b. Liability to pay. Upon the acceptance of a bill of exchange, the acceptor becomes absolutely bound to pay the bill; he becomes primarily liable for its payment not only to each of the subsequent indorsees, but also to the drawer himself." An acceptance creates a contractual relationship between the acceptor and the payee which is binding upon the acceptor, whether he have funds of the drawer in his hands or not;12 and such relationship cannot be affected by any subsequent arrangement between the acceptor and the drawer. 13 The acceptor of a bill of exchange is the principal debtor and the drawer and indorsers are but sureties.14 An acceptor becoming, as he does, a principal debtor, his obligation is similar to that of the maker of a promissory note.15 between capacity and authority in the debtor, and he cannot resort to the following language: Capacity must drawer, but upon a failure of due paybe distinguished from authority. Ca- ment of the bill." See also Davis v. pacity means power to contract so as Baker, 71 Ga. 33; Ray v. Morgan, 112 to bind one's self. Authority means Ga. 923, 38 S. E. 335; Smith v. Munpower to contract on behalf of another cie Nat. Bank, 29 Ind. 158; Sylvester so as to bind him. Capacity to con- v. Staples, 44 Me. 496; Swoper v. Ross, tract is the creation of the law. Au- 40 Pa. St. 186, 80 Am. Dec. 567; Green thority is derived from the act of the v. Duncan, 7 S. C. 239, 15 S. E. 956. parties themselves. Want of capacity is incurable. Want of authority modified by acceptor and drawer.may be cured by ratification. Capacity or no capacity is a question of law. Authority or no authority is usually a question of fact." 11. Heurtematt v. Morris, 101 N. Y. 63, 4 N. E. 1, 54 Am. Rep. 657. See also Matter of Babcock, 3 Story (U. S.), 399; Davis v. Baker. 71 Ga. 33; Marsh v. Low, 55 Ind. 271. 13. Effect of acceptance cannot be In the case of Flournoy v. First Nat. Bank, 79 Ga. 810, 816, 2 S. E. 547, the court said: "The effect of accepting a bill is to acknowledge that the drawer has funds in the hands of the acceptor applicable to its payment, and the payee is entitled to repose with absolute trust and confidence upon that admission, and is under no duty to inquire further. If the admission proves an injury he who made it must take the consequences. If the payee gives value to the drawer and acquires the bill in due course of trade, before maturity, he is entitled to all the protection which commercial law can afford to the most favored class of creditors." See also Fisher v. Meckwith, 19 Vt. 31, 46 Am. Dec. 174. 12. Acceptance creates absolute engagement to pay. It is stated by Story, J., in the case of Raborg v. Peyton, 2 Wheat. (U. S.) 385, 4 L. Ed. 268: "An accept ance is not a collateral engagement to pay the debt of another; it is an absolute engagement to pay the money to the payee of the bill; and the engagements of all the other parties are merely collateral. Prima facie, every acceptance affords a presumption of funds of the drawer in the hands of the acceptor; and is, of itself, an express appropriation of these funds for the use of the holder. The case may indeed be otherwise, and then the ac- The acceptors of a draft are in the ceptor, in fact, pays the debt of the same position as the makers of a note, drawer; but as between himself and and their liability must be governed the payee, it is not a collateral, but an by the same rules. Mechanics' Bank original and direct undertaking. The v. Livingston, 33 Barb. (N. Y.) 458, payee accepts the acceptor as his 462. 14. Swoper v. Ross, 40 Pa. St. 186, 80 Am. Dec. 567; McCandless v. Hadden, 9 B. Mon. (Ky.) 186. 15. Capital City Ins. Co. v. Quinn, 73 Ala. 558; Parmelee v. Williams, 72 Ga. 42. c. Admission of existence of drawer. The provision of the statute to the effect that the acceptance of a bill admits the existence of the drawer is declaratory of the common-law rule.16 Once having admitted his liability by an acceptance of the bill he is estopped from denying the drawer's capacity; his obligation then becomes the same as that of the maker of a note, and he is thereupon liable to the payee of the bill, or to the person deriving title through him. d. Admission of genuineness of signature. The acceptance of a bill of exchange admits the genuineness of the signature of the drawer.17 When the drawee of a bill accepts and pays it, he only vouches for the genuineness of the signature of the drawer and is not held to a knowledge of the want of genuineness of any other part of the instrument, or of any other name appearing thereon, or of the title of the holder.18 The drawee has the right to rely upon the presumptive ownership of the apparent holder, and if he pays the bill to a person wrongfully in possession thereof, without notice, he will not be liable to the rightful party.19 The defense of 16. Ashpitel v. Bryan, 3 B. & S. (Eng.) 474; Cooper v. Meyer, 10 B. & C. (Eng.) 468. 17. Genuineness of signature of drawer. United States Bank v. Georgia Bank, 10 Wheat. (U. S.) 333; First Nat. Bank v. Ricker, 71 Ill. 439; Howard v. Mississippi Bank, 28 La. Ann. 727, 26 Am. Rep. 105; Bernheimer v. Marshall, 2 Minn. 78, 72 Am. Dec. 79; Star Fire Ins. Co. v. New Hampshire Bank, 60 N. H. 412; Susquehanna County Bank v. Loomis, 85 N. Y. 207, 39 Am. Rep. 652; White v. National Bank, 64 N. Y. 316, 21 Am. Rep. 612; Holt v. Ross, 54 N. Y. 472, 13 Am. Rep. 615; National Park Bank v. Ninth Nat. Bank, 46 N. Y. 77, 7 Am. Rep. 310; Bank of Commerce v. Union Bank, 3 N. Y. 30; Coggill v. American Express Bank, 1 N. Y. 113, 49 Am. Dec. 310. In the case of Salt Springs v. Syracuse, etc., Inst., 62 Barb. (N. Y.) 101, Mullin, J., said: "Lord Mansfield, in Price v. Neal, 3 Burr. (Eng.) 1354, as long ago as 1762, decided that the drawee of bills of exchange, one of which he had paid, without acceptance, the other after acceptance, could not recover back money thus paid; and the decision is, that it is incumbent upon the plaintiff to be satisfied that the bill drawn on him was in the draw- 18. Merchants' Bank v. State Bank, 10 Wall. (U. S.) 604; Esby v. Bank, 18 Wall. (U. S.) 604; National Park Bank v. Ninth Nat. Bank, 46 N. Y. 77; Goddard v. Merchants' Bank, 4 N. Y. 147; Williams v. Drexel, 14 Md. 566; Lamson v. Plaff, 1 Handy (Ohio), 450; Depau v. Brown, Harp. (S. C.) 251. 19. White V. Continental Nat. Bank, 64 N. Y. 316, 21 Am. Rep. 612. forgery of the name of the drawer will not be available in an action brought by the payee against the acceptor. 20 e. Admission of capacity and authority of drawer.- An acceptance, as stated by Story, " Admits the ability of the party to draw, and if drawn by an agent in the name of his principal, it also admits that he has full authority to draw the bill. But it does not admit the authority of the agent to indorse the same bill, even though it is made payable to the order of his principal, and is indorsed by the same agent in the name of the principal." 21 The capacity of the drawer of a bill is also admitted by the acceptance.22 It, therefore, follows that the acceptor is estopped from setting up as a defense the want of authority of a corporation to draw its bills of exchange for a particular purpose,23 nor can he defend upon the ground that the drawer is an infant,24 a married woman,25 or a bankrupt.26 The acceptance of a bill raises the presumption that the drawee has funds of the drawer in his hands.27 This presumption may be rebutted by evidence of the relation of the parties and the general scope of their dealings;28 and when The court in this case said: "The defendant, as holder of the bill and claiming to be entitled to receive the amount thereof from the drawees, was held to a knowledge of its own title and the genuineness of the indorsements, and of every part of the bill other than the signature of the drawers, within the general principle which makes every party to a promissory note or bill of exchange a guarantor of the genuineness of every preceding indorsement, and of the genuineness of the instrument. The presentation of the bill, and the demand and receipt of the money thereon, was equivalent to an indorsement. The drawees had a right to act on the presumptive ownership of the defendant as the apparent holder." 20. Bank of United States v. Bank of Georgia, 10 Wheat. (U. S.) 333. Payment by acceptor on forged signature of drawer.- In Story on Bills, 411, after repeating the proposition that if the acceptor has accepted a forged bill, he must nevertheless pay, he proceeds to say: "And if he has paid it he cannot recover back the money, although the forgery is established by the most conclusive evidence, for by accepting the bill he, by implication in favor of a bona fide holder, admits its genuineness, and is not permitted to dispute it afterward, although he can have no recourse against the drawer for any reimbursement for his payment." See also Salt Springs Bank v. Syracuse, etc., Inst., 62 Barb. (N. Y.) 101. 21. Story on Bills of Exchange, And see Robinson v. Yarrow, § 262. Croker, 4 Esp. (Eng.) 187. 7 Taunt. (Eng.) 445; Taylor v. 22. Story on Bills, § 113. 23. Halajox v. Tyle, 3 Exch. (Eng.) 26. Braithwaite v. Gardner, 8 Q. B. (Eng.) 473. 27. Raborg v. Peyton, 2 Wheat. (U. S.) 385, 4 L. Ed. 268; Benjamin v. Tillman, Fed. Cas. No. 1,704, 2 McLean S.), 213; Gilliland v. Myers, 31 Ill. 525; Byrne v. Schwing, 6 B. Mon. (Ky.) 199; Kendall v. Galvin, 15 Me. 131, 32 Am. Dec. 141; Healy v. Gilman, 1 Bosw. (N. Y.) 235; Alvord v. Baker, 9 Wend. (N. Y.) 323; State Bank v. Clark, 8 N. C. 36. 28. Parks v. Nichols, 20 Ill. App. 143. such presumption is rebutted by proving that the acceptance was made without funds, the presumption shifts to the other side and raises a presumption of a promise on the part of the drawer to put his drawee in funds.20 f. Admission of existence of payee. The provision of the statute to the effect that the acceptance of an instrument is an admission of the existence of the payee and his then capacity to indorse, is in recognition of the rule which evidently has existed in this country and in England for a considerable time. By the English Bills of Exchange Act, it is provided that the acceptor is precluded from denying to the holder in due course 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 the validity of his indorsement.30 It has been held that the acceptor would not be permitted to show that the payee, at the time of the acceptance of the bill, was a lunatic.31 g. Liability of holder acquiring before acceptance. The drawees who accept a bill after it is received by the holders for a full and valuable consideration are liable as acceptors; they cannot avoid their liability on the ground that the bill or draft was not actually accepted by them at the time it was transferred to the holders.32 The acceptance of a draft or bill negotiated for a valuable consideration cannot be rescinded on the ground of fraudulent representations made to the acceptor by the drawer, if the holder had no knowledge of the fraud and the drawer was not his agent.33 29. Thurman V. Van Brunt, 19 Barb. (N. Y.) 409. 30. English Bills of Exchange Act, 1882, 54 (2) (a). And see Daniel on Negotiable Instruments, § 536; Draton v. Dale, 2 B. & C. (Eng.) 293. It was held in this case that it was a general principle that a person shall not dispute the power of another to indorse such an instrument when he asserts, by the instrument which he issues to the world, that the other has such name. 31. Smith v. Marsack, 6 C. B. (Eng.) 486. And see Peaslee v. Robbins, 3 Metc. (Mass.) 164. Nat. Bank, 16 Misc. (N. Y.) 437, 40 N. Y. Supp. 388; Credit Co. v. Howe Machine Co., 54 Conn. 357, 8 Atl. 472; Arpin v. Owens, 140 Mass. 144, 3 N. E. 25. If a party becomes a bona fide holder for value of a bill before its acceptance, it is not essential to his right to enforce it against a subsequent acceptor, that an additional consideration should proceed from him to the drawee. Heurtematt v. Morris, 101 N. Y. 63, 4 N. E. 1. 33. Acceptance cannot be rescinded for fraud of drawer.- Fort Dearborn Nat. Bank V. Carter, 152 32. Bank of Louisville v. Ellery, 34 Mass. 34, 25 N. E. 27, in which Barb. (N. Y.) 630; Mechanics' Bank case the court says: "The genv. Livingston, 33 Barb. (N. Y.) 458; eral rule is, that a contract made First Nat. Bank v. Schuyler, 7 Jones between two persons on a valuable & S. (N. Y.) 440; Iselin v. Chemical consideration cannot be rescinded by § 83. Contract of indorsement; who deemed indorser. a. Contract of indorsement.—A person who becomes an indorser of commercial paper assumes a contractual obligation.34 The indorsement of a bill or note implies an undertaking from the indorser to the person in whose favor it is made, and to every other person to whom the bill or note may afterward be transferred, exactly similar to that which is implied by drawing a bill, except that in the case of a bill the stipulation with respect to the drawer's responsibility and undertaking do not apply.35 one of the parties on the ground that 35. Bayley on Bills (5th ed.), p. a third person, at whose request the 169. As said by Sir John Byles: party entered into the contract, made "The effect of indorsement is a confraudulent representations to him, on ditional contract on the part of the which he relied, if this third person indorser to pay the immediate or sucwas not an agent of the other party, ceeding indorsee or bearer, in case of and the other party had no knowledge the acceptor's or maker's default." of the fraud. There are Byles on Bills (6th ed.), p. 4. See practical reasons of great weight why also Bank of British North America v. the rule we have stated should be ap- Ellis, Fed. Cas. No. 859, 6 Sawy. (U. plied to negotiable paper. Acceptors S.) 96; Johnson v. Crane, 60 N. H. of bills of exchange should not be per- 68. * Mo. 613, 45 S. W. 688, 41 L. R. A. 581, the court said: "It is a rule of universal application in commercial law that every indorsement of a promissory note, whether for accommodation or otherwise, is essentially a new contract, independent mitted to vary their liability from Indorsement as a contract. In the that which is apparent on the face of case of Maddox V. Duncan, 143 the bills, by setting up against bona fide holders for value, who take the bills before maturity, statements made by the drawers to the drawees whereby they were induced to accept the bills; and we have been unable to find that any distinction has been taken in this respect between holders of bills who of any contract obligation of the take them before acceptance and those who take them afterward.” 34. In Story on Promissory Notes, 135, it is said: "The indorsement of a note, in contemplation of law, amounts to a contract on the part of the indorser with and in favor of the indorsee and every subsequent holder to whom the note is transferred; (1) that the instrument itself and the antecedent signatures thereon are genuine; (2) that he, the indorser, has a good title to the instrument; (3) that he is competent to bind himself by the indorsement as indorser; (4) that the maker is competent to bind himself to the payment, and will, upon due presentment of the note, pay it at maturity, or when it is due; (5) that if, when duly presented, it is not paid by the maker, he, the indorser, will, upon due and reasonable notice given him of the dishonor, pay the same to the indorsee or other holder." maker." And in Furgerson v. Staples, 82 Me. 159, it is said: "The indorsement of a note is a new contract. The indorser engages that the note shall be paid according to its tenor; that is upon proper presentment, demand, and notice. He engages that it is genuine, and the legal obligation that it purports to be, and that he has title to it,. and a right to indorse it. Story on Promissory Notes, § 135; Daniel on Negotiable Instruments, § 669; State Bank v. Fearing, 16 Pick. (Mass.) 533, 28 Am. Dec. 265; Prescott Bank v. Caverly, 7 Gray (Mass.), 217, 66 Am. Dec. 473. All engagements of the indorser, except payment, conditioned upon demand and notice, and possibly the validity of the note, when it is voidable only, are absolute warranties, and not dependent upon any condition whatever. If the note transferred by indorsement be a forgery, or absolutely void for any other reason, the indorser may be sued for the original consid |