ing knowledge of the funds, as if payable to bearer. Under the common law a bill payable to a fictitious person or his order was neither in effect payable to the order of the drawer nor to the bearer, unless it was shown that the circumstance of the payee being a fictitious person was known to the acceptor.65 To show that the acceptor was aware that the payee was a fictitious person, evidence is admissible of the circumstances under which he accepted other bills payable to fictitious persons."

66

The fictitiousness of the maker's direction to pay does not depend upon the identification of the name of the payee with some existing person, but upon the intention underlying the act of the maker in inserting the name. The rule as to an instrument payable to the order of a fictitious or nonexisting person applies only to paper put in circulation by the maker with knowledge that the name of the payee does not represent a real person. The maker's intention is the controlling consideration. It cannot be treated

according to the terms of the con- court was that, where the circumtract. All the law requires is that stance of the payee on a bill being a the paper must have negotiable words fictitious person is known to the acon its face, showing it to be the inten- ceptor, the bill is in effect payable tion to give it a transferable quality to bearer. Soon after this the Court by delivery; otherwise the instrument of Common Pleas declared the same must be transferred by written indorse- rule in Collis v. Emet, 1 H. Bl. (Eng.) ment, if payable to order; or sued on 313. by the original payee, if there are no negotiable words at all."

64. N. Y. Rev. Stat., pt. 2, chap. 4, tit. 2, § 5, repealed by the Negotiable Instruments Law.

The English Bills of Exchange Act (8 7 [3]) provides that "where the payee is a fictitious or nonexisting person, the bill may be treated as payable to bearer." This provision was held, in the case of Bank of England v. Vagliano (1891), App. Cas. 107, to change the law upon this subject in England.

65. Bennett v. Farnell, 1 Campb. (Eng.) 130; s. c., id. 180.

Minet v. Gibson was carried up to the House of Lords. There, Eyre, C. B., Heath, J., and Lord Thurlow, C., dissenting, a majority of the court affirmed the judgment. See 2 Parl. Cas. 48.

66. Phillips V. Mercantile Nat. Bank, 140 N. Y. 556, 35 N. E. 982, 37 Am. St. Rep. 596, 23 L. R. A. 584. In this case checks were drawn by the cashier of a bank in favor of customers of the bank, but without their knowledge, and without intending them to have any interest therein; the cashier then forged their indorsements and delivered the checks to third persons to Historical statement.- It is said by be collected for his benefit. The bank the annotator of Campbell's Reports was held liable for the checks thus (1 Campb. [Eng.] 133), that al- drawn by its cashier. The court said: most all the modern cases upon this "If the checks had been drawn diquestion arose out of the bankruptcy rectly to the order of the real parof Livesay & Co. and Gibson &ties, the defendant would undoubtedly Co., who negotiated bills with have been protected in paying them. fictitious names upon them to the amount of nearly a million sterling a year. One of the cases which first put this point directly in issue was Minet v. Gibson, 3 T. R. (Eng.) 481. The unanimous opinion of the

As it was, the payees were fictitious persons in the eye of the law, and the only real parties were the firms in New York, to whom the cashier sent them in such form that they could draw the money upon them."

as payable to the bearer unless the maker knows the payee to be fictitious and actually intends to make the paper payable to the fictitious person." 68 Where a note is made payable to a firm, and no such firm exists, the person to whom such note was given may assume such firm name and indorse the note in the name of such firm, and it will be a good indorsement in the hands of an innocent holder, who may collect the same of the maker.69

66

(4) When name of payee does not purport to be that of any person.- Independent of the statute, the rule is that the validity of a negotiable instrument is not destroyed because it is made payable to an impersonal payee, as where a bank check or draft read, Pay to bills payable or order," or to a number or order, it was held to be payable to the bearer.70 Such instruments are payable to bearer on the ground that the use of the words "or order" indicates an intention that the paper shall be negotiable. A common way of making checks payable to bearer is to make them payable to "Cash," and there never has been any question as to the validity of such instruments. But a check for the payment of money "to the order of, or on sight," without specifying any payee or leaving any blank, has been held not to be a check.71

(5) When only a last indorsement is in blank. It has always been the rule that an instrument indorsed in blank is transferable by delivery only in the same manner as an instrument payable to

Coggil v. American Exch. Bank,
Y. 113, 49 Am. Dec. 310.

68. Shipman v. State Bank, 126 N. son. Y. 318, 27 N. E. 371, 22 Am. St. Rep. 1 N. 821, 12 L. R. A. 791; Irving Nat. 69. Blodgett v. Jackson, 40 N. H. Bank v. Alley, 79 N. Y. 536; Turnbull v. Bowyer, 40 N. Y. 456.

21.

70. Mechanics' Bank v. Straiton, 3 In the case of Armstrong v. Nat. Abb. N. Y. Ct. App. Dec. 269. See Bank, 46 Ohio St. 512, 15 Am. St. also Willitts v. Phoenix Bank, 2 Duer Rep. 655, the general rule was held (N. Y.), 121, in which case three not to apply, because the plaintiff had certified checks payable to the order drawn a check on the defendant bank of "bills payable and one "to the payable to William Brown, who was order of 1658," were under considerarepresented to her to be an actual per- tion. The court said: "As the reson; it was said by the court: "If quired order could not in either case the fictitious character of the payee possibly be given, the checks, unless is unknown to the drawer, whoever transferable by delivery, were payindorses the paper in that name with intent to defraud, perpetrates a forgery and the indorsement is void, a general intent to defraud being sufficient to constitute the offense.'

A note or bill which, although bearing the indorsement of the payee, has been negotiated by the drawer for his benefit, the payee not being a party to the transaction, may be treated as if drawn payable to a fictitious per

able to no one, and were void upon their face. The law is well settled that a draft payable to the order of a fictitious person, inasmuch as title cannot be given by an indorsement, is, in judgment of law, payable to bearer, and it seems to us quite manifest that in principle these decisions embrace the present case."

71. McIntosh v. Lytle, 26 Minn. 336, 3 N. W. 983, 37 Am. Rep. 410.

bearer. 72 And it has been held that where a note indorsed in blank by the payee, is afterward transferred by an indorsement in full, it is still transferable by a delivery and the party to whom it is so transferred may make title by filling up the blank indorsement to himself and striking out subsequent ones."

§ 41. Additional provisions not affecting negotiability.

73

a. Statutory provision.- The Negotiable Instruments Law contains the following:

"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:

66

66

"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 instrument 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 provision or "stipulation otherwise illegal." 74

We have already considered the effect of a promise or order to

Arkansas

72. Alabama.- Carter v. Lehman, 90 Ála. 126, 7 South. 735. Sterling v. Bender, 7 Ark. 201, 44 Am. Dec. 539. California.- Curtis v. Sprague, 51 Cal. 239.

Illinois.- Wooley v. Lyon, 117 Ill. 244, 6 N. E. 885, 57 Am. Rep. 867; Morris v. Preston, 93 Ill. 215; Palmer v. Marshall, 60 Ill. 289.

Indiana.- Grimes V. Piersol, 25 Ind. 246.

Kentucky.- Caruth V. Thompson, 16 B. Mon. 572, 63 Am. Dec. 559. Louisiana.- Merz v. Kaiser, 20 La. Ann. 377.

Maine.- McDonald v. Bailey, 14 Me.

101.

Maryland.- Lucas v. Byrne, 35 Md.

485.

Massachusetts.- Lindsay v. Chase, 104 Mass. 253; Little v. O'Brien, 9 Mass. 423.

do an act in addition to the payment of money.75 In this section we will consider the effect of provisions for (1) the sale of collateral securities; (2) for confession of judgment if instrument is not paid at maturity; (3) for a waiver of the benefits of a law intended for the protection of the obligor, and (4) for an option in the holder to require something to be done in lieu of the payment of money.

b. Provision authorizing sale of collaterals. We have already referred to the effect of a provision in an instrument, authorizing the sale of certain collaterals, upon the unconditional character of the order or promise to pay." 76 The above section of the Negotiable Instruments Law has evidently adopted the rule as laid down by the courts, for it seems well settled in every jurisdiction that although it may appear on the face of the note that its payment is secured by collaterals in personal property, or mortgage of real property, yet if otherwise in proper form, it is negotiable."

75. See § 37 (f), ante. 76. See § 37 (f), ante. 77. Heard v. Dubuque County Bank, 8 Neb. 10, 30 Am. Rep. 811.

Notes secured by collateral.- The leading New York case on this subject is, perhaps, that of Arnold v. Rock River, etc., R. Co., 5 Duer (N. Y. Super. Ct.), 207. In this case the instrument sued upon was in the following terms:

"$5,000.

66

this note; and in case the proceeds thereof, after paying the principal and interest due thereon, with all expenses of sale, shall be insufficient, we hold ourselves bound to pay the balance on demand.

"A. HYATT SMITH, President. (L. S.) "WM. A. LAWRENCE, Secretary."

It was contended that the instrument given in evidence was not a promissory note, but an agreement, on the part of the company, to pay the difference between what the bonds might bring on a sale and $5,000, should the proceeds of such sale be less than that sum, and the expenses of the sale; and that the defendants, Smith and Doe, were not liable

NEW YORK, January 31st, 1853. "Six months after date, the Rock River Valley Union Railroad Company promises to pay to the order of A. Hyatt Smith and J. Bodwell Doe, for value received, at the Hanover Bank of this city, five thousand dollars, having deposited with Elisha thereon. Peck, as collateral security and pledge The court said: "The only imfor the payment of this note, ten bonds portant question is this: Is an entire of the said railroad company, of one contract, part of which is, in form, a thousand dollars each, numbered as good promissory note, but which also follows-758, 759, 760, 761, 762, 763, contains a special contract, in rela776, 783, 784, 786- and we hereby give the said Peck full power and authority, on the nonpayment of this note at maturity, or at any time thereafter, to sell said bonds at the brokers' board, in this city, or at public or private sale, or so many as shall pay this note, on giving six days' notice, by advertising in the Journal of Commerce, in this city, and apply the proceeds of said bonds to the payment of

tion to the money promised to be paid, a good promissory note, negotiable by statute, as to so much of the contract as is, in form, a promissory note?

"By this instrument, ten bonds are pledged, as security for the payment of the $5,000. By it, Elisha Peck is made a trustee, to hold and sell the bonds, and apply the proceeds. The mode of sale is agreed upon; and, on pursuing the mode specified, the maker

An instrument in terms and form a negotiable promissory note does not lose that character because it recites that the maker has deposited collateral security for its payment, which he agrees may

"Instruments like the present are "In the present case, the collateral, of common use. The persons indorsor additional contract, which the in- ing them undoubtedly intend to stand strument embodies, relates solely to in the position, and to incur the liathe money promised to be paid. It bilities of indorsers of commercial provides a security for the payment of the money, prescribes the mode of converting the security, how the proceeds shall be applied, and the extent of the maker's liability under the collateral contract, after the security shall have been exhausted in the manner stipulated.