thorities are conflicting as to whether or not parol evidence is: admissible to establish such relationship where it is not shown on the face of the note; the weight of authority is apparently in favor of the admissibility of such evidence, where it appears that the holder had notice of the relationship. 89 In the absence of anything to the contrary on the face of the note, the presumption is that the signers of a note are joint makers and not principal and surety.

90

d. Existence and rights of payee.- The provision of the statute that the maker of a negotiable instrument admits the existence of the payee and his then capacity to indorse is declaratory of the common-law rule. Cases frequently arise involving the question of the right of a corporation to take or discount commercial paper. In general, whoever contracts with a corporation, in the use of corporate powers and franchises and within the scope of such powers, is estopped from denying the corporate existence, or inquiring into the regularity of the corporate organization, when an enforcement of the contract, or a right arising under it is sought." And where a note is discounted by a corporation the maker cannot defend an action brought thereon, on the ground that the corporation had, by its charter, no power to discount notes.92 And where

91

the note and the contract of indorsement may be qualified and changed by parol testimony, and the intention of the parties established by showing facts and circumstances of the transaction.

90. Johnson v. King, 20 Ala. 270; Lord v. Moody, 41 Me. 127; Derry Bank v. Baldwin, 41 N. H. 434.

of the fact to the other party. If rights of the indorser on the face of this is shown aliunde, it is equally effective. There is nothing inconsistent in the instrument with the fact that the defendant signed as surety, as in 10 Pet. (U. S.) 263, where the sureties bound themselves in terms as principals. The fact is collateral to the contract proving simply the relation of the parties. It is an extrinsic circumstance, not affecting the contract made, but which operates, when know!edge of it is brought home to the creditor, to prevent him from changing the contract, or making a different one with the principal debtor, without the consent of the surety, or from releasing any security held for the payment of the debt and imposes the duty of enforcing the contract when due, upon request of the party."

91. Cahall v. Citizens' Mut. Bldg. Assn., 61 Ala. 232; Marion Sav. Bank v. Dunkin, 54 Ala. 471; Vater v.

Lewis, 36 Ind. 288, 10 Am. Rep. 29;
Ray v. Indianapolis Ins. Co., 39 Ind.
290; Jones v. Home Furnishing Co., 9
App. Div. (N. Y.) 103.

92. Gorrell v. Home Life Ins. Co., 63 Ins. Co. v. Wilcox, Fed. Cas. No. 9,980, Fed. 371, 11 C. C. A. 240; Mutual Life 89. 1 Parsons on Notes and Bills, 8 Biss. (U. S.) 203; First Nat. Bank 234; Hubbard v. Gurney, 64 N. Y. v. Gillilan, 72 Mo. 77; Exchange Nat. 456; Harris V. Brooks, 21 Bank v. Capps, 32 Neb. 242, 49 N. W. Pick. (Mass.) 195; McGee v. Prouty, 9 Metc. 223; Congregational Soc. v. Perry, 6 (Mass.) 547; Davis v. Barrington, 30 N. H. 164, 25 Am. Dec. 455; Holmes N. H. 517. See also Witherow v. Slay. & Griggs Mfg. Co. v. Holmes & Wesback, 158 N. Y. 649, 53 N. E. 681, sel Metal Co., 53 Hun (N. Y.), 52, 5 where it was held that, as between N. Y. Supp. 937, affd. in 127 N. Y. the original parties, the apparent 252, 27 N. E. 831.

a promissory note is made payable to a payee generally, the maker admits the right of the payee to receive the money, and he is. estopped from insisting that the beneficial interest is in others.93 If the note is payable to a firm the maker cannot set up as a defense that no such firm existed.94 The maker of a negotiable promissory note warrants the capacity of the payee to transfer it by indorsement in the usual course of business.95 As said by Mr. Edwards: "By making the note, or accepting the bill and issuing it, the maker or acceptor asserts to the world the competency of the payee to negotiate and assign the paper; and they are not afterward permitted to gainsay the assertion so made." 96

§ 81. Liability of drawer.

a. Statutory provision.- The Negotiable Instruments Law provides that: "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 dishonored, 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 liability to the holder." This section is similar to a provision contained in the English Bills of Exchange Act, except that the English act states that the drawer engages to pay the bill on due presentment, and is precluded from denying to a holder in due course the existence of the payee and his then capacity to indorse. The last sentence of the section is not contained in the English act. This provision is inserted, presumably for the purpose of permitting the drawer to limit his

93. Grigsby's Exr. v. Nance, 3 Ala. 347; Wheeler v. Barr, 7 Ind. App. 381, 34 N. E. 591; Johnson v. Conklin, 119 Ind. 109, 21 N. E. 462; Blacker v. Dunbar, 108 Ind. 217, 9 N. E. 104.

94. Rice v. Goodenow, Tapp. (Ohio) 126; Griener v. Ulery, 20 Iowa, 266. In an action by an indorsee against a maker of a note payable to the order of a firm, the defendant cannot set up as a defense that the name of the firm was indorsed by an infant partner. Dulty v. Brownfield, 1 Pa. St. 497.

95. Walke v. Kuhne, 109 Ind. 313, 10 N. E. 116; Mayer v. Old, 57 Mo. 639; Bigelow on Estoppel, 212, where it is said: “The execution of a negotiable note is a warranty of the existing capacity to indorse the paper.

96. Edwards on Bills and Notes, § 363.

97. Neg. Inst. L. (N. Y.), § 111. For same section in statutes of other States see Appendix.

98. English Bills of Exchange Act 1882, § 55(1).

liability to the holder to the same extent and in the same manner as an indorser, without recourse.

99

b. Liability in general.— The liability of a drawer is, in most respects, equivalent to the liability of a general indorser. The statute declares the character and extent of this liability as formerly expressed by the common-law rule. A drawer is a conditional debtor up to the time that the instrument is presented, dishonored, and the necessary proceedings taken to notify him of such dishonor; from that time he becomes an absolute debtor, and the holder of the instrument may compel him to pay it. When one delivers to another an order on a third person to pay a specified sum of money to the person to whom the order is given, the natural import of the transaction is that the drawee is indebted to the drawer in the sum mentioned in the order, and that it was given to the payee as a means of paying or securing the payment of his debt. In other words, it implies the relation of debtor and creditor between the parties to the extent of the sum specified in the order, and a willingness on the part of the debtor to pay the debt.1 Where a bill of exchange is drawn on a third person in favor of a donee, and is delivered to him as a gift causa mortis, the drawee's failure to accept and pay the instrument creates no! cause of action against the executors of the donor. The liability of the drawer of a bill of exchange, where he has funds of the drawee in his hands, is fixed when the bill was duly presented to the drawee and payment refused and the drawer duly notified of the refusal. But where the drawer has no funds in the hands of the drawee, nor expectation of any, he is not entitled to notice of the refusal of payment by the drawee. The decided weight of

3

2

99. Randolph v. Parish, 9 Port. A gift causa mortis requires for (Ala.) 76; Kupfer v. Galena Bank, 34 validity that either the thing itself Ill. 328, 85 Am. Dec. 309; Pitcher v. be given, or some sufficient means of Banks, 7 B. Mon. (Ky.) 584; Cum- reducing it to possession should be mings v. Kent, 44 Ohio St. 92, 4 N. E. delivered to the donee. A bill of ex710, 53 Am. Rep. 796. In the last change does not operate as an assigncase the court said: "The liability ment until accepted, although drawn assumed by the drawing of a bill of for a specified sum and against funds exchange is clearly recognized by law. of the drawer in the hands of the The mere act of drawing a bill imports drawee. The delivery of such a draft, the most certain and precise contract unaccepted, is, therefore, inoperative that the bill shall be accepted and paid, and that if it is not, the drawer will pay it."

1. Manchester v. Braender, 107 N. Y. 346, 14 N. E. 405.

2. Harris v. Clark, 2 Barb. (N. Y.) 94, affd. in 3 N. Y. 93, 51 Am. Dec. 352.

as a gift in view of death; and the draft cannot be enforced against the personal representatives of the drawer. From opinion of Ruggles, J., in 3 N. Y. 93.

3. Kupfer v. Bank of Galena, 34 Ill. 328, 85 Am. Dec. 309, in which the court says: "The testimony to

authority is in favor of the principle that evidence is not admissible to prove a contemporaneous parol agreement that the liability of the drawer of a bill of exchange is not to be enforced. In most of the States it is provided by statute that in case of a nonacceptance of a bill of exchange, the drawer thereof shall be liable to damages. Under the law merchant, the drawer of a foreign bill of exchange was liable in case of protest for costs and other incidental charges, and also for re-exchange, whether direct or circuitous.5 The statutes of the several States, as a rule, fix a certain rate per cent. as damages, generally for the purpose of obviating the difficulty of proving the price of re-exchange.

control the rights or liabilities of parties to commercial paper. See also Wood v. Surrells, 89 Ill. 107; Martin v. Cole, 104 U. S. 30; Day v. Thompson, 65 Ala. 269; Bartlett v. Lee, 33 Ga. 491; Stubbs v. Goodall, 4 Ga. 106; Stack v. Beach, 74 Ind. 571, 39 Am. Rep. 113; Holton v. McCormick, 45 Ind. 411; Crocker v. Getchell, 23 Me. 392; Davis v. Randall, 115 Mass. 547, 15 Am. Rep. 146; Bigelow v. Colton, 13 Gray (Mass.), 309, 74 Am. Dec.. 633; Barnard v. Gaslin, 23 Minn. 192; Barry v. Morse, 3 N. H. 132; Woodward v. Foster, 13 Gratt. (Va.) 200; Heath v. Van Cott, 9 Wis. 516.

c. Words limiting liability.— Independent of the statute, the drawer may, like an indorser, add to his signature restrictive or qualifying words to exempt himself from personal liability. In the point that the payee would take verbal terms and conditions cannot the drafts only on the responsibility of the appellant, and his alleged promise to guarantee them, amount to nothing; for by the very act of drawing, he guaranteed their payment, and could be called upon for payment on certain conditions that, having funds in the hands of the drawee, the drafts were presented to the drawee for payment, and payment refused, and he duly notified of the refusal. His liability is then complete. But if he had no funds in the hands of the drawee, nor the expectation of any, he would not be entitled to notice of the refusal of the drawee. And the reason is, having no funds, notice could do him no good; there was nothing in jeopardy which he might save by timely notice." See also Neg. Inst. L. (N. Y.), § 185, post, chap. IX, § 117 (d). And as to necessity of presentment where drawer had no funds in hands of drawee, see chap. VIII, § 99, post.

4. Evidence inadmissible to prove contemporaneous agreement.-Cummings v. Kent, 44 Ohio St. 92, 4 N. E. 710, 58 Am. Rep. 796, in which case evidence to prove that at the time of the drawing and delivery of the bill of exchange, it was agreed between the payee and the drawer that the latter should not be liable as such drawer, was held inadmissible. This principle is based upon the rule that the agreement cannot exist partly in writing and partly in parol, and that

How. (U. S.) 711, 11 L. Ed. 439.
5. Union Bank v. United States, 2

6. Brown v. Van Braan, 3 Dall. (U. S.) 344, 1 L. Ed. 629; Murphy v. Andrew, 13 Ala. 708; State Bank v. Bowers, 8 Blackf. (Ind.) 72; Campbell v. Swasey, 12 Ind. 70; First Nat. Bank v. Owen, 23 Iowa, 185; Wood v. Farmers & Mechanics' Bank, 7 T. B. Mon. (Ky.) 281; Warren v. Coombs, 20 Me. 139; Weldon v. Buck, 4 Johns. (N. Y.) 144; Pesant v. Pickergill, 56 N. Y. 650; West v. Valley Bank, 6 Ohio St. 168; Watt v. Riddle, 8 Watts (Pa.), 545; Cox v. Tennessee Bank, 3 Sneed (Tenn.), 140.

7. Chitty on Bills, 32, 33, 34, 234. When it is laid down that an indorser stands in all respects in the same situation as a drawer, all the conse quences follow which are attached to the situation of the latter. Lord El

any event the liability of a drawer to the payee can only be controlled by an express and distinct agreement that the payee takes the bill at his own risk as to the solvency of the drawee or his acceptance thereof.8

§ 82. Liability of acceptor.

a. Statutory provision. It is provided in the Negotiable Instruments Law that: "The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance; and admits:

"1. The existence of the drawer, the genuineness of his signa"ture, and his capacity and authority to draw the instrument.

"2. The existence of the payee and his then capacity to in"dorse." The English Bills of Exchange Act contains provisions somewhat similar to the above section; but also provides that an acceptor is precluded from denying to a holder in due course, in the case of a bill payable to the drawer's order, the then capacity of the drawer to indorse, but not the genuineness or validity of his indorsement; and also, in case of a bill payable to the order of a third person, the existence of the payee, and his then capacity to indorse, but not the genuineness or validity of his indorsement. 10

lenborough in Ballingall v. Gloster, 3 East (Eng.), 482.

9. Neg. Inst. L. (N. Y.), § 111. For same section in statutes of other States see Appendix.

10. English Bills of Exchange Act, § 54, which is as follows: "The acceptor of a bill by accepting it

"(1) Engages that he will pay it according to the tenor of his acceptance.

Signature as agent. In the case of Hicks v. Hinde, 9 Barb. (N. Y.) 528, 530, the court says: "If the drawer of an accepted bill is, like an indorser, considered as a surety, and stands in all respects in the same situation as an indorser, and may, like an indorser, add to his signature restrictive or qualifying words to exempt himself from personal liability, it would seem "(a) The existence of the drawer, necessarily to follow that whatever re- the genuineness of his signature, and strictive or qualifying words exempt his capacity and authority to draw an indorser from personal liability the bill.

"(2) Is precluded from denying to a holder in due course:

will have a like effect upon a drawer, "(b) In the case of a bill payable when added to his signature. If this to drawer's order, the then capacity proposition cannot be disputed, then of the drawer to indorse, but not the the case of Mott v. Hicks, 1 Cow. (N. genuineness, or validity of his indorseY.) 514, disposes of this case. There ment. an addition by the indorser, to his indorsement, of the word 'agent was held to be equivalent to a declaration that he would not be personally liable. Why should not, upon principle, the same effect flow from the addition of the same word to the drawer of a draft?"

8. Jones v. Heiliger, 36 Wis. 149.

"(c) In the case of a bill payable to the order of a third person, the existence of the payee, and his then capacity to indorse, but not the genuineness or validity of his indorsement."

Capacity and authority.-Judge Chalmers, in his work on Bills of Exchange (5th ed.), p. 60, distinguishes