CHAPTER XIX CONTRACT OF PARTIES 297. Maker's contract. The maker of a negotiable instrument engages that he will pay it according to its tenor, that is, according to the terms in the instrument when it is delivered by him. He also admits the existence of the payee and his then capacity to indorse. No presentment is necessary to fix the maker's liability even though a place of payment is designated in the instrument. A note is presented merely to fix the liability of the indorsers. 298. Acceptor's contract.-The drawee of a bill before acceptance is a nominal party and is not liable thereon. When he accepts the bill he becomes directly liable to the holder according to the terms of his acceptance. An acceptance must be in writing and must be signed. It must not promise performance by any other means than the payment of money. If the acceptance is not written on the face, the holder may treat the instrument as dishonored. If written on a separate sheet of paper, it binds the acceptor only to a person to whom it is shown and who, on the faith thereof, receives the bill. If the acceptor writes a promise to accept a bill and the bill is taken on such promise, no further acceptance as to the person so taking it is necessary. Travelers' letters of credit are issued and accepted in this way. A drawee has twenty-four hours in which to accept. If he destroys the instrument or refuses to return it he is deemed to have accepted. A bill may be accepted before it is complete, or when it is over-due or after it has been dishonored by a previous refusal to accept or by non-payment. 299. Facts which acceptor does, and facts which he does not admit.-The acceptor, by the acceptance, admits the genuineness of the drawer's signature, the existence of the drawer, and his capacity to make the draft, his authority to draw for the sum named, and, where the bill is to the payee's order, that the payee was competent to make the indorsement. He does not admit that the payee's signature nor that subsequent indorsements are genuine nor that the terms contained in the bill at the time of acceptance are genuine. 300. Kinds of acceptance.-An acceptance may be either general or qualified. Where the acceptance is for a part of the amount only, or changes the time of payment, or is an acceptance of one or more drawers, but not of all, it is a qualified acceptance. So if it changes the place of payment, it is a qualified acceptance, but not if it merely adds another place. Unless the drawer and prior endorsers assent or fail to dissent after notice they are discharged by the qualification, though the holder may refuse the qualified acceptance, and may treat the bill as dishonored. 301. Who may accept.-Only the drawee named in the bill can accept it. But the drawer may add a "referee in case of need" to whom the holder may apply if the drawee does not accept. The bill may be dishonored without applying to the referee. After a bill has been dishonored any person may accept it for the "honor" of the drawer or any indorser and such acceptor becomes liable to all parties subsequent to the party for whose honor he has accepted. To bind a person on this "acceptance supra protest," as it is called, the bill must be again presented to the drawee for payment and protested for non-payment and notice must be given to the "acceptor for honor." 302. Effect of acceptance and refusal to accept.—An accepted bill is either held or negotiated until maturity, when it is presented to the acceptor for payment. If not paid, it is dishonored for non-payment, whereupon notice is given to the drawer and indorsers in order to hold them liable. If not accepted it is dishonored for non-acceptance, due notice of which must be given to the drawer and to any persons who may have indorsed before the bill was presented for acceptance. A foreign bill, when dishonored, must be protested. Failure to protest when necessary and to give the proper notice as above indicated will discharge the drawer and indorsers. 303. Drawer's contract.-Every drawer promises the payee and subsequent holders that if the bill be not accepted, or be not paid he will indemnify them for loss, provided the proper steps are taken, which are presentment, notice and, in the case of foreign bills, protest. The drawer warrants that there is a drawee, that he is capable of accepting and that he will accept. 304. Indorser's contract.-The indorser's contract is like that of the drawer, except that the indorser of a note, of course, requires no presentment for acceptance. An indorser of a bill before presentment for acceptance requires that the bill be presented for that purpose. A note or bill must be presented for payment on the due date and if dishonored, notice must be given to the indorser (by protest, if a foreign bill) before the indorser's liability arises. 305. Warranties of indorser.-One who indorses without qualification, warrants to all subsequent holders that the bill or note is, in every respect, and as to all prior parties, genuine, and neither forged, fictitious nor altered; that it is a valid obligation and that the obligations of all prior parties are valid, and that all the prior parties (drawer, acceptor, maker or indorser) were competent to bind themselves. The indorser also warrants his title and his right to transfer. The warranties of the indorser without recourse and of the transferrer by mere delivery are like those of the general indorser except that the warranty that the instrument is valid and subsisting is replaced by a warranty that the transferrer has no knowledge of any fact which would impair the validity of the instrument. 306. Liability of indorsers amongst themselves.-In the absence of proof1 to the contrary indorsers are liable in the order in which they indorse. EXAMPLE 310. "Pay to the order of B $100. A." The following indorsements are found on the back of the note. "Pay to C, B"; "C"; "Pay to E without recourse. D"; "E." At maturity the note is presented by the holder, F, and A refuses to pay. F notifies all the indorsers. He may sue any or all of them except D, unless there is a breach of one of the implied warranties spoken of in the previous section. If he recovers from E, E may recover from C, B or A. B may recover from A. It is usual for a holder who has a mature unpaid instrument to join all parties liable on the instrument as defendants in one suit. In the above example if X's name appeared after B's indorsement, X would be termed an irregular indorser. In this case X would be signing his name to lend credit to B's indorsement, and we would deduce that C would 1 Oral evidence may be offered to show the respective obligations of the parties. Shea v. Vahey, 215 Mass. 80, 102 N. E. 119. not accept the instrument till he had received the security of X's signature. The liability of an irregular indorser is the subject of much conflict amongst the decisions, but the negotiable instruments law has formulated rules, which are illustrated by the following examples: 1 EXAMPLES 1 311. Note made by X payable to order of himself, indorsed by Y, and then delivered to Z. Y is liable as indorser to Z. 312. Note made by X payable to order of Y, indorsed by Z, and afterwards delivered to Y. Z is liable as indorser to Y. 313. Note made by X payable to order of Y, indorsed by Z before Y for the accommodation of Y, and discounted by A. Z is liable as indorser to A and not to Y. 307. Liability of other parties.-An accommodation party may sign not only as an indorser, as shown in the preceding sections, but as drawer, maker or acceptor without recompense and for the purpose of lending his name to some other person for credit. The accommodation party is liable to all subsequent parties, but the one accommodated, even though they know that the latter has paid no consideration for the accommodation. The person so accommodated on the other hand, contracts that he will pay the note or bill and that in case of default he will indemnify the accommodation party. A guarantor differs from an indorser in that he is liable without notice of presentment. Some jurisdictions hold that a general guaranty written on the back of an instrument is negotiable and that its benefit inures 1 An accommodation party is one who has no interest in the consideration, but signs as maker or indorsee merely to loan his credit to the instrument; he may do this for a consideration or as a friendly act. He is liable to the holder, but the paper must not be diverted from the purpose for which the accommodation is given. But if wrongfully diverted paper is taken by the holder bona fide and without knowledge of imperfections his rights cannot be defeated. Cheever v. Railroad, 150 N. Y. 59. |