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codify the law rather than to reform it 67 and not to make radical changes in the fundamental principles of the law.68

Results of statute. This desired uniformity of construction has not been altogether achieved, as evidenced by a considerable number of conflicting decisions by courts of last resort in the different states. On the whole, however, the act has accomplished its purpose by making the law uniform, in most instances beyond the possibility of different constructions, in many respects where before the different states had established rules directly in conflict. The most of the conflict is limited to decisions as to whether certain provisions in a bill or note render it nonnegotiable,70 whether a payee may be a holder in due course," and whether certain defenses under the law merchant are defenses under 'this statute.72 It is suggested that, in order to obtain, as nearly as possible, complete uniformity, the statutes should be amended to reconcile conflicts by making some of the provisions more explicit and by adding provisions where necessary.

[§ 41] G. Applicability to Nonnegotiable Instruments. The Negotiable Instrument Law applies to negotiable instruments only, including bills of exchange, notes, and checks, and excludes nonnegotiable instruments from its application, so that nonnegotiable instruments are still governed by the rules of the common law or by statutes which are especially applicable thereto.73 However, the statutes do not confine bills and notes to those which are negotiable;74 but while the statute does not apply to nonnegotiable paper, it does govern the question whether particular paper is negotiable or nonnegotiable so as to be within its provisions, except

where the question is not regulated by the statute. [42] H. Scope of, as Inclusive. In so far as it speaks, the statute is conclusive and, where the context so requires, inclusive.75 In other words, the act, in some respects, is so complete a codification of the law as to justify the application of the maxim, Expressio unius est exclusio alterius.76 However, it expressly provides that in any case not provided for in the act the rules of the law merchant shall govern. A like provision is found in the Bills of Exchange Act of Canada 78 and of England.79

77

Effect of clearing house rules. The rules laid down by the Negotiable Instruments Law cannot be changed by clearing house rules except in so far as concerns transaction between members themselves where the rights of outsiders are not affected.80

[43] I. Construction-1. In General. The language of the statute is to be construed with reference to the object to be attained,81 that is, uniformity.82 The words of the statute are to be given their natural and common meaning, and the prevailing statutory interpretations are to be employed.83 The language of the statute should be given the full effect to which it is legitimately entitled, and there should be no attempt to introduce possible but unnecessary distinctions and qualifications for the purpose of restricting the scope and meaning of the terms implied therein.84 Care should be taken to adhere as closely as possible to the obvious meaning of the act, without resort to the previous decisions of the court, unless necessary to dissolve obscurity or doubt, especially in instances where there was a difference in the law in the different states;85 but if, "looking to the intention of the law and the purpose of its preparation and en

Q. B. D. 702.

77. See statutory provisions. 78. Montreal Bank v. Rex, 38 Can. S. C. 258; Noble v. Forgrave, 17 Que. Super. 234 (provision modifies former law of Quebec).

79. In re Gillespie, 16 Q. B. D. 702.

80. Columbia-Knickerbocker Trust Co. v. Miller, 215 N. Y. 191, 109 NE 179; Bank of British North America v. Haslip, 30 Ont. L. 299, 5 OntWN 684, 25 OntWR 622.

67. Young V. Commonwealth 74. Windsor Cement Co. v. Thomp-| Cas 997. Compare In re Gillespie, 16 Exch. Bank, 152 Ky. 293, 153 SW 444, son, 86 Conn. 511, 515, 86 A 1 (where AnnCas1912B 148. See 41 AmLRegNS the court said: "In view of the his437, 441, 499, 561 (articles by Charles tory of the Act and its apparent and L. McKeehan, in which he says: declared purpose, it cannot be as"Their aim was not to reform the law sumed that the legislature in enactof negotiable paper. It was to state ing this law intended thereby to conaccurately and concisely the existing fine bills of exchange to those only law. Of course, here and there it which are negotiable. It is rather to was necessary to choose between two be assumed that, dealing as it does or more conflicting views. Very fre- with negotiable instruments, the Act quently a section changes the law in purports to define only negotiable a small minority of states which had bills, and to leave non-negotiable departed from the almost uniform ones, and the law relating thereto, as current of authority. Occasionally, it was before. Such we think is the though very rarely and only when only reasonable interpretation of the there seemed to be no room for a statute"). difference of opinion, the law was deliberately changed. But the main, and almost the sole purpose of the framers of the Negotiable Instruments Law was to reproduce, as exactly as possible, that which the great weight of authority had declared to be the law").

68. State Bank v. Michel, 152 Wis. 88, 139 NW 748, 1131. 69. Finley v. Smith, 165 Ky. 445, 177 SW 262, LRA1915F 777.

75. Nortonville First State Bank v. Williams, 164 Ky. 143, 175 SW 10. [a] Illustration.-"Under the statute which had been in force in Kentucky up to the time the Negotiable Instrument Act took effect, promissory notes were assignable, but the assignee took them subject to all the defenses which the maker had to them in the hands of the assignor before notice of the assignment. That act, however changed 70. See infra §§ 206-326. the rule, and under it promissory 71. See infra § 686. notes which have been transferred 72. See infra §§ 999-1066. to a holder in due course, that is, a 73. Finley v. Smith, 165 Ky. 445, bona fide purchaser without notice, 177 SW 262, LRA1915F 777; Wett- are placed upon the footing of a bill laufer v. Baxter, 137 Ky. 362, 125 SW of exchange, and are not subject to 741, 26 LRANS 804; Johnson v. Las- the equities which would obtain besiter, 155 N. C. 47, 71 SE 23; Rey-tween the maker and the payee. Pernolds v. Vint, 73 Or. 528, 144 P 526. [a] "Mr. Crawford, who was employed to prepare the draft of the bill which the commissioners recommended for adoption, says the law was not intended to affect non-negotiable instruments. "The law is confined to negotiable instruments. No attempt is made to deal with instruments which are non-negotiable; and they are not governed by this statute.' Windsor Cement Co. V. Thompson, 86 Conn. 511, 514, 86 A 1.

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sons now who make such notes and
deliver them, take the risk of their
being transferred to a bona fide pur-
chaser without notice. The statute
changed the old rule, and must like
other statutes be enforced according
to its terms. Hard cases may arise,
but the courts are powerless to af-
ford a remedy. The Legislature alone
has power to do this." Pratt v.
Rounds, 160 Ky. 358, 365, 169 SW 848.
76.

Cellers v. Meachem, 49 Or. 186,
192, 89 P 426, 10 LRANS 133, 13 Ann

81. Union Trust Co. v. McGinty, 212 Mass. 205, 98 NE 679, AnnCas 1913C 525; Century Bank v. Breitbart, 89 Misc. 308, 151 NYS 588.

[a] "It ought to be interpreted (1) in such a way as to give effect to the beneficent design of the Legislature in passing an act for the promotion of harmony upon an important branch of the law." Union Trust Co. v. McGinty, 212 Mass. 205, 206, 98 NE 679, AnnCas1913C 525. (2) Provisions of the Negotiable Instruments Law must be construed with reference to its stated purpose, so that the negotiable character of paper may not be destroyed by local laws and conflicting decisions. State Bank v. Bilstad, (Iowa) 136 NW 204. 82. See supra § 40. 83. Union Trust Co. v. McGinty, 212 Mass. 205, 98 NE 679, AnnCas1913 C 525.

84. Whitcomb v. National Exch. Bank, 123 Md. 612, 91 A 689.

85. Union Trust Co. v. McGinty, 212 Mass. 205, 98 NE 679, AnnCas 1913C 525; American Bank v. McComb, 105 Va. 473, 54 SE 14.

[a] Lord Herschell in Bank of England v. Vagliano, [1891] A. C. 107, 144, 3 ERC 695 [foll Northern Crown Bank v. International Electrio Co., 24 Ont. L. 57, 59, 19 OntWR 392, AnnCas1912A 472], said: "I think the proper course is in the first in

actment... there is doubt about the meaning of any of its provisions, and that doubt can be solved by a reference to the law merchant as it was heretofore administered, this law should be looked to, and the act if practicable given such a construction as will make it harmonize with the general principles of commercial law in force before its enactment." 86 As a matter of fact, however, the courts have, in a number of instances, disagreed as to the construction of several of the provisions of the statute.87 Matter merely declaratory of law merchant. Where its language is consistent with the rule previously recognized, it should be construed as simply declaratory of the law as it was before the adoption of the act.88

Particular sections must be construed with reference to all the other sections, so that the legislative intent may not be defeated.89

Bills of Exchange Act, and where the previous decisions of the two countries are at variance, the act is to be construed according to the prior law of this country rather than that of England." However, in accordance with the general rule, it would seem that, if one state copies its law from that of another state, the decisions of such other state should at least be given great weight.93

96

94

92

[45] J. As Controlling Prior Legislation and Decisions-1. In General. The Negotiable Instruments Law repeals prior inconsistent laws and overrules previous decisions to the contrary. "Where the language of such an act is clear it must control whatever may have been the prior statutes and decisions on the subject. Where there is a substantial doubt as to the meaning of the language used the old law is a valuable source of information.'' 95 However, while it unquestionably declares the law on all matters covered by it and in all instances wherein it applies, yet the act necessarily must be construed with the statutory provisions or the general laws regulating the relationship of the parties, and in a few cases prior statutes, to some extent in conflict, have been held not repealed.97 [§ 46] 2. Conflict between Unwritten Law and paper. The 91. Jeffrey v. Rosenfeld, 179 Mass. 506, 508, 61 NE 49 (where the court said: "The statute enacted in this State is the same in substance and effect as that adopted by the Conference of Commissioners on Uniformity of Laws, which met at Detroit in 1895, and has already been enacted in fifteen States (14 Harv. Law Rev. 241, December, 1900, by Professor Ames); and although it is largely copied from the English act and is in many of its provisions an almost if not quite verbatim copy of that act, it would seem not unreasonable to suppose that it was the intention of the framers of the American act that § 124 should be construed according to the law of this country rather than that of England").

spect to commercial
application, however, by the courts
of legal principles to particular facts
has not reached scientific exactness
and never will. It is hardly to be
expected, therefore, that the courts
of the different states which have
adopted the act will always agree in
the construction and application of
its provisions. Actual uniformity in
the law of negotiable instruments
will remain a dream more or less iri-
descent; substantial uniformity is all
that can be hoped for").
88. Campbell v. Cincinnati Fourth
Nat. Bank, 137 Ky. 555, 126 SW

114.

[44] 2. Following Decisions of Other State or Country. In construing such statutes, courts should give great weight to harmonious decisions of courts of other states in regard to the Negotiable Instruments Law in their state, so far as the provisions are the same.90 But it has been held that, in so far as the American act is copied from the English | stance to examine the language of the statute and to ask what is its natural meaning, uninfluenced by any considerations derived from the previous state of the law, and not to start with inquiring how the law previously stood, and then, assuming that it was probably intended to leave it unaltered, to see if the words of the enactment will bear an interpretation in conformity with this view. If a statute, intended to embody in a code a particular branch of the law, is to be treated in this fashion, it appears to me that its utility will be almost entirely destroyed, and the very object with which it was enacted will be frustrated. The purpose of such a statute surely was that on any point specifically dealt with by it, the law should be ascertained by interpreting the language used instead of, as before, by roaming over a vast number of authorities in order to discover what the law was, extracting it by a minute critical examination of the prior decisions, dependent upon a knowledge of the exact effect of an obsolete proceeding such as a demurrer to evidence. I am of course far from asserting that resort may never be had to the previous state of the law for the purpose of aiding in the construction of the provisions of the code. If, for example, a provision be of doubtful import, such resort would be perfectly legitimate. Or, again, if in a code of the law of negotiable instruments words be found which have previously acquired a technical meaning, or been used in a sense other than their ordinary one, in relation to such instruments, the same interpretation might well be put upon them in the code. I give these as examples merely; they, of course, do not exhaust the category. What, however, I am venturing to insist upon is, that the first step taken should be to interpret the language of the statute, and that an appeal to earlier decisions can only be justified on some special ground." 86. Wettlaufer v. Baxter, 137 Ky. 362, 368, 125 SW 741, 26 LRANS 804.

89. Bradley Engineering, etc., Co. v. Heyburn, 56 Wash. 628, 106 P 170, 134 AmSR 1127.

90. Nortonville First State Bank v. William, 164 Ky. 143, 175 SW 10; Union Trust Co. V. McGinty, 212 Mass. 205, 98 NE 679, AnnCas1913C 525.

87. See Holliday State Bank v. Hoffman, 85 Kan. 71, 78, 116 P 239, 25 LRANS 390, AnnCas1912D 1 (where the court said: "The adoption in recent years of the negotiable instruments law by so many of the states was in response to the general desire for uniformity in re[8 C. J.-4]

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92. See Statutes [36 Cyc 1154]. 93. See Stadler V. Helena First Nat. Bank, 22 Mont. 190, 56 P 111, 74 AmSR 582.

94. Mechanics', etc., Sav. Bank v. Katterjohn, 137 Ky. 427, 125 SW 1071, AnnCas1912A 439.

[a] "Of course, it is fundamental that the court of no state in which the law is enacted is bound by the construction of the statute by the The purpose of the act "cannot be courts of other states; but courts, effectuated unless the courts, in their with full knowledge of the history decisions giving construction to the of this legislation, and knowing that act, accord its terms controlling efits chief purpose is as stated above, fect where they are inconsistent with should, we think, upon all questions previous legislation and judicial inof construction, where the rule adopt- terpretation of the common law. A ed by other states is not plainly er- contrary course would defeat the roneous, be disposed to follow the main object of the legislation and construction given to the act by the perpetuate the ills which that legiscourts of the state in which the act lation was intended to cure. But the has heretofore been adopted and con- necessities of the case at bar do not strued; and particularly should this require a determination of the quesbe true where the statute involves a tion whether or not the entire law question upon which the authorities, of negotiable instruments is to be independent of a statute, are so great- found in this act and we do not unly divided as they are upon the ques- dertake to determine that question. tion presented in the case at bar, for One result, however, seems entirely by no other course may uniformity clear. That is, with respect to the be obtained; and, if the statute, thus specific provisions of the act bearing construed, works a hardship in any upon the issues of the case at bar, locality, it may be corrected by leg- the manifest intent of the general islation." Cherokee Nat. Bank v. assembly was to revise the general Union Trust Co., 33. Okl. 342, 347, subject of the law of negotiable in125 P 464. struments, and where specific provisions are made in the act with respect to a special subject matter such provisions must prevail." Richards v. Market Exch. Bank Co., 81 Oh. St. 348, 361, 90 NE 1000, 26 LRA NS_99.

[b] Rule as to trial courts.-In construing the statute it has been held that, except where courts of the same state have passed upon the identical question, decisions of the courts of other states interpreting identical provisions should be accepted, by trial courts, with the same authority as though rendered by the higher courts in the same state. Century Bank v. Breitbart, 89 Misc. 308, 151 NYS 588.

95. American Bank V. McComb, 105 Va. 473, 478, 54 SE 14. See also supra § 43.

96. McCarty v. Kepreta, 24 N. D. 395, 139 NW 992, 48 LRANS 65. 97. See infra § 47.

Statute. The Negotiable Instruments Law in many instances lays down rules which change the law existing in a particular state." Where there is a conflict between such statute and the unwritten law, and the statute is unambiguous, the statute controls.99

3

is held in Kentucky that the statute making void a peddler's note, unless indorsed with the words "Peddler's note," being enacted to prevent crime, is not repealed by the Negotiable Instruments Law, on the theory that the prevention of crime is of more importance than the fostering of commerce; and it is also held that the act does not apply where the parties were never bound because another statute makes the note void as contrary to public policy as expressed in the statute. Furthermore, the Negotiable Instruments Law does not, it has been held, repeal positive statutes relating to subjects other than the negotiability of valid paper.s

[47] 3. Repeals. The Negotiable Instruments Law repeals earlier legislation inconsistent therewith, and such a provision is contained in the law as enacted in most of the states. However, the familiar rule that repeals by implication are not favored is applied to the Negotiable Instruments Law, and it will not be construed as repealing prior statutes by implication, unless there is a positive repugnancy between the two so that they cannot stand together or be consistently reconciled.5 Thus where the statute expressly repeals certain other named statutes, it should not be construed to repeal a statute not enumerated, where the clear intent of the legislature in the earlier statute is to penalize an act deemed to be improper, such as the practice to charge usurious interest. Moreover, it 98. Vander Ploeg v. Van Zuuk, 135 | ments Act § 137, as amended by the Iowa 350, 112 NW 807, 124 AmSR 275, act of April 27, 1909, there being 13 LRANS 490. nothing in the latter act inconsistent with the former one. Union Nat. Bank v. Franklin Nat. Bank, 249 Pa. 375, 94 A 1085.

[a] Illustration.-"The act of 1904 settled in this state a number of questions, on which there was a great conflict of judicial opinion throughout the states of the Union, and, among them, the status of irregular, or anomalous, indorsers of commercial paper." Neosho Milling Co. v. Farmers' Co-Op. Warehouse Stock Co., 130 La. 949, 950, 58 S 825.

99. Campbell v. Cincinnati Fourth Nat. Bank, 137 Ky. 555, 126 SW 114; Shawano First Nat. Bank v. Miller, 139 Wis. 126, 120 NW 820, 131 AmSR 1040; Columbian Banking Co. v. Bowen, 134 Wis. 218, 114 NW 451.

"Where a statute is intended to embody in a code a particular branch of the law and has specifically dealt with any point the law on that point should be ascertained by interpreting the language used, instead of doing as before the statute was passed -roaming over a vast number of authorities in order to discover what the law is by extracting it by a minute, critical examination of prior decisions." American Bank v. McComb, 105 Va. 473, 477, 54 SE 14.

[48] K. Retroactive Effect. The Negotiable Instruments Law expressly provides that its provisions do not apply to negotiable instruments made and delivered prior to the passage thereof." And it is held that the act is not applicable, in so far as it affects the rights of an indorser, although his indorsement was not until after the act had become effective, and although the indorsement constitutes a new and independent contract, where the note itthat an instrument providing for the collection of attorneys' fees was void was not changed by the Negotiable Instruments Law).

5. Union Nat. Bank v. Franklin
Nat. Bank, 249 Pa. 375, 94 A 1085.
"The legislature was dealing, at
the time of the passage of the act
and in the passage thereof, with the
matter of negotiability of paper
which the law allowed men to put
on the market and the courts to en-
force. It was not then considering
the subject of gaming to which it has
previously given its careful attention,
nor acting upon it. The act does not
mention it, nor did any provision
thereof suggest it to the legislative
mind. Any presumption that any
member of the legislature, while
considering or acting upon the bill,
had the slightest suggestion or inti-
mation from any of its terms, that
it would, in any sense or to any de-
gree, legalize gambling debts, would
be a most violent one. Nobody in
reading the act, without having had
the subject of gaming debts, fixed in
his mind, at the time, by some means
other than its terms, would likely
discover the alleged opening for the
use of paper expressly declared by
law to be absolutely void in the
hands of any and all persons, and
time the far-
reaching effect of it. The partial
legalization contended for would vir-
tually destroy the previous statute,
for every paper negotiable in form,
taken for money, lost or bet in gam-
bling, would be made valid by the
mere endorsement and delivery there-
of to some person ignorant of the
character of the consideration. Of
course, the legislature never saw nor
intended any such result. But, if
the suggestion of such a possibility
did enter the legislative mind at any
time, there is a presumption in law
that the law making body relied upon
a well settled rule of construction,
adopted by the courts, for protection
against it. That rule limits the op-
eration of a statute to its subject
matter and general purpose, in the
absence of a specific expression of
intent and purpose to extend its
operation to other subjects." Twen-
tieth Street Bank v. Jacobs, 74 W.
Va. 525, 527, 82 SE 320.

"Such statute was enacted for the
purpose of furnishing, in itself, a
certain guide for the determination of
all questions covered thereby relat-
ing to commercial paper, and, there-appreciate at the same
fore, so far as it speaks without am-
biguity as to any such question, ref-
erence to case law as it existed prior
to the enactment is unnecessary and
is liable to be misleading." Colum-
bian Banking Co. v. Bowen, 134 Wis.
218, 221, 114 NW 451.

1. Richards v. Market Exch. Bank Co., 81 Oh. St. 348, 90 NE 1000, 26 LRANS 99.

2. Johnson v. Lassiter, 155 N. C. 47, 71 SE 23 (holding that Code [1883] §§ 41, 50, relating to negotiable instruments and the liability of indorsers thereon, being omitted in the Negotiable Instruments Law. are repealed by the section repealing all laws not contained in the revisal, with certain exceptions and limitations).

3. See Statutes [36 Cyc 1071]. 4. Perry Sav. Bank v. Fitzgerald, 167 Iowa 446, 149 NW 497.

.

to

"The negotiable instruments law has not altered this policy. Negotiability of paper is one thing, and the policy of the state as usury and other oppressive practices quite another, and that statute deals with the former, not the latter. It says not a word about usury. Its purpose was to establish uniformity in the quality, characteristics, and incidents of negotiable paper and to extend the principle of negotiability; but it assumed the validity of the paper contemplated. In other words, it assumed the paper to be such as the law permits the parties to make and allows the courts to enforce. No rule or principle of construction justifies the courts in saying its very general terms repeal positive statutes relating to subjects other than negotiability of valid paper. On the contrary, the rules of construction forbid it." Raleigh County Bank v. Poteet, 74 W. Va. 511, 520, 82 SE 332, LRA1915B 928.

9. Hawaii.-Scott v. Maria, 19 Hawaii 389.

Mass.-Sweetser V. Jordan, 211 Mass. 393, 97 NE 768; Quimby v. Varnum, 190 Mass. 211, 76 NE 671.

Mo.-Gate City Nat. Bank V. Schmidt, 168 Mo. A. 153, 152 SW 101; Merchants' Nat. Bank v. Brisch, 154 Mo. A. 631, 136 SW 28; Merchants' Nat. Bank v. Brisch, 140 Mo. A. 246, 124 SW 76.

Nebr.-Fassler v. Streit, 92 Nebr. 786, 139 NW 628.

N. Y.-Jefferson County Nat. Bank v. Dewey, 181 N. Y. 98, 73 NE 569 [rev 90 App. Div. 443, 86 NYS 350]; University Press v. Williams, 28 Misc. 52, 59 NYS 817 [rev on other grounds 48 App. Div. 188, 62 NYS 986]. Okl.-Adams v. Thurmond, 149 P

1141.

Vt.-Montpelier First Nat. Bank v. Bertoli, 87 Vt. 297, 89 A 359.

[a] lustration.-Where a note was made in California prior to the act of April 4, 1902 (P. L. p 583), which, under 3 Gen. St. (1895) p 3195 pl 37, took effect on July 4, 1902 and was transferred by indorsement in New Jersey after said enactment, its [a] Recovery of payments on negotiability was not governed by forged paper. The act of April 5, said act, but by the preexisting law, 1849 (P. L. 426 § 10), providing that, as § 195 of the act expressly declares where payments have been made on that it does not apply to negotiable forged negotiable instruments, the instruments made and delivered prior amount of the payments may be reto the passage thereof. Mackintosh covered from the persons previously 8. Raleigh County Bank v. Po- v. Gibbs, 81 N. J. L. 577, 80 A 554, negotiating such instruments, is not teet, 74 W. Va. 511, 82 SE 332, LRA | AnnCas1912D 163 [aff 79 N. J. L. 40, repealed by the Negotiable Instru- 1915B 928 (holding that the rule 74 A 708].

6. Perry Sav. Bank v. Fitzgerald, 167 Iowa 446, 149 NW 497.

7. Lawson v. Fulton First Nat. Bank, 102 SW 324, 31 KyL 318.

self was executed before the act went into effect.10 On the other hand, it governs a renewal note executed after the taking effect of such act, notwithstanding the original note was given before the taking effect of the act;11 and especially is this true where new indorsers appear on the renewal note so as to make it in effect a new contract with different parties.12

[49] L. Presumptions. In cases governed by the laws of sister states, it will not be presumed that

the Negotiable Instruments Law is in force in such state, but it will be presumed that the common law prevails.13 Courts will not take judicial notice that the Negotiable Instruments Law has been enacted in a sister state; and hence, where the law of another state governs the case and the Negotiable Instruments Law, as enacted therein, is relied on, it is necessary to prove the law which governs in the sister state.14

V. NEGOTIABILITY

[50] A. In General.15 In this subdivision is considered the question as to what is meant by "negotiability," the kinds of instruments that are negotiable, etc.; but the question whether a particular bill, check, or note is negotiable is treated of hereafter.16

[51] B. What Is Meant by Negotiability. The term "negotiable" is one of classification and does not of necessity imply anything more than that the paper possesses the negotiable quality. In its widest sense, the term applies to any written security which may be transferred by indorsement or delivery, so as to vest in the indorsee or transferee the legal title, so as to enable him to maintain a suit thereon in his own name.18 But this is not all which is properly included in the conception of negotiable instruments. By modern statutes choses in action generally are assignable so as to allow the assignee to bring an action thereon in his own name.19 As used herein, however, and according to the strict commercial sense, it means not only 10. Gate City Nat. Bank V. Schmidt, 168 Mo. A. 153, 152 SW 101. 11. Schneider v. Mueller, 82 N. J. L. 503, 81 A 863; Far Rockaway Bank v. Norton, 186 N. Y. 484, 79 NE 709.

12. Walker v. Dunham, 135 Mo. A. 396, 115 SW 1086.

13. See Demelman v. Brazier, 193 Mass. 588, 79 NE 812; and also infra § 1307.

14. See Statutes [36 Cyc 1252]. 15. Cross references: Changes of, which affect negotiability, as material within rule as to alterations of instruments see Alterations of Instruments §§ 8, 37 et seq. Negotiability of, connected with fraud, as ground for cancellation see Cancellation of Instruments [6 Cyc 288].

16. See infra §§ 206-326. 17. Robinson V. Wilkinson, 38 Mich. 299.

[a] "The word 'negotiable' has no greater significance than have the terms usually employed to communieate the quality of negotiability, and thereby to distinguish commercial paper from other written promises or requests to pay money at all events, which are nonnegotiable because they omit 'order' or 'bearer.'" Stadler v. Helena First Nat. Bank, 22 Mont. 190, 205, 56 P 111, 74 AmSR 582.

18. Shaw v. Merchants' Nat. Bank, 101 U. S. 557, 562, 25 L. ed. 892: Odell v. Gray, 15 Mo. 337, 342, 55 AmD 147.

[a] Illustration-An obligation to pay money, containing stipulations that may render it nonnegotiable, according to the law merchant, is made negotiable, under Rev. St. § 1073, providing that the assignment of instruments in writing shall vest the assignee with the rights, powers, and liabilities of the assignor to the extent of having the entire interest therein transferred by assignment or indorsement and of authorizing the

that the instrument may be assigned and that the assignee may sue upon it in his own name, but also that, if he is a bona fide holder in due course, he takes it free from equities that may exist between prior parties, and that out of the acceptance and transfer of the paper, often by mere signature or delivery, shall arise the well established relations and liabilities that are created by the law merchant.20 So the Negotiable Instruments Law expressly provides that 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; and that, 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 nonnegotiable.2

21

[52] C. Negotiability Not Essential to Validity. Negotiability is not, however, essential to the validity of a bill or note.22 Nonnegotiable bills and assignee or indorsee to sue thereon | Downing v. Backenstoes, 3 Cai. 137. in his own name. Birmingham Trust, etc., Co. v. Jackson County Mill Co., 41 Fla. 498, 27 S 43.

19. See Assignments § 193.
20. National Union Bank v. Shear-
er, 225 Pa. 470, 74 A 351, 17 Ann
Cas 664; Picker v. London, etc., Bank-
ing Co., 18 Q. B. D. 515; Miller v.
Race, 1 Burr. 452, 97 Reprint 398, 3
ERC 626; Scrutton Merc. L. 26.

[a] Otherwise stated. The term
"negotiable" means that an indorsee
for value without notice becomes the
owner of the paper unaffected by
equities and defenses existing be-
tween the original parties. Sampson
Bank v. Hatcher, 151 N. C. 359, 66
SE 308, 134 AmSR 989.

Pa.-Coursin v. Ledlie, 31 Pa. 506;
Leidy v. Tammany, 9 Watts 353.
Vt.-Arnold V. Sprague, 34 Vt.

402.

Va.-Averett v. Booker, 15 Gratt. (56 Va.) 163, 76 AmD 203.

Wis.-Corbett V. Clark, 45 Wis. 403, 30 AmR 763; Mehlberg v. Tisher, 24 Wis. 607.

Eng. Moore V. Paine, Cas. Hardw. 288, 95 Reprint 186; Burchell v. Slocock, 2 Ld. Raym. 1545, 92 Reprint 502; Rex v. Box, 6 Taunt, 325, 1 ECL 635, 128 Reprint 1060; Smith v. Kendall, 6 T. R. 123, 101 Reprint 469.

[b] In the leading case in Amer-
ica' on this important subject, Mur-
ray v. Lardner, 2 Wall. (U. S.) 110,
118, 17 L. ed. 857, Swayne, J., said:
"The general rule of the common law
[of course] is, that, except by a sale
in market overt, no one can give a
better title to personal property than
he has himself. The exemption from
this principle of securities, transfer-ments.
able by delivery, was established at
an early period. It is founded upon
principles of commercial policy, and
is now as firmly fixed as the rule to
which it is an exception."

Effect of transfer by indorsement
or delivery as affecting defenses be-
tween prior parties see infra § 574.
21. Equitable Trust Co. v. Taylor,
146 App. Div. 424, 131 NYS 475.

22. Me.-Roads v. Webb, 91 Me. 406, 40 A 128, 64 AmSR 246; Bates v. Butler, 46 Me. 387; Kendall V. Galvin, 15 Me. 131, 32 AmD 141. Md.- Duncan V. Maryland Sav. Inst., 10 Gill & J. 299.

Mass. Sibley v. Phelps, 6 Cush.
172; Wells v. Brigham, 6 Cush. 6, 52
AmD 750.

Mo. Muldrow v. Caldwell, 7 Mo.
563.
N. Y.-Seymour v. Van Slyck, 8
Wend. 403; Goshen, etc., Turnp. Road
v. Hurtin, 9 Johns. 217, 6 AmD 273;

"It is not essential to the validity of a bill of exchange or promissory note, that it should be negotiable. The advantages arising from the negotiability of such instruments was originally the reason why they were held to be exceptions to the general rule of the common law that choses in action were not assignable. Hence it was once considered that negotiability was essential to such instruBut for a long time, both in this country and in England, it has been held, and is now settled law, that they need not be negotiable." Arnold v. Sprague, 34 Vt. 402, 404. "Negotiability is not necessary to the validity of a promissory note, and the mere fact that it is negotiable in form does not, as between the maker and payee, deprive the former of any defense thereto that he would otherwise have." Fullerton Lumber Co. v. Snouffer, 139 Iowa 176, 178, 117 NW 50.

[a] "Formerly it was doubted whether it was not essential to the character of a bill of exchange that it should be payable, e. g. to A or his order or to bearer. But it is now well settled that it is not essential to the character either of a bill of exchange or of a promissory note that it should be negotiable." Av.. erett v. Booker, 15 Gratt. (56 Va.) 163, 167, 76 AmD 203.

52 [8 C. J.]

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BILLS AND NOTES

notes have a validity and an effect of their own as common-law contracts.23

The Negotiable [53] D. Effect of Statutes. Instruments Law 24 relating to bills of exchange, checks, and promissory notes, provides that an instrument to be negotiable must conform to certain requirements which are therein laid down. These necessary requirements will be noticed later in connection with the law as to the form and contents of Other statutes, at one time or bills and notes.25 another, have to some extent changed the law relating to the effect of a transfer as precluding defenses, as in Mississippi,20 or have changed, in some particulars, the common law as to what provisions in a bill or note render it nonnegotiable.27 And in some states statutes have been enacted providing that notes belonging to any association shall not be negotiable except on an order of court, and such provisions have been held constitutional.28

30

34

all prior equities and defenses,33 except certain defenses which may be said to relate to the very essence of the contract; and (3) because a consideration for a negotiable instrument is presumed, while the consideration of a nonnegotiable instrument must ordinarily be proved.35 Formerly there was another difference, in that an assignee of a nonnegotiable instrument could not sue at law in his own name but only in the name of his assignor 3 but now an assignee of a nonnegotiable instrument may sue in his own name the same as may a transferee of a negotiable instrument.37 Where an action is brought on an instrument by the payee, it is generally of no importance whether the instrument is negotiable or nonnegotiable."

38

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[55] F. Duration and Extent-1. In General The Negotiable Instruments Law expressly provides that an instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise;~* and this is merely declaratory of the common law.** A note which is negotiable by its terms does not lose that characteristic until paid or merged in a judgment.41

[56] 2. Death of Original Payee. The death of the original payee does not affect the negotiability of the paper.1

42

44

[54] E. Importance of Determining Whether Instrument Is Negotiable. It is highly important that negotiable paper be favored and protected in the hands of innocent holders,29 since negotiable bills, checks, and notes represent money and are intended to pass from hand to hand as money.3 Further The importance of determining whether an instru[57] 3. Indorsement as Affecting.43 ment is negotiable or not arises because (1) an innegotiation of a bill or note may be restricted by strument, if negotiable, may be transferred without notice to the debtor, while a transfer of a nonnegoapt words of indorsement, as by an indorsement tiable chose in action must be with notice to the that "this note is not transferable;" 45 but the indebtor in order to deprive him of equities arising dorsement of paper "without recourse" does not A special indorsement after the assignment;31 (2) because the assignee of affect its negotiability.46 without negotiable words will not affect the negoa nonnegotiable instrument takes it subject to all tiability of the instrument;47 and conversely an equities and defenses available between the original parties,32 while a transferee of a negotiable instruindorsement to order or to bearer will not give negotiability to a nonnegotiable instrument.48 Addment, where he is a holder for value and in due course, that is, a bona fide holder, takes free from note is negotiable. Hegeler v. Com- upon both notes contemporaneously with their making, and that the face and the back of both the notes must Reed v. Murphy, 1 Ga. 236. stock, 1 S. D. 138, 45 NW 331, 8 LRA 393. be read together as forming the conSee supra §§ 35-49. tract between the parties. Whether the memorandum qualifying the efAnd fect of the note is underwritten or endorsed, is immaterial, so long as it was a part of the original contract.

23.

24.

25.

See infra §§ 206-326.

26.

Kershaw v. Merchants' Bank,
See also

8 Miss. 386, 40 AmD 70.

infra 1005.

27. See infra §§ 206-326.

28.

Bowlley v. Kline, 28 Ind. A. 659, 63 NE 723; Bowlley, v. Kline, (Ind. A.) 60 NE 712.

29.

Gaston v. J. I. Campbell Co., 104 Tex. 576, 580, 140 SW 770, 141 SW 515 (where the court said: "Negotiable papers in the shape of bills, notes, cheques and drafts evidence not only a large part of the wealth of the country, but furnish the means and basis on which and by which the commerce and greater part of the business of the nation is conducted. There passes through the banking houses of the country and through the mails every day of the year, in this form, a merchandise that far 'Outshines the wealth of Ormus and It has been truly said of of Ind.' them that they are 'couriers without luggage.' Not only by the law merchant of this country and England is negotiable paper favored and protected, but generally it is also protected by statute").

30. Herrick v. Edwards, 106 Mo. A. 633, 81 SW 466.

31.

32.

See Assignments § 95.
See infra §§ 67, 577.
importance
[a] The principal
which is to be attached to the ques-
tion of negotiability arises from the
rule of law which subjects all non-
notes to any
negotiable bills and
equities which may arise between
when they are
prior parties, even
transferred to a bona fide purchaser
for value, and which precludes such
equities as a defense as against a
bona fide purchaser where the bill

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39. Oakdale Mfg. Co. v. Clarke, 29 40. Wettlaufer v. Baxter, 137 Ky. R. I. 192, 69 A 681. 362, 371, 125 SW 741, 26 LRANS 804 (where the court said: "When a pa[a] But the indorsement by subsequent holder of his personal Leland v. Par-. per is started on its journey into the commercial world, it should retain to the end the character given to it in promise not to transfer the note does If it was intended to be a ne-riott, 35 Iowa 454. 46. See infra § 550. the beginning and written into its not have this effect. If 47. Halbert v. Ellwood, 1 Kan. A. face. 41 P 67; Muldrow v. Caldwell, gotiable instrument, and was so written, it should continue to be one. it was intended to be a non-negoti- 95, Then everyone Y. 494, 53 AmD 322 [rev 3 N. Y. SuContra Lawrence v. Fusable instrument and was so written, 7 Mo. 563; Leavitt v. Putnam, 3 N. per. 199]. it should so remain. who puts his name on it, as well as 1 S. C. L. 160 (an indorsement to A everyone who discounts or purchases sell, 77 Pa. 460; Holmes v. Hopper, to appropriate the money to his own it, will need only to read it to know liabilities are"). use when recovered). what it is and what his rights and with power to sue in his name and

41. Roads v. Webb, 91 Me. 406, 40
A.128, 64 AmSR 246.

42. Brennan v. Merchants', etc.,
Nat. Bank, 62 Mich. 343, 28 NW 881
(to subject it to the defense that
an in-
under a fraudulent indorse-
payment had been made to
dorsee
ment by the payee's agent).
43.

Crossed checks see supra § 15.
44. See infra §§ 544-547.
45. Freidman v. Wagner, 1 Tex.
A. Civ. Cas. § 734.

"The evidence leaves no doubt upon
my mind that the words, "This within
note not to be sold,' were endorsed

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later cases, developments and

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