can be distinguished, even upon the facts, from the cases which have established the rule, as these cases generally arose from mistake or accident in failing to obtain at the time of delivery the indorsement which it was evidently the intention of the parties should be made. In the leading case of Whistler v. Forster,37 for example, the payee of a check made by the defendant, and obtained from him by the payee by fraud, gave it to the plaintiff for value, but did not then indorse it, and upon the want of an indorsement becoming apparent, the plaintiff went to the payee, and obtained his indorsement. It was held that the plaintiff took subject to the defense of fraud. Erle, C. J., said: "According to the law merchant, the title to a negotiable instrument passes by indorsement and delivery. A title so acquired is good against all the world, provided the instrument is taken for value, and without notice of any fraud. The plaintiff's title under the equitable assignment here, therefore, was to be rendered valid by the indorsement; but at the time he obtained the indorsement he had notice that the bill had been fraudulently obtained by Griffiths from the defendant, and that Griffiths had no right to make the indorsement." It is difficult to see how, in the cases supposed to fall within the exception, the transferee could acquire any greater rights than were acquired by the plaintiff in this case, or why in the one case, as in the other, the rights of the transferee must not be subject to the equities of the defendant.38

SAME BY DELIVERY

91. A bill or note which is in legal effect payable to bearer is negotiated by delivery without indorsement.

Bills and notes payable to bearer and bills and notes indorsed in blank are, in legal effect, the same. The con

87 14 C. B. (N. S.) 248.

38 A bank discounting a note not indorsed by the payee takes it subject to all defenses, though such indorsement was omitted by mistake, and was supplied after the paper matured. Lyon, Potter & Co. v. First Nat. Bank, 29 C. C. A. 45, 85 Fed. 120.

tract in the case of the note payable to bearer imports that the maker or acceptor is willing to pay any one who may have it in his lawful possession. The indorsement in blank signifies the same thing with regard to an indorser making it. And the holder of both an instrument payable to bearer and one indorsed in blank may transfer the instrument without indorsement. Such a transfer is a negotiation, but except to the extent of the warranties already specified (see supra, p. 217) it imposes no liability upon the transferrer; for bills made payable to bearer are negotiable at common law, and notes so made payable are recognized by the statute of Anne; 40 and bills or notes to pay A or bearer are interpreted to be contracts to pay the person so mentioned, or the person to whom he may deliver the instrument. The phrase "bearer" is descriptio personæ for the legal possessor,1 and the transfer of title according to the terms of the original instrument is therefore predicated upon delivery alone. "The courts," says Mr. Daniel,*2 "treat notes payable to bearer as if there were a direct line of contract between the maker and the holder, by whatever successive stages of transfer he may have derived it; and it is correct to hold that the maker is in direct contract with him, provided he becomes the bearer bona fide. He need not trace title through his predecessors, as possession is presumptive evidence of his right." But it is evidently the intention of the courts to construe this contract subject to the implied condition that the maker or acceptor will pay only the bona fide possessor. In other words, the

39 N. I. L. §§ 9 (subd. 5), 30, 34; Hale v. Citizens' Bank of Monette (Ark.) 163 S. W. 775. See p. 154, supra.

40 In De La Chaumette v. Bank of England it appeared that a certain bank note had been stolen, and afterwards came into the possession of a party in France, who, in the course of business, sent the same to England. By the desire of the one from whom the note had been stolen, it was converted by the bank. In an action of trover, it was decided that by the statute of Anne such notes were negotiable, just as were inland bills, and thus delivery to a bona fide holder for consideration gave a good title as against original holder. 2 Barn. & Adol. 385.

41 Grant v. Vaughan, 3 Burrows, 1516. 42 Daniel, Neg. Inst., footnote to § 729.

43

original parties may be deemed to say, "We will not restrict the payment of this instrument to any particular person, but will pay it to anybody, provided such person be the bona fide holder." They therefore may be deemed to contract that the instrument may be transferred subject to the rights and immunities of the transfer of an instrument transferred by negotiation, and that the transferee should have rights of an indorsee for value and without notice, so far as the admission of equities is concerned.** And the only difference between the transferrer by delivery and the indorser is that the transferrer, by declining to indorse, declines to enter into a contract of indemnity, and the transferee relies on the instrument itself, and upon the implied warranties, by not requiring an indorsement. The transferrer, unless he violates an implied warranty, cannot therefore be compelled to refund the money for which he sold the bill or note if it prove uncollectible. Of this fact the transferee takes the risk on himself, for he might by requiring an indorsement, acquire all the right acquired by an indorsee. But in other respects he derives the benefit of all the rights his transferrer or prior parties have acquired; he derives any benefit that may come from a purchase in due course for value and without notice, and thus is freed from liability to defenses.*

46

43 Bank of Kentucky v. Wister, 2 Pet. 318, 7 L. Ed. 437; Town of Thompson v. Perrine, 106 U. S. 593, 1 Sup. Ct. 564, 568, 27 L. Ed. 298; Thompson v. Lee County, 3 Wall. 327, 18 L. Ed. 177.

44 City of Lexington v. Butler, 14 Wall. 293, 20 L. Ed. 809; Moran v. Commissioners of Miami County, 2 Black, 722, 17 L. Ed. 342; Mercer County v. Hackett, 1 Wall. 83, 17 L. Ed. 548; James v. Chalmers, 6 N. Y. 209; Beach v. Wise, 1 Hill (N. Y.) 612; Bedell v. Carll, 33 N. Y. 581.

45 Fenn v. Harrison, 3 Term R. 759; Fydell v. Clark, 1 Esp. 447; Emly v. Lye, 15 East, 7; Bank of England v. Newman, 1 Ld. Raym. 442. In this case it was held that: "If a man has a bill payable to him or bearer, and delivers it over for money received, without indorsement of it, this is a plain sale of the bill, and he who sells it does not become a new security; but, if he had indorsed it, he had become a new security, and then he had been liable upon the indorsement." Holt, C. J.

46 Bigelow v. Colton, 13 Gray (Mass.) 309, 74 Am. Dec. 633.

47 Miller v. Race, 1 Burrows, 452; MAURAN v. LAMB, 7 Cow.

OVERDUE PAPER

92. Negotiable paper may be transferred by indorsement or delivery when overdue.

48

A bill or note does not lose its negotiability by dishonor; and yet, as regards parties prior to the transfer, many of the privileges of a bona fide holder who receives the paper after maturity are destroyed. Defenses of payment, of fraud, of illegality and failure of consideration,50

49

(N. Y.) 174, Moore Cases Bills and Notes, 148; Grant v. Vaughan, 3 Burrows, 1516. See, also, Daniel, Neg. Inst. § 814, and cases quoted; also section 4, c. 37, § 1191 et seq.

48 N. I. L. § 47; Pensacola State Bank v. Melton (D. C.) 210 Fed. 57. An overdue promissory note is still negotiable within a statute exempting from attachment negotiable promissory notes. Oakdale Mfg. Co. v. Clarke, 29 R. I. 192, 64 Atl. 681 (N. I. L.). In the case of Leavitt v. Putnam it was held that, if originally negotiable, a bill or note does not lose such character by being dishonored, but may still pass from hand to hand ad infinitum until paid by the drawer. The indorser, after maturity, writes in the same form, and is bound only upon the same conditions of demand upon the drawer and notice of nonpayment, as any other indorser. Thus, the paper retains the main attributes of a proper bill or note. In Deuters v. Townsend it was held that a bill was assignable after maturity, and even after an action had been begun upon the same. 5 Best & S. 613. In Ames v. Meriam it was decided that the rule controlling bills or promissory notes, with respect to equities attaching, does not apply to checks on a bank, taken within a short time after their date. Although payable on demand, they are not treated as being dishonored or overdue on the day, or immediately after the day, of their date. In this case it was held that a check dated January 2d and delivered to a person on January 12th was not overdue and subject to defenses between original parties. 98 Mass. 294; Bassenhorst v. Wilby, 45 Ohio St. 333, 13 N. E. 75; Johns. Cas. Bills & N. 45; Carpenter v. Greenop, 74 Mich. 664, 42 N. W. 276, 4 L. R. A. 241, 16 Am. St. Rep. 662. See p. 443, infra.

49 N. I. L. §§ 52 (subd. 2), 58; McCaffrey v. Dustin, 43 Ill. App. 34, Johns. Cas. B. & N. 144.

50 N. I. L. §§ 28, 55, 58. See collated cases, footnote to 1 Ames Cas. Bills & N. p. 747. In Brown v. Davies it was held that an overdue note taken with notice of nonpayment on it was subject to the defense of payment by the maker, on the ground that its being so

in favor of the original parties, may be successfully interposed in an action on a bill or note brought by the transferee of overdue paper when they would have availed against his transferrer. As Professor Ames points out, a negotiable instrument overdue becomes a mere assignable chose in action.

There are some things to be noted concerning overdue paper viewed as a chose in action. Prominent among these is the fact that it is transferred by indorsement or delivery, as the case may be, and not by assignment.51 The reason for this is that the parties to the original contract contemplated a payment to order. An indorsement signifies that order, and transfers the instrument. In Colt v. Barnard 52

noted for nonpayment when the plaintiff received it should have put him on inquiry. 3 Term R. 80. It was held in Crossley v. Ham that the plaintiff, by taking a note after dishonor by nonacceptance, took subject to infirmities and defenses between previous parties. 13 East, 498. See N. I. L. § 52, subd. 2. In Ashurst v. Royal Bank of Australia it was held that where a note was indorsed by one who was bankrupt at the time, and when overdue, the indorsee takes no better title than that of his transferrer. 27 Law T. 168; Howard v. Ames, 3 Metc. (Mass.) 308; Bond v. Fitzpatrick, 4 Gray (Mass.) 89; Fish v. French, 15 Gray (Mass.) 520. It is very generally held, however, that paper transferred after maturity is not subject to set-off or counterclaim available against the transferrer. Thus in the leading case of Burrough v. Moss, 10 Barn. & C. 558, Bailey, J., said: "The indorsee of an overdue bill or note is liable to such equities only as attach to the bill or note itself, and not to claims arising out of collateral matters." And this rule has been applied even where the transferee had notice of the set-off. Oulds v. Harrison, 10 Exch. 572. The English rule has been widely followed in this country. First National Bank v. Texas, 20 Wall. 72, 22 L. Ed. 295, per Swayne, J.; Robinson v. Lyman, 10 Conn. 30, 25 Am. Dec. 52; Renwick v. Williams, 2 Md. 356; Young v. Shriner, 80 Pa. 463; Richards v. Daily, 34 Iowa, 427; Haley v. Congdon, 56 Vt. 65; Sargent v. Southgate, 5 Pick. (Mass.) 312, 16 Am. Dec. 409; Robinson v. Perry, 73 Me. 168; Edney v. Willis, 23 Neb. 56, 36 N. W. 300. Even where set-off is allowed, it does not extend to debts arising after the transfer. In some states the matter is regulated by statute. See, generally, Daniel, Neg. Inst. §§ 1435-1437; 4 Am. & Eng. Enc. Law (2d Ed.) 315 et seq.; 1 Ames Cas. Bills & N. 759. 512 Ames, Bills & N. p. 853.

52 18 Pick. (Mass.) 260, 29 Am. Dec. 584. In this case a note was indorsed by the defendant, who was the payee, to plaintiff, after