Carrying in mind that accommodation paper is a mere loan of credit, or, as it sometimes is put, a loan of money, the purchaser being the lender, and the seller of the paper the borrower,5° it is easy to reach the next logical step in the theory. Where there is no limitation or restriction as to the manner in which accommodation paper is to be used, the accommodated party is at liberty to sustain his credit with it in any way he chooses. He may appropriate it to any purpose. In such a case there can be no substantial material diversion; 51 and, even when there is a departure from the express directions of the accommodation party in regard to the note, it will sometimes not amount to a material diversion. The accommodation party may, for instance, direct it to be discounted at one bank, and the accommodated party may discount it at another,52 and generally, if the paper has accomplished the purpose in the minds of the parties at the time of giving the accommodation and answers the test that it has in no wise changed the responsibility of any of them, the diversion will be disregarded by the courts and deemed immaterial."

was held to have taken subject thereto. Wardell v. Howell, 9 Wend. (N. Y.) 170; Brown v. Taber, 5 Wend. (N. Y.) 566; Farmers' & Citizens' Nat. Bank v. Noxon, 45 N. Y. 762; Stoddard v. Kimball, 6 Cush. (Mass.) 469; Daggett v. Whiting, 35 Conn. 372; Evans v. Kymer, 1 Barn. & Adol. 528; Key v. Flint, 8 Taunt. 21; Gray v. Bank of Kentucky, 29 Pa. 365; Dunn v. Weston, 71 Me. 270, 36 Am. Rep. 310; Hidden v. Bishop, 5 R. I. 29; N. I. L. § 55. See p. 360, Chapter VII, infra. See, also, Trust Co. of St. Louis County v. Markee (C. C.) 179 Fed. 764 (N. I. L.).

50 Claflin v. Boorum, 122 N. Y. 385, 25 N. E. 360; Clark v. Sisson, 22 N. Y. 312; Newell v. Doty, 33 N. Y. 83.

51 Cole v. Saulpaugh, 48 Barb. (N. Y.) 104; Seneca County Bank v. Neass, 3 N. Y. 442; Grandin v. Le Roy, 2 Paige (N. Y.) 509; Mohawk Bank v. Corey, 1 Hill (N. Y.) 514; Agawam Bank v. Strever, 18 N. Y. 502.

52 Powell v. Waters, 17 Johns. (N. Y.) 176; President, etc., of Bank of Chenango v. Hyde, 4 Cow. (N. Y.) 567.

53 Duel v. Spence, 1 Abb. Dec. (N. Y.) 559; Seneca County Bank v. Neass, 3 N. Y. 442; Duncan v. Gilbert, 29 N. J. Law, 521; Jackson v. First Nat. Bank of Jersey City, 42 N. J. Law, 178; Briggs v. Boyd, 37 Vt. 538; Dunn v. Weston, 71 Me. 270, 36 Am. Rep. 310; Senft v. Schaeffer, 81 Misc. Rep. 152, 142 N. Y. Supp. 380 (N. I. L.).

The fact that paper was originally given for accommodation does not affect the ordinary rule that the holder as against any one not his immediate indorser is not under the necessity of showing that he gave value. He may recover the full amount of the paper, but as to this the authorities are conflicting, some holding that his recovery is limited by the amount paid.55 It is immaterial that the holder acquired the paper for a pre-existing debt,5° or as collateral security; although if he acquired it as collateral security he can recover from the accommodation party only the amount of the debt.57 A partner has no right to make accommodation paper in the firm name, but the fact that the paper was so made without authority is no defense against a bona fide purchaser.58 Neither is it a defense against a bona fide purchaser that paper executed by a corporation was accommodation paper, and ultra vires.59 Presentment for payment is not required in order to charge

54 Millis v. Barber, 1 Mees. & W. 425; HARGER v. WORRALL, 69 N. Y. 370, 25 Am. Rep. 206, Moore Cases Bills and Notes, 142.

55 Daniel, Neg. Inst. §§ 754-757. As to the right of a purchaser for value in general to recover the full amount when less is paid, post, p. 428.

56 GROCERS' BANK OF NEW YORK v. PENFIELD, 69 N. Y. 502, 25 Am. Rep. 231, Moore Cases Bills and Notes, 138; Lord v. Ocean Bank, 20 Pa. 384, 59 Am. Dec. 728.

57 Nash v. Brown, Chit. Bills (10th Ed.) 53; Hilton v. Smith, 5 Gray (Mass.) 400; Atlas Bank v. Doyle, 9 R. I. 76, 98 Am. Dec. 368, 11 Am. Rep. 219. This is true only in case he holds the instrument as collateral security for the debt of the accommodated party, for then only must this result be reached in order to prevent circuity of action. See Chapter VIII, note 6, p. 417.

58 Chemung Canal Bank v. Bradner, 44 N. Y. 680; Beach v. State Bank, 2 Ind. 488; Waldo Bank v. Lumbert, 16 Me. 416; Hogarth v. Latham, 3 Q. B. Div. 643. The purchaser is of course affected with notice if there is anything in the character of the indorsement, as for example if it be an irregular indorsement, or in the circumstances, to inform him that the paper was given for accommodation. Rand. Com. Paper, § 419. See p. 441, infra..

59 Bird v. Daggett, 97 Mass. 494; National Bank of Republic v. Young, 41 N. J. Eq. 531, 7 Atl. 488; American Trust & Savings Bank v. Gluck, 68 Minn. 129, 70 N. W. 1085; Jacobs Pharmacy Co. v. Southern Banking & Trust Co., 97 Ga. 573, 25 S. E. 171. See Chapter VII, page 292, infra.

an indorser for whose accommodation the instrument was made or accepted, for the reason that he has no recourse against any other party; nor is he entitled to notice of dishonor. Payment by the party accommodated, since he is in fact primarily liable, operates as a discharge of the instrument."1

CONFLICT OF LAWS

83a. The validity of the contract of the acceptor, maker, drawer, and indorser of a bill or note is determined generally by the law of the place where the contract is made.

83b. The interpretation and obligation of the contract of the acceptor, maker, drawer, and indorser of a bill or note are determined by the law of the place where the contract is made, unless the contract is to be performed in another place, in which case the law of the place of performance governs."2

Conflict of Laws

A few words must be said concerning the so-called "conflict of laws," in its effect upon the rights and liabilities of the parties to negotiable instruments. Since a bill or note may be drawn or made in one country, accepted or payable in another, indorsed in a third, and suit may be brought in a fourth, questions frequently arise, where the laws of the different countries conflict, as to which law governs. Sometimes the governing law is the law of the place where the contract is made, or the lex loci contractus; sometimes the law of the place where the instrument is payable, or the lex loci solutionis; and sometimes the law of the place where

60 Sharp v. Bailey, 9 Barn. & C. 44; Miser v. Trovinger's Ex'rs, 7 Ohio St. 281; Hull v. Myers, 90 Ga. 674, 16 S. E. 653. See N. I. L. §§ 80, 115.

61 Lazarus v. Cowie, 3 Q. B. 459; Cook v. Lister, 32 Law J. C. P. 121; BLENN v. LYFORD, 70 Me. 149, Moore Cases Bills and Notes, 194; Chalm. Bills & N. art. 234. To this effect are N. I. L. §§ 119, 121. Compare 2 Ames Cas. Bills & N. 825. See post, p. 393 et seq. 62 See note 70, p. 248, infra.

action is brought, or the lex fori. As has already been stated, the several states in this respect stand towards each other in the relation of foreign countries, and unfortunately the law of negotiable instruments differs widely in the different states.

Same-Execution and Validity

The law of the place where the contract is made governs the formalities of its execution. This includes the formal validity of the bill or note as drawn or made, and of the contracts of the acceptor and indorsers. Thus the sufficiency of a parol acceptance is determined by the law of the place of acceptance, and if it be valid there it will be enforced elsewhere, even in a state where an acceptance must be in writing.65

66

The law of the place of contract also governs the validity of the contracts of the different parties. If the consideration is legal where the instrument is executed, it is valid. everywhere; and if illegal where executed, it is invalid everywhere. "The question of * validity [of the contract], as affected by the legality of the consideration, or of the transaction upon which it is founded, and in which

63 Ante, p. 31.

* *

64 Dacosta v. Davis, 24 N. J. Law, 319; Hyde v. Goodnow, 3 N. Y. 266; Herdic v. Roessler, 109 N. Y. 127, 16 N. E. 198; Evans v. Anderson, 78 Ill. 558; Moore v. Clopton, 22 Ark. 125; Wood v. Gibbs, 35 Miss. 559; Thayer v. Elliott, 16 N. H. 102. Such is the provision of the English Bills of Exchange Act (section 72, subd. 1). But see Hall v. Cordell, 142 U. S. 116, 12 Sup. Ct. 154, 35 L. Ed. 956. The Negotiable Instruments Law does not deal with the conflict of laws. 65 Scudder v. Union Nat. Bank, 91 U. S. 406, 23 L. Ed. 245; Exchange Bank v. Hubbard, 10 C. C. A. 295, 62 Fed. 112; Hubbard v. Bank, 18 C. C. A. 525, 72 Fed. 234; Mason v. Dousay, 35 Ill. 424, 85 Am. Dec. 368; Bissell v. Lewis, 4 Mich. 450. But see Hall v. Cordell, 142 U. S. 116, 12 Sup. Ct. 154, 35 L. Ed. 956.

66 Akers v. Demond, 103 Mass. 318; Dunscomb v. Bunker, 2 Metc. (Mass.) 8; Scudder v. Union Nat. Bank, 91 U. S. 406, 23 L. Ed. 245; Adams v. Robertson, 37 Ill. 45; Orr's Adm'r v. Orr, 157 Ky. 570, 163 S. W. 757. There is much conflict as to whether if the contract is to be performed in another country its laws determine the validity. See 2 Ames Cas. Bills & N. 255, note 1, and cases collected. Mr. Daniel so states the law. Daniel, Neg. Inst. § 868. Compare R. S. Oglesby Co. v. Bank of New York, 114 Va. 663, 77 S. E. 468.

67

* *

it took its inception as a contract, must be determined by the law of the state where that transaction was had. No other law can apply to it. Usury, in a loan effected elsewhere, is no offense against the laws of Massachusetts. But when a usurious or other illegal consideration is declared by the laws of any state to be incapable of sustaining any valid contract, and all contracts arising therefrom are declared void, such contracts are not only void in that state, but void in every state and everywhere." The harshness of the rule in regard to usury is, however, modified by the qualification that if the rate of interest would be lawful at the place of payment the parties may elect as to the law by which the contract is to be governed; and conversely if the rate of interest would be usurious at the place of payment, but is not usurious at the place where the instrument was made, the instrument may be held valid. A bill or note void for want of a stamp is void everywhere, although if the stamp is merely a condition of its admissibility in evidence the requirement will have no effect without the jurisdiction.""

68

Same-Interpretation and Obligation of Contract

The law of the place where the contract is made also governs the nature, interpretation, and obligations of the various contracts of the parties, except that where the con

67 Akers v. Demond, 103 Mass. 323, per Wells, J.

68 Harvey v. Archibold, 1 Ryan & M. 184; Depau v. Humphreys, 8 Mart. N. S. (La.) 1; Potter v. Tallman, 35 Barb. (N. Y.) 182; Kilgore v. Dempsey, 25 Ohio St. 413, 18 Am. Rep. 306; Vilet v. Camp. 13 Wis. 198; Miller v. Tiffany, 1 Wall. (U. S.) 310, 17 L. Ed. 540; McKay's Estate v. Belknap Savings Bank, 27 Colo. 50, 59 Pac. 745; Rand. Com. Paper, §§ 43, 44. See R. S. Oglesby Co. v. Bank of New York, 114 Va. 663, 77 S. E. 468.

69 Alves v. Hodgson, 7 Term R. 241; Bristow v. Sequeville, 5 Exch. 275; Fant v. Miller, 17 Grat. (Va.) 47. If the performance is to be in another county, it may be that the absence of a stamp would be immaterial. Daniel, Neg. Inst. § 915. The Bills of Exchange Act (section 72, subd. 1, a) enacts that where a bill is issued out of the kingdom, it is not invalid by reason that it is not stamped according to the law of the place of issue.