§ 16. Checks.

a. Definition.

b. Distinction between checks and bills of exchange.

§ 17. Bills of Lading.

a. Definition.

b. Negotiability.

§ 18. Letters of Credit.

a. Definition and nature.

b. Classification.

c. Effect of letters of credit.

§ 19. Bonds and Coupons.

§ 20. Certificates of Stock.

A. IN GENERAL.

§ 1. Commercial paper defined.

Commercial paper is a term synonymous with negotiable paper. It includes bills of exchange, promissory notes, bank checks, and all other negotiable instruments. It has been defined as any negotiable instrument given in due course of business, whether the element of negotiability be given it by the law merchant or by statute.1 This definition assumes negotiability as the essential element of commercial paper. There are, however, many other instruments of credit which are generally nonnegotiable in character, but which are so commonly used in the furtherance of commercial transactions as to be included within the term "commercial paper." paper." Among these are warehouse receipts, bills of lading, corporate and municipal bonds, letters of credit, and due bills, which are not, by express terms or by statute, made negotiable. All these instruments should be considered in a treatise on commercial paper, and will be hereafter discussed in their proper places.

§ 2. Law merchant; when to control.

It is provided in the Negotiable Instruments Law, which has been adopted in many of the States, that in any case not pro

1. In re Sykes, 5 Biss. (U. S.) 113, 2. The Negotiable Instruments Law Fed. Cas. 13,708. See also Black's has been adopted in the following L. Dict. 226; Bouvier's L. Dict. 359. States: New York, Massachusetts, Tiedeman defines commercial paper Rhode Island, Connecticut, Pennsylas including all those instruments of vania, Maryland, Virginia, North Caroindebtedness which are treated and lino, Tennessee, Florida, Wisconsin, used, in the commerce of the world, North Dakota, Colorado, Utah, Oregon, as the equivalents or representatives Washington, Ohio, New Jersey, Iowa, of money, or which are given the char- and in the Territory of Arizona and acteristics of money in the furtherance the District of Columbia. See Appenof commercial ends. dix.

vided for in that act, the rules of the law merchant shall govern. The law merchant is a part of the public law; it does not rest essentially for its character and authority on the positive institutions and local customs of any particular country, but consists of certain principles of equity and usages of trade, which general convenience and the common sense of justice have established, to regulate the dealings of merchants and mariners in all the commercial countries of the civilized world. Before legislatures enacted statutes, and the courts decided cases which became a part of the written law, the necessities of business and the usages of trade produced a system controlling absolutely commercial intercourse.

The lex mercatoria became a part of the law of the land; it developed along side of the common law; it was gradually recognized by the courts until, at the present time, the principles of equity and good faith, so imperatively demanded in all commercial transactions, and which lie at the foundation of the law merchant, have, for the most part, become a part of the common law, or been placed on our statute-books by legislative enactment. As has been stated by Chief Justice Cockburn in a leading English case: "The law merchant thus spoken of, with reference to bills of exchange and other negotiable instruments, though forming part of the body of the lex mercatoria, is of comparatively recent origin. It is neither more nor less than

the

usages

of merchants and traders in the different departments of trade ratified by the decisions of the courts of law."

It was contended, and decided by Lord Blackburn, that usage could not have the effect of conferring the incident of negotiability on a document that was not negotiable by the ancient law merchant." This decision, if followed, would have effectually checked the expansion of the law merchant in its application to negotiable instruments, and would have prevented the development of the law relating thereto by the modification of existing and the creation of new customs regulating their use. The principle declared by Lord Blackburn was fortunately disapproved and overruled in the case of Goodwin v. Robarts. It is now generally accepted as a true doctrine that general customs of trade, sufficiently ascertained and proved, become a part of the

3. Neg. Inst. Law (N. Y.), § 7. See Appendix.

4. 3 Kent's Comm. 2.

5. Goodwin v. Robarts, L. R., 10 Exch. (Eng.) 346.

6. Crouch v. Crédit Foncier, L. R., 8 Q. B. (Eng.) 374.

law merchant which the courts will recognize and enforce. As was said by Lord Cockburn, in the case of Goodwin v. Robarts: "While we quite agree that the greater or less time that a custom has existed may be material in determining how far it has generally prevailed, we cannot think that if a usage is once shown to be universal, it is the less entitled to prevail, because it may not have formed part of the law merchant as previously recognized and adopted by the courts."

B. BILLS OF EXCHANGE.

A bill of exchange is an order in writing directing one person to pay another a given sum of money absolutely. This definition is modeled somewhat after that of Chancellor Kent, who defines a bill of exchange as a written order or request by one person to another, for the payment of money, absolutely and at all events. Since the passage of the Bills of Exchange Act of 1882 in England it may be assumed that the authorized definition of a bill of exchange in that country is that contained in that act. By section 3 of that act a bill of exchange is defined an unconditional order in writing, addressed by one per

son 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 or to the order of a specified person, or to bearer." It is further provided in the same section of that act that an instrument which does not comply with the conditions therein imposed, or which orders any act to be done in addition to the payment of money, is not a bill of exchange. The definition contained in the English Bills of Exchange Act has been adopted as a part of the Negotiable Instruments Law, and is now the authorized definition in all those States which have adopted that law; the fact that such definition has now become a part of the law in many important jurisdictions would seem to be sufficient to warrant its acceptance as the most authoritative of all definitions, and to justify its use by text-writers and judges, whether without or within those jurisdictions.

4. Origin of bills of exchange.

a. Where originated.- Bills of exchange are known to be of comparatively modern origin, having been first brought into use, so far as 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.10

9. Neg. Inst. Law, § 210.

10. Lord Chief Justice Cockburn in Goodwin v. Roberts, L. R., 10 Exch. 346. It was stated in a law tract by Macleod, entitled "Specimen of a Digest of the Law of Bills of Exchange' that Richard Malynes, a London merchant, who published a work called Lex Mercatoria, in 1622, and who gives a full account of these bills as used by the merchants of Amsterdam, Hamburg, and other places, expressly states that such bills were not used in England. There is reason to think, however, that this is a mistake. Mr. Macleod shows that promissory notes, payable to bearer, or to a man and his assigns, were known in the time of Edward IV. Indeed, as early as the statute of 3 Rich. II, chap. 3 (1379), bills of exchange are referred to as a means of conveying money out of the realm, though not as a process in use among English merchants. But the fact that a London merchant writing

expressly on the law merchant was unaware of the use of bills of exchange in England shows that that use at the time he wrote must have been limited.

Blackstone (2 Comm. 467) says in regard to the origin of bills of exchange: "This method is said to have been brought into general use by the Jews and Lombards when banished for their usury and other vices, in order the more easily to draw their effects out of France and England into those countries in which they had chosen to reside. But the invention of it was a little earlier; for the Jews were banished out of Guienne in 1287, and out of England in 1290; and in 1236 the use of paper credit was introduced into the Mogul Empire in China."

b. Law merchant; customs of merchants.-There can be no doubt but that bills of exchange, and indeed all other negotiable instruments have their origin in the law merchant. The customs of commerce established these useful mediums as the natural result of the necessities attending commercial transactions. The introduction and use of bills of exchange in England, as indeed everywhere else, seems to have been founded on the mere practice of merchants, and gradually to have acquired the force of custom.11

The inconvenience of exchanging article for article gave rise to the use of money as a medium of exchange. Early in the history of the nations of antiquity the use of money became general.12 While there is no vestige of the existence of bills of exchange among the ancients, and the precise period of their introduction is somewhat controverted, it is apparent that their first use came from the convenience of transferring the bill from one place to another rather than the money which it represented."

the faction of the Gabelings, they established themselves at Lyons and other towns. On the whole, however, there is no certainty on the subject, though it seems clear foreign bills were in use in the fourteenth century, as appears from a Venetian law of that period; and an inference drawn from the statute 5 Rich. II, pt. 1, chap. 2, warrants the conclusion that foreign bills were introduced into this country previously to the year 1381." Daniel says, in his work on Negotiable Instruments (§ 4): "And there is reason to believe that bills of exchange were known in England as early as 1307, since in that year King Edward I ordered certain money collected in England for the Pope, not to be remitted to him in coin or bullion, but by way of exchange (per viam Cambii).” Citing Anderson's History of Commerce, vol. 1, p. 361. 11. Story on Bills of Exchange, §§ 5-11.

12. Use of money by ancients.When money was invented as the common medium of commerce, the exchange of money for goods, which properly constitutes a sale, and of money for money, which is but a form of exchange, can be traced distinctly in the common transactions of the same nations, as well as in the intercourse of different nations. Thus, the ex

change of goods for money, and of money of one denomination for another, may be found stated in the early Hebrew Scriptures; and those who sat at the tables to exchange the one for the other were called bankers, or masters of the exchange, or moneychangers. Story on Bills of Exchange, § 5.

13. Origin as stated by Kyd.— In the infancy of mankind, nature pointed out the simple mode of exchanging one commodity for another, by a comparative estimation of their respective values, dictated by the immediate wants of the parties to the exchange. But when the occupation of a merchant became a distinct profession, prospects of a more distant gain introduced a more exact appreciation of the value of the several articles; and a common standard, under the denomination of money, to which everything else should be referred as its measure, appears to have been adopted at a very early period in the history of mankind. It is probable, from the low state of navigation and commerce in the ancient world, that the only improvement, till long after the subversion of the Roman Empire, was the reduction of the rude pieces of antiquity to a more commodious form, under the sanction of the State. It was reserved for an oppressed people,