The use of checks and of promissory notes is widespread, and the use of bills of exchange is also sufficiently important so that the practice and rules of law connected with their use must be adapted to the necessities and convenience of business.

Law Merchant. It is sometimes stated that the law of negotiable instruments follows the "Law Merchant" rather than the Common Law. The distinction is a technical one except to lawyers; in the case of negotiable instruments the customs of business among merchants and the necessities of its convenient conduct formed the basis upon which finally grew up a series of decisions under the Common Law rather than apart from it. These decisions must be looked to in determining what the law is and the same courts pass upon it. It has sometimes been stated that the Law Merchant has been "grafted" upon the Common Law.

An

Some Distinctions. Promissory notes, or bills of exchange when accepted, are contracts, but of a special kind which the Common Law has treated in a special way, differing from that accorded most contracts. important point of difference is that no consideration need be expressed in a negotiable instrument. A second is that in the hands of an innocent holder for value, an instrument legally issued is good, even if consideration has failed or other faults 'exist which would ordinarily render a contract voidable between the parties involved; this will better appear later.

Foreign and Inland. Bills of exchange are foreign or inland. When payable in another State or country from that where drawn, they are foreign; when in the same State or country, inland.

Drafts. What is known as a draft" is in essence a bill of exchange, and differs from it in that a draft often does not presuppose any other commercial transaction, while the bill of exchange commonly does, often a sale, and the draft usually calls for immediate or prompt payment rather than acceptance. A student at college makes a draft on his father to pay his term bill, and this draft is deposited in the bank with the checks which others have paid in, and the draft is negotiable.

Bank Drafts. Banks are constantly issuing "bank drafts " or orders upon other banks where they have funds. If a depositor wishes to send money to some distant point, or if he travels far from home, he secures a bank draft which will be honored provided only the payee be identified, and where his own check might not be honored through lack of personal credit. Some acquaintance will gladly identify him, but ought not to be asked to indorse his personal check. A bank draft on a New York bank is accepted practically anywhere in the United States. A bank draft on Chicago, San Francisco, or Boston is almost equally good in the neighborhood of such city. Bank drafts are negotiable.

Certificates of Deposit. A depositor in a bank sometimes wants the money to draw interest, and does not care to draw checks against it. He takes a "certificate of deposit" which is substantially the promissory note of the bank. It is commonly assignable and negotiable.

Bank Notes. Bank notes of national banks are not receivable as money for certain purposes; they are not legal tender. They are essentially promissory notes, and are negotiable, and are made payable to bearer so that an indorsement is not necessary. United States gold and silver certificates are likewise not legal tender. Legal tender may be defined as money receivable for all debts. What is legal tender is defined by the Legal Tender Acts, which are United States Statutes.

Travelers' Cheques. People traveling abroad often use "travelers' cheques" of which the American Express Company checks were among the earliest; they are a series of checks against the American Express Company, each for a specified amount. They are negotiable, are signed by the traveler when he gets them, and are indorsed by him, as the payee, when he receives money for them.

Letters of Credit. "Letters of credit serve a somewhat similar purpose, but are materially different in form and are not negotiable.

Coupon Bonds. Coupon bonds issued by railroads or by large corporations are also negotiable, unless registered so that any transfer must appear on the books of the company; it is not customary to indorse them. They have "coupons" attached to them, each due every half year as a rule, and containing a statement or agreement as to payment. Such coupons are negotiable, and commonly even when the bond is registered, which means registered as to principal. The coupons are seldom indorsed. Registered bonds often, however, have no coupons attached and the interest is then paid by check.

Certificates of Stock. Certificates of stock are assignable, but are simply evidence of rights in a company, and do not call for the payment of money at any time; although assignable, they are not negotiable.

The Negotiable Instruments Law. The law of negotiable instruments is exceptionally well stated and codified in what is called "The Negotiable Instruments Law," which has been adopted with little variation by a large majority of the States. It is given below substantially in full from the New York law. The order of Articles is changed slightly, and a few comments are made, and are distinguishable by the type, a smaller type being used for the law itself. It is unusually well prepared, a fine specimen of Statute Law. Most of what is contained in it was good Common Law in one or another of the States, but there had been appreciable variation in the law as interpreted in the different States which have adopted it.

LAWS OF NEW YORK

AN ACT in relation to Negotiable Instruments. [In effect February 17, 1909.]

Article I. Short title; definitions (§§ 1, 2).

II. General provisions (§§ 3-7).

III. Form and interpretation (§§ 20-42).
IV. Consideration (§§ 50-55).

V. Negotiation (§§ 60-80).

VI. Rights of holder(§§ 90–98).

VII. Liabilities of parties (§§ 110-119).

VIII. Presentment for payment (§§ 130-148).

IX. Notice of dishonor (§§ 160-189).

X. Discharge (§§ 200–206).

XI. Bills of exchange; form and interpretation (§§ 210-215).

XII. Acceptance (§§ 220-230).

XIII. Presentment for acceptance (§§ 240-248).

XIV. Protest (§§ 260-268).

XV. Acceptance for honor (§§ 280–289).

XVI. Payment for honor (§§ 300–306).

XVII. Bills in sets (§§ 310–315).

XVIII. Promissory notes and checks (§§ 320–326).

XIX. Notes given for patent rights and for a speculative consideration

(§§ 330-332).

XX. Laws repealed; when to take effect (§§ 340-341).

ARTICLE I

SHORT TITLE; DEFINITIONS

This chapter shall be known as the "Negotiable Instru

§ 2. Definitions and meaning of terms. In this chapter, unless the context otherwise requires :

"Acceptance" means an acceptance completed by delivery or notification. "Action" includes counter-claim and set-off.

"Bank" includes any person or association of persons carrying on the business of banking, whether incorporated or not.

"Bearer" means the person in possession of a bill or note which is payable to

bearer.

"Bill" means bill of exchange, and "note" means negotiable promissory note. "Delivery" means transfer of possession, actual or constructive, from one person to another.

"Holder" means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof.

"Indorsement" means an indorsement completed by delivery. "Instrument" means negotiable instrument.

"Issue" means the first delivery of the instrument, complete in form, to a person who takes it as a holder.

"Person" includes a body of persons, whether incorporated or not.

"Value" means valuable consideration.

"Written" includes printed, and "writing" includes print.

ARTICLE II

GENERAL PROVISIONS

3. Person primarily liable on instrument. The person "primarily" liable on an instrument is the person who by the terms of the instrument is absolutely required to pay the same. All other parties are "secondarily" liable.

A negotiable instrument is sometimes indorsed without consideration as a friendly act, or an "accommodation" to the maker. Sometimes the friend has accommodated by becoming the maker of the instrument, and turning it over to the real borrower on the instrument (or similar user of it) who indorses it and thus becomes formally identified with it. In the case of an" accommodation" maker, it is held that the addition of the word surety does not relieve him from primary liability to holders in due course.

§ 4. Reasonable time, what constitutes. In determining what is a “reasonable time" or an "unreasonable time," regard is to be had to the nature of the instrument, the usage of trade or business (if any) with respect to such instruments, and the facts of the particular case.

§ 5. Time, how computed; when last day falls on holiday. Where the day, or the last day, for doing any act herein required or permitted to be done falls on Sunday or on a holiday, the act may be done on the next succeeding secular or business day.

§ 6. Application of chapter. The provisions of this act do not apply to negotiable instruments made and delivered prior to the passage hereof.

§ 7. Law merchant; when governs. In any case not provided for in this act the rules of the law merchant shall govern.

It is not entirely clear what Section 7 means. Apparently it means that the law previously in force with relation to negotiable instruments shall govern rather than the law applied to contracts in general.

ARTICLE XI

BILLS OF EXCHANGE; FORM AND INTERPRETATION

§ 210. Bill of exchange defined. A bill of exchange is an unconditional order in writing addressed by one person 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 order or to bearer.

§ 211. Bill not an assignment of funds in hands of drawee. A bill of itself does not operate as an assignment of the funds in the hands of the drawee available for the payment thereof and the drawee is not liable on the bill unless and until he accepts the same.

§ 212. Bill addressed to more than one drawee. — A bill may be addressed to two or more drawees jointly, whether they are partners or not; but not to two or more drawees in the alternative or in succession.

§ 213. Inland and foreign bills of exchange. An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within the State.

Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the holder may treat it as an inland bill.

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§ 214. When bill may be treated as promissory note. Where in a bill the drawer and drawee are the same person, or where the drawee is a fictitious person, or a person not having capacity to contract, the holder may treat the instrument, at his option, either as a bill of exchange or a promissory note.

§ 215. Referee in case of need. The drawer of a bill and any indorser may insert thereon the name of a person to whom the holder may resort in case of need, that is to say, in case the bill is dishonored by non-acceptance or non-payment. Such person is called the referee in case of need. It is in the option of the holder to resort to the referee in case of need or not, as he may see fit.

ARTICLE XVIII

PROMISSORY NOTES AND CHECKS

§ 320. Promissory note defined. A negotiable promissory note within the meaning of this act is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer. Where a note is drawn to the maker's own order, it is not complete until indorsed by him.

§ 321. Check defined. A check is a bill of exchange drawn on a bank, payable on demand. Except as herein otherwise provided, the provisions of this act applicable to a bill of exchange payable on demand apply to a check.

While checks are in many ways bills of exchange they have come to have characters and features of their own. A check is always drawn upon a bank, and drawn against funds actually in the bank. A check is sometimes paid when the account is overdrawn, but this is irregular, and is seldom countenanced, although sometimes winked at. The death of the drawer of a check revokes it as soon as the bank has notice, although the check in this case is probably good against the estate as evidence of debt. A check which is not honored does not pay a debt; the creditor can sue on the debt.

The order in a check need not be unconditional. A condition sometimes is attached, as "payable only through the clearing house" which makes it not payable over the counter of the bank on which it is issued.

The deposit of a check puts the money to the credit of the depositor at once, unless taken for collection, and the bank may (but seldom does) refuse to accept checks deposited, except for collection. The ordinary custom is that the depositor may check out at once against the deposit, the credit to be canceled in case of dishonor. A bank may, however, refuse to pay a check where the deposit is insufficient without certain checks placed on deposit; the credit of the depositor may enter into such action.

A depositor may stop payment on a check by proper notice to the bank. By doing so he may be liable in a suit to the payee or holder of the check; but the bank may properly refuse to pay the check. If stopped