CHAPTER XXVII FORM AND INTERPRETATION1 § 153. The Quality of Negotiability The negotiable instruments in ordinary use are: (1) promissory notes, (2) drafts or bills of exchange, and (3) checks. In all the states that have adopted the Uniform Bills of Lading Act, bills of lading are made negotiable instruments. The quality of negotiability lies in the fact that any person, not an original party, who takes a negotiable instrument in the ordinary course of business, may sue on it when due, in his own name, and the person who is the obligor will be compelled to pay it. Negotiable instruments are also called "commercial paper." Any ordinary contract may be assigned by executing an assignment, but in such case the assignee merely steps into the shoes of the person who assigned it, and if there has been any reason, as between the parties, why it should not be paid, this can be set up against the assignee, if he brings suit, exactly as if he were the original party. If this were true of a note, no one would dare to discount it, for, when the time of payment came, any reason for non-payment that might exist between the original parties could be used to destroy the whole value of the note. Hence, for the convenience of business, the law of negotiable instruments has grown up, to protect the man who takes them "in due course of business." "In due course of business" means taken before its date for payment, for a valuable consideration and without knowledge of anything that would affect the title. The law says: 1 For forms of negotiable instruments, see Chapter CIII, Forms 34-43. A holder in due course holds the instrument free from defect of title of prior parties, and free from any defenses available to prior parties among themselves and may enforce payment of the instrument for the full amount thereof against all parties liable thereon. Non-Negotiable Contracts. A simple agreement or promise to pay a sum of money could not be enforced unless there was a valid consideration for the promise, and an assignee would have no more rights than the original holder. That is, if suit were brought on such an agreement, and the maker could prove that no consideration had been given, he would not be made to pay. The same rule would hold as between the original parties to a note, and the defense of no consideration would prevent collection, but if the note or other negotiable paper had been negotiated, that is, if it had passed in the course of business into the hands of an innocent holder for value, the matter of consideration would not figure, and the full amount would have to be paid. Notes, drafts, and checks are used so extensively that the laws governing their transfer are of great importance. When the subject of uniform laws was brought up, the law of negotiable instruments was the first to be reformed and the one most widely adopted. The Uniform Negotiable Instruments Law as devised by the commissioners having the work in hand has at the present time been adopted by every state and territory except Georgia and Porto Rico. In discussing this subject, the Uniform Negotiable Instruments Law has been followed as closely as possible, and the quotations are from the text of the law. The following are the requirements for negotiable instruments as laid down in the law itself: § 1. An instrument to be negotiable must conform to the following requirements: 1. It must be in writing and signed by the maker or drawer. 2. Must contain an unconditional promise or order to pay a sum certain in money. 3. Must be payable on demand, or at a fixed or determinable future time. 4. Must be payable to order or to bearer; and 5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. § 154. Signature The signer of an instrument is liable, and anyone signing a trade-name or assumed name will be liable personally. A duly authorized agent can sign for his principal, and if he is duly authorized and signs as agent or in a representative capacity, he will not be personally liable. If, however, he signs as agent without disclosing his principal, he will be personally liable. The indorsement of a corporation or an infant passes the property in the instrument, though the corporation or infant may not be liable. A note signed by a minor cannot be collected. A forged signature is absolutely void and passes no right or title. § 155. Unconditional Promise The Uniform Law allows two variations of the requirement of an unconditional promise or order to pay. §3. An unqualified order or promise to pay is unconditional within the meaning of this act, though coupled with: I. An indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount; or 2. A statement of the transaction which gives rise to the instrument. But an order or promise to pay out of a particular fund is not unconditional. § 156. Certainty as to Sum It is to be noted that the law allows certain variations as to the certainty of the sum: §2.-The sum payable is a sum certain within the meaning of this act, although it is to be paid: 3. By stated instalments, with a provision that upon default in payment of any instalment or of interest, the whole shall become due; or 4. With exchange, whether at a fixed rate or at the current rate; or 5. With costs of collection or an attorney's fee, in case payment shall not be made at maturity. § 157. Payable on Demand § 7. An instrument is payable on demand: I. Where it is expressed to be payable on demand, or at sight, or on presentation; or 2. In which no time for payment is expressed. Where an instrument is issued, accepted or indorsed when overdue, it is, as regards the person so issuing, accepting or indorsing it, payable on demand. § 158. Certain Future Time The law clearly expresses that the time must be certain. § 4. An instrument is payable at a determinable future time, within the meaning of this act, which is expressed to be payable: I. At a fixed period after date or sight; or 2. On or before a fixed or determinable future time specified therein; or 3. On or at a fixed period after the occurrence of a specified event, which is certain to happen, though the time of happening be uncertain. An instrument payable upon a contingency is not negotiable, and the happening of the event does not cure the defect. § 159. Payable to Order § 8. The instrument is payable to order where it is drawn payable to the order of a specified person or to him or his order. It may be drawn payable to the order of: I. 2. 3. 4. A payee who is not maker, drawer or drawee; or The drawee; or Two or more payees jointly; or 5. One or some of several payees; or 6. The holder of an office for the time being. Where the instrument is payable to order the payee must be named or otherwise indicated therein with reasonable cer- § 160. Payable to Bearer § 9.-The instrument is payable to bearer: I. When it is expressed to be so payable; or 2. When it is payable to a person named therein or bearer; or 3. When it is payable to the order of a fictitious or nonexisting person, and such fact was known to the person making it so payable; or 4. When the name of the payee does not purport to be the name of any person; or 5. When the only or last indorsement is an indorsement in blank. $161. The Date The law provides that the date on the face of the instrument is presumed to be the true date, and that it may be antedated or post-dated, provided it is not done for a fraudulent purpose. It is also provided that if a date is left blank, any holder may insert the true date. If an instrument is issued with any material particular left out, the holder may fill in the blanks. |