PART III: NEGOTIABLE CONTRACTS CHAPTER XVI NEGOTIABLE INSTRUMENTS IN GENERAL 265. Definition. - Negotiable contracts, sometimes called negotiable paper, commercial paper or negotiable instruments, are generally defined as written unconditional orders by one person to another to pay to the order of a third person, or to the bearer, a certain sum of money at a certain specified or ascertainable time. They perform a double function, being on the one hand a substitute for money, or, as it were, private money, and on the other hand evidences of indebtedness. 266. Negotiable instruments law. The law governing negotiable contracts is very old, and was founded in the first instance on the custom of merchants. Gradually, the courts decided cases that came before them according to this custom, and in 1666 it was held that "the law of merchants is the law of the land, and the custom is good enough generally for any man, without naming him merchant." 1 Both in Great Britain and in America the common law has been codified from time to time, and to-day, with a few changes, the act drawn by Judge Chalmers some thirty years ago (1882) is to be found on the statute books of most English-speaking jurisdictions.2 1 Woodward v. Roe, 2 Keb. 105, 132. 2 The American jurisdictions in which the Negotiable Instruments Law has been adopted are the following: Alaska, Alabama, Arizona, Arkansas, Colorado, Connecticut, District of Columbia, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Jersey, Nevada, New Mexico, New York, North Dakota, North Carolina, Ohio, Oregon, Wherever this Negotiable Instruments Law, as it is most frequently called, has been enacted it supersedes the common law, but as a guide to the correct interpretation of the statute the latter is still frequently referred to by judges in their written opinions. The reader who cares to make a special study of this branch of commercial law will do well to find the sections in the negotiable instruments law corresponding to each section in this book, and compare the language.1 267. Kinds of negotiable instruments.-Negotiable instruments are of four kinds. Certain other documents are sometimes treated as negotiable instruments, and, indeed, can be transferred from hand to hand like negotiable instruments. The resemblance, however, stops there, for they are neither substitutes for money nor evidences of extended credit. These quasi-negotiable instruments are warehouse receipts, bills of lading and certificates of capital stock of a corporation. The four kinds of true negotiable instruments above referred to are bills of exchange, promissory notes, checks and bonds. 268. How different from ordinary contracts.-Negotiable instruments, it must be remembered, are contracts. They differ from ordinary contracts, however, in three particulars. 1. Negotiability. An ordinary contract is usually assignable, by which is meant that the benefit of the obligation can be transferred from the person to whom it is due to another person, but if the person who has Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, Washington, West Virgania, Wisconsin, and Wyoming. Notes were not negotiable at common law, but were made so by a statute of Anne. 1 Copies of the Negotiable Instruments Law may be obtained from any law book seller at a nominal price. the obligation to perform has any valid defense or reason why he should not perform the obligation as against the person to whom the obligation is originally due, he can set up that defense against the assignee. So too, in the case of ordinary contracts, where the common law has not been changed by statute, the assignee can sue on the contract in the name of his assignor only. On the other hand, negotiable contracts are transferred from hand to hand, and the transferee, provided he is a holder for value and without notice of any infirmity in the instrument, gets the benefit of the obligation, subject to no defenses except those that render the instrument absolutely void. These defenses are spoken of later as real defenses. The transferee of a negotiable instrument, moreover, can sue on the contract in his own name. 2. Presumption of consideration. It will be remembered that one of the elements of a contract is a valid consideration. Under the common law a sealed instrument required no consideration. The common law in this respect has been changed in some states, and the presence of a seal on a contract gives rise to a presumption of consideration. This presumption, however, may be rebutted, as the party who is being sued may bring to the attention of the court or jury enough evidence of the fact that there was no consideration. That a valid consideration was given for a negotiable instrument is always presumed between immediate parties, and in the case of holders in due course who are remote parties lack of consideration cannot be shown as a defense. EXAMPLES 281. "On demand I promise to pay to A $25. X." This is a non-negotiable contract because the words "or order" are omitted after the name of A. If A sues X on the promise he will have to prove consideration, or if he assigns the contract to C and C sues on the contract C will have to prove a consideration passing from A to X. 282. "On demand I promise to pay to A or order $25. X." This is a negotiable contract and if A sues X the burden of proof will be on X to show that A has given no consideration for the promise. If A negotiates the contract to C and C takes the instrument without notice that X never received any consideration from A, X will have no defense to C's action. In these examples A and X are "immediate" parties. C and X are "remote" parties. 3. Days of grace. Three days are added to the time for payment named in bills and notes, so that they need not be met till three days after the time they would seem to be due. An exception is made in the case of demand instruments. Days of grace have been abolished by statute in many jurisdictions. 269. Classifications of negotiable instruments.—At this point it will be well for the reader to examine carefully the following definitions. 1. A promissory note is an unconditional written promise signed by the maker, but not under seal, to pay absolutely at a fixed or determinable future time a sum certain in money, either to the bearer or to the order of a person therein designated. It is usual to add the place at which the note is to be paid and to set forth whether or not the note is to bear interest. If the words "with interest" are omitted interest will not begin to run till the due date. No. NEW YORK, Sept. 1, 1910. Sixty days after date I promise to pay to the order of the Nassau Trust Co., two hundred and fifty dollars ($250). $250.00. C. W. SHAW & Co. In the above promissory note Charles W. Shaw & Company are the makers and the Nassau Trust Company is the payee. If the Nassau Trust Company wished to cash the note it would indorse it on the back and deliver it to the person who paid for it. In that case the Nassau Trust Company would be the first indorser and the person to whom the note was indorsed would be the first indorsee. 2. A bill of exchange is defined by the negotiable instruments law to be 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. Bills of exchange are usually known among business men as "drafts." They are of two kinds, foreign and inland. Bills drawn in one state payable in another are called foreign bills while those payable in the state in which they are drawn are called inland bills. The chief difference between these two kinds of bills is that foreign bills must be protested by a notary in order to charge the drawer and indorsers when the instrument is dishonored on presentment either for acceptance or for payment, while inland bills need not be so protested. Bills drawn in one country and payable in another are distinguished in name from those defined in the text above as foreign bills. $500. N. Y., Sept. 1, 1910. Three months after date pay to the order of The Empire Brass Co., five hundred dollars. Value received and charge the same to account of JOHN WANAMAKER & Co. To William Duval, 307 Dutch St., N. Y. |