Gaming (in States where the statute makes such contracts absolutely void).

Cancellation.
Alteration.

A cancellation made unintentionally, or under a mistake, or without authority of the holder, is inoperative. (Sec. 204.)

In the case of an alteration, if the instrument is in the hands of a bona fide holder for value without notice, he may enforce payment of the instrument according to its original tenor. (Sec. 205.)

On the other hand, there are certain defenses which are available between immediate parties, or any who stand in privity (direct relation) to them; but they are not good as against purchasers for value without notice. Such defenses are:

Fraud.

Duress (compulsion).

Failure of consideration.

Usury and gaming where the statute renders them simply void.

Premature payment, or accord and satisfac

tion.

Mutual mistake in making the instrument.

Any of these may be set up as a defense between the maker, or drawer, or acceptor, and the payee, or the payee and his indorsee, etc.; but in the hands of bona fide purchasers for value without notice, they are of no avail.

PART V

LIABILITY OF PARTIES

Every party to a negotiable instrument, whether he be drawer or maker, acceptor or indorser, enters into a contract which, in some respects, differs from that entered into by each of the other parties named. This contract carries with it certain liabilities which he can not evade, and it is of these liabilities we shall treat in this chapter.

Maker. The maker of a promissory note engages that he will pay it according to its tenor, and admits the existence of the payee, and his then capacity to indorse. (Sec. 110.)

According to its tenor" means that he will pay the note at the time stated, at the place stated, the amount stated, and to the payee stated or his indorsees; or if the instrument be a bearer instrument, to the holder thereof, upon its presentment and surrender by the holder. This he engages to do at any reasonable hour of the day of maturity, or of any subsequent day if not presented when due. The maker is a debtor, it is true, but his liabilities differ from those of an ordinary debtor in several particulars: (1) If the instrument is not presented for payment and surrendered, the maker is not bound to pay. An ordinary debtor is not subject to any con

dition whatsoever. (2) If the instrument does not state the place of payment, it is to be paid at the maker's residence or place of business. This means that the creditor must seek the debtor, while ordinarily the case is reversed, and the debtor seeks the creditor. (3) In an ordinary debt, the debtor has until midnight of the day the debt is due in which to pay. In the case of a note or draft, the holder determines the time. He must present the instrument for payment at a reasonable timei.e., within business hours if it is payable at the maker's office; and between the hours of rising and retiring if payable at the maker's residence. As to the necessity for presentment, we shall speak later (see pages 104, 118).

Drawer. The drawer, by drawing the instrument, admits the existence of the payee and his then capacity to indorse; and engages that, on due presentment, the instrument will be accepted or paid, or both, 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. (Sec. III.) According to its tenor " means here just what it means in the statement made above concerning the maker. Note that the drawer's liability is only a secondary one. The party primarily liable on the draft or bill of exchange is the acceptor, and the drawer only agrees to pay when the bill or draft has been presented to

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the acceptor and payment refused by him. Note, further, that the drawer is entitled to notice of the dishonor of the instrument by the acceptor before he becomes liable. Unless such notice is given, he can not be called upon to take up the bill. Of course, if the drawer pays the bill, he has the right to and should have the bill presented to him and surrendered. So, where a drawer tendered payment upon condition that the bill be surrendered, it was held to be a good tender. Because of this principle it follows that a drawer can not be charged at law if the bill is lost or destroyed.

There is some division among the courts as to just what time the holder may begin his action against the drawer. Some hold that it may be begun the moment notice has been sent to the drawer, whether he has received it or not (Maine, New Hampshire, Massachusetts, etc.); while others hold that no action can be begun until notice has been received by the drawer (New York, California, etc.). Of course, a drawer must make payment at his place of business or residence, if no other place is mentioned in the bill.

Amount to be paid. The holder is entitled to receive the amount specified in the bill. In addition to this, the drawer is chargeable with notarial fees, and with interest from the time the dishonored instrument should be (not is) presented to the drawer until it is paid by him. Of course, if the instrument bears interest, then interest from the day the instru

ment was made to the day of its maturity must be added. Note, however, that the latter is only the fulfillment of the contract of the drawer, while the former is in the nature of a penalty. There is some division of opinion among the cases as to just when the interest by the way of penalty begins to run, but the above statement (from time the dishonored instrument is presented to the drawer) is borne out by the weight of opinion. The rate of interest is sometimes a question of importance. The instrument itself may bear interest at any rate not usurious. The rate to be paid as penalty depends upon the legal rate of interest prevailing in the State in which the drawer resides, and is always measured by this.

Exchange. If the place where the drawee or acceptor resides, and where the bill or draft should be paid, differs from that of the drawer, and exchange is charged for collection, etc., then the drawer is chargeable with this, too.

Drawee. The drawee of a bill or draft incurs no liability (as drawee) to the holder. The drawee of an unaccepted bill or draft is not bound to accept or pay it unless he has, for valuable consideration, expressly or impliedly agreed to do so. If he has agreed to do so, then his relations to the drawer are regulated by the terms of the agreement. This statement is not true, however, as to a bank. We shall see later on that a bank is bound to honor its customers' checks.

Acceptor.

The liability of the acceptor is