There is no indorsement of the note by Abdill to William Con- over, or to the appellees, and there is, therefore, nothing to show any right in him or them to maintain the action. See Well v. Trotter, 4 Blackf . 12 ; Vandagrif t v. Tate, lb. 174 ; Hamilton v. Ewing, 6 Blackf. 88; McDonald's Treat. 68, 69. This is not a mere defect of parties. The judgment is reversed, with costs, and the cause remanded. Liability of the Indorser and Bights of the Indorsee.* HOTEL CO V. BAILEY. 64 Vermont, 151; 24 Atl. Rep., 136. 1892. Special assumpsit for the annual interest due on five promis- sory notes indorsed 1)y the defendant. Plea, the general issue, Judgment for the defendant. The plaintiff excepts. * See Sec. 813, Vol. 6, Cyclopedia of Law. HOTEL CO. V. BAILEY. 99 Per Curiam. — It appears by the statement of facts that Geo. Doolittle and Mrs. E. J. Doolittle promised to pay the defend- ant, William P. Bailey, or order, five thousand dollars, as their five promissory notes should respectively become due and the interest thereon annually. The notes are dated April 1, 1886, are for $1,000 each and payable 16, 17, 18, 19 and 20 years from their date. The plaintiff, as the indorsee of the notes, seeks to recover of the defendant, as indorser, the first three years' interest upon them without demand of the makers and notice to the defendant of the makers' default of payment. The defendant's counsel contended, — 1st, that the indorser cannot in any event be compelled to pay the interest as it an- nually falls due, that his conditional liability does not become absolute until the notes respectively mature and then only after demand and notice. 2d. That if the interest is collectable of the indorser as it annually accrues it is after the usual measures have been taken to make him chargeable. The general rule of law relative to the respective liabilities of the maker and indorser of a promissory note is well defined. The promise of the maker is absolute to pay the note upon pre- sentment at its maturity. The promise of the indorser is condi- tional that if, when duly presented, it is not paid by the maker, he, the indorser, will, upon due notice given him of the dishonor, pay the same to the indorsee or other holder. It seems clear that the indorser is not liable for the annual payment of the interest without performance of these con- ditions by the holder. If he were thus liable his relation to the note would be like that of a surety or a joint maker and his promise, instead of being conditional, would be absolute as to the payment of the interest. This is contrary to the general statement of the law that his liability is conditional. The rela- tion of principal does not exist between him and the maker. They are not co-principals. Their contracts are separate and they must be sued separately, at common law. (Randolph Com. Paper, s. 739.) The maker has received the money of the payee and in consid- eration thereof promises (absolutely) to repay it according to 100 ACCEPTANCE AND TRANSFER CONSIDERED. the terms of the note, and if he fails to pay, his contract is broken and he is liable for the breach. The contract of the indorser is a new one, made upon a new consideration moving from the indorsee to himself. His undertaking is in the nature of a guaranty that the maker will pay the principal and interest according to the terms of the note. His liability is fixed upon the maker's default upon demand, and notice to him of such default. This new contract cannot be construed as an absolute one to pay the interest without default of or demand upon the maker. The promise cannot be absolute as to the payment of interest when it is clearly conditional as to the payment of the principal. It is held that though the annual interest (interest payable annually) upon a promissory note may be collected of the maker as it falls due, it is not separated from the principal so that the recovery of it is barred by the statute of limitations until the recovery of the principal is thus barred. Grafton Bank v. Doe et al., 19 Vt., 463. The holder of a note with interest payable annually loses no rights against the parties to it, whether makers or indorsers, by neglecting to demand interest, and he has the election to do so, or wait and collect it with the principal, for it is regarded as an incident of the principal. National Bank of North America v. Kirby, 108 Mass., 497. But it is so far an independent debt that he may maintain an action against the makers for it as it annually accrues, or allow it to accumulate and remain as a part of the debt until the note matures. Catlin V. Lyman, 16 Vt., 44. In the latter course the makers would be chargeable with interest upon each year's interest from the time it was due until final pajanent. 1 Aik., 410; Austin v. Imus, 23 Vt., 286. It was said, by the court in Talliaferro's Ex'rs. v. King's Admr., 9 Dana, 331 (35 Am. Dec, 140) : "The interest, by the terms of the covenant, is made payable at the end of each year, and is as much then demandable as if a specific sum equal to the amount of interest had been promised ; and, in default of payment, as much entitlos the plaintiff to demand interest upon the amount so due and unpaid. The fact that the amount so promised to be paid is described as interest accruing upon a larger sum, which is made payable at a future day, cannot the less entitle the plaintiff to demand interest upon the amount, in HOTEL CO. V. BAILEY. 101 default of payment, as a just remuneration in damages for the detention or non-payment." It is true that at the maturity of the notes the defendant would be liable, as indorser, for both principal and interest, upon due demand and notice, although these measures had not been taken to make him chargeable as the interest fell due each year. Notice of the maker's default of payment of interest need not be given annually to the indorser in order to charge him with liability for interest when the note matures. This is so stated by the court in National Bank of North America V. Kirby, supra. In Howe v. Bradley (19 Me. 31), it is held that when a note is made payable at some future period, with interest annually till its maturity and no demand is made for the annual interest as it becomes due, or if made, no notice thereof is given the indorser, if duly notified of the demand and non-pa\nnent when the note falls due, is liable for the whole amount due, both principal and interest; that the obli- gation imposed by the law upon the holder is only to demand payment and give the required notice when the bill or note becomes payable. It is not held in this country that interest is subject to protest and notice, according to the law mer- chant, in order to charge indorsers with it when the note ma- tures. The usual consequence of omission to notify the indorser of the maker's default, namely, the release of the indorser, would not follow the omission to give him annual notice of such default. A note is not dishonored by a failure of the maker to pay interest. (First National Bank v. County Commissioners, 14 Minn., 77 (100 Am. Dec, 196, Note.) The defendant's counsel argues that it would be inconsistent to hold the indorser liable for interest which is a mere incre- ment of the principal, until his liability is established to pay the sum out of which the interest springs; that there may be defences to the note at its maturity w^hich will release the maker and consequently the indorser, or that the indorser may then be released by neglect of demand and notice. On first impres- sion it might seem inconsistent that the maker should be com- pelled to pay interest before his liability has been fixed to pay the principal, but that is his contract. It is also argued that the fact that the interest, when uncollected, is an incident of 102 ACCEPTANCE A\D TRANSFER CONSIDERED. the debt so that as it annually falls due, demand and notice are not necessary in order to charge either the maker or the indorser with liability to pay it when the note matures, is ground for holding that the indorser is not liable for interest until he is made liable for the principal. The question is whether the indorser, by the act of indorse- ment, promises to pay anything on the note till its maturity, at which time he clearly may be made liable for both principal and interest. The note bears upon its face an absolute promise by the maker to pay the principal when it becomes due and the interest thereon annually. His promise is two-fold. It is as absolute to pay the interest at the end of each year as to pay the principal at the end of the time specified. Now what is the nature of the contract which the indorser makes with the indorsee ? His contract is not in writing, like that of the maker, but his name upon the note is evidence that he has received value for it, and also of an undertaking on his part that it shall be paid according to its tenor. When he indorses it and de- livers it to the indorsee he directs the payment to be made to the latter, and in etfect represents that the maker has promised to pay certain sums of money according to the terms of the note, that is, the principal at maturity and the interest annually ; that if the maker fails to pay on demand, he, the indorser, will pay on due notice. His conditional promise is concurrent with the absolute promise of the maker. His liability to pay interest and principal, as each respectively falls due, arises from his contract. It is his contract that he will make payment when- ever the maker is in default and he, the indorser, is duly notified thereof. It is true that interest is an incident, an increment of the principal, and that the holder may wait for it until his note matures and then collect it with the principal. He may, how- ever, by the contract, collect it as it falls due, of the maker, and upon the latter 's default, of the indorser. The courts of England have never recognized the American doctrine that interest is a mere incident, an outgro\\i;h of the principal, and in many cases follows and is recoverable as such without an express contract. Until 37 Hen., 8, e. 9, it was unlawful to demand interest even upon a contract to pay it. HOTEL CO. V. BAILEY. 103 Since the ease of Dellavilland v. Bowerbank (1 Camp., 50), interest has been allowed in England upon express contracts therefor, and not otherwise. "Where there is such a contract interest stands like the principal in respect to the rights and liabilities of an indorser. (Sedg. on Dam., 383; Selleck v. French, 1 Conn., 32, (6 Am. Dec, 189, note.) In Jennings V. Napanee Brush Co., (Reported in Canada Law Jour., Vol. 20, No. 19) in a learned opinion by McDougall, J., it was held that where there was an express contract to pay interest an- nually or semi-annually, it was not different from a contract to pay an installment of the principal itself, and that notice to the indorser of the maker's default was necessary to charge the indorser with it. In that case the indorser was released from payment of the first two half-yearly installments of interest for want of demand and notice. While we adhere to the doctrine laid down in Grafton Bank V. Doe, et al., supra, that interest is in general an incident of the debt, it is consistent to hold that where the indorser is himself a party to the original contract to pay interest annually, as in the ease at bar, by his indorsement he guarantees the per- formance of that contract. Any other holding would make the indorser liable for only a part of the maker's contract. The case of Codman v. The Vt. and Can. Railroad Co. (16 Blatch. 165), has been brought to our attention. The trustees and managers of the Vermont Central Railroad Co. and the Vt. and Can. Railroad Co., issued notes to the amount of $1,000,000 in sums of $1,000 each, payable to the defendant company, in twenty years from their date, with interest semi-annually on presentation of the interest coupons made payable to bearer and attached to the notes. On each note was this indorsement, signed by the treasurer of the defendant, under its seal : ' ' For value received, the Vermont and Canada Railroad Company hereby guarantee the payment of the within note, principal and interest, according to its tenor, and order the contents thereof to be paid to the bearer." The coupons were not indorsed. The notes were put on the market and the plaintiff purchased fifty of them, and subsequently, after due demand, notice and protest, brought this suit to recover the amount of two coupons on each of his notes, the notes themselves not having matured. "With- 104 ACCEPTANCE AND TRANSFER CONSIDERED. out passing upon the question whether the guaranty was nego- tiable and available to the plaintiff, as a remote holder, Wheeler, J., among other questions that arose in the case, decided that the indorsement was a contract of indorsement running to the bearer, and that demand, notice and protest fixed the liability of the indoreer to pay the coupons, and gave judgment for plain- tiff for the amount of the coupons. The Supreme Court of the United States has repeatedly held that the statute of limitations begins to run upon interest cou- pons payable annually or semi-annually, from the time they respectively mature, although they remain attached to the bonds which represent the principal debt. (Amy v. Dubuque, 98 U. S., 470.) "Where the indorser is the payee of the note there v/ould seem to be no difference in his liability in respect to interest whether the maker's promise to pay it is contained in the body of the note or in interest coupons not indorsed, the notes to which they are attached being indorsed, and the cou- pons being mentioned in the notes; but it is unnecessary to decide that question here. Upon the facts found by the county court this action can- not be maintained for the reason that the plaintiff never fixed the defendant's liability to pay the three years' accrued interest. It docs not even appear that the makers refused payment of it or that they were requested to pay it before this suit was brought ; therefore nothing is due from the defendant to the plaintiff. Judgment affirmed. Ross, Ch. J., dissents. HARRIS V. BRADLEY. 7 Yerg. 310. 1835. This was an action brought by Bradley against Harris upon a note for $200, upon which he was the last indorser. The note was executed by Peter R. Rison and payable to William C. Anderson, and the names of Anderson and C. M. Ratcliffe were upon it as indorsers, but their names were forgeries. ERWIN V. DOWNS. . 105 Judgment for plaintiff and defendant appeals. Green, J. It is insisted by the counsel for the plaintiff in error that he is not bound by his indorsement, because he was imposed on and induced to indorse the note on account of the supposed genuineness of the other indorsements. This proposition is altogether fallacious. The holder of a- bill or note has nothing to do with the preceding indorsements, and whether genuine or not his immediate indorser is liable to him. The last indorsement is, in fact, a guaranty of the preceding indorsements, and admits the handwriting of the drawer and prior indorser, although the bill be forged: Chitty on Bills, 197-8; 3 Kent Com. 60; 2 Salk. 127. The Judge, therefore, properly admitted the note, with its indorsements, to be read to the jury, upon proof having been made of the indorsement by the defendant. Judgment affirmed. ERWIN V. DOWNS. 15 N. Y. 575. 1857. Action against defendant as indorsee of two promissory notes, signed in the firm name by two married women doing business as a mercantile firm under the name of Waller & Burr. Before the notes matured defendant indorsed them to plaintiff, who paid full consideration, but had notice of the fact that the makers were under legal disability to contract. The notes were duly presented for payment, which was refused, and defendant was duly notified. There was judgment for plaintiff and defendant appealed. Shanklaisid, J. The note was void, as against the makers, because they were married women, and incapable of contracting obligations in that form. But when the defendant indorsed the note, he impliedly contracted that the makers were com- petent to contract, and had legally contracted, the obligation of joint makers of the note. He also assumed the legal obliga- tion, in most respects, of the drawers of the bill. The fact, known to the plaintiff at the time he took the note, that the 106 ACCEPTANCE AND TRANSFER CONSIDERED. makers were married women did not deprive him of the character of a bona fide purchaser. Nor does the payee's knowledge that the drawee is a married woman dischai-ge the drawer in case of non-payment of the bill by the drawee. Nor is the indorser discharged, though the name of the maker is forged: 1 Comst. 113. The fact is not found that the plaintiff was aware the note was accommodation paper. The plaintiff was a bona fide purchaser within the law merchant. Neither the complaint nor the finding of the referee tell us who transferred the notes to the plaintiff". The legal presumption is that he received them from some legal holder in due course of business. The judgment should be affirmed. Judgment affirmed. FISH V. FIRST NATIONAL BANK OF DETROIT. 42 Mich. 203. 1877. Marston, J. This action was brought by the banlc to recover upon certain promissory notes made payable to the order of I. N. Jenness & Co. and Francis S. Fish, and indorsed by them. The indorsement of Mrs. Fish was under and made after that ( f I. N. Jenness & Co. The defense set up is that at the time these notes were given and indorsed, the firm of I. N. Jenness & Co. was not in existence, because of the death of Henry Fish, one of the members thereof; that if Mrs. Fish is liable upon these notes, she is jointly liable with Isaac N. Jenness, and that if he is released because there was no such firm, then she is released also. These notes were given to the bank to take up other notes upon which the firm name of I. N. Jenness & Co. appeared, that firm having done business with the bank previous to the date of the paper in question. An indorsement admits all prior indorsements to have been duly made. It is said the indorser warrants the title and genuineness of the paper he transfers, and that when sued he cannot deny the existence, legality, or validity of the contract which his indorsement put in circulation, for the purpose of WATSON V. CHESIRE. 107 defeating his own liability: Edwards on Bills and Notes, 289, 291. This is strictly right. Parties dealing in such paper are not expected to be familiar with the signatures of the several in- dorsers. If satisfied that the last indorsement is genuine, they are not required to look beyond in the absence of a knowledge of such facts as would impute to them bad faith in case they did not. A person has no right to indorse paper, thereby making it negotiable, and offer it or permit it to be offered in the usual course of business, unless satisfied that the signatures previously appearing thereon are genuine. Mrs. Fish is not in a position in this case to escape liability upon the ground that the prior indorsement was invalid. Mrs. Fish in her evidence denied having received notice of the non-payment of some of these notes. She did not annex to her plea an affidavit denying the fact of having received such notice, as required by the statute : 1 Comp. Laws, § 603. There was direct and positive e\adence given on the trial by the notary of demand made, protest and notice thereof regularly mailed to the defendant, and the usual notarial certificate was attached to each of the notes. The facts are undisputed, and we dis- cover no error. The judgment must be affirmed with costs. Qualified, Conditional and Restrictive Indorsements. — Indorse- ment Without Recourse* WATSON V. CHESIRE. 18 la. 202. 1865. This is a joint action, against John and Wesley Chesire and John M. Griffith. The facts, necessary to an understanding of the case, are as follows: John and Wesley Chesire sold, May 15, 1858, certain land in Mills County to one Moore, receiving, * See Sec. 808, Vol. 6, Cyclopedia of Law. 108 ACCEPTANCE AND TRANSFER CONSIDERED. for part of the purchase-money, his note, secured by a mortgage on a portion of the hmd sold. Afterward, January 20, 1860, the Chesires traded or sold the note and mortgage of Moore (which note was dated May 15, 1858, was for the sum of $743, payable one year after date, with ten per cent, interest) to the defendant Griffith, receiving in payment or exchange ninety acres of land, a mare and a heifer, variously estimated by the witnesses as being worth from $250 to $100, and upwards. The Chesires indorsed to Griffith the note and mortgage, without recourse to them. Afterward, about April, 18G0, Griffith traded or exchanged the j\Ioore note and mortgage to the plaintiff, Watson, for cer- tain land, also indoreing the same, without recourse. Watson sues the Chesires and Griffith on the indorsement. The nature of the pleadings and questions raised will appear in the opinion. Verdict and judgment for the defendants, and plaintiff appeals. Dillon, J. The first error assigned by the plaintiff is, that "the Court erred in sustaining the defendants' demurrer to the first count of the petition." This makes it essential to set out the substance of this count with accuracy. It commences by alleging that John and Wesley Chesire held and owned the Moore note and mortgage, describing them; that, January 20, 1860, the said Chesires, for a good and val- uable consideration (but not alleging what), sold and assigned said note to their co-defendant, Griffith, whereby they falsely warranted the said note to be genuine, unpaid and unsatisfied in any way; that afterward Griffith, assignee as aforesaid, sold and assigned said note to the plaintiff for a good and valuable consideration, whereby he, Griffith, falsely warranted, etc., as above; that plaintiff' relied upon said warranties and paid Griffith for said note ; that the said note, at the time the same w^^s assigned by Chesires to Griffith, and by Griffith to the plaintiff' "had been fully paid, extinguished, and nothing was due thereon from the said Moore to the defendants or either of them;" whereby "the defendants fraudulently deceived the plaintiff, to his damage" in the amount of said note. Copies of these assignments are set forth, showing that they were made "without recourse." The first was an assignment in full by WATSON V. CHESIRE. 109 J. and W. Chesire to "John M. Griffith or order, without re- course." The next was in blank, as follows: "Without re- course. John M. Griffith. ' ' To this the Court sustained a demurrer, both in behalf of the Chesires and of Griffith. We will consider the ease, with respect to the Chesires, sep- arately and first. Upon consideration, we think the demurrer was rightly sus- tained. It is only by treating" this count as founded upon the indorse- ment, that the plaintiff's action against the Chesires has any color or plausibilty. There is, except through the indorsement, no privity between the plaintiff' and the Chesires. The latter sold the note to Griffith, and not to the plaintiff'. The plaintiff' purchased of Griffith, not of the Chesires. No transaction is alleged between the plaintiff and the Chesires. Hence, the plaintiff's right to sue the latter, if it exists at all, must exist by virtue of the con- tract of indorsement. Now if this count be treated as one ex contractu upon the in- dorsement, it is not maintainable, because the indorsement, on its face, negatives and rebuts any personal liability on the part of the Chesires. This is the object and effect of an indorsement ' ' without recourse. ' ' Such an indorsement transfers title, but stipulates for ex- emption from the ordinary responsibility of an indorser. It will not, however, protect the assignor from liability over from fraud and misrepresentation in the assignment of the note. In point, see Welch v. Lindo, 7 Cranch, 159; 2 Curtis' ed., 496; Epler V. Funk, 8 Pa. St. (8 Barr) 468, 469 ; Prett^mian v. Short, 5 Har. (Del.) 360; Richardson v. Lincoln, 5 Mete. 201; Rice V. Stearns, 3 Mass. 225 ; Waite v. Foster, 33 Maine, 424 ; Goupy V. Harden, 7 Taunt. 159, per Dallas, J.; Chitty on Bills, 218, 225, 235; Story on Notes, § 146; Lyons v. Miller, 6 Grat. (Va.) 427. Suppose it to be true that, in the transfer of the Moore note by Chesires to Griffith, the latter was deceived and defrauded. This would give Griffith his right of action against the former. Suppose it to be true, also, that the plaintiff was deceived and 110 ACCEPTANCE AND TRANSFER CONSIDERED. defrauded by Griffith. This would give him a right of action against the latter. He could not sue the Chesires for the fraud they practiced upon Griffith. So that the reasoning drives us back to the point at which we started, viz., the plaint ill cannot sue Chesires ex contractu, having had no transaction with them except upon the indorse- ment. If the first count is treated as being founded upon that, it fails, because the indorsement itself not only does not create, but expressly avoids, a cause of action. {Tklc authorities above cited.) The case presents the (luestion What, in the absence of special contract, are the obligations of the transferrer of negotiable paper, who indorses it without recourse? It seems to us that the obligations of a transferrer of such paper, by indorsement without recourse, are substantially the same as those of a trans- ferrer of such paper when payable to bearer by delivery merely. It is a clear and well-settled doctrine, that such a transfer does not make the party liable as indorser. When he indorses paper without recourse, or transfers it (if payable to bearer or if indorsed in blank) by delivering merely, without putting his name upon it, he ceases to be a party to the paper. He cannot be made liable as a party to or upon the instrument. There may be a liability in such cases, but it arises upon the transaction, upon the facts of the case, to be asserted in an action for the original consideration of its value, or for fraud practiced, and not upon the indorsement or upon the paper transferred. Speaking of the same general subject, in the well- known case of Jones v. Ryde, 1 Marsh. 157, 5 Taunt. 489, GiBBS, C. J., says: The ground of resisting this claim is, that it was a negotiable security without indorsement; and that when the holder of a negotiable security passes it away, without indorsing it, he means not to be responsi])le upon it. This doctrine was fully discussed in the case of Fenn v. Harrison, 3 T. R. 757 ; and the proposition is true, but only to a certain extent. "If a man pass an instrument of this kind without indorsing it, he cannot be sued as indorser, but he is not released from the responsibility which he incurs by passing an instru- ment which appears to be of a greater value than it really is." And this case is recognized as authority in the text-books, and WATSON V. CHESIRE. Ill in England in subsequent eases : Wilkinson v. Johnson, 3 B. & C. 428, and in this country : Cabot Bank v. Morton, 4 Gray, 156. The accepted doctrine on this subject may be thus stated: Where a note is transferred without recourse, equally as when it is transferred by delivery only, the transferrer is exempted from all the ordinary responsibilities which attach to such a transfer. (See authorities first in this opinion cited.) But he does not, unless such is the agreement, understand- ing, or contract of the parties, stand free from all obligations. Thus, unless otherwise agreed, he warrants that the paper so transferred is genuine, and not forged or fictitious: Jones v. Ryde, s^ipra; Fuller v. Smith, Ryan & Mood. 49; 1 C. & P. 197; Chitty on Bills, 245; Story on Notes, § 118; Alclrich v. Jackson, 1 R. I. 218 ; 2 Parsons on Notes and Bills, ch. 2, § 2, p. 37, and authorities; Lyons v. Miller, 6 Gratt. 247; Morrison y. Currie, 4 Duer, 79 ; Cabot Bank v. Morton, supra; Rieman V. Fisher, 4 Am. Law Reg. 433. He warrants by implication, nothing to the contrary being shown, that it is of the kind and description that it purports on its face to be : Allen v. Pegram, 16 Iowa, 163, in relation to illegal bank stock; Gompertz v. Bartlett, 2 Ellis & Bl. 849 ; 24 Eng. L. & Eq. 156,_ where the vendor of a bill was held liable, though he did not put his name upon it; Young v. Cole, 3 Bing. N. C. 724, as to liability of vendor on the sale of invalid Guatemala bonds; and see, further, the authorities above referred to, and Kempson v. Sanders, 11 Bing. 5; Redfield on Railways, 50, note; Hilliard on Sales, p. 456, § 37; Eaton v. Melius, 7 Gray, 566, which decides that there is an implied warranty that the assignor has done nothing, and will do nothing, to prevent the assignee from collecting the claim assigned. So there is an implied warranty, unless it is otherwise agreed, that the parties to the instrument are siii juris, and capable of contracting: Theall v. Newell, 19 Verm. 202; Lobdell v. Baker, 1 Mete. 193; 3 lb. 469; Jones v. Crosthwaite, 17 Iowa, 393, and cases ; 2 Pars, on Notes and Bills, 39 ; but no implied war- ranty of their solvency: Chitty on Bills, 245; 2 Parsons on Notes and Bills, 41; Epler v. Funk, 8 Pa. St. 468; Burgess v. Chapin, 5 R. I. 225. So there is an implied warranty that the instrument transferred has not been paid. And, generally, it 112 ACCEPTANCE AND TRANSFER CONSIDERED. is laid down by Mr. Parsons (2 Notes and Bills, ch. 2, p. 41), who follows and closely copies Mr. Cliitty (Cliitty on Bills, 247), that, "in all cases where the assignor" (we may add, whether by delivery or by indorsement, made "without recourse"), "of a bill or note knows it to be of no value, and the assignee receives it in good faith (not aware of the fact), paying a valu- able consideration of any kind, the assignor may be compelled to repay or return the consideration thus received." And see Burgess v. Chapin, 5 R. I. 225, Avhich holds an assignor with- out indorsement to be liable upon the ground of fraud— the rule of caveat emptor otherwise applying. But, in all such cases, the action is not upon the paper trans- ferred, but against the vendor or transferrer upon and for the original consideration or its value, or for the fraud practiced; and the latter is "liable to the vendee," to use the language of Ames, C. J., in Aldrich v. Jackson, 5 R. I. 218, "for what he has received from him on the ground of failure of considera- tion." (Without quoting, see 2 Parsons on Notes and Bills, 37, and note; Kephart v. Butcher, 17 Iowa, 240; Chitty on Bills, 246, and authorities cited; Story on Notes, § 117 (5th ed.), and cases cited in notes 4 and 5; Welch v. Lindo, 7 Cranch, 159; Prettyman v. Short, 5 Ilarring. (Del.), 360; Eaton v. Melius, 7 Gray, 566, holding that, in the absence of fraud in the assignor, the assignee can only recover of him the amount of the con- sideration paid for the assignment, with interest.) If the foregoing views are correct, it follows that the plaintiff, holding simply the indorsement of the Moore note "without recourse," could not sue the Chesires on the indorsement. His remedy, if he could not make out a case upon the facts, would be a special one against Griffith, of whom he purchased the note, and to whom he made payment therefor. So Griffith's remedy would be against the Chesires. Under our statute, it may be that Griffith might specially assign his cause of action against Chesires to the plaintiff; but the mere indorsement of the note without recourse would not have this effect. Such an indorsement operates simply to transfer the title to the note — not an independent cause of action. The demurrer as to the first count of the petition was, beyond doubt, properly sustained as to the Chesires. CLAFLIN V. WILSON. 113 And if we are right in considering it as being intended as one upon the indorsement, and not as one intended and adapted to recovw the consideration paid for the note, it was also prop- erly sustained as to Griffith. Affirmed. CLAFLIN V. WILSON. 51 Iowa, 15. 1879. Beck, C. J. I. The petition alleges that defendant Wilson made to plaintiff three promissory notes, and executed a mort- gage to secure their payment; that the note first falling due was by plaintiff, in the ordinary course of business, indorsed for collection, and by Wilson, or by some one for him, duly paid, and that defendant Davis, claiming that he had bought the first note, instituted an action to foreclose the mortgage and recovered a decree thereon and caused the lands to be sold upon an execution. He and his attorney in the case became purchasers, and received a certificate of purchase from the sheriff'. Plaintiff alleges that he did not transfer the note to Davis nor authorize any one to do so for him, and had no knowledge of his claim until about the time the suit was commenced, and that Wilson is now insolvent. The relief prayed for is that the foreclosure proceedings on the note and the sale thereunder be set aside, and that the mortgage be foreclosed for the amount due upon the two notes last falling due, which are still plaintift^s property. The answer of defendant Davis admits the foreclosure pro- ceedings referred to in the petition, and alleges that he bought the note in good faith and for value. Other averments of the petition are denied. II. The evidence establishes the following facts: Plaintiff sent the note through a bank to another banking house for collection. It was indorsed by plaintiff in blank, and by the bank to whom he delivered it to the bank receiving it "for collection." Neither of the banks were authorized to transfer 11-1 ACCEPTANCE AND TRANSFER CONSIDERED. the note; their power was limited to its collection. The second bank, or its successor in business, received the amount due upon the note from Davis, and delivered to him the note. Davis understood the transaction as being a purchase of the note, and the banker of whom he received it had the same under- standing. But Davis is chargeable with notice that the banker with wliom he had the transaction was not authorized to trans- fer or sell the note. The indorsement upon it expresses that it was transferred to him for collection. The law will not permit him to plead ignorance of the extent of the authority of the holder who delivered it to him. Upon this point there can be no controversy. It is an elementary rule, which need not be here supported by authority, that a note indorsed for collection cannot be trans- ferred by one receiving it under such indorsement to another who has notice of the limitation upon the authority of the holder. Davis cannot, therefore, be regarded as a purchaser of the note, so as to cut off any right or equity of plaintiff. III. But Davis insists that plaintiff is bound by the decree of foreclosure, and that the rights of the parties are res adju- dicata. The proceedings and decree in that case are not before us, nor do the pleadings set them out by averments so far as to authorize us to determine whether plaintiff is bound thereby. The petition does not state whether plaintiff was or was not a party in the case. It alleges that no personal service was made upon him. The answer alleges that plaintiff was served by publication, but there is not one word in the abstract that a judgment in that case was rendered against plaintiff, or that his rights were attempted to be affected thereby. For aught we know, plaintiff, if he was a party to that suit, may have been dismissed, and no decree rendered against him. But de- fendant insists that counsel for plaintiff admit in their argu- ments the judgment pleaded as res adjudicata. The language which is claimed to be an admission is as follows: "In the case of Davis v. Wilson et al., Claflin had no notice of the pendency of the suit. It is true that notice was made by pub- lication. No appearance was made by any of the persons named as defendants in Davis' bill, and default was rendered. Claflin CLAFLIN V. WILSON. 115 obtained a rehearing within the time required, and the order of foreclosure was vacated after a fair and impartial hearing. Davis has suffered no wrong; he has now all the remedy to which he was at first entitled." It surely cannot be claimed that this language, whatever else it may mean, admits that a judgment was rendered which in form cut off and foreclosed all rights held by plaintiff. IV. Defendant insists that plaintiff ratified the sale and transfer of the note by receiving and retaining the money paid him by the banker. But the money was received in igno- rance of the claim of purchase by Davis. He was authorized to regard the transaction as payment, and he received the money in satisfaction of the note. The fact that plaintiff' retains the money cannot be regarded as a ratification of the sale for the reason that he could not have been restored to the condition he was in before the payment of the note, because of the decree in favor of Davis, and his attempt to enforce it by sale of the lands. We think the decree of the Court below is correct. It is, there- fore, affirmed. CHAPTER VI. DUTIES OF THE HOLDER.* Presentment for Payment. — Protest. — Notice. LAWRENCE v. LANGLEY. 14 N. II. 70. 1843. Assumpsit against the defendant, as indorser of a promissory- note, made by David J. Lancaster and William Richardson, dated September 1, 1835, and payable to the defendant, or order, in one year from date, with interest, and by him indorsed to the plaintiff. On or about the 1st of August, 1835, the plaintiff, being the owner of certain stage property, sold the same to the defendant for $1,125. The defendant paid $625 of the purchase-money in cash, and transferred the note in suit to the plaintiff', as security for the payment of the balance. Before the note be- came due, Lancaster became bankrupt, and Richardson died insolvent. On the 2d day of September, 183G, the defendant was noti- fied of the non-payment of the notice, and payment thereof was demanded of him, which he refused. The plaintiff moved to amend the declaration by adding a count for the property sold the defendant. The amendment was admitted in the Court below, subject to the opinion of this Court. If the Court should be of opinion that the action is sustained upon the present declaration, judgment is to be rendered for the plaintiff'. Or, if the Court should be of^ opinion that the proposed amendment is admissible, the case is to be transferred to the Court of Common Pleas for trial. If otherwise, judg- ment is to be rendered for the defendant. *See Sees. 814-833, Vol. 6, Cyclopedia of Law. 116 LAWRENCE v. LANGLEY. 117 Woods, J. The defendant in this ease is attempted to be charged as the indorser of the note declared on. In order to that result, it must appear that a demand of payment was duly made upon the maker, and notice thereof, and of its non-pay- ment, and that the holder relied upon the indorser for payment, was seasonably given to the defendant, or demand and notice was waived, or the want thereof excused. By virtue of the statute, the note was payable with grace. When a note is payable on time, a demand, to be of any avail, should be made on the last day of grace. An earlier demand is insufficient to charge an indorser: Leavitt v. Simes, 3 N. H. Rep. 14. But in this case it does not appear that any de- mand at all was made. And the notice shown was insufficient, even if a proper and seasonable demand had been shown ; for, if a proper demand had been proved, then the notice, being before the last day of grace, would have preceded the demand in point of time, and would for that reason have been merely nugatory. Besides, notice before the last day of grace is insuf- ficient, and void, unless sustained by some usage assented to by the indorsee, which is not pretended in this case: Dennie v. Walker, 7 N. H. Rep. 199. Here, then, no demand is shown, and no sufficient or available notice. Does the case find grounds of excuse, relieving the plaintiff from the ordinary duty and necessity of seasonable demand and notice? If the death of a maker before the maturity of the note, or that and other circumstances, may, and do, in certain cases, thus excuse the holder of a note: Hale v. Burr, 12 Mass. Rep. 86 ; Burrill v. Smith, 7 Pick. 291, the bankruptcy or insolvency of the maker alone will not: Crossen v. Hutchinson, 9 Mass. Rep. 205; Sandford v. Dillaway, 10 lb. 52; Granite Bank v. Ayers, 16 Pick. 392. It was the duty of the plaintiff to have made a demand of Lancaster at least, if no more, in order to charge the defendant as indorser. The amendment in question was improperly admitted. By it a new and different cause of action was introduced into the declaration. At least, it does not appear that the ground of action in the amended count is the same as that in the original count. It is not to be inferred, from anything stated in the 118 DUTIES OF THE HOLDER. case, that it is the same in both counts; but, on the contrary, that the causes of action are entirely different. In the original count the ground of action is the liability of the defendant as indorser of a note, not given upon the consideration of the sale of the stage property, but upon some other and different consideration; while the promise alleged in the amended count is based upon the sale of the stage property to the defendant. The contracts set forth in the two counts are, therefore, not the same. Such an amendment of the declaration is not in accordance with the decisions of this Court upon that subject, is not admissible: Butterfield v. Harvell, 3 N. H. Rep. 201; Stevenson v. Mudgett, 10 lb. 338; Merrill v. Russell, 12 lb. 74. According to the provisions of the case there must be judg- ment for the defendant. MUSSON V. LAKE. 4 Howard, 262. 1845. Lake was sued as indorser of the following bill of exchange : "Vicksburg, 17 December, 1836. "Exchange for $6,133. "Twelve months after first day of February, 1837, of this first of exchange (second of the same tenor and date unpaid), pay to the order of R. H. & J. H. Crump six thousand, one hundred and thirty-three dollars, value received, and charge the same to account of Steele, Jenkins & Co." "To Kirkman, Rosser & Co., New Orleans." "Indorsed: R. H. & J. H. Crump, W. A. Lake." "Kirkman, Rosser & Co., New Orleans, 3d February, 1838, — protested for non-payment. A. Mazureau, Not. Pub." It being admitted, that Vicksburg, where said bill bore date, was in the State of Mississippi, and New Orleans, the place of pa;sTnent, was in the State of Louisiana, the plaintiffs then offered to read in evidence to the jury, the protest of said bill of MUSSON V. LAKE. 119 exchange ; which protest, thus offered to be read, is in the words and figures following, to-wit : — United States op America, State of Louisiana. By this public instrument, protest, be it known, that on the third day of February, in the year one thousand eight hundred and thirty-eight, at the request of the Union Bank of Louisiana, holder of the original draft, whereof a true copy is on the re- verse hereof written, I, Adolphe Mazureau, a notary public in and for the city and parish of New Orleans, State of Louisiana aforesaid, duly commissioned and sworn, demanded payment of said draft, at the counting-house of the acceptors thereof, and was answered by Mr. Kirkman that the same could not be paid. Whereupon I, the said notary, at the request aforesaid, did protest, and by these presents do publicly and solemnly pro- test, as well against the drawer or maker of the said draft, as against all others whom it doth or may concern, for all ex- change, re-exchange, damages, costs, charges, and interests, suf- fered or to be suffered for want of payment of the said draft. Thus done and protested, in the presence of Jolin Cragg and Henry Frain, witnesses. In testimony whereof, I grant these presents under my signa- ture, and the impress of my. seal of office, at the city of New Orleans, on the day and year first herein written. [l. s.] a. Mazureau, Notary Public. But the defendant objected to said protest, and the copy of the bill on the reverse side thereof written being read in evi- dence to the jury, on the ground that it was not stated in said protest that the notary presented said bill of exchange to the acceptors, or either of them; or had it in his possession when he demanded payment of the same. And that for this alleged defect, which it was insisted could not be supplied by other proof, the said protest was invalid and void upon its face, and could not be received as evidence of a legal presentment of the bill for payment, or of the dis- honor of the bill. And, thereupon, on the question whether the said protest could be read to the jury, as evidence of a legal presentment of the bill for payment, or of the dishonor of said bill, the judges were opposed in opinion. Which is ordered to be certified to the Supreme Court of the United States for their decision. J. McKlNLEY. [l. s.] J. Gholson. [l. s.] 120 DUTIES OF THE HOLDER. Per Curiam : — The plaintiffs broiigrht an action of assumpsit, in the Circuit Court of the United States for the Southern Dis- trict of Mississippi, a^jainst the defendant, as indorser of a bill of exchange, drawn at Vicksburg, in said state, by Steele, Jenk- ins & Co., for $6,133, payable twelve months after the first day of February, 1837, to R. H. & J. H. Crump; and addressed to Kirlonan, Rosser & Co., at New Orleans, and by them after- wards accepted, and indorsed by the payees and the defendant. On the trial of the cause, the plaintiffs offered to read as evidence to the jury a protest of the bill of exchange, to the reading of which the defendant objected; because it did not appear in the protest, that the notary had presented the bill to the acceptors, or either of them, when he demanded payment thereof. xVnd upon the question, whether the protest ought to be read to the jury as evidence of a presentment of the bill to the acceptors for payment, or as evidence of the dishonor of the bill, the judges were opposed in opinion. Which division of opinion they ordered to be certified to this court; and upon that certificate the question is now before us for determination. The indorser of a bill of exchange, whether payable after date or after sight, undertakes that the drawee will pay it, if the holder present it to him at maturity and demand payment ; and if he refuse to pay it, and the holder cause it to be pro- tested, and due notice to be given to the indorser, then he promises to pay it. All these conditions enter into and make part of the contract between these parties to a foreign bill of exchange; and the law imposes the performance of them upon the holder, as conditions precedent to the liability of the indorser of the bill. A presentment to and demand of payment must be made of the acceptor personally, at his place of business or his dwelling. (Story on Bills, § 325.) Bankruptcy, insolvency, or even the death of the acceptor wall not excuse the neglect to make due presentment; and in the latter case it should be made to the personal representatives of the deceased. (Chitty on Bills, 7th London ed., 246, 247; Story on Bills, 360; 5 Taunt. R., 30 ; 12 Wend. R., 439 ; 2 Douglass, 515 ; Warrington v. Fur- bor, 8 East, 245; Esdaile v. Sowerby, 11 East, 117; 14 East, 500.) MUSSON V. LAKE. 121 The reasons why presentments should be made to the drawee are: 1st. That he may judge of the genuineness of the bill; 2nd. That he may judge of the right of the holder to re- ceive the contents; and 3rd. That he may obtain immediate possession of the bill upon paying the amount. The acceptor has a right to see that the person demanding payment has a right to receive it, before he is bound to answer whether he will pay it or not; for, notwithstanding his accep- tance, it may have passed into other hands before its maturity. And he, as well as the drawee, has a right to the possession of the bill, upon paying it, to be used as a voucher in the settle- ment of accounts with the drawer. (Story on Bills, § 361 ; Han- sard V. Robinson, 7 Barn. & Cressw., 90.) Mr. Justice Story has given the form of a protest now in use in England, in his treatise on bills of exchange, by which it will be seen that the words "did exhibit said bill" are used, and a blank is left to be filled up with "the presentment, and to whom made, and the reason, if assigned, for non-payment." (Story on Bills, 302, note.) This, with the authorities already referred to, shows that the protest should set forth the present- ment of the bill, the demand of payment, and the answer of the drawee or acceptor. The holder of the bill is the proper person to make the presentment of it for payment or acceptance. ( Story on Bills, § 360.) But the law makes the notary his agent for the purpose of presenting the bill, and doing whatever the holder is bound to do to fix the liability of the indorser. Every thing, therefore, that he does in the performance of his duty must appear distinctly in his protest. He is the officer of a foreign government ; the proceeding is ex parte; and the evidence con- tained in the protest is credited in all foreign courts. (Cliitty on Bills, 215 ; Rogers v. Stephens, 2 T. R., 713 ; Brough v. Park- ings, 2 Ld. Raym., 993; Orr v. Maginnis, 7 East, 359; Ches- mer v. Noyes, 4 Camp., 129.) The evidence contained in the protest must, therefore, stand or fall upon its own merits. It rests upon the same footing with parol evidence ; and if it fails to make full proof of due diligence on the part of the plaintiffj, it must be rejected. 122 DUTIES OF THE HOLDER. But tlie counsel for the plaintiffs insists, that the statute of Louisiana, and the interpretation given to it by the Supreme Court of that state in the case of Nott's Executor v. Beard (16 Louisiana 308), have so changed the law merchant, as to render unnecessary the presentment of a foreign bill for payment. After a careful examination of the opinion of the court in that case, we are unable to perceive any intention manifested to depart from the settled usages of the law merchant; but, on the con- trary, they attempt by argument and authority to bring the case within that law. The question before that court was the identical question now before us. The protest was objected to because it did not show that the bill had been presented by the notary to the acceptors for payment. To this objection, that court said it might perhaps have been more specific if in the protest it had been stated that the bill was presented, and pay- ment thereof demanded. And they admit the law is well settled, that, before the holder of an accepted bill can call on the drawer for payment, he must make a presentment for, or demand of, payment, and give notice of the refusal. Here, then, is a def- inite proposition, asserting that a presentment for payment and a demand of payment are convertible terms, and that the proof of either would be sufficient. To support this proposition, they refer to Chitty on Bills, and Bayley on Bills, and the annotations on them. And as further proof and illustration, and to show that demand of pay- ment should be preferred to presentment for pa^Tuent, they refer to the statute of Louisiana, passed in 1827, in which they say the word demand is used in it, and that the word pre- sentment is not ; and they refer to the statute, also, to show that notaries were vested with certain powers by it, which gave authority to their acts, and that they being public officers, the presumption of law is, that they do their duty; and therefore, if the protest were defective, and liable to the objection urged against it, this presumption of law would cover all such defects. This is substituting presumption for proof, in violation of all the rules of evidence. With all due respect for that distinguished tribunal, we are constrained to dissent from the general proposition they have laid down on the subject of demand and presentment, and from MUSSON V. LAKE. 123 all their reasoning in support of it. Due diligence is a ques- tion of law ; and we think we have shown, by abundant authority, that the holder of an accepted bill, to fix the liability of the drawer or indorser, must present it to the acceptor and de- mand payment thereof. It may be well here to repeat what Ld. Tenterden, C. J., said on the subject, in delivering the judg- ment of the Court of King's Bench, in the case of Hansard v. Robinson, before referred to. He said, — "The general rule of the English law does not allow a suit by the assignee of a chose in action. The custom of merchants, considered as part of the law, furnishes in this case an exception to the general rule. What, then, is the custom in this respect ? It is, that the holder of the bill shall present the instrument, at its maturity, to the acceptor, demand payment of its amount, and, upon receipt of the money, deliver up the bill. The acceptor paying the bill has a right to the possession of the instrument for his own se- curity, and as his voucher, and discharge pro tanto, in his account with the drawer. If, upon an offer of payment, the holder should refuse to deliver up the bill, can it be doubted that the acceptor might retract his offer, or retain his money?" This extract, we think, furnishes a full answer to all that has been said by the Supreme Court of Louisiana to prove that it is not necessary to present the bill to the acceptor for payment ; and to the presumption of law relied on to cure the defects in the protest. But to show, that, by the statute of Louisiana, the present- ment of a bill to the acceptor for payment is not dispensed with, and that the presentment is, by a fair construction of the act, as much within its true intent and meaning as the demand, we proceed to examine its provisions. The principal object of the legislature in passing this statute seems to have been, to give authority to notaries to give notices, in all cases of pro- tested bills and promissory notes ; and to make their certificates evidence of such notices. And, therefore, all that is said on the subject of the demand and the manner of making it, and the other circumstances attending it, was not intended as a new enactment on these subjects, but as inducement to the powers conferred on the notary, which was the principal object of the statute, as will appear, we think, by reading it. That part of 124 DUTIES OF THE HOLDER. it which relates to this subject is in these words: "That all notaries, and persons acting as such, are authorized, in their protests of bills of exchange, promissory notes, and orders for the payment of money, to make mention of the demand made upon the drawee, acceptor, or person on whom such order or bill of exchange is drawn or given, and of the manner and cir- cumstances of such demand; and by certificate, added to such protest, to state the manner in which any notices of protest to drawers, indorsers, or other persons interested were served or forwarded; and whenever they shall have so done, a certified copy of such protest and certificate shall be evidence of all the notices therein stated." It seems to have been taken for granted by the legislature, that the notaries knew how to make out a protest, and there- fore they did not prescribe the form, but gave the substance of it, to which the notary was required to add a certificate of the manner in which he had given notices, and when done, accord- ing to the statute, a certified copy of the protest and certificate should be evidence, not of the demand and manner and cir- cumstances of the demand, but of the notice only. This shows that the intention of the legislature, in passing this part of the statute, was merely to authorize the notaries to give notices, and to make the copy of the protest, and the certificate added to it, evidence of notice in the courts of Louisiana. But inde- pendent of this view of the subject, we think the language em- ployed in this statute includes the presentment of the bill for payment, and for all other purposes, as fully as it does the demand of payment. In giving construction to the act, the phrase, "and of the manner and circumstances of such de- mand," cannot be rejected, but must receive a fair interpre- tation. "When taken in connection with other parts of the statute, what do these words mean? The manner of making a demand of payment, we have seen, is by presenting the bill to the drawee or acceptor; and so important is this part of the proceeding, that the omission to present the bill to the acceptor will justify his refusal to pay it, although pajTnent be demanded. The legislature cannot be presumed to have intended to make so important a change in the law merchant as that ascribed to them by the counsel for the plaintiffs, without at the same time pro- MUSSON V. LAKE. 125 viding some other mode of obtaining the acceptance and pay- ment of bills of exchange, and of holding drawers and indorsers to their liabilities. It is but reasonable, therefore, to give the phrase before referred to such construction, if practicable, as will leave the law merchant as it stood before the passage of the statute, and carry into effect the main intention of the legisla- ture. This, we think, may fairly be done without doing any violence to the intention or the language of the statute. The manner of the demand must, therefore, mean the pre- sentment of the bill for either acceptance or payment; and the circumstances of the demand, we think, means the place where the presentment and demand is made, and the person to whom or of whom it is made, and the answer made by such person. It is very clear, that bills payable at sight, and after sight, are within the meaning of the statute; because it provides for a demand of pajTnent of the acceptor of a bill. Now how can there be an acceptance of a bill, without a presentment for acceptance? Until the bill becomes due, payment cannot be demanded of the drawee. This shows, that without the word presentment and the word demand also, the plain meaning of the statute could not be carried into effect. A bill, payable at a fixed period after its date, need not be presented for accep- tance; it is sufficient to present it and demand payment when it arrives at maturity ; but a bill payable at sight, or after sight, can never become due until after it has been presented for ac- ceptance or payment. How is the holder or the notary to obtain the acceptance of such a bill, under the decision of the Supreme Court of Louisiana? Will it be sufficient to demand payment of the bill? That would be a nugatory act, because it is not due, then it must be admitted, that, by fair and necessary con- struction, the word presentment is within the plain meaning and intention of the statute, and that the bill may be presented for acceptance or for payment, and therefor neither the statute nor the decision of the Supreme Court of Louisiana has changed the law merchant in any of these respects. There is, however, another question, entirely independent of the statute and the decision of the Supreme Court of Louisiana, which may be decisive of the ease before this court; and that question is, Whether the contract between the holder and 126 DUTIES OF THE HOLDER. indorser of the bill in controversy is to be governed by the laws of Louisiana, where the bill was payable, or by the laws of Mis- sissippi, where it was drawn and indorsed. The place where the contract is to be performed is to govern the liabil- ities of the person who has undertaken to perform it. The acceptors resided at New Orleans; they became parties to the bill by accepting it there. So far, therefore, as their liabilities were concerned, they were governed by the laws of Louisiana. But the drawers and indorsers resided in ]\Iississippi ; the bill was drawn and indorsed there; and their liabilities, if any, ac- crued there. The undertaking of the defendant was, as before stated, that the drawers should pay the bill ; and that if the holder, after using due diligence, failed to obtain payment from them, he would pay it, with interest and damages. This part of the contract was, by the agreement of the parties, to be per- formed in Mississippi, where the suit was brought, and is now depending. The construction of the contract, and the diligence necessary to be used by the plaintiffs to entitle them to a recov- ery, must, therefore, be governed by the laws of the latter state. (Story on Bills, § 366; 4 Peters, 123; 2 Kent's Comm., 459; 13 Mass. R., 4 ; 12 Wend. R., 439 ; Story on Bills, § 76 ; 4 Johns. R., 119; 12 Johns. R., 142; 5 East, 124; 3 Mass., R., 81; 3 Cowen, 154 ; 1 Cowen, 107 ; 5 Craneh, 298. See also Daniel on Negotia- ble Paper, Sec. 1265; 28 N. E. Rep., 515; 81 N. Y., 571; 57 N. W. Rep., 865; 91 Ind., 440; 22 la., 194; 46 N. H., 300; 25 Ohio St., 413 ; 55 Minn., 259 ; 47 la., 477 ; Story on the Conflict of Laws, Sees. 242, 280, 281 ; 39 Ohio St., 63. "Whatever, therefore, may have been the intention of the legis- lature in passing the statute, and of the Supreme Court of Louisiana in the decision of the case referred to, neither can affect, in the slightest degree, the case before us. In Missis- sippi the custom of merchants has been adopted as part of the common law ; and by that law and their statute law, this case must be governed. We think, therefore, the protest offered by the plaintiff, as evidence to the jury, ought not to have been received as evidence of presentment of the bill to the acceptors for payment, nor as evidence of the dishonor of the bill ; which is ordered to be certified to the Circuit Court accordingly. Mr. Justice McLean said, "I think the protest was evidence. MUSSON V. LAKE. 127 The notary made demand of pa>Tnent, at the maturity of the bill, and we know that he had possession of the bill, from the fact of the protest being made on the same day. Now as the notary could not make a legal demand in the absence of the bill, the fair, if not the necessary, inference is, that he had possession of the bill when he demanded payment." Mr. Justice Woodbury said, "I regret being compelled to dissent from a portion of the opinion of the majority of the court which has just been pronounced. This I should be con- tent to do without explanation, if the grounds for it did not appear to be misunderstood. I do not question that a note should be present usually when payment is demanded (Freeman v. Boynton, 7 Mass. R., 483; 17 Mass. R, 449; 3 Metcalf, 495), and that a written protest is the proper evidence to show a pre- sentment or demand in the case of a foreign bill of exchange (8 Wheat., 333; Burke v. McKay, 2 Howard, 71). But, in my view, a protest like this was competent evidence to be submitted to the jury, in order that they might infer from it that the note was presented when the demand was made. That was the point presented by the division of opinion between the judges in the court below. One held it was competent evidence from which to make such an inference, and the other, it was not; and we are merely to decide which was right. The question of due presentment and demand is a mixed one of law and fact, and not one of mere law, unless all the facts are first conceded or agreed. (United States v. J. Barker, 1 Paine 's C. C. R., 156.) This is an analogy of the rule about notice. (1 Peters, 583.) In all cases where it is possible for the jury on any reasonable hypothesis to infer a proper present- ment from the protest offered, it is safer that the writing should not be withdrawn from them, but go in, and the court instruct the jury on the whole evidence what the law was on such facts as they might be satisfied of. Chancellor Kent (3 Comm., 107) thinks it very difficult, in these mixed questions of law and fact about commercial paper, to do justice by any other course. In this case the jury might or might not be satisfied of the fact of the bill being present when the demand was made. But why not let them pass on that fact? It is manifest that no evil or danger would result from leaving the matter to them, under 128 DUTIES OF THE HOLDER. due instructions from the court, providod there be no legal obstacle to such a course. It is conceded, on both sides, that the protest is competent evidence, and contains enough from which the jury could infer a demand of payment. That is the most material part of the notary's duty. It is not only so described in some elementary treatises, but the duty of having the note present, or of calling with it at the hours of business alone, are not described sep- arately ; but are involved or implied in the general duty of mak- ing a demand. Thus Dane, in his Abridgment, Bills of Ex- change (Art. 11, § 1), says, — "In making a protest, three things are to be done, — the noting (The "noting" is simply the making of a memoi-andum of what the notary did so that he may sub- sequently have the facts upon which the certificate may be made. This should be done on the day the demand and presentment are made. The certificate of protest may be made at any time. Dennistown v. Stewart, 17 How., GOG), demanding, and draw- ing up the protest." "The material part is the making of the demand. ' ' So the word demand is at times used as synonymous with the word presentment by Bailey. (16 Louisiana Rep., 311.) But the protest in this case states not only a demand, but that payment of the bill was refused, and he had it in posses- sion, so as to make copy "of the original draft," on the back of the protest, or, to use his own words, "whereof a true copy is on the reverse hereof written," and also "dt^raanded payment of said draft," and was answered, "that the same could not be paid." Under these expressions, it could hardly be deemed unfair, or any stretch of probability, to infer that the bill was present at the demand, and the more especially as the notary knew it was his duty to have it present, and does not state that any objection was made, or refusal to pay, on account of its ab- sence, as he should have stated, if such was the truth. My views do not differ from those of a majority of this court concerning the importance of having the principles as to com- mercial law, and especially commercial instruments, uniform, and as little fluctuating as possible; and hence as to them I would make no innovation here. But our difference is rather on a question of evidence. Thus, had the testimony offered MUSSON V. LAKE. 129 been submitted to the jury, and they had inferred from it a due presentment of the note, it would not change any com- mercial principle as to the necessity of presentment, but merely establish the fact of presentment here on evidence deemed by the jury to render that fact probable. And if juries should be disposed to find such a fact on slight testimony, it would do no injury to commercial paper, or commercial principles, or substantial justice between parties, but merely indicate an increased liberality as to forms, where substance has been re- garded ; that is, where the vital point in the transaction is be- yond controversy, namely, that payment has clearly been de- manded and not made. Such a course would accord, also, in spirit, with what was laid down by this court in 1 Peters, 583, that rules as to commercial paper ought to be formed and construed so as to be reasonable and founded in general con- venience and with a view to clog as little as possible, consis- tently with the safety of parties, the circulation of paper of this description. There is nothing in the nature of protests and presentments which on principle requires any increased strictness in the proof of them, but, on the contrary, much to justify every reasonable presumption in their favor. Any holder would be anxious to get his money at once of the drawee, and not neg- lect to have the note with him so as to give it up on pay- ment and prevent delay. So would he wish to be paid and excused entirely from making protest, rather than resort to that and notice, and suffer the delay of recovering it of a drawer or indorser. Both of these considerations strengthen the inference that he and his agent would present the note, or have it with them, when demanding payment, and render it reasonable, after slight proof of presentment, to leave it to the opposite party to rebut that inference, so natural, by stronger proof that the note was not present, if the facts would warrant such proof. Another consideration against requiring great or greater ri- gidity in the evidence of a presentment and form of protest is the fact, that a protest is of less materiality than notice. As an illustration, that the notice is deemed more material than the protest, ''omitting to allege in the declaration a pro- 130 DUTIES OF THE HOLDER. test of a bill is only form, not to be taken advantage of on a general demurrer." (1 Dane's Abr., Bills of Exchange, ch. 20, art. 11, § 9; Lill. Ent., 55; 3 Johns. R., 202; Solomons v. Staveley, Dong., 684^ in note to Rushton v. Aspinall.) But, omitting to state a demand or notice is bad after ver- dict. (Doug., 684.) Dane, in his Abridgment (Vol. 1, p. 395, ch. 20, art 10, § 1), says, — ''Notice is very material. Protests are mere mat- ter of form." Yet notice may be very loose, and it answers in all cases, if it disclose merely the fact of demand, and a re- liance on the person notified for payment. (Shed v. Brett, 1 Pick., 401 ; Miller v. Bank of United States, 11 Wheat., 431 ; Gilbert v. Dennis, 3 Mete, 495; 2 Johns. Ch. R., 337; 12 Mass. R., 6; 4 Wash. C. C. Rep. 464.) "The notice, however, should inform the party to whom it is addressed, either in express terms or by necessary impli- cation, or, at all events, by reasonable intendment, what the bill or note is, that it has become due, that it has been duly presented to the drawer or maker, and that payment has been refused." (Chitty on Bills (9th Lond. & 10th Amer. edit.), 469.) But it has again and again been held, that the notice need not state a presentment in express terms, and that it will be implied from stating a demand and non-payment, and a look- ing to the indorser. (9 Peters, 33; 3 Kent's Comm., 108; 10 Mass. R., 1; 4 Mason, 336; 1 Johns. Cas., 107.) So, "Your note has been returned dishonored," is enough from which to intend all. (See various other illustrations, 6 Adolph. & Ellis, 499; 5 Dowl., 771; 2 Chit. R., 364; 2 Mees. & Welsh., 109.) It may be a letter, — merely to that effect, — and need not be a copy of the protest. (1 Chit. (2d Eng. & 1st Amer. edit.), 363, 364, 498, 499; 3 Camp. R., 334; 2 Starkie, 232; Goodwin V. Harley, 4 Adolph. & Ellis, 520, 870; 4 Eq. R., 48. See 8 Mass. R., 386.) And it has been adjudged, that the notice need not state, in express terms, that the note was present, or if present was exhibited, if it only contained matter from which, by reasonable intendment, this can be inferred. (Chitty on Bills (last edit.), 469; 2 Peters, 254; 9 Peters, 33.) It not being necessary, then, to inform the indorser of the MUSSON V. LAKE. 131 presentment of the note itself, in so many words, there seems to be no use in having the fact stated at length in the protest, if enough appear to render the fact probable. It would be difficult to find a reason, in the absence of posi- tive law, why the form of the protest should not be dealt by as liberally as that of notice; and if, like the other, it disclose a demand, allow the jury to infer from that, as in the case of notice, that the note was present. Indeed, a protest is not required to be in writing at all except in case of foreign bills, drawn on persons abroad. (Chitty on Bills, 643; Rogers v. Stevens, 2 D. & E., 713 ; 2 Starkey on Ev., 232 ; 6 Wheat., 572 ; 8 Wheat, 333; 3 Wend., 173; 2 Peters, 179; 1 Cranch, 205.) And then it doubtless originated in a rule merely allowing it to be done to save the expense and trouble of bringing a witness from abroad to prove the fact, rather than making it imperative. Instead of a written protest being better evidence than a witness of the presentment and demand in case of inland bills or promissory notes, or even foreign bills drawn on persons here, it is inferior evidence to witnesses for proving present- ment and demand, and is usually inadmissible, except by special statutes. (1 Chitty on Bills, 405; 3 Pick., 415; 6 Wheat, 572; 5 Johns. R., 375; 4 Wash. C. C. Rep., 148; 4 Camp. R., 129; 2 Howard's U. S. Rep. 71; 8 Wlieat., 146.) Some seem to suppose that there is danger in allowing an informal written protest to go to the jury as evidence to be weighed in proving that the note was present. But there can be no more in that than allowing an informal notice to go to the jury. The jury must be satisfied, in both cases, and should so be instructed, that all has been done which the law in both requires. If there be any defense in either case, that all proper has not been done, it can probably be shown by counter evidence in one as well as the other. Why should it not be? and why is not that an ample security against being improperly charged? For the protest is not a written contract between the parties, or a sealed instrument not open to be contradicted by parol evidence. But it is a mere certificate of a notary, a subordinate officer, admitted for convenience as prima facie evidence of certain facts, and allowed to that 132 DUTIES OF THE HOLDER. extent in order to save the expense of witnesses and delays, but ought to be always open to be impaired or disproved by the other party in interest, who has never been heard before him, and of course cannot reasonably be concluded forever by his acts. The notary is not required to swear to them, when they are admissible as evidence, as he would be to a deposition, because of his official obligations and standing. But the character and construction that properly belong to his certificate as evidence seem to be like those of a deposition ; ajid if it states, in so many words, that the note was pre- sented, or states what justifies such an inference, there ap- pears to be no good reason why the contrary may not be proved, if such was the fact, and the indorser be thus pro- tected against statements or inferences not well founded. And the absurdity of the contrary course is still more apparent as to protests, when one made by any respectable merchant, and attested by two witnesses, in the absence of a notary, has the same validity as his. (Chitty on Bills, ,303; Story on Bills, § 276.) In Nicholls v. Webb (8 Wheat., 336), counter testimony was held to be admissible against the minutes of a notary offered to prove demand and notice. So it is admissible to show that the notary mistook the place, and did not demand the bill at the place of business of the drawee. (Insurance Company v. Shamburg, 2 Martin's R. (N. S.), 513.) In Vandewall v. Tyrrell (Mood. & Malk., 87), counter evi- dence was offered, and avoided the protest, because the clerk of the notary, and not the notary himself, as stated in the pro- test, made the demand. (See Chitty on Bills, 495, note.) This point thus being established on both prmciple and pre- cedent, all the danger or difficulty as to the merits of the case, by admitting a protest like this, is obviated. But it is further urged against it, that presentment is averred in the declara- tion, and therefore must be proved. This we admit. (Chitty on Bills, 643-647.) And so is notice averred in the declaration and notice of a presentment, and so that it must be proved. (1 Chit, 633; Doug., 654, 680.) All we urge here is to let them be proved by similar general statements, from which the similar MUSSON V. LAKE. 133 inferences may be drawn in one case as the other, that the note was present at the time of the demand, unless the contrary is shown, — as it may be, if true. Again, it is said that the forms of protest generally state, that the bill was present or exhibited. This is true. (1 Chitty, 395, 396 (1st Amer. edit.) ; Story on Bills of Exchange, § 276, note. ) But we are aware of no case deciding that this fact must be stated, in so many words, in the protest itself, though we admit that the jury must be satisfied that the fact existed. Minutes in the book of a messenger deceased have been held to be proof to be submitted to a jury as evidence of due demand and no- tice. (Welsh V. Barrett, 15 Mass. R., 380.) Yet there does not appear to have been a presentment stated, eo nomine, or that there was any but inferential evidence that he had the note with him. (See, also, North Bank v. Abbott, 13 Pick., 469.) And it is not a little remarkable, that the only statute in England (9 and 10 Will., 3), which prescribes the form of a protest, and which is in relation to inland bills of five pounds and upwards, in order to recover damages and interest, the form does not state in so many words that the bill was present or was exhibited, but merely "at the usual place of abode of the said A, have demanded payment of the bill," etc. (Chitty on Bills, 465 (9th ed.).) In such cases, precisely that, and that alone, must be done which is contended for here, namely, leave it to the jury to infer the presence of the bill from its payment being demanded, and any other facts stated, unless the contrary is shown. Look at another analogy. It is neces- sary that the exhibit of the note and the demand be made in the legal hours of business. (Chitty on Bills, 349, 354; Reuben V. Bennet, 2 Taunt., 388; 2 Camp., 537; Parker v. Gordon, 7 East, 385; 1 Maul. & Selw., 20.) But, as in respect to the presence of the note, no case holds that this must appear by so many words in the protest. And it is not stated, in the com- mon forms, that the demand was made in the usual hours of business. (1 Chitty on Bills, 396.) On the contrary, the jury are allowed or instructed that they may infer, from the state- ment of the demand and non-payment, that they were made 134 DUTIES OF THE HOLDER. within the proper hours. And if it was not, the other party would doubtless be allowed to disprove it by counter evidence. How can such a case, then, be distinguished in principle from this? — except that there is much less in the usual form of pro- test from which to infer that the bill was presented in legal hours, than there is in this protest from which to infer that the bill was present when the demand was made. I am the more inclined, also, to the opinion, that this protest is competent e\i- dence, because, under a special law in Louisiana, passed March 13th, 1827, such protests have been adjudged sufficient. Their law uses the word "demand" w^hen describing what the pro- test shall contain, and such a protest is there allowed to go to the jury as evidence from which to infer that the note was present. (Nott's Executor v. Beard, 16 Louisiana R., 308.) The bill now in dispute was on its face payable in Louisiana ; and hence the principles of commercial law require that the protest be made at the time and in the manner prescribed by that state. (Story on Bills of Exchange, § 176 ; 1 Chitty on Bills, 193, 506; Story's Conflict of Laws, § 369.) But whether the statute of Louisiana prescribing what pro- test shall be sufficient ought to be considered as affecting any- thing beyond the evidence of protest in its own courts, is not very clear on principle. (See cases. Story on Bills, § 172.) Hence, in forming an opinion, I have placed it mainly on general consideration, though in the construction of a Louis- iana statute, which clearly aifected the contract, and not the evidence; and where the judgment of its court clearly rested on the statute alone, about which some doubt exists, it ought unquestionably to control us in respect to contracts made or to be fulfilled there, even, if a departure from the general prin- ciples of commercial law. I wish, also, to avert some serious consequences that I apprehend may result from the decision of the majority of the court in several of the states of the Union. Bills of exchange drawn in one state on persons in another must be considered, under the previous decisions of this court, as foreign bills. (Townsley v. Sumrall, 2 Peters, 179, 586, 688; Lonsdale v. Brown, 4 Wash. C. C. R., 87, 153; 1 Hill, 44; 12 Pick., 283; 15 W\'nd., 527; 5 Johns., 375; Dickins v. Beal, 10 MUSSON V. LAKE. 135 Peters, 579.) Demand of payment, then, cannot be proved in suits upon them out of the state where presented, unless by a written protest, according to the cases before cited. Whenever the protest, then, in such case, does not state in detail a presentment or presence of the bill, though stating a demand, refusal, and no objection, the protest must, as in this decision, be ruled out as incompetent evidence; and the same decision virtually implies, that no other evidence except the written protest is admissible to show that fact, or indeed any fact which may be omitted by accident or otherwise in the written protest, and that no inference can be admitted to be drawn from the protest as to presentment, when only a de- mand, refusal, and no objection are stated, as here. These con- sequences, with others before named, I would avoid, by making the protest competent evidence, and when it showed a de- mand, refusal, and no objection explicitly, as here, would leave it to the jury, from that and the other circumstances, to say whether they were or were not satisfied that the note was present. In this way it is easy to reconcile full action of the jury on the facts with that of the court on the law, and this, too, without any innovation or change in the rule as to commer- cial paper, or any violation of adjudged cases, but rather in conformity to them and to several strong analogies. This court have in other cases gone still further, and held it proper even to expand or enlarge the rules of evidence in certain exigencies. In Nicholls v. Webb (8 Wheat., 332), the principle laid down by Ld. Ellenborough, in Pritt v. Fair- clough (3 Camp. R., 305), as to the rules of evidence, was adopted, namely, "That they must expand according to the exigencies of society." And in the Bank of Columbia v. Law- rence (1 Peters, 583), speaking of a rule as to diligence, Thomp- son, J., says, — "For the sake of general convenience it has been found necessary to enlarge this rule. ' ' But all I ask here is to go as far as the existing rule of evidence seems to justify, and let reasonable inferences and pre- sumptions be made by the jury from all that is stated in the protest, and thus decide whether the note was not probably present when the demand was made. 136 DUTIES OF TiiE HOLDER. SALT SPRINGS NATIONAL BANK v. BURTON. 58 N. Y. 430. 1874. Appeal from jiulgiiient oi' the anent. We are unable to conceive how the fact that he had other property and funds- machines and the proceeds of discounted notes — in his posses- sion, could have hindered or impeded him in the acioounting for funds collected or notes remaining in his hands, or could in any degree have conduced to his conversion of such funds or notes. To the contrary, it would seem, in all reason, that the possession of this other property and these other funds, out of which he might have met the necessities which presumably induced his malversations, would have lessened the chances of misappropria- tion of the funds and property for which his sureties were responsible, and thus have lessened, instead of increased, their exposure to liability. We are very clear to the conclusion that the imposition of these new duties, not covered by the contract, did not discharge the sureties with respect to those embraced in the contract, and as to which no change in the particulars we are considering was attempted. City of New York v. Kelly, 98 N. Y. 467; State v. Vilas, 36 X. Y. 459; Ins. Co. v. Potter, 4 Mo. App. 594; Com. v. Holmes, 25 Grat. 771; Bank v. Traube, 75 Mo. 199; Gaussen v. U. S., 97 U. S. 584 ; Jones v. U. S., 18 Wall 662 : Ryan v. Morton, 65 Tex. 258; Bank v. Gerke (Md.), 13 Atl. 358, 6 Amer. St. R. 453, and note, 458 ; Bank v. Zeigler, 49 Mich. 157, 13 N. W. 496. The sureties further defended on the ground that the con- tract between Saint and the company was changed without their knowledge or assent by a subsequent parol agreement entered into by their principal and Walls, representing the company, whereby Saint's compensation was to be reduced from $50 per month to $9 per week. There was e\'idence of such agreement but none that it was supported by a consideration or that it was approved by plaintiff; and it appears from other evidence that all of Walls' contracts were subject to approval or rejection by other officers of the corporation, and that plaintiff settled with SAINT V. WHEELER & WILSON MFG. CO. 191 Saint on a basis as to comjiensation of $50 per month. We think, on these facts, this defense is without merit. Steele v. Mills, 68 Iowa, 460, 27 N. W. 294. Equally untenable, in our opinion, is the defense which pro- ceeds on the ground that the instruction of plaintiff to Saint to retain his salary and expenses out of collections made by him was a material change of that provision of the contract which required him to remit to the company on the last day of each week the amount collected up to that day. The contract pro- vided for Saint's compensation and expenses, but was silent as to the manner of payment. Method of payment thus adopted tended to decrease the risks of the sureties, as affording less occasion for conversion by Saint than had payments to him been made only at the end of each month. It is well settled that mere indulgence of the creditor to the principal, the mere forbearance to take steps to enforce a liability upon default, or even an un- derstanding between them looking to payment of the deficit presently due at some time in the future, which does not, for the want of a consideration to support it, or other infirmity, prevent the creditor from immediately demanding payment, will not discharge the surety. Hence what took place between Walls and Saint in February, 1888, in regard to allowing the latter further time to make good the sum he had theretofore converted, afi^orded no defense to the sureties with respect to the sum then due. 3 Brick Dig., p. 715, Sec. 36-43 ; 9 Amer. & Eng. Enc, Law, p. 83, note 4; Canal, etc., Co. v. Van Vorst, 21 N. J. Law, 100. The sureties, however^ on another aspect of the transaction last above referred to between Saint and Walls, predicate a defense going to the amount of their liability. They insist that Saint was at that time a defaulter by embezzlement ; that Walls knew this fact, and, without giving any notice of it to them, he, acting for the company, continued Saint in its employment, and committed other funds to him, which were also converted; and that this action of Walls discharged them from all liability for funds thus converted after he knew of Saint's dishonesty. The general principle here relied on finds abundant support in the authorities. In the leading case of Phillips v. Foxall, L. R. 7, Q. B. 666, the proposition is thus stated by Quain, J. : 192 THE CONTRACT DEFINED. "We think that in a case of continuing guaranty for the hon- esty of a servant, if the master discovers that the servant has been guilty of acts of dishonesty in the course of the service to which the guaranty rehites, and if, instead of dismissing the servant, as he may do at once and without notice, he chooses to continue in his employ a dishonest servant, without the knowl- edge and consent of the surety, express or implied, he cannot afterwards have recourse to the surety to make good any loss which may arise from tlic dishonesty of the servant during the subsequent service." And this proposition is rested upon considerations which, to our minds, are eminently satisfactory. Premising that had a de- fault involving dishonesty, and occurring before the surety became bound, been known to the creditor, and concealed by him from the surety, the effect would have been to discharge the surety, — a doctrine which appears to be well established, — the court proceeds to declare the same result from a concealment of dishonesty pending a continuing guaranty, as follows: "One of the reasons usually given for the holding that such a con- cealment (at the time the surety enters into the obligation) would discharge the surety is that it is only reasonable to sup- pose that such a faet^ if known to him, would necessarily have influenced his judgment as to whether he would enter into the contract or not ; and, in the same manner, it seems to us equally reasonable to suppose that it never could have entered into the contemplation of the parties that after the servant's dishonesty in the service had been discovered the guaranty * * */ should continue to apply to his future conduct, when the master chose, for his own purpose, to continue the servant in his employ, without the knowledge or avSsent of the surety. If th(i obliga- tion of the surety is continuing, we think the obligation of the creditor is equally so, and that the representation and under- standing on which the contract was originally founded con- tinue to apply to it during its continuance and until its termina- tion." The citations supporting this conclusion are quasi dicta of Lord Eedesdale in Smith v. Bank, 1 Dow. 287, and of Malins, V. C, in Burgess v. Eve, L. R. 13, Eq. 450; but the case was subsequently followed in England and the United States, and SAINT V. WHEELER & WILSON MFG. CO. 193 nowhere abstractly doubted. We follow these authorities and adopt their conclusions as sound in principle. Sanderson v. Aston, L. R. 8 Exch. 73 ; Brandt, Sur. Sec. 368 ; Roberts v. Donovan, 70 Cal. 108, 11 Pac. R. 599 ; Railroad Co. V. Gow, 59 Ga. 685; Telegraph Co. v. Barnes, 64 N. Y. 385; Newark v. Stout, 52 N. J. Law, 35, 18 Atl. 943. Indeed, the foregoing doctrine is not controverted in this case, but it is contended that it has no application as between a corporation, being the creditor, and the surety of one of its officers or employes; and there are not a few adjudged cases which support this view. The argument upon which this con- clusion is reached is that "corporations can act only by officers and agents. They do not guaranty to the sureties of one officer the fidelity of the others. The fact that there were other un- faithful officers and agents of the corporation, who knew and connived at his (the principal's) infidelity, ought not in reason, and does not in law or equity, relieve the sureties from their responsibility for him. They undertake that he shall be honest, though all around him be rogues. Were the rule different, by a conspiracy between the officers of a bank or other moneyed in- stitution all their sureties might be discharged. It is impos- sible that a doctrine leading to such consequences can be sound. ' ' Railway Co. v. Shaeffer, 59 Pa. St. 356; Taylor v. Bank, 2 J. J. Marsh, 565 ; McShaney v. Bank, (Md.) 20 Atl. 776 ; Brandt, Sur. Sec. 369. It is to be noted that these cases — and there may be others which follow them — hold, not only that, where there is a con- spiracy between the officers of a corporation to embezzle its funds, the dereliction of neither officer will discharge the sureticiS of the other, but also where there is a negligent failure on the part of one such officer to give notice to the sureties of another of his dishonesty, and a continuance of the dishonest servant in the corporate service without the assent of his sureties, given with a knowledge of the default, the sureties are not discharged from liability for subsequent deficits, though confessedly they would be were the creditor an individual or copartnership. It may be that the first position stated is sound. It would seem to be immaterial whether an original default results from the dishonesty of the principal alone, or conjointly from his and 194 THE CONTRACT DEFINED. the tlereliction of another corporate employe. The sureties are bound to answer for the results of any form of original dishon- esty. That is what they insure against. It may be, too, — doubtless would be, — that no eonceahnent by a conspirator of the fact of the principal's original default, no continuance in the service by an officer of the corporation in pari delicto with the principal, would suffice to discharge the surety, since all of this is malversation participated in by the principal, and violative of the contract which the sureties have undertaken to see faith- fully performed. jMoreover, the acts and omissions of one agent of a corporation, in conspiracy with another to filch their com- mon master, in furtherance of their nefarious purposes, are, in the nature of things, without authorization, by implication or otherwise, and can in no just sense be said to be acts or omis- sions of the corporation. Upon this idea, it may be that where one officer, though not originally participating in the default of another, conceals that defaidt from the sureties of his fellow- officer and from the company for sinister purposes of his own, and not as representing his employer or in its interest, and con- tinues the defaulting officer in the service, the sureties would not be discharged as to subsequent deficits. This far we may go with the learned courts in which the cases we have cited were decided. But even our conservatism in following adjudications of courts of acknowledged ability and learning can in no degree constrain us to adopt the second proposition stated above. We cannot subscribe to the doctrine that there is the radical differ- ence insisted on, or any material difference in fact, between the efficacy of acts and omissions of an agent of a creditor corpora- tion, having authority in. the premises, on the one hand, and the acts and omissions of the agent of an individual creditor, or of the individual himself, on the other, in respect of condoning the defalcation of an employe, omitting notice to the employe 's sure- ties, and continuing him in the service, to operate a release of the sureties as to subsequent deficits of the dishonest employe. No doctrine of the law is more familiar than that notice to an agent, within the scope of his agency, is notice to the principal ; and the doctrine has in no connection been applied more fre- quently and uniformly than to corporations and their agents. Indeed, there is an absolute necessity in all cases for its applica- SAINT V. WHEELER & WILSON MFG. CO. 195 tion to corporations, since they act and can be dealt with only through agents. Notice to one agent of a corporation with respect to a matter covered by his agency must be as efficacious as to its directors or to its president, since these also are only agents, with larger powers and duties, it is true, but not more fully charged with respect to the particular thing than he whose authority is confined to that one thing. In the case at bar. Walls had authority to make the contract with Saint, sub- ject to the approval of another agent of the corporation. He did in fact make it. This contract contained a provision for its termination by either party at pleasure. The evidence was that Walls had full supervision over Saint, and over all matters embraced in the contract made by Saint. It was at least a fair inference to be drawn by the jury that he could terminate the employment, either under the stipulation in the instrument; or for a violation of it by Saint, subject to the approval of the other officer or agent referred to. There is no ground to doubt but that to have given the sureties notice of Saint's default would have been in the line of his duty and authority. Equally clear it must be that their assent to him to a continuance of Saint's emplojTQcnt would have bound them for the subsequent defalca- tion; and on the other hand it must be that their dissent from such continuance, communicated to him, would have had the same effect as had it been given to any other officer of the creditor company. He had notice of the default. He received it as rep- resenting the company. In that capacity, he condoned it, made arrangements with Saint to make it good, continued the employ- ment, and thereby continued Saint's opportunities to embezzle the company's funds, on the supposed security for its reim- bursement afforded by the obligation of the sureties, who had contracted on the assumption of Saint's honesty, and were en- titled to know of his dishonesty, when it should develop, as a condition to their subsequent liability. There is no intimation of connivance or conspiracy on the part of Walls with Saint to defraud either the creditor or the sureties. What he did was doubtless done in good faith, and for the interest, as he sup- posed, of his employer. It was in the line of his employment. If his further duty was to report his action to another officer of the company, the presumption is that he made such report. 196 THE CONTRACT DEFINED. There is nothing in the record to rebut such presumption. We cannot hesitate to affirm, on this state of the, case, that what he ilid which ought not to have been done, and what he failed to do which ought to have been done, Avere the acts and omissions of the corporation, involving the same consequences, in all respects as if the corporate entity had been capa])le of direct personal action, so to speak, antl had acted as he did, or as if he himself, and not the Wheeler & Wilson Mfg. Co., had been the creditor. We suppose it would not be contended in any quarter, that if these sureties had in terms stipulated that, in case of Saint's default, notice to them, and assent on their part, should be a condition precedent to their liability for further defaults, they could be held, without such notice and assent, and yet, under the doctrine announced in the cases cited, such a stipulation would be entirely nugatory, and the failure of every agent and officer, all with knowledge of the stipulation and of the default, to notify the sureties thereof, would avail them nothing. Yet it would manifestly be no more the duty of the corporation to give a notice so stipulated for than to give a notice made a part of the contract by the law of the land. And such doctrine, carried to its legitimate results, would defeat all corporate liability grow- ing out of the contracts, acts, and omissions of agents clothed with power and authoi-ity in the premises. That it is unsound is demonstrated, not only in logic, but upon analogous authority. As we have seen, the English court, in the leading case of Phillips V. Foxall, supra, — which has never been called in ques- tion there or in this country, either as to the result or the rea- soning upon which it was reached, — supported the principle declared upon the same considerations which underlie the doc- trine that if an employer have knowledge of the previous dis- honesty of a servant, and accept a guaranty for his future honesty without disclosing such knowledge to the surety, this is a fraud upon the latter, and he is not bound. Now, suppose an officer of a corporation, charged with the duty of finding surety for another officer, knowing of such previous dishonesty on the part of such officer, takes bond for his faithful and honest per- formance of the services contracted for, without giving the surety notice of the prior dereliction. Would not that omission of duty on his part stand upon the same plane before the law, « SAINT V. WHEELER & WILSON MFG. CO. 197 and involve precisely the same consequences, as if the default had occurred after the surety has bound himself, and the officer had then failed to give him notice of it? If the corporation is not prejudiced by the omission in one instance, can it be in the other? If the corporation is responsible for the dereliction of its agent with respect to notice of a previous default, would it not also be responsible for its agent 's failure to give notice of the subsequent default? There can, in our opinion, be but one answer to these questions. There can be no possible difference in the duty of the agent and the corporation 's liability for its non- performance in the two cases ; and the law is well-settled that the failure of the agent of a corporation to give notice of such pre- vious dishonesty avoids the obligation of the sureties for future misconduct. Singularly enough, too, some of the cases holding this doctrine distinctly and broadly were decided by courts — those of Pennsylvania and Kentucky — which hold the contrary view as to notice of after-occurring embezzlement. Brandt, Sur. Sec. 365-368; Wayne v. Bank, 52 Pa. St. 344; Graves v. Bank, 10 Bush, 23; Bank v. Cooper, 36 Me. 179, 39 Me. 542. Our conclusion on this point is further supported by the cases of Railroad Co. v. Gow, and Telegraph Co. v. Barnes, supra, which, without discussing this point, in effect hold that the omission of an officer of a corporation to notify a surety of the default of his principal in a case like this, and the continu- ance by such officer of the employment of the principal, will discharge the surety as to all defaults arising during the subse- quent service. And in Newark v. Stout, 52 N. J. Law, 35, 18 Atl. 943, the New Jersey court, while adhering generally to the doctrine we have been criticising, yet held that if the default and dishonesty of a municipal officer be brought to the atten- tion of the city council, which is clothed with the power to remove him, and he is allowed to continue in the service with- out notice to and assent on the part of the surety, the latter will be discharged from liability as to all subsequent defaults. It does not appear to have been so considered by that court; but it is manifest that this is a radical departure from the doctrine held by the Pennsylvania, Kentucky, Maryland, and other courts, and relied on by appellee here, and goes strongly in support of 198 THE CONTRACT DEFINED. the contrary rule, wliidi we believe to be the sound one. It is also to be noticed that nuieh reliance is had by the courts hold- ing that a surety of one officer of a corporation is not discharged by the acts or omissions of another, in the particulars under consideration, on eases decided by the supreme court of the United States in respect of sureties of public officers. Indeed, it would seem that this whole doctrine had its inception in this class of cases. This can but be considered an infirmative cir- cumstance, going to the soundness as authority of those cases which involve sureties of corporation officers. There is a palpable and manifest distinction between the two classes of cases bearing directly upon this question, which, while requiring the applica- tion of this rule to public officers on the grounds of public policy, and that laches should not be imputed to the government, does not require its application to officers of corporations. We hold that if Walls, while acting for the corporation and in the capacity of its agent, with respect to the matters and things involved in Saint's contract, received notice of such a conversion of its funds by Saint as amounted to embezzlement or involved dishonesty, and, without imparting this knowledge to the sureties and receiving their assent thereto, continued him in the service, the sureties are not liable for Saint's subsequent defaults. Charges 5, 9 and 7, requested for defendants, when referred to the evidence, were correct expositions of the law, as we understand, in this connection. The refusal of the court to give them involved error which must work a reversal of the ease. ^Most of the other assignments of error are covered by the points considered in the first part of this opinion. Such of the assignments as are not discussed have been considered, and found to be without merit. The judgment is reversed, and the cause remanded. SMITH V. SHELDEN ET AL. 199 SMITH V. SHELDEN ET AL. 35 Mich. 42; 24 Am. Rep. 529. 1876. CooLEY, Ch. J. The legal questions in this case arise upon the following facts: Prior to June, 1867, Eldad Smith, Isaac Place, and Francis B. Owen were partners in trade under the firm name of Place, Smith & Owen, and as such became indebted to defend- ants in error in the sum of $969 on book account. In the month mentioned the firm was dissolved by mutual consent. Place purchasing the assets of his copartners and agree- ing to pay off the partnership liabilities, including that to the defendants in error. On the second day of the following month Place informed the defendants in error of this arrangement, and that he had taken the assets and assumed the liabilities of the firm, and they, without the consent or knowledge of Smith and Owen, took from Place a note for the amount of the firm indebt- edness to them, payable at one day with ten per centum interest. They did not agree to receive this note in payment of the part- nership indebtedness, but they kept it and continued their deal- ings with Place, who made payments upon it. The payments, however, did not keep down the interest. Place, in 1872, became insolvent and made an assignment, and Smith was then called upon to make payment of the note. This was the first notice he had that he was looked to for payment. On his declining to make payment, suit was brought on the original indebtedness and judgment recovered. The position taken by the plaintiffs below was, that as they had never received paj^ment of their bill for merchandise they were entitled to recover it of those who made the debt, the giving of the note which still remained unpaid being immaterial. On behalf of Smith it was contended that, by the arrange- ment between Place and his copartners, the latter, as between the three, became the principal debtor, and that from the time when the creditors were informed of this arrangement they were bound to regard Place as principal debtor and Smith and Owen as sureties, and that any dealing of the creditors with the prin- cipal to the injury of the sureties would have the effect to release 200 THE CONTRACT DEFINED. them from liability. And it is further contended that the taking of the note from Place, and thereby givin<4' him time, however short, was in law presumptively injnrions. Upon this state of facts the followiiiy- questions have been argued in this court: 1. Was the note given by Place in the copartnership name for the copartnership indebtedness, but given after the dissolu- tion, binding upon Smith and Owen ? 2. If Smith and Owen were not bound by the note, were they entitled to tlie rights of the sureties? And 3. Did the taking of the note given by Place discharge Smith and Owen from their former liability? On the first point it is argued in support of the judgment that when a copartnership is dissolved the ])artner who is en- trusted with the settlement of the concern should be held to have implied authority to give notes in settlement. On the other hand it is insisted that in law he has no such authority, and that if he assumes, as was done in this case, to give a note in the partnership name, it will in law be his individual note only. Whatever might be the case if the obligation which was given had been a mere acknowledgment of the amount due, in the form of a due bill or I U, we are satisfied that there is no good rea- son for recognizing in the partner who is to adjust the business of the concern any implied authority to execute such a note as was given in this case. This note was something more than a mere acknowledgment of indebtedness; and it bore interest at a large rate. It was in every respect a. new contract. The lia- bility of the parties upon their indebtedness would be increased by it if valid, and their rights might be seriously compromised by the execution of paper payable at a considerable time in the future if the partner entrusted with the adjustment of their con- cerns were authorized to make new contracts. It was assumed in F. & M. Bank v. Kercheval, 2 I\Iich. 506-519, that the law was well settled that no such implied authority existed, and we are not aware that this has before been questioned in this state. See Pennoyer v. David, 8 Mich. 407. We think it much safer to re- quire express authority when such obligations are contemplated, than to leave one party at liberty to execute at discretion new contracts of this nature, which may postpone for an indefinite SMITH V. SHELDEN ET AL. 201 period the settlement of their concerns, when a settlement is the very purpose for which he is to act at all. For a determination of the question whether Smith and Owen were entitled to the rights of sureties, it seems only necessary to point out the relative position of the several parties as regards the partnership debt. Place, by the arrangement, had agreed to pay this debt, and as between himself and Smith and Owen, he was legally bound to do so. But Smith and Owen were also liable to the creditors equally with Place, and the latter might look to all three together. Had they done so and made collections from Smith and Owen, these parties would have been entitled to demand indemnity from Place. This we believe to be a correct statement of the relative rights and obligations of all. Now a surety, as we understand it, is a person who, being liable to pay a debt or perform an obligation, is entitled, if it is enforced against him, to be indemnified by some other person, who ought himself to have made payment or performed before the surety was compelled to do so. It is immaterial in what form the relation of principal and surety is established, or whether the creditor is or is not contracted with in the two capacities, as is often the case when notes are given or bonds taken; the re- lation is fixed by the arrangement and equities between the debtors or obligors, and may be known to the creditor, or wholly unknown. If it is unknown to him, his rights are in no manner affected by it; but if he knows that one party is surety merely, it is only just to require of him that in any subsequent action he may take regarding the debt, he shall not lose sight of the surety's equities. That Smith and Owen were sureties for Place, and the latter was principal debtor after the dissolution of the copartnership, seems to us unquestionable. It was then the duty of Place to pay this debt and save them from being called upon for the amount. But if the creditors, having a right to proceed against them all, should take steps for that purpose, the duty of Place to indem- nify, and the right of Smith and Owen to demand indemnity, were clear. Every element of suretyship is here present, as much as if, in contracting an original indebtedness, the contract itself had been made to show on its face that one of the obligors was surety merely. As already stated, it is immaterial how the 202 THE CONTRACT DEFINED. fact is established, or whether the creditor is or is not a party to the arrangement which establishes it. This view of the position of the parties indicates clearly the right of Smith and Owen to the ordinary rights and equities of sureties. The cases wliich have held that retiring partners thus situated are to be treated as sureties merely, have attempted no change in the law, but are entirely in harmony with older au- thorities which have only Jipplied the like principle to different states of facts, where the relative position of the parties as re- gards the debt was precisely the same. We do not regard them as working any innovation whatever. The cases we particularly refer to are Oal23. 1878. Rappallo, J. The guaranty on wliieh lliis action is brought is contained in an assignment of a bond and mortgage, and is in the following form: "I hereby covenant * * * that in case of foreclosure and sale of the mortgaged premises described in said mortgage, if the proceeds of such sale shall be insufficient to satisfy the same, with the costs of foreclosure, I will pay the amount of such de- ficiency to the said party of the second part, or its assigns, on demand." On the part of the appellants, it is contended that this guar- anty is subject to the rules applicable to guaranties of collec- tion, and thus laches in foreclosing the mortgage, after default, is a defense. The respondents insist that it is a guaranty of payment, and that they were under no obligation to use dili- gence in endeavoring to collect the mortgage debt by foreclos- ure. The fundamental distinction between a guaranty of payment and one of collection is, that in the first case the guarantor undertakes unconditionally that the debtor will pay, and the creditor may, upon default, proceed directly against the guar- antor, without taking any steps to collect of the principal debtor, and the omission or neglect to proceed against him is not (except under special circumstances) any defense to the guarantor; while in the second case the undertaking is that if the demand cannot be collected by legal proceedings the guar- antor will pay, and consequently legal proceedings against the principal debtor, and a failure to collect of him by those means are conditions precedent to the liability of the guarantor; and to these the law, as established by numerous decisions, attaches the further condition that due diligence be exercised by the creditor in enforcing his legal remedies against the debtor. * See Sees. 883-884. Vol. 6, Cyclopedia of Law. McMURRAY ET AL. v. NOYES. 251 These rules are well settled and are not controverted, and the only question is to which class of guaranties the one now before us belongs. It is apparent upon the face of the instrument that the under- taking of the defendant was not an unconditional one that the mortgagor should pay^ or that the guarantor would pay on de- fault of the mortgagor, but only that the guarantor would pay, in case of a deficiency arising on a foreclosure and sale. The foreclosure and sale were consequently conditions precedent, and the general principle is, that wherever a condition prece- dent is to be performed for the purpose of establishing the lia- bility of a surety or guarantor, such condition must be per- formed in good faith and with due diligence. It is upon this principle that, in case of a guaranty of collection, diligence is required of the creditor. I am unable to see why this principle is not applicable to the guaranty now in controversy. The respondents claim that it is an undertaking to pay any deficiency which may arise, and is, therefore, a guaranty of payment of the mortgage debt to that extent, and to be governed by the same rules as if it had been a guaranty of payment of the whole mortgage. But the fallacy of this reasoning is that it is not an unconditional guaranty that the mortgagor will pay the mortgage debt^ or any part of it, but only that after the remedy against the land has been exhausted, and the deficiency ascertained by foreclosure and sale, the guarantor will pay such deficiency. The only differ- ence between this and an ordinary guaranty of collection is, that in the latter ease the undertaking is that after it has been ascertained by all such legal proceedings as the case admits of, that the demand cannot be collected, the guarantor will pay; while in the present case the only proceedings which the credi- tor is bound to adopt are a foreclosure of the mortgage and sale of the mortgaged lands. To that extent the condition pre- cedent exists alike in both eases, and the duty of exercising due diligence attaches, there being nothing in the instrument quali- fying or dispensing with it. The case of Goldsmith v. Brown (35 Barb. 484) is relied upon by the respondents as sustaining their position. In that case the covenant was, as construed by the court, to pay the de- 252 LIABILITY OF SURETY. ficiency upon the mortgage debt ivJienever the remedy against the lands mortgaged should have been exhausted and the de- ficiency ascertained. The decision in that case can only be sus- tained by construing the covenant as waiving diligence in fore- closing, and binding the covenanter to pay the deficiency with- out regard to the time of the foreclosure. Nothing in the cove- nant now under examination has any relation to the time of the foreclosure, or can be construed as waiving diligence required by the general niles of law in performing the condition. The delay in foreclosing in the present case was fourteen months after the mortgage debt became due. During upward of ten montlis of this time the property was a sufficient security, but afterward the buildings thereon were destroyed by fire, and the value was reduced below the amount of the mortgage debt. It cannot be questioned that this delay was sufficient to consti- tute la<;hes. In Craig v. Parkis, 40 N. Y. 181, a delay of six months in foreclosing a bond and mortgage was held to be laches which discharged a guaranty of its collection. The judgment should be reversed, and a new trial ordered, with costs to abide the event. All concur. Judgment reversed. •■\ ROBERTS v. HAWKINS 70 Mich. 566; 38 N. W. 575. 1888. Error to Superior Court of Grand Rapids. Assumpsit. Long, 'J. January 12, 1884, one Lyman D. Follett made his promissory note as foDows: "$1,000. Grand Rapids, Mich., 'January 12, 1884. One year after date, I promise to pay to the order of Helen M. Roberts one thousand dollars, with interest at eight per cent, per annum. Value received. Lyman D. Follett. 5> And defendant signed an indorsement on the back thereof, as follows: ROBERTS V. HAWKINS. 253 "For value received, I hereby guarantee the payment of the within. Value received. L. E. Hawkins." On the delivery of this note to plaintiff, she paid Follett $1,000. January 8, 1885, seven days before this note became due, Follett paid one year's interest; and neither at that time, nor at the maturity of the note, was the same presented to Fol- lett or defendant for payment. No notice of non-payment was given defendant then or at any time prior to June £, 1887, January 15, 1886, Follett paid the interest for the next year, and January 17, 1887, for the year following. About June 8, 1887, the note being then two years and five months overdue, it was first presented to defendant, and payment demanded and refused. August 13 this suit was brought. On the trial, plaintiff, having proved the note and guaranty, and its non-payment, rested. Defendant then sought to make his defense as pleaded, and offered to show — 1. That he was an accommodation guarantor, without con- sideration or security. 2. That, at or about the maturity of the note, he inquired of the maker of the note if it was paid, and was told it was. 3. That neither at the maturity of the note, nor at any sub- sequent time, prior to June 8, 1887, was any notice of the non- payment of this note given to defendant, nor any demand made on him for the payment thereof. 4. That at the maturity of this note, and for some consider- able time thereafter — at least a year — Follett, the maker of the note, was solvent, and had property out of which defendant could have procured him to pay the note or obtained security. 5. That when defendant, on June 8, 1887, learned of the non- payment of this note, the maker was insolvent, out of the juris- diction, and that he could then obtain no security or payment. The court directed a general verdict for plaintiff on all the counts of the declaration. Judgment being entered on the ver- dict in favor of plaintiff for the amount of the note and in- terest, defendant brings the case into this Court by writ of error. The declaration contains three counts. The first alleges the guaranty, demand of the maker at maturity, non-payment, and 254 LIABILITY OF SURETY. notice of said demand and non-payment to defendant at ma- turity. The second alleges the guaranty, the refusal by maker to pay at maturity, and notice to defendant, at maturity, of maker's refusal. Till' third is the common count in assumpsit, with copy of note annexed, and an alleged indorsement on back of L. E. Haw- kins, without any guaranty over it. The plea is the general issue, with notice of the defense of release by plaintiff's failure to give notice of non-pajnnent to defendant, and the consequent damage and loss to him thereby. It is claimed that the court erred in receiving the note and guaranty in evidence under the third count in plaintiff's dec- laration, for the reason that the note and guaranty ofit'ered were not the note and guaranty set forth in that count ; that the con- tract set out in plaintiff's third count was that defendant had indorsed his name in blank on the back of the note, not payable to his order ; and that this would make him a maker of the note, and liable as such, while the note offered had a guaranty of pay- ment indorsed thereon. Defendant claimed that this was a variance, and that the court should have excluded the guaranty under this third count, and confined the verdict to a recovery under the first two counts. As we view the case, however, this objection has no force. The plaintiff' being entitled to recover under the first and second counts of the declaration, the defendant was not prejudiced in the course taken by the court in not withdrawing all considera- tion of the case under the third count. The declaration w^as sufficient in the first two counts to allow a recovery thereunder. The chief error complained of is the exclusion of the entire defense, and the direction of a verdict for plaintiff'. On the trial the plaintiff proved by a witness the application for the loan, the loaning of the money, the giving of the note and guaranty, and, after reading the note and guaranty in evidence, rested. The defendant was then called and sworn as a witness in his own behalf, and was asked by his counsel : "Q. When that note became due, in January, 1885, — Janu- ary 15, — was any notice given you of the fact that it remained unpaid?" ROBERTS V. HAWKINS. 255 To this question counsel for plaintiff objected, that the same was irrelevant and immaterial; that the defendant was not an indorser nor guarantor of collection, but of payment of the note. Counsel for the defendant then offered to show by the witness that he had no notice of the non-payment of the note prior to June 8, 1887; that he was an accommodation guarantor with- out security; that, at or near the maturity of the note, he in- quired of the makerj and was informed that it was paid, that, at the time, the maker of the note was solvent, and for some con- siderable time thereafter — probably a year — and that the de- fendant could, if he had any knowledge of its non-payment, have secured himself, or procured the maker to pay it; that, when the defendant learned of the non-payment of the note, the maker was insolvent, and out of the State, and no security could have been obtained by the defendant; the counsel then saying— "That this, of course, is the line of defense marked out by the notice in the pleadings. It is all covered by my brother's argument; and, if we have no right to show that defense, then, of course, there remains nothing but for the court to direct a verdict for the amount of the note, and interest." The court sustained the objection, and directed a verdict for plaintiff. In considering the case, the defendant's offer to prove this state of facts must be taken as true. Clay, etc., Ins. Co. v. Manufacturing Co., 31 Mich. 356. Under this offer by the de- fendant, the issue is made : Is a person not being a party to a promissory note, who at its date and before delivery, and for the purpose of having a loan made upon the strength of his guar- anty, guarantees the payment of such note^ liable thereon in case the note is not paid at maturity, without notice of non- payment having been given to him by the holder at the maturity of the note, or within a reasonable time thereafter; or in case notice is not given, and no proceedings taken to collect the note from the maker, and the maker of the note, at the maturity thereof, was solvent, and subsequently, and before suit is brought on the guaranty, becomes insolvent, can such guarantor, when such action is brought against him, set up such insolvency 256 LIABILITY OF SURETY. as a defense? The defense being basod on plaintiff's ladies in not giving notice to the defendant of the non-payment of this note at maturity, and the consequent damage to defendant thereby, the correctness of the court's ruling depends on whether or not there rested on the plaintiff the duty to give such notice under any circumstances. The defendant claims that his liability existed only on the happening of a contingency and the performance of a condi- tion; that whether or not that contingency happened, or condi- tion was performed, was matter peculiarly within the knowledge of the plaintiff, and not Avithin his own; and that if plaintiff intended to assert the performance of the condition, or the happening of the contingency, whereby alone defendant was to become liable, it was her duty to do so within a reasonable time, and, in any event, before the maker of the note became insolvent and a fugitive; that her neglect to do so, and the damage to him thereby, has relcc^ed him from the obligation of his con- ditional contract. The position, however, of a guarantor of payment, a^ between him and the maker of the note, is that of a surety. It is a com- mon-law contract, and not a contract known to the law-merchant. It is an absolute promise to pay if the maker does not pay, and the right of action accrues against the guarantor at the moment the maker fails to pay. The guarantor would not be discharged by any neglect or even refusal on the part of the holder of the note to prosecute the principal, even if the maker was solvent at the maturity of the note, and subsequently became insolvent; and the fact that no notice of non-payment was given the guar- antor at the maturity of the note, or at any time before bringing suit, would not affect the rights of the holder of the note against the guarantor. The guarantor's remedy was to have paid the note, and taken it up, and himself proceeded against the maker. A guaranty is held to be a contract by which one person is bound to another for the due fulfilbnent of a promise or engage- ment of a third party. 2 Pars. Cont. 3. The contract or undertaking of a surety is a contract by one person to be answerable for the payment of some debt, or the performance of some act or duty, in case of the failure of an- other person who is himself primarily responsible for the pay- ROBERTS V. HAWKINS. 257 ment of such debt or the performance of the act or duty. 3 Add. Cont. Sec. 1111 ; 3 Kent, Comm. 121 ; Wright v. Simpson, 6 Ves. 734. In the case of Pain v. Packard, 13 Johns. 17-4 (decided in 1816), it was held that if the surety call upon the creditor to collect the debt of the principal, and he disregard that request, and thereby the surety is injured, as by the subsequent insol- vency of the principal, the surety was thereby discharged. A directly contrary decision was given by Chancellor Kent, upon argument and full consideration, the following year. King v. Baldwin, 2 Johns. Ch. 554. Two years later the last decision was reversed by the court of errors by casting vote of the pre- siding officer, a layman, and against the opinion of the ma- jority of the judges. King v. Baldwin, 17 Johns. 384. In the case of Brown v. Curtiss, 2 N. Y. 226 (decided in 1849 ) , the action was brought against the guarantor of a promis- sory note. On the trial it was admitted that there had been no demand of the maker, nor any notice of non-payment, and the note was dated April 2, 1838, and payable six months after the date. The suit was brought against the guarantor in September, 1845. The defendant offered to prove that, from the time the note fell due until the latter part of 1843, the maker was able to pay the note ; that he then failed, and was insolvent at the time of the commencement of the suit, and still remained so. This evidence was objected to, and excluded, and verdict directed for plaintiff. The court (at p. 227) says: "The undertaking of the defendant was not conditional, like that of an indorser; nor was it upon any condition whatever. It was an absolute agreement that the note should be paid by the maker at maturity. When the maker failed to pay, the de- fendant's contract was broken, and the plaintiff had a complete right of action against him. It was no part of the agreement that the plaintiff should give notice of the non-payment, nor that he should sue the maker, or use any diligence to get the money from him. * * * Proof that when the note became due, and for several years afterwards, the maker was abun- dantly able to pay, and that he had since become insolvent, would be no answer to this action. The defendant was under an abso- lute agreement to see that the maker paid the note at maturity. 258 LIABILITY OF SURETY. "If the defendant Avished to have him sued, he should liave taken up the note, and brouiiht the suit himself. Tlio plaintiff Mas under no obligation to institute legal proceedings." The weight of authority, both in this country and in England, sustains this doctrine, ami we think with much good reason. Bellows V. Lovell, 5 Pick. 310; Davis v. Huggms, 3 N. II. 231; Page V, Webster, 15 Me. 249; Dennis v. Rider, 2 McLean, 451. In Train v. Jones, 11 Vt. 446, it is said: "An absolute guaranty that the debt of a third person shall be paid, or that lie shall pay it, imposes the same obligation upon the guarantor. In either case, it is an absolute guaranty of the sum stipulated, and the creditor is not bound to use dili- gence, or to give reasonable notice of non-payment." Noyes v. Nichols, 28 Vt, 174. In Bloom v. Warder, 13 Neb. 478 (14 N. W. Rep. 39G), which was an action against the guarantors of payment of a promissory note, the court says: ' ' This is an absolute contract, for a lawful consideration, that tlu; money expressed in the note shall be paid at maturity thereof at all events, and depends in no degree upon a demand of pay- ment of the maker of the note, or any diligence on the part of the holder." Mere passiveness on the part of the holder will not release the guarantor, even if the maker of the note was solvent at its maturity, and thereafter became insolvent. Breed v. Hillhouse, 7 Conn. 528; Bank v. ITopson, 53 Conn. 454 (5 Atl. Rep. 601) ; Foster v. Tolhvson, 13 Rich. Law, 33; Machine Co. v. Jones, 61 jMo. 409; ]5arker v. Scudder, 56 Id. 276; Norton v. Eastman, 4 Greenl. 521 ; Brown v. Curtiss, 2 N. Y. 225 ; Allen v. Right- mere, 20 Johns. 365; Bank v. Sinclair, 60 N. II. 100; Gage v. Bank, 79 111. 62; Ilungerford v. O'Brien, 37 Minn. 306 (34 N. W. Rep. 161). It follows that, this being an absolute undertaking on the part of the defendant as guarantor to pay the amount of this note at maturity in the event of the default of payment by the princi- pal, the gnarantor could not demand any diligence on the part of the holder of the note to collect the same from the principal. It was his duty to perform his contract — that is, to pay the note upon default of the principal, and it is no answer for him to say TAYLOR V, WETMORE. 259 that the principal was solvent at the maturity of the note^ and that the same could then have been collected of him by the holder, and that he has since become insolvent. If he wished to protect himself against loss, he should have kept his engage- ment with the holder of the note, paid it upon default of the principal, taken up the note, and himself prosecuted the party for whose faithful performance of the contract he became liable. The court properly directed the verdict for the plaintiff; and the judgment of the court below must be afflrnicd, with costs. The other Justices concurred. Liability of Guara7itor on General and Particular Guaranty* TAYLOR ET AL. v. WETMORE ET AL. 10 Ohio 491. 1841. This is an action of assumpsit from the county of Portage. The declaration contains two special counts. In the first, it is averred that one C. D. Farrar, on November 26, 1836, being desirous of purchasing a general assortment of goods in the city of Pittsburg, for a retail country store, on a credit, and be- ing unknown to the business men of said city, applied to the defendants, Messrs. Wetmores, then doing business at Cuyahoga Falls, in Portage county, for a general letter of credit, directed to some one or more of their correspondents in the said city of Pittsburg, by means of which the said Farrar might be enabled to make his purchases; and the said defendants upon such ap- plication, made and delivered to Mr. Farrar a letter of credit, or written giiaranty, addressed to Messrs. A. D. McBride & Co., merchants in Pittsburg, in the words following: ''Cuyahoga Falls, November 26, 1836. ''Messrs, A. D. McBride & Co. "Gentlemen: Mr. C. D. Farrar has concluded to purchase a few goods; we have that confidence in Mr. Farrar, that we will * See Sees. 888-889, Vol. 6, Cyclopedia of Law. 260 LIABILITY OF SURETY. say that we will be responsible to the amount of $2,000 for goods delivered him. We are truly, "C. W. & S. D. Wetmore." And which said letter, the plaintiffs aver was t;il^« ii by Mr. Farrar, and presented to Messrs. McBride & Co. at Pittsburg, who retained it, as security for themselves and such other mer- chants in the said city, as should, at that time and on the faith of said guaranty, sell goods on credit to the said Farraj.-. It is also averred that Mr. Farrar was unable to obtain a gen- eral assortment of goods from the house of the ^Messrs. Mc- Brides, whose business was confined to that of grocers, and therefore he made application to the plaintiffs, upon the strength of the said guaranty, then in the hands of IMcBride & Co. re- ferring the plaintiffs to the house of McBride & Co. and to the said guaranty ; that the plaintiffs did in fact call upon McBride & Co., examined the letter of credit, and being satisfied with their statements in regard to the responsibility of the defend- ants, and of the guaranty, in consideration thereof, sold and delivered to Mr. Farrar, upon a credit of six months, a bill of dry goods, amounting to $760.75; of all which the defendants had due and timely notice. The plaintiffs then aver that the credit has expired, and that Farrar has omitted to pay, etc. The second count states that on November 6, 1836, etc., in con- sideration that the plaintiffs at the special instance and request of the defendants, would sell to said Farrar, on credit, all such goods as said Farrar should have occasion for and require of said plaintiff's in their trade and business of wholesale dry goods merchants, they, the defendants, undertook and promised to pay the plaintiffs therefor; this count then avers the sale and delivery of goods to the amount of $760.75, on a certain credit, agreed upon between the -parties, that the credit had expired, that Farrar had not paid, of which the defendants had notice; avers their liability, and breach in the non-payment. To this declaration the defendants filed their plea of the general issue. The testimony submitted on the part of the plaintiffs, proves: 1. The execution and delivery of this mercantile guaranty, as set forth in the first count of the declaration; and 2. That a TAYLOR V. WETMORE. 26l few days after its date, it was handed to the firm of MeBride & Company, who not being dealers in dry goods, the witness (who was a partner of the last mentioned firm), went with Mr. Farrar to the plaintiffs, and the said guaranty was shown to Mr. Taylor, one of the plaintiffs; the witness stated to Mr. Taylor, that he had sold a bill of groceries on the strength of the letter, and Mr. Taylor then said he would sell a bill of goods on the strength of the same, and Mr. Farrar accordingly obtained the goods. The clerk and salesman of the plaintiffs prove the amount of the goods sold to be $760.75, and on a credit of six months. The evidence on the part of the defendants proves that Farrar was in business at Cuyahoga Falls from December, 1836, until xVpril or May, 1837, when he transferred all his goods to the de- fendants, and closed his store. That he paid none of his debts in Pittsburg. That in September, 1837, the witness was present at a conversation between Taylor, one of the plaintiffs, and C. W. Wetmore, one of the defendants, in which the defendant asked Taylor, if he considered him responsible, either legally, morally, or honorably, for the goods Farrar had purchased of him. To which Taylor replied he did not, but that the defend- ants had more goods in their possession, received of Farrar, than they were holden to the house of McBride for; that the goods would amount to $500 or $700. To this the defendant replied he did not know liow that was; that there was also left with them, by Farrar, notes and accounts to the amount of about $200, and what they could not make up out of them, must be made up out of the goods ; and if there was any balance, so far as he was concerned, that should go to the plaintiffs. Richard, for the plaintiffs. Wood, J. Under the averments in the declaration, and the testimony submitted^ are the plaintiffs entitled to judgment? — and I may here remark, in the outset, in this case, that I know of no arbitrary rule applicable to actions founded upon mercantile guaranties, which creates obligations between the parties to which they have neither expressly nor impliedly assented. In all actions founded in contract, the agreement as set forth must be proved, or the circumstances existing between the parties must be such as to leave it clearly to be inferred. In enforcing 262 LIABILITY OF SURETY. them, courts of justice, though they may sometimes be confined by technical rules, always endeavor to ascertain the understand- ings and intentions of the parties, and these are considered as the essence of their agreements in carrying them into execu- tion. Mercantile guaranties are either general or special ; though a single letter of credit may bear upon its face both of these distinctions. It may be general, as to the whole world, to whom the bearer may be accredited, and to any portion of whom, at his own option, he may make the guarantor a debtor, and special, as to the amount of the credit; or unlimited or general in the amount, and special as to the parties. The first inquiry which arises here, is, wdiether the guaranty in ({uestion is not special as to persons. It is directed to the house of McBride & Co., in the city of Pittsburg, and nothing upon its face evincing an intention to give Farrar credit, or to incur responsibility with any other house. The counsel for the plaintiff here admit, that a surety can not be held beyond the terms of his engagement, but they insist that although it is addressed only to McBride & Co. as it does not say "we will be responsible to you,^^ it is a letter of credit to any other, who will advance the goods. It seems to us, this reasoning is more ingenious than sound. The guaranty being addressed to A. D. McBride & Co., it is to them the defendants speak when they say, "ive will he responsible to the amount of $2,000," and it contains no general terms, by which either Farrar, or the house of McBride, had the authority to transfer it to the plain- tiffs, and they to make the defendants their guarantors, without their assent, express or implied. Judgment for the defendants. MORRISON ET AL. v. ARONS ET AL. 65 Minn. 321; 68 N. W. 33. 1896. Action in the district court for Ramsey county. The case was tried before Kelly, J., w^ho ordered judgment against de- fendant Arons for $801.43, and against defendants Williams MORRISON V. ARONS. 263 and Hall for ^559.50, with interest. From an order denying a motion for a new trial defendants Williams and llall appealed. Reversed. CoLLJNS, J. I'laintifts entered into biusinoss as co-partners, and employed defendant Arons as general manager, salesman, and collector. According to the written contract, the employ- ment was to continue as long as mutually agreeable. Arons was to receive as compensation for his services a mm equal to one- half the net profits of the business, and these profits were to be ascertained as follows: "During the existence of the employment of said party of the second part, once each month, commencing with December 1, 1892, a just and true inventory of the assets and liabilities of said firm shall be taken, and all accounts which arc considered bad shall be charged to profit and loss, and from the residue of the accounts due said firm shall be deducted five per cent, of the aggregate amount thereof as a reserve to cover bad debts,' and the excess of the assets over the liabilities and the capital stock of said firm shall be determined and agreed upon as the net profits of said business, and a sum equal to one-half of such excess shall then and there be credited to said party of the second part as and for his compensation, and be considered an expense of said business. That when the relation between said firm and said party of the second part is extingiiished, then the actual amount of profit or loss, as the case may be, of the business of said firm, shall be determined, and, if there has been a net profit, a sum equal to one-half thereof shall be allowed said party of the second part, and any errors in estimating the net profits at the previous stated periods shall then and there be rectified, and, if said party of the second part shall have withdrawn more money from said firm that he is entitled to, he shall then and there forthwith- repay the same ; and, if there is any amount due him on account of his compensation, it shall then and there fortlnvith be paid him." Arons, as principal, and defendants Williams and Hall, as sureties, entered into a bond, in which plaintiffs w^ere obligees, which, after reciting that Arons was about to enter plaintiffs' employ as general manager, salesman, and collector, provided, and was conditioned, that : "If the said Charles T. Arons shall faithfully and honestly perform all the duties of his said employment, and shall keep 264 LIABILITY OF SURETY. just and true accounts of all moneys received and expended and all propt^rty boui^ht and sold for or on account of said firm by him or under his direction, and shall faithfully and fully, and as often as required, account for and pay over to said firm any and all moneys belonging thereto collected or received by him, or which in any manner ci.me into his hands in the course of his employment by said firm ; and shall forthwith and on de- maud repay to said firm any and all moneys he shall have with- draAvn thci'efrom for his own use in excess of the compensation due him for his services under the tenns of his agreement with said fii'm in that behalf (wht^her such moneys shall have been so withdrawn with the consent of said firm or otherwise), as often as it shall be determined that such overdraft has been made, then the above obligation to be void ; otherwise to remain in full force and virtue." This action was brought to recover an amount of money said to be due on the bond, and trial was by the court. No evidence was introduced tending to show any other settlement or account- ing than that had when Arons' terra of employment ended. In fact plaintiffs admitted that they never ascertained, and could not, at the time of the trial, ascertain, what the respective monthly profits of the business had been. At the conclusion of the plaintiff's case and again at the conclusion of the entire case, the defendant sureties moved the court to dismiss the same as to them upon the ground that, as it affirmatively appeared from t]i!> evidence and admissions that no monthly settlements or accounting had been had as provided for in the contract of employment, the sureties upon the bond had been released from liability. These motions were denied, and the court made its findings of fact and conclusions of law ordering judgment in plaintiffs' favor. The court found the allegation in the complaint that no settle- ment or accounting -was had between the parties until after Arons' employment ceased, to be true. We agree with the court below in its construction of the contract, but we cannot concur in its holding that the sureties were not discharged by the fail- ure and omission to have monthly accountings and settlements between Arons and plaintiffs. The former was to have advanced to him $100 each month for personal expenses and on account of his compensation under an agreement that, if this amount, with oth(n- sums of money which came into his possession, ex- AETNA INS. CO. v. FOWLER. 265 eeeded one-half of the net profits of the business, the excess should be promptly refunded. What the profits were, and the sum due to plaintiffs, if anything, were to be provisionally ascer- tained each month; and, had this been done, it is quite certain that the plaintiffs would have discovered before the expiration of 13 months that the business was not profitable, while Arons would have learned that he was far from earning- a living out of it. The natural result would have been for both parties to terminate their contract relation, and avoid further loss. It is evident that there would be much less hesitation on the part of a person called upon to become a surety upon a bond given for the faithful performance of a contract with such conditions than if the real situation was not to be ascertained for months. The condition in the employment contract whereby monthly ac- countings and settlements were agreed upon was an exceedingly beneficial one for all concerned. It was an essential feature of the contract whereby Arons agreed to conduct plaintiffs' business enterprise for an indefinite period of time, his compen- sation to be determined by the net profits. The contract of suretyship was departed from and varied when this provision was wholly disregarded, and the case Is brought directly within the rule that, if an essential condition of such a contract is not complied with, a surety is not bound. A new trial must be had. Order reversed. AETNA INS. CO. v. FOWLER ET AL. 108 Mich. 557, 66 N. W. 470. 1898. Error to Saginaw; Wilber, J. Submitted January 15, 1896. Decided March 11, 1896. Assumpsit by the Aetna Insurance Company against Charles G. Fowler, Chester Brown, and Gustavus H. Fuerbringer upon an indemnity bond. From a judgment for plaintiff on verdict directed by the court, defendants Brown and Fuerbringer bring error. Reversed. Montgomery, J. Action on the bond of an insurance agent. 266 LIABILITY OF SURETY. Defendant Fowler was employed as the agent of the company at Saginaw, ajid in December, 1883, executed a bond, with his co- defendants as sureties, the conditions being as follows : "The condition of this obligation is such that whereas the above-named Charles G. Fowler has been appointed agent of the Aetna Insurance Company in Saginaw, Saginaw county, State of ^Michigan, who will receive as such agent sums of money for premiums, payments of losses, salvages, collections, or otherwise, for goods, chattels, or other property of the said insurance company, and is to keep true and correct accounts of the same, pay over such money correctly, and make regular reports of the business transacted by him, to the said Aetna Insurance Com- pany, and in every way faithfully perform the duties as agent, in compliance with the instructions of the company through its proper officore, and at the end of the agency, by any cause whatever, shall deliver up to the authorized agent of said com- pany all its money, books, and property due from or in pos- session. Now, then, if the aforesaid agent shall faithfully per- form all and singular the duties of the agent of the Aetna In- surance Company, then this obligation shall be null and void." The instruction to agents were to send statements of all busi- ness transacted during the previous month as early as the 12th of each month. The testimony shows that for three months prior to September 1, 1893, the defendant Fowler failed to send remit- tances, and it was shown that it was not the custom of the com- pany to insist upon absolute promptness in remittance, but that after three months' delay it was the custom of the company to discharge the delinquent agent. The testimony further shows that in the latter part of July or the first of August, 1893, the special agent of the company, a Mr. Neal, visited Saginaw, and, as he described it, found the agency in a "roclcy condition;" and, while counsel were disagreed as to the effect of his testi- mony, we think it is at least open to the construction that he then learned that Fowler had misai)propriated the funds of the company, and invested them in realty. The circuit judge directed a verdict for the plaintiff. The recovery included a shortage in accounts before August 1st, and a shortage of $344.16 arising from the August business. Two contentions are made: First, that it was the duty of the company to notify the sureties of any delay in the remittance, AETNA INS. CO. v. FOWLER. 267 at once, and that the continuance of the agent after failure to remit in accordance with the instructions of the company to agents released the sureties as to future transactions ; and, second, that the company, on the discovery of the misappropriation of funds, August 1st, was bound to discharge the agent^ or, at least, the sureties were not bound to respond for his future defalca- tions, unless, after being informed of his previous acts of dis- honesty, they consented to his retention. We think that the court below correctly ruled that the mere fact that the company had knowledge that the agent had failed to remit did not impose upon it the duty to notify the sureties or discharge the agent. Watertown Fire Ins. Co. v. Simmons, 131 Mass. 85 (41 Am. Rep. 196); Atlantic, etc., Tel. Co. v. Barnes, 64 N. Y. 385 (21 Am. Rep. 621). The duty which the company owed to the sureties was not a duty of active vigilance, to ascertain whether the agent had been guilty of fraud (the sureties' undertaking was a guaranty of his fidelity), but what was due from the employer was good faith to the sureties. Just as it would have been a fraud to withhold knowledge of previous dishonesty of the agent presumably not known to the sureties, but possessed by the company, so it would be a breach of good faith for the company to continue the agent in a place of trust after discovering his dishonesty or defalcation, which is pre- sumptively and in fact unknown to the sureties, and without notifying the sureties of the facts, and giving them an oppor- tunity to elect as to whether they will continue the risk. This is the doctrine of the leading case of Phillips v. Foxall, L. R. 7 Q. B. 666. The cases of Watertown Fire Ins. Co. v. Sinunons and Atlantic, etc., Tel. Co. v. Barnes are not inconsistent with this. The substance of the holding in each of these cases is that the mere failure of remittance does not necessarily amount to notice of dishonesty on his part, and that applies to the present case as regards the charges occurring before August. There is no evidence that prior to August the company had actual notice that Fowler had converted any of the funds to his own use, or was more than negligent in remitting or collecting the premi- ums; but as to the transactions in August the case is different. Under section 9191, 2 How. Stat., it is made an offense for an insurance agent to receive and invest money of the company 263 LIABILITY OF SURETY. without its assent; and, as we before stated, we think there was testimony tending to show notice to the company about the 1st of Aug-ust that Fowk'r had invested the funds of the company in realty. If tlie company, through its special agent, then knew this fact, it cannot be said not to have notice of the dishonesty of the agent ; and, if it had such notice, it was the duty of the comi)any not to kmger trust its funds with the agent until the sureties had consented, with knowledge of the facts, to be held responsible for the acts of a dishonest agent. See, further, 2 Brandt, Sur. § 423 ; Connecticut Mut. Life Ins. Co. v. Scott, 81 Ky. 540. Judgment reversed, and a new trial ordered. The other Justices concurred. Liability of Surety when Principal Discharged or not Origin- ally Bound* RUSSELL V. ANNABLE. 109 Mass. 72. 1871. Contract, brought August 3, 1870, against one of the sure- ties in the following bond given under the Gen. Sts. c. 123, § 104, to dissolve an attachment: "Know all men by these presents, that Erastus Dennett and Chas. R. Pottle, of Boston in the county of Suffolk, as principal, and George M. Stevens, of Cambridge, and John F. Annable, of Somerville, in the county of ^Middlesex, a.s surety, are holden and stand firmly bound and obliged unto Arthur W. Russell, of Cambridge in said ]\Iiddlesex, in the full and just sum of two hundred dollars, to be paid unto the said Russell, his executors, administrators or assigns, to which pajinent, well and truly to be made, we bind ourselves, our heirs, executors and adminis- trators, .jointly and severally, firmly by these presents, sealed with our .seals, dated the twenty-second day of July in the year of owv Lord one tbousand eight hundred and sixty-nine. The condition of this obligation is such, that, whereas the said Russell has caused the goods and estate of said Dennett & Pottle, to the • See Sec. 894, Vol. 6, Cyclopedia of Law. RUSSELL V. ANNABLE. 269 value of two hundred dollars, to be attached on mense process in a civil action, by virtue of a writ bearing date the 21st day of July, A. 1). 1869, and returnable to the superior court for civil business to be holden at said Boston within and for the county of Suffolk on the first Tuesday of October next, in which said writ the said Arthur W. Russell is plaintiff, and the said Erastus Dennett and Charles R. Pottle the defendants, and whereas the said defendants wish to dissolve the said attachment according to the provisions of the General Statutes in such cases made and provided; Now, therefore, if the above bounden Dennett and Pottle shall pa}' to the plaintiff' in said action the amount, if any, which he shall recover therein, within thirty days after the final judgment in said action, then the above written obligation shall be null and void, otherwise to remain in full force and virtue. "Dennett & Pottle, [seal] "George M. Stevens, [seal] "John F. Annable, [seal]" "Signed, sealed and delivered in presence of "Edward Raymond." The declaration alleged that the plaintiff at said October term 1869 of the superior court duly entered the action named in the bond, and such proceedings were had therein that he obtained judgment against said Dennett & Pottle at April term 1870 for $110 damages and $21.49 costs, and no part of said judgment had been paid, though the defendant had often been requested to pay the same, and the defendant owed him the amount of said judgment and the costs subsequently accrued thereon. The an- swer denied each and every allegation of the plaintiff. Trial in the superior court before Scudder, J., who by con- sent of the parties reported the following case before verdict: "This was an action on a bond, of which a copy is annexed. It appeared that Erastus Dennett and Charles R. Pottle were co- partnerSj under the firm name of Dennett & Pottle, and that the execution of the bond, as to the principal, was by one of them. It was contended by the defendant that the bond was void upon its face ; also that there was no legal execution of it by the prin- cipals, and therefore it was void as to the defendant. If these objections are valid, then judgment is to be for the defendant ; if invalid, then judg-ment for the plaintiff, $138.83, with interest from June 24, 1870, being the date of original judgment and 270 LIABILITY OF SURETY. costs. The officer's retm-ii on the original writ and judgment may be referred to. The execution of the bond by the defend- ant was admitted." The return of the officer thus referred to, certified that the property attached bj' him for dissolution of which attachment the bond was given, was property of Dennett & Pottle, and that he took the bond "of said Dennett & Pottle, with George M. Stevens and John F. Aunable as sureties." Ames, J. It is well settled that one partner cannot bind his associates by affixing his signature, in the name and style of the linn, to an instrument under seal. To make such a transaction binding it must appear that there was either a previous author- ity, or a subsecpient ratification on the part of the other part- ners, adopting the signature as binding upon them. Cady v. Shepard, 11 Pick. 400; Van Deuson v. Blum, 18 Pick. 229; Swan V. Stedman, 4 Met. 548; Dillon v. Brown, 11 Gray, 179. The report in this case presents no evidence of any previous authority or subsequent ratification, and it follows that the bond is not so executed as to bind the members of the firm. The bond purports to be the joint and several contract of cer- tain persons named therein as principals, and the defendant and George M. Stevens as sureties. The defendant's undertaking is only that the principal obligors shall fulfill the obligation which by the terms of the bond they have assumed. But if the bond was not binding upon both Dennett and Pottle, (as it was not, for want of due and proper execution of the instrument on their part,) they assumed no obligation, and it was not binding upon the sureties. It was essential to the bond that the principals should be parties to it; it is recited that they are so, and the instrument is incomplete and void without their signature. The remedy of sureties against their principals might be greatly em- barrassed, if such an instrument as this should be held binding. There is nothing to estop any member of the firm, who did not sign it, from denying that he was a party to it, and it was no part of the defendant's contract that he should be surety for one member of the fu-m, and not for both. The instrument is incom- plete without the signature of each partner, or proof that the sig- nature affixed had the assent and sanction of each of them. The sureties on a bond are not holden, if the instrument is not ex- ecuted by the person whose name is stated as the principal SAWYER V. BROWNELL. 271 therein. It should be executed by all the intended parties. Bean v. Parker, 17 Mass. 591 ; Wood v. Washburn, 2 Pick. 24. The instrument, being found incapable of taking effect as a specialty, cannot operate as a simple contract. Cases have in- deed arisen, in which a bond, duly executed, expressing a con- tract which the parties had a right to make, has been held to be valid at common law, although not made with the formalities, or executed in the mode, provided by a statute under which it purports to have been given. See Sweetser v. Hay, 2 Gray, 49, and cases there cited. But we find no case in which it has been held that a written instrument, purporting to be a specialty, and plainly intended by the parties to have all the incidents and characteristics of a bond in the strict and technical sense of that word, has ever been transmuted by the court into a simple contract, for the reason that it has not been properly executed to take effect as a contract under seal. It is therefore held by a majority of the court, that there should be judgment for the defendant. Necessity for Demand on Principal and Notice of Default to Guarantor* DAVIS ET AL. v. WELLS, FARGO & CO. 104 V. S. 164. (Given in Chapter I, Ante.) Liability of Blank Indorsers and Accommodation Parties to Commercial Paper.f SAWYER V. BROWNELL. 13 B. I. 141. 1880. DuRPEE, C. J. This is assumpsit on a promissory note signed by D. L. Brownell, payable on demand, with interest at seven * See Sec. 859, Vol. 6, Cyclopedia of Law. t See Sec. 896, Vol. 6, Cyclopedia of Law. 272 LIABILITY OF SURETY. per cent, per annum, to the order of Stephen Brownell, in- dorsed by Stephen Bro\vnell, and subsequently indorsed under Stephen Brownell's name by Seba Carpenter. The action is against the two Brownells and Carpenter jointly under the statute : Pub. Laws R. I., cap. 563, § 2 of April 20, 1876. The two Brownells make no defense; Carpenter defends on the ground that he did not receive timely notice of the dishonor of the note to charge him as indorser. It appears that the note was indorsed by both Stephen Brownell and Seba Carpenter for the accommodation of D. L. Brownell, to enable D. L. Brownell to borrow money on it from the plaintiff, and that D. L. Brownell used it for that purpose. The plaintiff introduced testimony against objection for the purpose of showing that Carpenter had no particular design in indorsing his name under that of Stephen Brownell, and that he would as readily have indorsed above him, his only purpose being to give credit to the paper for the benefit of D. L. Brownell. The object was to bring the case within the rule laid down in Mathewson v. Sprague, 1 R. I. 8, and reaffirmed in several later cases, for which see Car- penter V. McLaughlin, 12 R. I. 270, that one who indorses a note payable to another before its issue is liable to the payee as a joint maker, and is therefore not entitled to notice. We need not de- cide whether the testimony is admissible, for, admitting it, we do not think it shows that Carpenter did not designedly indorse his name under that of Stephen Brownell with intent to become a second accommodation indorser, and to secure to himself the privileges of such an indorser. The form of the contract must at least prima facie determine its construction. The case, there- fore, does not fall under Mathewson v. Sprague, for in that case, as in the cases which reaffirm it, the note issued directly to the payee and had the name on the back when it issued to him, so that there was no ground for any claim on the part of the person who signed it on the back that he so signed it only as an accom- modation indorser. The case presents simply the question whether an accommodation indorser on a note like that in suit is entitled to the usual notice of dishonor. That an accom- modation indorser is ordinarily entitled to such notice is, we suppose, beyond question, and if in the case at bar there is any doubt it is because the note is payable on demand witK SPURGEOX V. SMITHA. 273 interest instead of being an ordinary time note. We thinl?, however, the precedents show that this is not a circumstance which varies the right of the indoreer: Smith v. Becket, 13 East, 187; Rice v. Wesson, 11 Met. 400; Lockwood v. Crawford, 18 Conn. 361 ; Perry v. Green, 19 N. J. Law, 61 ; Lord v. Chad- bourne, 8 Me. 198 ; Daniel on Negotiable Instruments, § 707 ; 1 Parsons on Notes and Bills, 555 et seq. See, also, on the sub- ject generally, Howe v. Merrill, 5 Cush. 80; Vore v. Ilurst, 13 Ind. 551; Bigelow v. Coltou, 13 Gray, 309; Clapp ct al. v. Rice et al, 13 Gray, 403; Dubois v. Mason, 127 Mass. 37; Good v. Martin, 5 Otto, 90. We must, therefore, give the defendant Carpenter, inasmuch as there is no claim that he had the usual notice, judgment for his costs. Ways in Which Surety or Guarantor May be Discharged* SPURGEON V. SMITHA ET AL. 114 Ind. 453. 1887. Elliott, J. The appellant's complaint is founded on a prom- issory note executed by the appellees. The second paragraph of the answer of the appellees avers that they executed the note as the sureties of William R. Smitha ; that the appellant knew the capacity in which they executed the note ; that their principal paid him $240 ; that the appellant thereupon reloaned the remain- der of the sum due him to William R. Smitha, without the know- ledge or consent of the appellees. The second paragraph of the answer avers the fact of surety- ship and the appellant's knowledge, and also avers that after the note matured the principal tendered to the appellant the amount of the note ; that he accepted $240 in part payment of the note, and agreed with William R. Smitha that he should retain the remainder, paying interest thereon for one year. The third paragraph of the answer is substantially the same as the second. * See Sees. 897-904, Vol. 6, Cyclopedia of Law. 274 LIABILITY OF SURETY. The fourth paracrraph is a plea of pajonent. The contract made by the creditor and the principal, wherein the former, after accepting part payment of the debt, reloaned the latter the remainder of the money due, released the sureties. Sureties, as is well knoMH, have a right to stand upon the letter of their contract, and if a creditor assumes to change the contract he releases them from liability. According to the averments of the first paragraph of the answer, the creditor, knowing that the appellees were sureties, made a radical change in the contract by reloaning part of the money due him to the principal, and he has lost all claim upon the sureties. The averment that the money was reloaned to the principal debtor for one year is the averment of a fact, and not of a mere conclusion: Taylor v. Lohman, 74 Ind. 418 (422). The word "re- loan" describes a fact — the act of lending money a second time, or oftener. The evidence required to establish the fact is a very different thing from the fact itself, and not only need not be pleaded, but cannot be pleaded without a violation of the rules of pleading. The act of the creditor, in refusing the money tendered him by the principal debtor, released the sureties. The sureties had a right to rely upon the performance of the contract by the principal and upon the acceptance of performance by the cred- itor-. This much was implied in their contract, and as the creditor declined to accept performance when tendered him, he departed from the contract, and released the sureties: Post v. Losey, 111 Ind. 75 (60 Am. R. 677). A creditor impliedly undertakes that the debt may be paid at maturity, and if he refuses to accept the money due, when tendered him, he breaks this implied undertak- ing, and loses his claim upon the sureties, for the act is injurious to them. A creditor who does any act inconsistent with the terms of the contract, or prejudicial to the interests of sureties, releases them from liability: 1 Story Eq. Jus., §§324, 325. The refusal to accept the money tendered was, it is very clear, inconsistent with the terms of the contract, for the terms of the contract made it the duty of the creditor to accept payment when tendered him. Tt was also an act prejudicial to the interests of the sure- ties, for, if the creditor had accepted payment, they would have SPURGEON V. SMITHA. 275 been effectually discharged. The authorities fully sustain our conclusion, although the reasoning upon which some of the Courts proceed is somcAvhat different from that pursued by us ; their reasoning having for its basis the theory that the refusal of the creditor to receive the money when tendered is a fraud upon the sureties : Sears v. Van Dusen, 25 Mich. 351 ; Donley v. Camp, 22 Ala. 659 ; AATiite v. Life Association, 63 Ala. 419 (35 Am. Eep. 45) ; McQuesten v. Noyes, 6 N. H. 19 ; Sailly v. Elmore, 2 Paige, 497 ; Joslyn v. Eastman, 46 Vt. 358 ; Johnson v. Ivey, 4 Cold. 608 ; Hayes v. Josephi, 26 Cal. 535 ; Curiae v. Packard, 29 Cal. 194 ; Brandt Suretyship and Guaranty, § 295 ; Baylies Sureties and Guarantors, 273 ; Fell Law of Guaranty and Surety- ship, 520. The case of Clark v. Sickler, 64 N. Y. 231, is not supported by authority, and, as Mr. Brandt shows, is not sound on prin- ciple. In an early case in our own reports, a doctrine very different from that asserted in Clark v. Sickler, supra, was de- clared. In the case decided by this Court, that of Musgrave v. Glas- gow, 3 Ind. 31, the Court said: "If Musgrave had actually placed the money in the hands of Glasgow for the pa.^onent of the notes, and afterward received it back from him as a new loan, under the circumstances detailed, it cannot be doubted that this would have been a payment, and Bond would have been discharged. And if the parties intended to waive the formality of passing the money from one to the other and back again, but really to consider the transaction as a pajment and new loan, we do not see any good reason why it might not be so re- garded by the jury." It seems clear to us that where the creditor declines to re- ceive the money offered him he elects to change the contract, for it is as much part of the contract that he should accept the money when tendered as that the debtor should pay it. Having elected to depart from the contract, he really made a new one, binding only the party consenting to it, and that was the prin- cipal debtor. In the case of Wilson v. McVey, 83 Ind. 108, cited by the appellant, this Court referred to Mr. Brandt's work and ap- 276 LIABILITY OF SURETY. proved the rule as stated by him, but held that the case was not within the rule. The Court gave the jury this instruction : "It is a well-set- tled rule of law that sureties are not to be held beyond the precise terms of their contract ; they have a right to stand upon the very terms of their contract, and if they do not assent to any variation of it, and a variation is made, it is fatal." There was no error in giving this instruction, for it states the law correctly, and was applicable to the evidence. The evidence fairly supports the verdict, for it supplies ample grounds for the inference that the money was offered to the appellant by the principal debtor, and that the offer was declined, except as to part of the debt, and the debtor requested to keep the remainder. One of the witnesses says that the appellant ad- mitted that the principal debtor "had a big roll of money in his sleeve, and pulled it out and offered to pay the balance." Another witness testified that the appellant said to him that "William R. Smitha had paid him $200 and interest, and told him that he had the rest of the money, and he," the appellant, "said I would rather he would keep the money and pay interest. He, Spurgeon, said it was not a good tender when he took out the money and offered it to him." It was said by another witness "that Spurgeon told William R. Smitha that he did not want all the money ; he wanted to keep it at interest ; that he, ' ' William, "offered him the money, but he said he did not want it, that he would rather have the interest." It is true that the evidence does not show a strict tender, but it does show a waiver of a formal tender. The money was present and was offered the appellant, and it was by his own affirmative act that a formal tender was prevented. If there had been no production of the money, and nothing more than a bare offer to pay the debt, it may be that the offer would not discharge the sureties; but here the offer was accompanied by the pro- duction of the money, and there was both the willingness and the ability to make immediate payment. We do not hold that a mere offer to pay will discharge the sureties ; but we do hold that where the money is actually pro- duced and an unconditional offer made to pay it at once to the creditor, and he refuses to accept it, and asks the debtor DEERING V. MOORE. 277 to retain it, the sureties are discharged. Where the money is actually produced, and the creditor does not object to the tender but requests the debtor to retain the money, he cannot subse- quently insist that the tender was insufficient. The act of the creditor makes the offer of the money produced by the debtor a sufficient tender, for he so characterizes it by his act. Judgment affirmed. DEERING V. MOORE. 86 Me. 181; 29 Atl. 988. 1893. Haskell, J. Debt by an obligee against a surety upon two bonds, given by a collector of taxes for the years 1884 and 1885, respectively. The last bond was not signed by the principal. Each surety bound himself severally, and not jointly, in the sum of $5,000. The obligee received from two sureties a sum of money, ' ' in full discharge from liability upon each bond. ' ' Two questions are presented: I. Did the failure of the principal to sign the last bond render it void ? We think not. The bond was conditioned that the prin- cipal should faithfully perform official duty. This he was bound by law to do, just as effectually as if he had covenanted to do it by signing the bond. The engagement of the surety, therefore, rested upon the legal obligation of the principal already incurred. It is not like the cases, often referred to, where no obligation attaches to the prinicpal, outside of the bond itself. In those cases, the principal not being bound, it would be unjust to hold the surety. Nor is it like the case of bail, where the sureties have peculiar rights flowing from the stipulation agreed to by the prin- cipal. The bond must be held good at common law. Howard v. Brown, 21 Maine, 385 ; Scarborough v. Parker, 53 Maine, 252 ; Goodyear Co. v. Bacon, 148 Mass. 542. II. Did the discharge of two sureties release the defendant, another surety? No. The defendant was one of six sureties, who bound themselves severally and not jointly, each in the sum of $5,000. Their relations to each other are precisely the same as if each one had executed a separate bond. They are neither 278 LIABILITY OF SURETY. necessarily joint debtors, nor joint sureties. Had the principal executed the bond, he would have bound himself in the sum of $30,000. The sureties, instead of standing in jointly for that amount, divided it equally among them, and each one became severally bound for his aliquot share. They are sureties for the principal, and may or may not be called upon to bear a common burden, as circumstances may require. If they are (that is, if the whole liability be less than the aggregate amount assumed by all of them, it becomes a common burden, not by reason of any contract or engagement to indemnify each other, but on the principle of equity, that a common burden shall be equally borne by all), they become co-sureties, and stand in relation to each other as joint debtors, and are bound to contribute to each other, so that they shall all fare alike. In cases of this sort, of course, none can be charged beyond the amount that he has stip- ulated for. Warner v. Morrison, 3 Allen, 567. It follows, there- fore, that the release of one would work the release of all. That is based upon the presumption of payment, the seal being con- clusive evidence of complete and ample consideration. To work the discharge of a debtor, the agreement must be made upon sufficient consideration, and that pays the debt. At common law, the part payment of a debt is not sufficient consideration for its discharge. Bailey v. Day, 26 Maine, 88; Potter v. Green, 6 Allen, 442. If the discharge be by a sealed instrument, it is of no consequence what the actual consideration may be, for the seal is conclusive evidence of sufficient consideration. By the statute of this State, passed in 1851, e. 213, R. S., c. 82, § 45, the settlement of a demand upon the receipt of money or other valuable consideration, however small, will bar an action upon it. It should be observed that the demand must be settled, in order to effectuate that result. The discharge of a debtor from liability upon a demand that is to remain outstanding will not so operate. This distinction applies where one of two joint debtors is discharged upon the consideration of part payment, leaving the demand outstanding against the other. Such dis- charge will not bar an action against both ; nor can it be pleaded by the other in an action against him, if the liability be several. Bank v. iMarshall, 73 Maine, 79 ; Drinkwater v. Jordan, 46 Maine, 432 ; McAllester v. Sprague, 34 Maine, 296. DODD V. WINN. 279 In the case at bar, the attempted discharge of some of the sureties is not pretended to have been by a sealed instrument. Plad it been, it woukl have worked a discharge of all the sureties, for they stand in the relation to each other of joint debtors, being co-sureties for the payment of the same debt. Nor does it pre- tend to have discharged the whole debt, as provided for by statute. It simply presumes to discharge some sureties from a liability or debt that was to remain outstanding, and, therefore, not being upon sufficient consideration that would have paid the debt, or so much of it as they had engaged to pay by their covenant, nor evidenced by a sealed instrument, it was ineffectual to discharge any one. The result is, damages upon the last bond should be assessed in a sum equal to the existing default of the principal, with inter- est from the time it accrued, leaving the defendant to such claims for contribution as shall prove just. Defendant defaulted. Damages to be assessed below. DODD V. WINN. 27 Mo. 501. 1858. This was an action in favor of Levi Dodd against Isham O. Winn on a promissory note executed by David C. Glascock, M. McDonald, R. F. Richmond, Minor J. Winn, James G. Caldwell and said Isham 0. Winn. The jury found the following special verdict: "We, the jury, find a special verdict as follows: On the 6th day of April, 1849, the plaintiff Dodd sued Minor J. Winn, on the same note now sued on, before the recorder of the city of Hannibal, the said Minor being one of the obligors in the note. Said Dodd recovered a judgment before said recorder against said Minor on the 6th day of April, 1850 ; and an execution was issued by said recorder on said judgment on the 11th day of April, 1850, and placed in the hands of the marshal of said city, and by him levied on a house in said city as the property of Minor J. Winn ; that said marshal advertised said house for sale under said execution, but did not sell the house, being ordered 280 LIABILITY OF SURETY. by the plaintiff's counsel to tear down the advertisements and return the execution "no property found;" which he did; and no execution has since issued on said judgment by the recorder. The jury further find as follows, that when the marshal levied on the house as aforesaid, a part of said house was owned by said Minor J. Winn, which part so owned by him was worth the sum of $187.50. Said house was standing on a piece of ground owned by Jeremiah Strode, who had leased it to said Minor J. Winn, with the privilege of taking off when he pleased any house he might erect thereon. ]\Iinor J. Winn had built the house in ([uestion on said lot, but had sold a part of it before the exe- cution was levied as before stated. The jury further find that David 0. Glascock Avas the principal in the note sued on, and that Minor J. Winn and Isham 0. Winn were each securities for said Glascock. ' ' The Court rendered judgment on this verdict in favor of plaintiff for eighty dollars debt (four-fifths of the amount of the original note sued on), and assessed the damages for the deten- tion thereof at seventy-six dollars. Richardson, Judge, delivered the opinion of the Court. The law is well settled that a valid agreement between the creditor and the principal debtor to extend the time of payment, or any improper interference by the creditor with the process of law after the commencement of a suit, by which the surety may be injured or subjected to greater risk, or be delayed in the right on payment of the debt to proceed against the principal, if made or done without the assent of the surety, will discharge him from his liability (24 Mo. 333; 26 Mo. 243) ; and the rela- tion of principal and surety or of co-sureties is not extinguished by judgment. Rice v. IMorton, 19 Mo. 263. A release of the prin- cipal will discharge the surety, but one surety may be discharged, without prejudice to an action against the others, to the extent that they would be liable in a suit for contribution between them- selves. Ronton v. Lacy, 17 Mo. 399. The creditor can not, by discharging one, increase the liability of the other; and he will not be allowed, by discharging one, to impose on the other a greater proportion of a common burden than in equity he ought to bear. At law, if there are several sureties and one is insolvent and another pays the whole debt, he can only recover against the DODD V. WINN. 281 solvent sureties their pro rata part as if all of them were solvent; but the rule in equity is more just and reasonable, and the in- solvent's share is apportioned among those who are solvent. 1 Story Eq. § 498. The eighth section of our statute concerning securities provides that one surety at the suit of another shall not be liable to pay more than his due proportion of the original demand, but what is his due proportion will vary according to the circumstances. Thus, if there are three sureties, and all of them are solvent, and one pays the debt, each of the others will be liable to him for one-third of the amount only ; but if one of them is insolvent, the other will be liable for one-half. In this case it seems that Glascock was the principal debtor, and that the other five parties to the note were sureties. Now if all the sureties were solvent, and the defendant paid the debt, he could only require M. J. Winn to contribute one-fifth part of it, and therefore could only ask to have one-fifth abated, and could only complain of the conduct of the plaintiff in releasing the levy of the execution to that extent. But if the other sureties are in- solvent, M. J. Winn would be bound to contribute to the defend- ant one-half instead of one-fifth of the debt ; in which case, if the plaintiff had released M. J. Winn, he could only demand of the defendant the other moiety; and, on principle, the same result must follow if he could have made half the debt but for his im- proper interference with the execution. These questions can not be determined from the meagre statement of facts in the special verdict. It does not appear whether the other sureties were solvent or not. The statute authorizes this court to remand a cause when the facts in a special verdict are insufficiently found (2 R. C. 1855, p. 1301, § 35) ; and the judgment then will be reversed and the cause remanded; Judge Napton concurring. Judge Scott not sitting. 282 LIABILITY OF SURETY. McCOMB V. KITTRIDGE. 14 Ohio, 318. 1816. This case comes before this court ou motion for new trial, re- served in Huron county. The case was tried at the August term of the Supreme Court, 1845, and a verdict found for the defendant, under the charge of the court. The facts, and law of the case, were reserved for consideration at court in bank, upon a written agreement as to what papers and depositions should be in evidence. The note upon which suit is brought was given by Moses Kimball, John Miller, Picket Latimer, and the defendant Kitt- ridge, to James Gilruth, for $2,000, dated September 1st, 183G, payable November 26, 1836, indorsed by said Gilruth to Hamlin and Ward, and by them to plaintiff. The defense set up and relied upon in the special plea is, that Kittridge executed this note, as surety for Kimball, which fact was known to Gilruth at the execution and delivery of said note ; that Gilruth, after the same fell due, to- wit, on February 9, 1837, contracted to give further time, and delay the payment of the same until the 1st of May thereafter, in consideration of said Kimball executing to him a note for $34.44, payable on said 1st of May; that said note for $34.44 was executed, and a greater part thereof paid ; that the time specified was actually given, and that said agreement was entered into without the knowledge or consent of the defendant. The replication denies the making of any such agreement. Read, J. The pleadings admit, and the proof shows, beyond doubt, that Kittridge was surety. Gilruth swears that the note was given for money loaned ; that the whole negotiation was with Kimball, with whom he always dealt in relation to the demand ; that the note continued his property until September 18, 1837. This was long after it was due, about ten months. The part of Gilruth 's testimony upon which the defense mainly relies, is as follows: On February 9, 1837, the witness was at Norwalk when the note was given, and called upon Kimball for pay, who excused himself, and wanted delay; and it was pro- posed to pay him ten per cent, as a consideration for it. The McCOMB V. KITTRTDGE. 283 witness says: "I have consented to take the proposed interest, it being expressly agreed that the notes should remain just as they were, instead of being renewed. I agreed to wait until the 1st of May following. Kimball then calculated the extra four per cent, interest on the $2,000 till the 1st day of May, and gave me his note for it, part of which was traded out in his store the 3d of August following." He further says, that the note of $34.44, of February 9, 1837, and due May 12, 1837, upon which he re- ceived from Kimball, August 3d, 1837, $24.63, he afterwards sold with the payments credited, to Latimer. Now, the question arising upon the above state of facts, is, was there such an agreement to give further time upon a valid and binding consideration as will discharge the surety? It is an undoubted principle of law, that, if the creditor, by agree- ment with the principal debtor, or by any other act, precludes himself at law from proceeding against the principal debtor, the surety is discharged. It is not questioned but that a bind- ing agreement upon a valid consideration to give further time to the principal debtor, will discharge the surety. But it is considered in this case, that there was no valid consideration for the agreement to extend the time of payment of this note from February 9, 1837, to the 1st of May following; because the $34.44 note, the consideration of such agreement, was for a rate of interest larger than our statute allows to be collected. It is just as competent for the principals to a note to extend the time of payment for a specified period, as it was to fix the time of payment originally. If the lender of money, secured by a note, after the same becomes due, contracts with the borrower that the time of paying the same shall be extended for one year, or for any other period, upon consideration that the borrower shall pay the legal or less rate of interest, why is not that a binding contract? The lender, by this contract, secures to himself the interest on the money for the year ; and the borrower precludes himself from getting rid of the payment of the interest, by dis- charging the principal. It is a valuable right to have money placed at interest, and it is a valuable right to have the privilege, at any time, of getting rid of the payment of interest, by dis- charging the principal. By this contract the right to interest is secured for a given period, and the right to pay off the principal, 284 LIABILITY OF SURETY. and get rid of paying the interest, is also relinquished for such period. Here, then, arc all the elements of a binding contract. But it is said there is no consideration for the extension of time, because the law gives six per cent, after the note is due. But the law does not secure the payment of this interest for any given period, or prevent the discharge of the principal at any moment. There is precisely the same consideration for the extension of time as there was for the original loan. The consideration of the loan, in the part of the borrower, is the payment of interest. If there was no law limiting the amount of interest, the parties might contract for any rate they pleased. A contract to forbear the collection of a debt for a specified period, in consideration of the payment of a rate of interest beyond what the law allows, is founded upon a valid consideration. This would never have been doubted at all, if the law had not fixed the rate for which collec- tion could be had. But, by limiting the rate of interest, the law does not declare that such rate is not a valuable consideration, but, on the contrary, declares that such rate is so fully valuable, that it will not permit a higher rate for the use of money or forbearance. The law would permit any amount to be paid for forbearance, if it were not for the fact that this would break down the whole policy of the law limiting the rate of interest ; and that forbear- ance amounts to nothing more than a mere loan. The only doubt which has arisen from the fact in this case is, that, in countries where the law declares usurious contracts void, a contract to pay usurious interest is void ; and hence, such a contract to pay would form no consideration for an agreement to give time, or forbear the collection of a debt for a specified period. Such a contract with us is not wholly void, but the statute steps in and pares it down to the legal rate, and permits that to be collected. Hence this $34.44 note is a good and valid contract for the pay- ment of six per cent, interest — and hence, a good consideration to support the agreement to extend the time of payment of the $2,000, to the time contracted for ; and the original parties, with- out the knowledge of the surety, having, by valid agreement, ex- tended the time, the surety is discharged. This view carries out the spirit of the statute respecting in- terest, secures it from the opportunity of violation, harmonizes PEARL V. DEACON. 285 with the decisions had under it, and rests, in our opinion, upon a solid foundation. PExVRL V. DEACON. 24 Beav. 186. 1857. The Master of the Rolls. I retain the opinion expressed by me yesterday. The facts are shortly these : — ]\Ir. Pearson applied to the defendants, who are brewers at AVindsor, for a loan of 2501., to enable him to take a public-house, called The Carpenters' Arms. They said we will do so if you will get a good surety for the amount, and assign over your pension and furniture. That was agreed to ; Pearson offered the plaintiff as his surety for half the amount, and Castles as surety for the other half ; the defendants accepted them, and on the 16th of November, 1852, two joint and several promissory notes were given to the defendants, one by Pearson and the plain- tiff, and the other by Pearson and Castles. Six days afterwards, viz., on the 23rd of November, Pearson assigned his pension and all the goods and chattels to secure this debt of 2501. On this transaction, the first point which was raised by the plaintiff, in my opinion, fails. He says that this arrangement was a variation of the contract of suretyship, and that it discharged the plaintiff, because the money was made payable on the 16th of November, 1858, or six years after the date of the mortgage. If the case had rested here, the plaintiff would probably have been success- ful, but the deed goes on, "or at such earlier or other time" as the defendants should appoint for the payment thereof "in and by a notice in writing." I do not think that this was such a variation in the terms of the security as to discharge the surety ; but the question is of little importance, as I am of opinion, on the evidence, that the plaintiff had notice of this assignment and of the terms of it. The only other facts important to be stated are these : — The defendants were landlords of The Carpenters' Arms, and in the year 1856, four years after this transaction, Pearson 's rent being considerably in arrear, the defendants distrained and put a 286 LIABILITY OF SURETY. broker in possession of the furniture under the distress ; on this, by arranfrement, instead of sellini,' the goods, they took them at a vahiation for 116/. The question is this : — The furniture having been expressly mortgaged for the 250/., wa.s it within the power of the defend- ants, to the injury of the surety, to give up the security on the furniture for the 250/., and take it in discharge of another and dilferent debt due to themselves? I am of opinion that they could not do so. It was said, that this security was not within the scope of the Plaintiff's contract, and that a surety cannot go beyond it. That is a mistake with respect to the relation between a pi-iru'ipal and surety. Lord Eldon expressly stated, in Cray- thorne v. Swinburne, 14 Ves. 169, that the rights of a surety depend rather on a principle of equity than upon contract; there may be a quasi contract, but it arises out of the equitable relation between the parties, to be inferred from the knowledge of an established principle of equity. The same doctrine is also stated in :\rayhew v. Crickett, 2 Swan. 191, and it is laid down distinctly, that sureties are entitled to the benefit of every security which the creditor has again.st the principal debtor, and that whether the surety knows of the existence of those securities or not is immaterial. If the creditor makes available any of his securities, the surety is entitled to the benefit of it. The case of Capel v. Butler, 2 Sim. & S. 457, is a distinct authority for this proposition. Mr. Ellis sought to distinguish that case by saying, that, in that case, there was a recital of all the securities, but that here there was none. The answer, how- ever, is this :— That there w-as notice to the surety of the whole transaction, and being so, the reciting it is immaterial. Lord Eldon distinctly laid down in Mayhew v. Crickett, 2 Swan. 185, that it is a matter of perfect indifference, whether the surety is aware of another security having been taken by the creditor or not. In the judgment of Vice-Chancellor Wood in Newton v. Charl- ton, 10 Hare 651, there is a statement, in every word of which I concur. He say.s, as regards the creditor, "He is bound to give to the surety the benefit of every security which he holds at the time of the contract, — every security which he then holds ; and he is not allowed, in any way, to vary the position of the PEARL V. DEACON. 287 surety with reference to those securities; that has been decided most distinctly in Mayhew v. Crickett by Lord Eldon, where there was a warrant of attorney in the hands of a creditor put into operation by the creditor, and a judgment obtained, from which he afterwards discharged the principal debtor. Lord Ei.DON held it utterly immaterial, whether the warrant of attor- ney was known to the surety at the time he entered into the con- tract or not. The surety had a complete right to the benefit of it, and if the benefit were lost to him, he was at once discharged." It is argued that this was a security for a separate and dis- tinct debit ; but I am of opinion that it was not taken for a sepa- rate and distinct debt, but for the debt of 250?. I am of opinion, therefore, that if the defendants enforce pay- ment of the rent due to them out of the furniture, and then seek to compel the plaintiff to pay the debt for which he became surety, the plaintiff is entitled to say to them, "you must give me the benefit of the security on the furniture and pension which w^ere mortgaged to you for this debt." What the defendants have done is this: — They have thought fit to apply the produce of the furniture to a different and dis- tinct debt, contrary to the original arrangement, on the terms of which, it is to be assumed, the surety consented to become liable. I am therefore of opinion, that whatever the defendants have received ought to be applied rateably in discharge of the whole debt, and that the plaintiff is only liable to pay half of the bal- ance. If it were otherwise, the result would be this : — That if a man advanced 1,000/. to another on a mortgage of an estate, and had the security of ten sureties, each of whom was liable for 100?, he might release or reassign the mortgage, and then sue the ten sureties. This is a proposition impossible to be sustained. If the defendants have received anything from Castles, it must not be taken into account ; but w^ith respect to the money received from Pearson, it ought to be taken as a discharge for the debt. As to the pension, either they have received it or they have not ; if they have, it was distinctly applicable to the payment of their debt; if they have not, they must show why they did not make that security available. 288 LIABILITY OF SURETY. PAIN V. PACKARD ET AL. 13 Johns. 174. 1816. This was an action of assumpsit on a promissory note made by Packard & IMunson, in which Packard ah:)ne was arrested, the other defendant being returned not found. Tlie defendant, Pack- ard, pleaded : 1. Nan-assumpsit. 2. That he signed the note which was for $100, payable on demand, as surety for Munson ; that he urged the plaintiff to proceed immediately in collecting the money due on the note from Munson who was then solvent ; and that, if the plaintiff had then proceeded immediately to take measures to collect the money of Munson, he might have obtained pajTuent from him : but the plaintiff neglected to proceed against IMunson until lie became insolvent, absconded and went away out of the state, whereby the plaintiff w'as unable to collect the money of Munson. 3. The third plea was like the second, ex- cept that the defendant alleged a promise, on the part of the plaintiff, that he would immediately proceed to collect the money of Munson, and a breach of that promise, by which the defendant was deceived and defrauded, and prevented from obtaining the money from Munson, etc. There was a demurrer to the second and third pleas and a joindei- in demurrer, which was submitted to the court without argument. Per Curiam. The facts set forth in the plea are admitted by the demurrer. The principles laid do-\\Ti in the case of The Peo- ple V. Jansen (7 Johns. 336) will warrant and support this plea. We there say a mere delay in calling on the principal will not discharge the surety. The same principle was fully and explicitly laid down by the court in the ease of Tallmadge v. Brush. But this is not such a case. Here is a special request, by the surety, to proceed to collect the money from the principal ; and an aver- ment of a loss of the money as against the principal, in conse- quence of such neglect. The averments and facts stated in the plea are not repugnant, or contradictory to the terms of the note. The suit here is by the payee against the makers. The fact of Packard having been security only is fairly to be presumed to have been known to the plaintiff. He was, in law and equity, PAIN V. PACKARD ET AL. 289 therefore bound to use due diligence against the principal in order to exonerate the surety. This he has not done. There can be no substantial objections against such a plea. It may be said, the surety might have paid the note and prosecuted the principal ; but although he might have done so, he was not bound to do it. If he had a right to expedite the plaintiff in proceed- ing against the principal and choose to rest on that, he might do so. In the case of Trent Nav. Co. v. Harley (10 East. 34) the plea was similar to the present and not demurred to. The defendant must, accordingly, have judgment upon the demurrer. Judgment for the defendcAit. CHAPTER III. OF THE RIGHTS OF SURETIES AND GUARANTORS— CONTRIBl'- TION AND SUBROGATION.* LANSDALE v. COX. 7B.Mon. {Ky.) 401. 1828. Opinion of the court by Chief Justice Bibb. Richard Lausdale and James Cox were the sureties of Shanks, in an injunction bond to Summers, who sued Cox, the surviving obligor, and had judgment for $730.24, beside costs, which was paid by Cox's surety in a replevin bond, and afterward paid by Cox to his surety. These proceedings were in the Nelson circuit court. Cox thereafter, upon motion against the heirs of Shanks [402] the principal, (stating that there was no executor or admin- istrator of Shanks,) had judgment, and execution, upon which the sheriff made a small part of the judgment, (about $35.19,) and returned that he could find no estate whereof to satisfy the residue. Cox then sued his motion against the heirs and administrators, jointly, of his co-security, Lansdale, for contribution, and recov- ered judgment; to which the defendants prosecute this writ of error. The whole doctrine of contribution between securities origi- nated with courts of equity. There is no express contract for contribution ; the bonds, obligations, bills, or notes, created liabilities from the obligors to the obligees. The contribution between co-sureties results from the maxim, that equality is equity. Proceeding on this, a surety is entitled to every remedy which the creditor has against the principal debtor ; to stand in the place of the creditor ; to enforce every security, and all means of payment; to have those securities transferred to him, though * See Sees. 905-920, Vol. 6, Cyclopedia of Law. 290 LANSDALE v. COX. 291 there was no stipulation for that. This right of a surety stands upon a principle of natural justice. The creditor may resort to principal, to either of the securities, for the whole, or to each for his proportion, and as he has that right, if he, from partiality to one surety, or for other cause, will not enforce it, the court of equity gives the same right to the other surety, and enables him to enforce it. Natural justice says that one surety having become so with other sureties, shall not have the whole debt thrown upon him by the choice of the creditor, in not resorting to remedies in his power, without having contribution from those who entered into the obligation equally with him. The obligation of co-sureties, to contribute to each other, is not founded in con- tract "between them, but stood upon a principle of equity, until that principle of equity had been so universally acknowledged, that courts of law, in modern times, have assumed jurisdiction. This jurisdiction of the courts of common law is based upon the idea, that the equitable principle had been so long and so gener- ally acknowledged, and enforced, that persons, in placing them- selves under circumstances to which it applies, may be supposed to act under the dominion of contract, implied from the univer- sality of that principle. For a great length of time, equity ex- ercised its jurisdiction exclusively and undividedly; the juris- diction assumed by the courts of law is, comparatively of very modern date; and it attended with great difficulty where there are many sureties ; though simple and easy enough where there are but two sureties, one of whom brings his action against the other upon the implied assumpsit for a moiety. The action at law, then, by one surety against his co-security, arises out of an implied undertaking, not by force of express contract, and consequently the heirs can not have been expressly bound by the ancestor. So that the action at law, by one surety against the representatives of a deceased co-surety, must, by the principles of the common law, be against the executor or administrator. To reach the heirs in a suit at law, the remedy given by our statute in such cases, must be jointly against the executors or administrators and heirs, not against the heirs alone. The remedy in equity by substitution of the co-security in place of the creditor, and so allowing the one surety his redress against his co-surety or co-sureties for contribution, still remains; the 292 RIGHTS OF SURETIES AND GUARANTORS. remedy at law, by a regular action jointly against the heirs and executors or administrators, by force and operation of the statute of 1792, may be pursued. Reversed, with directions to lower court to dismiss motion. JOHNSON V. JOHNSON. 11 Mass. 359. 1814. Plaintiff and defendant were co-sureties on a note and plain- tiff paid the debt. Defendant thereupon gave, at plaintiff's re- quest, a note to one Hoi brook or order for a sum equal to de- fendant's share of the amount so paid by plaintiff as surety, and Holbrook immediately indorsed the note to plaintiff. This second note was usurious, and for that reason plaintiff was sub- sequently defeated in an action to enforce its payment. He there- upon sued defendant on the original obligation of contribution. At the trial on the circuit plaintiff was non-suited and the case was reserved by stipulation for the whole Court. Parker, C. J. This is assumpsit, in which the plaintiff' de- clares for the sum of $259.50 paid, laid out, and expended by him, at the request of the defendant, and to his use. The facts are reported by the Judge before whom the cause was opened, upon which he directed a non-suit, which is to be taken off, and the defendant to be defaulted, if on those facts the action can be maintained. [Here the Chief Justice recited the facts, and proceeded.] Against this suit brought upon the original implied promise a defense is made, upon the ground that the note given by the defendant, and accepted by the plaintiff, together with the plaintiff's receipt upon the bond, are a discharge in law of the original contract; and it remains for us to determine whether such is the legal operation of these facts. We begin with observing that the pajnneut of the whole bond by the plaintiff, the defendant being jointly and severally bound with him, and for a pre-existing debt, for which both of them were equitably to be considered only as sureties, raised a prom- JOHNSON V. JOHNSON. 293 ise in law, as long settled in this State, on the part of the de- fendant, to pay his moiety on demand to the plaintiff; on which promise an action at law could have been maintained, and against which the defendant could, according to the facts stated, have made no legal defense. This legal claim remains unsatisfied, and may be enforced in the present action ; unless the note given by the defendant, which appears by the receipt to have been accepted by the plaintiff, amounts to payment, or to an extin- guishment of the pre-existing legal contract. At common law it is clear that a subsisting simple contract is not discharged or extinguished by the acceptance of another simple contract, given by the same party for the same considera- tion. Indeed, the new contract in such case is nothing more than a new, and perhaps better, form of evidence, than before existed, to prove the same original contract. The authorities to support this position are cited in the case of Banorgee v. Hovey. The jmnciple is also recognized in the cases of Thatcher et al. v. Dinsmore, and Maneely v. IMcGee et al. There are also several New York cases to the same effect. It is true that it is now the settled law of this State that a ne- gotiable promissory note, given by a party chargeable upon an original simple contract, and accepted by the other party, is a discharge of the original contract, unless it be proved not to have been the intention of the parties to give it that effect. This prin- ciple was settled in the two cases before cited, of Maneely v. Mc- Gee et al., and Thatcher et al. v. Dinsmore. The reason given by the Court for establishing the principle is, that otherwise the debtor may be put to inconvenience, and perhaps be obliged to pay his debt twice; as he cannot set up a payment of his original debt, after ,a seasonable indorsement of the note, against the claim of an innocent indorsee. The note relied upon in the present case as a discharge of the legal demand of the plaintiff, was in its form a negotiable note ; but it being made payable to a third person, who does not from the facts appear to have had any interest in it, and who im- mediately indorsed it over to the plaintiff, for whose use it was undoubtedly given, it must be considered, as to its effect upon the present question, as a negotiable promissory note given to the plaintiff. This, according to the authorities last cited. 29-4 RIGHTS OF SURETIES AND GUARANTORS. amounted to pajTiient, or a discharge of the original contract or implied promise, unless the circumstances attending it take it out of the principles of those decisions. It appears that this note, at the time it was given, secured more than six per cent, for delay of payment ; and so, according to our statute of usury, was null and void in its creation. It appears, further, that the defendant has himself alleged this in his de- fense, upou a suit brought upon the note, and that, on this ground, he prevailed in his defense. Can he now set up this same note, void in its creation, and rendered functus officio by the defense he made against it, to defeat a legal and equitable liability, against which he had no moral or legal defense? I am happy in believing that it is perfectly clear that the defendant cannot escape from his original contract by a device so dishonorable as he has resorted to on this occasion. It being admitted that the note by which he would discharge himself was usurious, it follows that it was void ; and, being void, it can have no effect upon the original contract, in which there was no taint of usury. The note was nothing but a security for the debt: the security is void, but the debt remains good. This principle has been settled in many English cases, ancient and modern. The case of Robinson v. Bland decides that a sub- sisting simple contract is not extinguished by another contract of the same nature; and that, where the security given is void, as being against positive statutes, the contract itself, if fair, is left uuimpeached and in full force. But the case of Gray v. Fowler et al., Assignees, reported by H. Blackstone, is more analogous to the case at bar, and, indeed, can hardly be distin- guished from it, except that it is much stronger, from the circum- stance that a deed had been given as security upon the simple contract. That was a case out of chancery, and solemnly de- cided ; and the Court were clear and unanimous that, notwith- standing there was gross usury in the security, the original debt remained unimpeached. The counsel for the defendant, in the case before us, has re- lied upon the receipt as conclusive evidence of the discharge of the first contract. But receipts may always be explained by parol testimony, and are never binding, if given by mistake, or if the consideration on which they are given should fail. MOORE V. BRUNER. 295 Nor does it avail the defendant that Holbrook might by pos- sibility have recovered upon the note, had an action been brought in his name. It is sufficient, in this action, that it appears that Holbrook was a mere agent without any interest in the trans- action between these parties. Upon the whole, we are all of opinion that the non-suit, in the case before us, must be taken off, and that the defendant must be called. Defendant defaulted. MOORE V. BRUNER. 31 III. App. 400. 1889. Green, P. J. It is averred in the declaration in this ease that plaintiff, Bruner, and Moore, the defendant, together with Mc- Cammon and Gray, became sureties on the bond of the guardian of Barnes ; that the guardian died owing his ward, and afterward judgment was rendered in Massac probate court against the estate of the gaiardian in favor of the ward for $500, but the estate being insolvent no part of this judgment was paid; that afterward suit was brought in the Massac circuit court upon the bond against Bruner and McCammon, and judgment was there recovered against them for $500 and costs; that McCammon is insolvent and Gray died insolvent; that plaintiff Bruner dis- charged said judgment in full, wherefore defendant became liable to pay him $269.45 by way of contribution. A count for money paid out by plaintif? for defendant is added. The cause was tried by the court. Judgment was rendered in favor of the plain- tiff for $260 and costs, to reverse which defendant sued out this writ of error. The cause of action set out in this declaration, is the payment made by Bniner in satisfaction of the judgment recovered against himself and McCammon as sureties upon said guardian 's bond, one-half of which amount so paid, instead of one-fourth, Bruner insists is the proportion plaintiff in error as co-surety is legally liable to contribute, because of the insolvency of the two other co-sureties, McCammon and Gray. This was the view of the trial court and in accordance therewith the judgment against 296 RIGHTS OF SURETIES AND GUARANTORS. plaintiff in error Avas rendered. The court erred in so holding. At law the amount of damages which plaintiff was entitled to recover from defendant as a co-surety was one-fourth of the Avhole debt paid, with interest from the time of payment. There were four sureties, each of whom, as between themselves, became liable at law to contribute an aliquot portion of the sum paid by Bruner, and this aliquot portion is to be ascertained upon the basis of the number of sureties, without regard to their solvency. Such we understand to be the law in this state. It is said in the opinion of Sloo v. Pool, 15 111. 48, "Sureties are individually liable to the creditor, but one is as much bound to discharge the debt as another. If the creditor endeavors to enforce payment from them, it is, as between themselves, the duty of each to pay an aliquot portion of the debt. If that is not done, and one is compelled to pay the whole, he is entitled to contribution from the others in the same proportion. The law implies an agreement between them when they become respon- sible to the creditor, that if one shall be compelled to pay the debt the others will contribute so as to make the burden equal. If one pays the whole debt he has a cause of action against the others to recover their just proportion, as so much money paid to their use. His right to contribution is complete as soon as he pays the debt, and he may at once call on the co-sureties to bear the common burden with him. At law he can not sue two or more jointly, but he must sue each separately, and he can only recover from one an aliquot portion of the debt, to be ascertained by the number of sureties, without regard to their solvency. In equity, if one is insolvent the loss is apportioned among the others. " In 1 Parsons on Cont., 35, the rule is stated thus : "At law a surety can recover from his co-surety only that co-surety's aliquot part, calculated upon the whole number, without refer- ence to the insolvency of either of the co-sureties, but in equity it is otherwise. " "We have examined the case of Golden v. Brand, 75 111. 148, cited on behalf of appellee, and do not understand the court either did, or intended to, abrogate or modify the rule announced in Sloo v. Pool, supra. For the errors indicated the judgment is reversed and the cause remanded. Reversed and remanded. EMMERT V. THOMPSON. 297 EMMERT V. THOIVIPSON. 49 Minn. 386; 52 N. W. 31. 1892. Appeal from district court, Nobles county ; Brown, Judge. Action by Joseph Emmert against Peter Thompson and others. From a judgment for defendants, plaintiff appeals. Affirmed. Collins, J. "Where the loan of money was made by defendant Cornwell to defendant ]\Iarr, to secure which, as agreed upon, the latter mortgaged his entire farm, consisting of 240 acres, it was for the stipulated purpose of relieving one tract (160 acres) from the trust deed held by Ormsby, the balance (80 acres) from the Hayes mortgage, and the entire farm from delinquent taxes. The trust deed, the mortgage last referred to, and the taxes were rep- resented to be, and in fact were, first liens upon the premises; and Cornwell believed, and it was implied from what Marr stated when applying for the loan — there were no other incum- brances, and that, with these paid off and discharged, his mort- gage would take their place, and become the first and only charge upon the property. The taxes and the amounts due on the in- cumbrances, aggregating $1,434.82, were paid out of the pro- ceeds of the loan, in accordance with the agreement under which it was made. Proper releases and discharges ^yere procured and at once recorded, in the mistaken belief on the part of Corn- well, and the agents who transacted the business, that there was no other or prior charge upon the premises. For some time thereafter they remained in ignorance of the fact that plaintiff's mortgage was in existence and of record when the one in question was executed, and by their acts had, of record, become the senior lien. As Marr was and is insolvent, and plaintiff's mortgage, with costs and disbursements of foreclosure, now exceeds in amount the value of the farm as found by the trial court, the seriousness of the situation is quite apparent. The court below subordinated the plaintiff's claim to that of defendant Corn- well, to the extent of the payments made for taxes, and to satisfy and extinguish the incumbrances, reinstating the liens, in effect ; 298 RIGHTS OF SURETIES AND GUARANTORS. and its right and power so to do is the principal question now before ns. It has been -well said that the doctrine of subrogation has been steadily growing and expanding in importance, and becoming more general in its application to various subjects and classes of persons. It is not founded upon contract, but is the creation of equity — is enforced solely for accomplishing the ends of sub- stantial justice; and, being administered upon equitable prin- ciples, it is only when an applicant has an equity to invoke, and where innocent persons will not be injured, that a court can inter- fere. It is a mode which equity adopts to compel the ultimate pa^'ment of a debt by one who in justice and good conscience ought to pay for it, and is not dependent upon contract, privity, or strict suretyship. Stevens v. Goodenough, 26 Vt. 676 ; Harns- berger v. Yancey, 33 Grat. 527 ; Smith v. Foran, 43 Conn. 24:4. That in this way a court, under a great variety of circumstances, may relieve one who has acted under a justifiable or excusable mistake of fact, is readily conceded by appellant ; but he invokes and seeks to have applied to respondent's case the general rule that the doctrine of subrogation will not be exercised in favor of a volunteer or a stranger who officiously intermeddles, such as a person who pays without any obligation so to do, or one who, without any interest to protect, liquidates the debt of another. There are a very respectable number of cases, several having been cited, in which relief has been refused under circumstances pre- cisely like those now before us, where one w^ho has loaned and used his money in good faith, and for the express purpose of re- lieving a debtor from a pressing obligation, and his real property from a spexiific lien for the amount of the same, under a genuine but excusa.ble misapprehension as to the rank and position of security taken by him on the same property, has been treated and characterized as a volunteer, a stranger, and an officious intermeddler, and denied the rights of an equitable assignee. But of late yeare, with the development of the principle on which the doctrine is founded, the courts have been taking a broader and more commendable view of the situation of such a party, and at this time very little is left of the views expressed in the earlier cases. The better opinion now is that one who loans his money upon real estate security for the express purpose of EMMERT V. THOMPSON. 299 taking up and discharging liens or incumbrances on the same property has thus paid the debt at the instance, request, and solicitation of the debtor, expecting and believing, in good faith, that his security will, of record, be substituted, in fact, in place of that which he discharges, is neither a volunteer, stranger, nor intermeddler, nor is the debt, lien, or incumbrance regarded as extinguished, if justice requires that it should be kept alive for the benefit of the person advancing the money, who thereby be- comes the creditor. Of the many authorities on this, we cite Association v. Thompson, 32 N. J. Eq. 133 ; Gans v. Thieme, 93 N. Y. 225 ; Sidener v. Pavey, 77 Ind. 241 ; McKenzie v. McKenzie, 52 Vt. 271; Cobb v. Dyer, 69 Me. 494; Levy v. Martin, 48 Wis. 198, 4 N. W. Rep. 35 ; Insurance Co. v. Aspinwall, 48 Mich. 238, 12 N. W. Rep. 214; Crippen v. Chappel, 35 Kan. 495, 11 Pac. Rep. 453; 3 Pom. Eq. Jur. 1212; Harris, Subr. 811, 816; Dixon, Subr. 165. It is contended by appellant that Cornwell must, under the circumstances, be declared culpably negligent when taking his security and discharging of record the Ormsby and Hayes liens ; and, further, that, as the plaintiff's mortgage was then of record, he had notice of it, in contemplation of law, and could not have been misled or mistaken. Marr's application for a loan was for the avowed purpose of taking up and discharging the Ormsby and Hayes liens, and was well calculated to convey the impression that these were the only incumbrances. He intentionally or otherwise concealed the truth, omitting to state the existence of a junior incumbrance in a large amount, a knowledge of which would have ended at once all negotiations with Cornwell 's agents. It was misleading, and the persons last named were not negligent because they, to some e:stent, relied upon and were misled by it. See Newell v. Randall, 32 Minn. 171, 19 N. W. Rep. 972. It is a common thing for courts of equity to relieve parties w^ho have by mistake discharged mortgages upon the record, and to fully protect them from the consequences of their acts, when such relief will not result prejudicially to third or innocent persons. Gerdine v. Menage, 41 Minn. 417, 43 N. W. Rep. 91. Paraphras- ing slightly a remark made in the opinion therein, it may be said that, considering this case as it stands between the appellant and respondent Cornwell, it is obvious that it would be most unjust 300 RIGHTS OF SURETIES AND GUARANTORS. and inequitable not to place the parties in statu quo with respect to the amounts paid out upon liens which were superior to that held by plaintiff, now being foreclosed. It is true that at the out- set the mistake grew out of an error in the abstract books kept by Cornwell's agents; but later, when examining the records in the office of the register of deeds, the error was unnoticed and the mistake undiscovered. It was a mistake of fact, and, in our judg- ment, not of such a character as to bar the respondents' claim to equitable relief. That, in a proper case of mistake of fact, such relief may be afforded notwithstanding the intervening mortgage was of record when the error was committed, is well settled. Geib V. Reynolds, 35 Minn. 331, 28 N. W. Ecp. 923. Cornwell misunderstood, and was justifiably ignorant of, the facts, and acted, through his agents, upon the assumption that he and they knew the true state of the title when the liens which his money had discharged were satisfied of record, and plaintiff's mortgage advanced to the position of the senior incumbrance, without a single act of his, and to the very great detriment of the person who had brought it about. The court was right in applying the principle of subrogation, or "equitable assignment," as it is frequently called. Judgment w^as entered below, directing that the premises be sold, on foreclosure of plaintiff's mortgage, as one farm, and that, out of the net proceeds, there be first paid to respondent Cornwell the sums of money which he paid out as taxes, and to take up and satisfy the incumbrances before mentioned. The ap- pellant's counsel distinctly approves that part of the judgment which requires a sale of the premises as an entirety, but makes the point, in case we affirm the action of the trial court on the main question, that the farm should have been sold subject to the subrogator's lien for a specific sum on the 160 and for an- other specific sum on the 80 acre tract, and thus there would have been avoided the possibility, which he now suggests, of hav- ing shifted over upon one of these tracts, to some extent, a burden which ought to wholly rest upon the other. It is evident from the record that the attention of the trial court was not called to this point, and hence the order that the sale be of the whole as one body of land. But we are unable to see how the result now suggested by counsel would have been avoided by the EMMERT V. THOMPSON. 301 adoption of Ms plan without selling the tracts separately, keep- ing the funds derived from each distinct, and applying the same to the liquidation of the liens, so far as they might go. Counsel does not contend that the two tracts of land should have been sold separately, but, as before stated, indorses the judgment directing a sale en masse. He is concluded on this point by his position as to the manner of sale. Judgment affirmed. UC SOUTHERN REGIONAL LIBRARY FACILITY AA 000 718 517 6 #