be."

In a note on page 38, the case of Baxter v. Duren, supra, is referred to, where it was held that one who sells and transfers a promissory note by delivery is not liable on an implied warranty of its genuineness, if he sold the same as property, and not in payment of a debt previously existing or then created, and if he did not know of the forgery. But it was said in that case that if the note was transferred by delivery merely, in payment of a debt due, or for goods then purchased, or by way of discount for money then loaned, there would in such case be an implied warranty of the genuineness of the paper. "But," adds the learned author, "this distinction does not seem to be well founded." And again, at page 589 of the same volume, the principle is broadly stated "that any transferrer of a note or bill transferable by delivery, warrants that it is no forgery. If it turns out that the name of one of the parties is forged, and the bill becomes valueless, the vendor, though no party to the bill, becomes liable to the vendee as upon failure of consideration." He then proceeds to state, without further comment, the distinction which was taken in the case of Baxter v. Duren, supra, and of which he had previously disapproved.

So, in Edwards on Bills and Promissory Notes, page 291, it is said: "The party assuming to transfer a negotiable instrument thereby asserts it to be genuine, and is bound to make his assertion good." And on page 289: "Though the indorser transfers the note upon condition that it is to be collected at the risk of the indorsee, he is nevertheless responsible if the note proves to be a forgery. Shaver v. Ehle, 16 Johns. R., 201, and 20 N. Y. R., 226.

In England, it seems to be well settled by the latest decisions on the subject, that the vendor of a bill of exchange is responsible for its genuineness. Thus, in Gompertz v. Bartlett, decided in 1853, it was held by the Court of Queen's Bench that the vendor of a bill of exchange impliedly warrants that it is of the kind and description that it purports on the face of it to be. 24 Eng. L. and E. Rep., 156; 23 L. J. Ex., 65; see also Challis v. McGrum, 22 Kan. 157; Bell v. Dagg, 60 N. Y., 528; Bell v. Cafferty, 21 Ind., 411. And in Gurney and others v. Womersley, 24 L. J., Q. B., 46, decided in 1854 by the same court, it was held that the vendor of a bill of exchange, though no party to the bill, is responsible for its genuineness; and if it turns out that the name of one of the parties is forged, and the bill becomes valueless, he is liable to the vendee, as upon a failure of consideration. Both these cases were decided on the

same principle which is applied in sales of personal property generally, that the vendor impliedly warrants that the article sold is of the kind and description which it imports and is understood by the parties to be.

In the case of Baxter v. Duren, 29 Me., 434, supra, it was held that one who sells a promissory note, by delivery, upon which the names of indorsers have been forged, is not liable upon an implied promise to refund the money received therefor, if he sold the same as property, and not in payment of a precedent debt, and did not know of the forgery.

The same doctrine was held in the case of Ellis v. Wild, 6 Mass., 321, where the same distinction was made between the sale of the note and its transfer in payment of a debt. But the doctrine is no longer maintained in that commonwealth. Cabot Bank v. Morton, 4 Gray, 156; Lobdell v. Baker, 1 Met., 193; Merriam v. Wolcott, 3 Allen, 258. In the last of these cases, Ellis v. Wild and Baxter v. Duren are both considered, and, for what seems to us good reasons, disapproved; and it is held that there is no valid reason for the distinction taken in those cases.

In Aldrich v. Jackson, 5 R. I., 218, the doctrine is expressly stated that "the vendor of a bill or note, by the very act of sale, impliedly warrants the genuineness of the signatures of the previous parties to it."

The same doctrine is held in Terry v. Bissel, 26 Conn., 23, and in Thrall v. Newell, 19 Vt., 202.

And the principle upon which these decisions rest has its foundation, as we think, in reason and justice.

In the sale of what purports to be a promissory note, it is not the material substance of the paper and ink for which the consideration is understood by the parties to be paid, but it is the chose in action of which the note purports to be the evidence, that is the real subject of negotiation and transfer. But if the note is forged, if no such chose in action exists, if the vendor neither owns nor parts with anything of the kind, it is difficult to see any just ground upon which he can be allowed to retain the purchase money. He has undertaken to sell what he did not own, and that which in fact has no existence. The maxim of caveat emptor is inapplicable to such a case.

The present case, however, is much stronger. It is not a case of sale by delivery merely, but by indorsement, qualified, it is true, so as to exclude the liabilities consequent thereon under the commercial law. Still, the defendant is a party to

the note, he has sold and transferred it as such, and he is bound to make his representation good. On this question we know of no conflict of authorities.

The judgment of the court below must then be reversed, the demurrer to the plaintiff's petition overruled, and a procedendo awarded.

§335. Warranties in Negotiable Instruments.-"The modern law of bills and notes, as well as other branches of commercial law, is a product of the interplay of mercantile custom and common law principle." One illustration of this is found in the warranties incident to the transfer of negotiable instruments. Besides the liability incurred by virtue of the law merchant, there is involved in negotiation by indorsement an agreement of warranty based on the general principles of warranty as developed in the common-law rules as to sales. A negotiable instrument, besides being a negotiable instrument, is evidence of a chose in action; that is to say, a right to enforce a contractual obligation in court. And even when the indorsement is made "without recourse," there is an "implied warranty" that the thing sold is what it purports to be. The provision of the Negotiable Instruments Law (Sec. 65) is as follows: "Every person negotiating an instrument by delivery or by a qualified indorsement [as when there is added to the indorser's signature the words "without recourse" or any words of similar import], warrants

1. That the instrument is genuine and in all respects what it purports to be;

2. That he has a good title to it;

3. That all prior parties had capacity to contract; 4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.

But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee.

The provisions of subdivision three of this section do not apply to persons negotiating public or corporation securities, other than bills and notes.

'Street, Foundations of Legal Liability, vol. 2, p. 409.

§336

WILLIAMS, DEACON & CO. v. SHADBOLT. Queen's Bench Division, 1885. [1 Cab. & El. 529.]

This was an action on bills of exchange by indorsees against the acceptors.

The Dana Land & Lumber Company carried on business in Mobile, Alabama, United States, and consigned timber from time to time to the defendants, timber merchants and agents in London. The course of business was for the Dana Company to draw on the defendants from time to time, not against particular shipments, but for amounts regulated by the quantity of timber in course of shipment. These drafts the Dana Company used to discount with the Bank of Mobile, at Mobile; and the Bank of Mobile forwarded them to the plaintiffs in London indorsed restrictively in the manner the bill hereinafter set out was indorsed. The plaintiffs on receiving the draft would take it to the defendants for acceptance, and the plaintiffs thereupon credited the Mobile Bank with the amount of the draft, and allowed them to draw on them at once against the amount so credited. The acceptances would then, in the ordinary course, be paid by the defendants to the plaintiffs at maturity. The defendants were not aware that the plaintiffs used to allow the Bank of Mobile to draw against the amount of the acceptances before maturity.

In pursuance of the above course of business the Dana Company drew bills upon the defendants in a form of which the following is a sample:

"Sixty days after sight of this first of exchange (second and third unpaid), pay to the order of ourselves £1,600 sterling value received, and charge the same to account of as advised.

"Dana Land and Lumber Company. "To Messrs. Geo. Shadbolt & Son, London."

This draft with others was discounted by the Dana Company with the Bank of Mobile, and indorsed to the bank. The bank indorsed the drafts to the plaintiffs as follows:

"Pay to the order of Messrs. Williams, Deacon & Co., for collection per account of the Bank of Mobile, Mobile, Alabama.

"A. F. Manley, Cashier."

The plaintiffs presented the drafts to the defendants for acceptance, and the defendants accepted the same. The plaintiffs thereupon allowed the Bank of Mobile to draw on them for the amount of the said bills.

Before the bills matured, the Dana Company paid to the Bank of Mobile the amount of the bills, and wrote to the defendants releasing them from their liability as acceptors.

The defendants never received any assignments of timber on account of these bills.

Subsequently both the Dana Company and the Bank of Mobile failed.

CAVE, J.: The question is what is the effect of a bill being restrictively endorsed? Section 35 of the Bills of Exchange Act, 1882, defines a restrictive indorsement as one which prohibits the further negotiation of the bill, or which expresses that it is a mere authority to deal with the bill as thereby directed, and not a transfer of the ownership thereof. We have therefore in this case an indorsement which is not a transfer of the ownership of the bill, but merely operates as an authority to the indorsee to receive the money on behalf of the indorser. This kind of indorsement was well known long before the act of 1882. In Lloyd v. Sigourney, 5 Bingham, 525, the bankers of the person to whom the bill was restrictively indorsed discounted the bill for their customer, and allowed him to apply the proceeds for his own use; and it was held that the bankers were liable for that amount to the indorser. Best, C. J., there says: "Whoever reads the indorsement on this bill of exchange must perceive that its operation is limited, and that the object of the indorser was to prevent the money received in respect of the bill from being applied to the use of any other person than himself. To whomsoever the money might be paid, it would be paid in trust for the indorser; and into whose hands soever the bill traveled, it carried that trust on the face of it. And we see no inconvenience to commercial interests from such a limitation of the effect of the indorsement so expressed. The only result will be to make parties open their eyes, and read before they discount." Those observations are eminently applicable in this case. The indorsee had authority to collect the amount of the bill; but the ownership of the bill and of the debt remained in the Bank of Mobile, and the payment to that bank was a perfectly good payment. That it is a good payment is perfectly clear, unless the course of business between the plaintiffs and the Bank of Mobile makes a difference; for the appointment of an agent to receive a debt does not prevent the payment of the debt to the real creditor. Can, then, the arrangement between the plaintiffs and the Bank of Mobile, that the latter shall draw on the former for the amount of the acceptances, affect the rights of the parties to the bill, and alter the quality of the indorsement? Can it be that if the Bank of Mobile does not