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d. Warranty of capacity to contract.- The vendor of commercial paper impliedly warrants that the parties to the paper are under no incapacity to contract, as from infancy, coverture, or other disability.85 It is also probable that the authority of the parties to the instrument to bind those whom they represent is also impliedly warranted, although this warranty would not seem to be within the express terms of the above section of the statute, except that where there is an absence of authority on the part of any of the parties within the knowledge of the transferrer it would doubtless come within the provision thereof which makes him warrant that there is nothing within his knowledge which would impair the validity of the instrument or render it valueless.87 We have, in a former chapter, discussed at length the capacity of certain persons and corporations as parties to commercial paper;88 it seems unnecessary for us to consider the question in this connection. The warranty applies to the capacity of all parties prior to the transferrer, including every person who has assumed any obligations or liability as a party to the instrument transferred.

e. Knowledge of fact that would impair validity or render it valueless. Under the statute the transferrer of commercial paper

85. 2 Parsons on Notes and Bills, 39. In the case of Lobdell v. Baker, 1 Metc. (Mass.) 193, the holder of a note who fraudulently procures it to be indorsed by a minor, and afterward sells it to a person who relies on the validity of such indorsement, was held liable to an action by such person, though, at the time of sale, he had no fraudulent intent. Selling the note without erasing such indorsement, or disclosing the minority of the indorser, is tantamount to a direct affirmation by the seller, that the indorsement constitutes a valid contract. See Thrall v. Newell, 19 Vt. 203, 47 Am. Dec. 682.

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An express warranty on the sale of a promissory note made by O., that "the note is the genuine note of O." is not broken by proof that O. was an infant when the note was made and became payable; and a finding of a referee that the defendant agreed that the note was a genuine note and not otherwise," forbids the implication of any other warranty, and such a warranty affirms nothing respecting the validity of the note as a binding obligation. Baldwin v. Van Dusen, 37 N. Y. 487.

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86. Warranty of authority of party to contract.- Hussey v. Sibley, 66 Me. 192. In this case a town order which had passed from one person to another in payment of a debt being utterly worthless for the reason that the drawer or acceptor had no authority to draw or accept it, was held not to operate as a payment of the debt. The court said: "Thus from the weight of authority it would appear in short, that he (the defendant) as seller, warrants the order to be what it purports, a genuine order; and whether that want of genuineness results from forgery or want of authority on the part of the drawers or acceptor, or, as in this case, both, must be immaterial. It was a town order the parties talked about; it was that which the defendant undertook to transfer, and that which the plaintiff agreed to receive. It turned out to be another thing mere form without the substance. It is not the responsibility of the parties which the seller guarantees, but their liability." See also Terry v. Allis, 16 Wis. 478.

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87. Neg. Inst. L. (N. Y.), § 114 (4). 88. See chap. II, ante.

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by delivery or qualified indorsement warrants that he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.89 This is a broad statement of a general rule which may modify to some extent the law as it existed prior to the enactment of the statute, although it seems amply supported by the weight of authority in nearly every State. A person who transfers an instrument by delivery knowing it to be tainted with usury is liable to his transferee for the repayment of the consideration received, although it has been held otherwise where the transferrer had no knowledge of the defect. So also the transferrer warrants that there is no legal defense to the collection of the instrument, arising out of his own connection with its origin.92 And it has been held that it is a fraudulent suppression, avoiding the sale of commercial paper, for the vendor to withhold information that the maker's check, upon the bank in which they kept their accounts, had been protested, though the vendor's informant accompanied his statement with the expression of his opinion that the makers were perfectly solvent." This decision rests upon the principle that one who sells commercial paper payable to bearer, and which he does not indorse, while not liable on the paper as a party, nevertheless warrants that he has no knowledge of any facts which prove the paper to be worthless on account of the insolvency of the parties, or because it has been already paid. It seems, however, that as a general rule there is no implied warranty of the solvency of the maker or any other

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89. Neg. Inst. L. (N. Y.), § 115 (3). 90. Persons V. Jones, 12 Ga. 371.

91. Littauer v. Goldman, 72 N. Y.

506.

92. Delaware Bank v. Jarvis, 20 N. Y. 226.

93. Brown v. Montgomery, 20 N. Y. 287. In this case the court said: "Where a party negotiates commercial paper, payable to bearer, or under the blank indorsement of another person, he cannot be sued on the paper because he is not a party to it; but he nevertheless warrants that he has no knowledge of any facts which prove the paper to be worthless, on account of the failure of the makers, or by its being already paid, or otherwise to have become void or defunct; for, says Judge Story, any concealment of this nature would be a manifest fraud. Story on Promissory Notes, § 118."

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94. Knowledge_of_insolvency of maker of note.- Rothmiller v. Stein, 143 N. Y. 581, 592, 38 N. E. 718, per Peckham, J., who also says: "A promissory note or the ordinary bond is given for one purpose only, payment at its maturity, and it is plain that in ordinary circumstances one would not take a note or bond if in possession of the fact of the insolvency of its maker. It would appear that the one purpose for which such instruments are issued would fail of accomplishment because of the inability of the maker to pay. The mere fact that the vendor offers to sell the written obligation of another to pay money is evidence enough of a warranty such as is above stated, because the vendor knows that if the maker were known to be insolvent his written obligation to pay money would not be taken."

party to an instrument upon its sale and delivery, in the absence of misrepresentation, and where it appears that the vendor had no knowledge of the insolvency of the maker or other party; both before the statute and under its provision it is well settled that knowledge of facts indicating the insolvency or inability to pay of the maker, on the part of the vendor of the instrument, will render him liable to his vendee in an action to recover the purchase price paid therefor.96

§ 86. Liability of general indorser.

a. Statutory provision.— The Negotiable Instruments Law provides that: "Every indorser who indorses without qualification, "warrants to all subsequent holders in due course:

"1. The matter and things mentioned in subdivisions one, two "and three of the next preceding section; and,

"2. That the instrument is at the time of his indorsement valid "and subsisting.

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"And, in addition, he engages that on due presentment, it shall "be accepted or paid, or both, as the case may be, 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." "This section is clearly declaratory of the general rule as it existed at the common law. The last paragraph is the same in substance as a provision contained in the English Bills of Exchange Act of 1882, and the first three subdivisions are also contained in such act, but in a modified form.98

95. Williams v. Osbon, 75 Ind. 280; Milliken v. Chapman, 75 Me. 306, 46 Am. Rep. 386; Lyons v. Divelbis, 22 Pa. St. 185; Bicknall v. Waterman, 5 R. I. 43; Burgess v. Chapin, 5 R. I.

225.

In the case of Hecht v. Batcheller, 147 Mass. 335, 17 N. E. 651, 9 Am. St. Rep. 708, the court said: "The defendant sold the note in good faith. So far as the evidence shows, neither party, at the time of the sale, spoke of, or inquired about or knew anything about, the failure of the makers. They stood upon an equal footing, and they had equal means of knowing the standing of the makers. It was understood that the defendants were selling the note without recourse to them. They did not expressly warrant the

value of the note, and we are of the opinion that from the circumstances no warrant could fairly be inferred of the solvency of the makers, or that they continued to do business."

96. Hewitt v. Waterman, 3 La. Ann. 716; Taylor v. Burke, 4 La. Ann. 16. But the knowledge of the vendor must be actual, and not implied or constructive. Burgess v. Chapin, 5 R. I. 225.

97. Neg. Inst. L. (N. Y.), § 116. For the same section in statutes of other States see Appendix.

98. The English Bills of Exchange Act, § 55(2). See Appendix. Judge Chalmers says (Bills of Exchange [5th ed.], p. 187): "The indorser of a bill is in the nature of a new drawer (citing Penny v. Innes, 1 C., M. & R.

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b. Warranty of genuineness, title, and capacity of parties. It will be noticed that the section applies to every person who indorses without qualification; it would seem, therefore, on its face, that it applies to a restrictive indorsement, as where an instrument is indorsed for collection or deposit. But in view of the fact that an indorsee for collection or deposit does not acquire the title of the instrument, but only constitutes the indorsee an agent of the indorser for the purposes specified in the indorsement, and the further fact that the statute itself provides that the "subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement,"1 it is doubtful whether the section applies with full force and effect to an instrument which has been restrictively indorsed. As the law exists independent of the statute an indorsement by a bank or other agency to which an instrument has been indorsed for collection does not import any guaranty of the genuineness of all prior indorsements, but only of the agent's relation to the principal as stated upon the face of the draft. If it is admitted that a restrictive indorsement, as for collection, does not confer title upon the indorsee, he, of course, has no title to transfer by indorsement, and it would, therefore, be a misconstruction to hold that, pursuant to the above section, such a restrictive indorser warrants what he never had. In our opinion this section has not modified the prior rule as applied to restrictive indorse

ments.

An indorser of commercial paper warrants the genuineness of the signature of the maker and that the instrument is what it pur

(Eng.) 441; Steele v. McKinlay, 5 App. Cas. (Eng.) 767, 768), that is to say, his relations with the holder resemble those of a drawer. It is conceived that the words according to its tenor' mean the tenor of the bill at the time of its indorsement, and not its tenor at the time it was drawn, if its effect has been varied, e. g., by a qualified indorsement, or by an alteration of the sum payable."

99. See § 60 (b), ante, p. 329, and cases cited.

1. Neg. Inst. L. (N. Y.), § 67. See $60 (e), ante, p. 332.

death. The defendant in making the collection indorsed the draft as collecting agent of the Bellaire Bank, as appeared by the terms of its indorsement, and on collection at once paid over the money to the principal, without notice of the forgery, before the action was commenced; it was held that the defendant was not liable.

Where the collecting agent pays over the funds before any notice of irregularity or fraud, the remedy is against the principal alone. Bank v. Armstrong, 148 U. S. 50, 13 Sup. Ct. 533; White v. Bank, 102 U. S. 658; Sweeny 2. United States v. American Ex- v. Easter, 1 Wall. (U. S.) 166; Wells, change Nat. Bank, 70 Fed. 232, in Fargo & Co. v. United States, 45 Fed. which case the defendant as collecting 337; National Park Bank v. Seaboard agent of the Bellaire Bank of Ohio Bank, 114 N. Y. 28, 20 N. E. 632. collected at the Sub-Treasury, New And see Dedham Nat. Bank v. Everett York, a pension draft on which the Nat. Bank, 177 Mass. 392, 59 N. E. payee's name was forged after her 62.

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ports to be; he also warrants the genuineness of all preceding indorsements, and that the maker and each prior indorser was of legal capacity to contract. The payee of a forged check who indorses it and receives full value therefor, warrants the genuineness of the check, and the indorsee may, upon discovery of the forgery, recover the amount paid thereon; and any person who indorses a forged negotiable instrument warrants the genuineness of the signatures of both the maker and prior indorsees. An

3. Herrick v. Whitney, 15 Johns. v. Farmers & Merchants' Bank, 56 (N. Y.) 240; Ogden v. Blydenburgh, Neb. 149, 76 N. W. 430; Ogden v. 1 Hilt. (N. Y.) 182; Dalrymple v. Blydenburgh, 1 Hilt. (N. Y.) 182; Hillenbrand, 2 Hun (N. Y.), 488; Len- Foster v. Collner, 107 Pa. St. 305; non v. Grauer, 159 N. Y. 433, 54 N. E. Chambers v. Union Nat. Bank, 78 11; Bell v. Cafferty, 21 Ind. 411; Pa. St. 205. Hurst v. Chambers, 12 Bush (Ky.), 155; Condon v. Pearce, 43 Md. 83; Brown v. Ames, 59 Minn. 476, 61 N. W. 448; Lyons v. Miller, 6 Gratt. (Va.) 427, 52 Am. Dec. 129; Donohoe v. Meeker, 35 App. Div. (N. Y.) 43, 54 N. Y. Supp. 286; Gabay v. Doane, 66 App. Div. (N. Y.) 507, 73 N. Y. Supp. 381; Wilhelm v. Loop, 8 Ohio Com. Pl. 444, 6 Ohio N. P. 270.

Diligence required. The transfer of a note implies a guaranty of its genuineness, as to all apparent parties to it; but the holder is under an implied obligation to try, by due diligence, the liability, as well as the solvency of the ostensible obligors, before he can hold the assignor liable either as guarantor or vendor. Wynn v. Poynter, 3 Bush (Ky.), 54.

Decline to warrant.- Where the vendor of a promissory note expressly declines to warrant the genuineness thereof, no such warranty can be implied. Bell v. Dagg, 60 N. Y. 528.

4. Warranty of indorsements.- See Woodward v. Harbin, 1 Ala. 104; Mills v. Barney, 22 Cal. 240; Bunker v. Osborn, 132 Cal. 480, 64 Pac. 853; Chicago First Nat. Bank v. Northwestern Nat. Bank, 40 Ill. App. 640; McCall v. Corning, 3 La. Ann. 409, 48 Am. Dec. 454; Cochran v. Atchison, 27 Kan. 728; Third Nat. Bank v. Lange, 51 Md. 138, 34 Am. Rep. 304; Condon v. Pearce, 43 Md. 83; Fall River Nat. Bank v. Buffing ton, 97 Mass. 498; Prescott Bank v. Caverly, 7 Gray (Mass.), 217. 66 Am. Dec. 473; Brown v. Ames, 59 Minn. 476, 61 N. W. 448; First Nat. Bank

5. Warranty of capacity of maker and indorser.- Erwin v. Downs, 15 N. Y. 575, where it was held that the indorsement of a promissory note imports a guaranty by the indorser, that the makers were competent to contract in the character in which, by the terms of the paper, they purported to contract. And knowledge by one who became the holder of such a note before maturity, and for a valuable consideration, that the makers were married women, does not deprive him of the right to rely upon the implied guaranty of the indorser, that the makers were competent to contract as partners, nor of the character of a bona fide holder. See also Dalrymple v. Hillenbrand, 62 N. Y. 5, 20 Am. Rep. 438, affg. 2 Hun (N. Y.), 488; Archer v. Shea, 14 Hun (N. Y.), 493; Ogden v. Blydenburgh, 1 Hilt. (N. Y.) 182; Prescott Bank v. Caverly, 7 Gray (Mass.), 217, 66 Am. Dec. 473; Kilgore v. Bulkely, 14 Conn. 362; Beal v. Alexander, 6 Tex. 531.

6. Case v. Bradburn, 1 Daly (N. Y.), 256; Wheeler v. Miller, 2 Handy (Ohio), 149; Roth v. Crissey, 30 Pa. St. 145; Semmes v. Wilson, Fed. Cas. No. 12.658; Birmingham Nat. Bank v. Bradley, 103 Ala. 109, 15 South. 440; National Bank of North America v. Bangs, 106 Mass. 441, 8 Am. Rep. 349.

7. Onondaga County Sav. Bank v. United States, 64 Fed. 703, 12 C. C. A. 407; Rhodes v. Jenkins, 18 Colo. 49, 31 Pac. 491, 36 Am. St. Rep. 263.

The indorsement of a promissory note implies a contract by the in

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