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personal liability, is by writing over the indorser's signature the words," Pay A. B. or order," or he may omit or order." This in no way affects the liability of the blank indorser, but simply converts his blank indorsement into a special one in favour of A. B.; and this is done without the transferor's name appearing on the bill.
When a man indorses a bill or note, he warrants that the bill has properly come to his hands, and that all the signatures on it are what they purport to be, and these things he cannot deny when sued on the bill. (See chap. viii.)
A holder may, in sueing a drawer, acceptor, maker, or early indorser, omit to prove the intermediate indorsements, which may be struck out, and the case may be treated as though the bill was indorsed to the plaintiff in the first instance. This may be done at the trial.
An indorsement intentionally struck out by the holder discharges the indorser.
7. In default of acceptance, or, after acceptance, in default of payment, an innocent indorsee or holder for value may sue all the parties to the bill, and none of them can set up the defence of fraud, duress, absence of consideration, or, in general, illegality.
The only cases where an innocent indorsee for value has not a good title against all prior parties to the bill (unless there is an agreement to discharge any of them, see above, sec. 4, and chap. xii, sec. 2), are those where the security is rendered absolutely void by statute. For example, the sale of an office; the stipulation with a sheriff for ease and favour; or securities given to enable a creditor of a bankrupt who has proved his debt to receive more than others.
The effect of the law in these cases is, that the party who gives the bill or note for any of these considerations, whether as acceptor, maker, drawer, or indorser, cannot be successfully sued thereon, but the other parties may be so sued.
It has been already stated, that the gratuitous transferee of an accommodation bill may sue any party but his gratuitous transferor, provided any one of the prior parties has given value.
8. If a bill which either requires indorsing, or was intended by the parties to be indorsed, be delivered for
value without endorsement, the transferee has a right of action against the transferor for not indorsing, and perhaps now a mandamus will lie to compel indorsement, and the costs would have to be paid by the person refusing to indorse. The personal representatives of the deceased transferor may also be compelled to indorse. I quote the following from the Bills of Exchange Act, sec. 31: "Where the holder of a bill payable to his order transfers it for value without indorsing it, the transfer gives the transferee such title as the transferor had in the bill, and the transferee, in addition, acquires the right to have the indorsement of the transferor."
9. If a man, having indorsed a bill, gets it indorsed again to him, he cannot, as a general rule, sue the intermediate indorsers.
10. If a man to whom a bill or note is indorsed for a particular purpose improperly indorse it to another, the indorsee, if he knew of the breach of trust, cannot sue the real owner of the bill upon it; but, on the contrary, the real owner of the bill may bring his action to have it given up.
This kind of trust may be expressed on the bill itself by the form of indorsement, as "the within must be credited to A. B. ;" "Pay A. B. or order for my use;" Pay A. B. for the account of C. D. ;" or "For my use;" or " Pay A. B. only." But we have seen (sec. 2) that if the indorsement had been merely" Pay A. B.,” this would have been equivalent to "Pay A. B. or order."
The restrictive indorsements above mentioned amount to notice to all who may see the bill, that A. B. is merely a trustee of it, and therefore cannot assign to any one the right to receive on his own account the proceeds of it: so that any one to whom A. B. indorses the bill will be liable to deliver it up, or the money received upon it, to the real owner. Also, if the person who takes the bill from the trustee indorse it again to another indorsee who receives the money on it, and pays it to the former, the latter indorsee will be responsible for any mis-appropriation of the money by such intermediate indorsee; for it is the duty of every holder, having notice of the trust, to pay the proceeds either to the trustee or the real owner.
I have spoken of the trustee's indorsee receiving the money, because, though he cannot sue, yet parties liable may pay him, and such payment will discharge them.
11. When a bill or note is originally made, or has become (sec. 3) payable to bearer, and is transferred without endorsement, by one who is not a party to it, the transferor is, as a general rule, not liable.
If that transferor merely made a gift of the bill or note he is, of course, not liable, for even if he had indorsed, he could not be sued by the transferee. (See chap. iii.)
If a man pays a bill or note payable to bearer on the purchase of goods without indorsing it, he will not then be liable on the bill (unless he has agreed or promised so to be); for the man who sells the goods, having taken the bill or note without indorsement, must be presumed to have consented to look to the other parties. In fact, the bill has been exchanged for the goods.
So, if such bill or note were given in exchange for other bills or notes, or for money by way of discount, this is a sale of the bill, and the transferor is not liable. By not indorsing it, the transferor refuses to pledge himself to the solvency of the parties.
But if such a bill be paid for a pre-existing debt, as for goods bought ten minutes before, the transferor will, in the absence of any understanding on the subject, be liable; for the creditor is entitled to cash, and it is not to be inferred that he meant to let the debtor off by merely taking notes or bills.
And there are other circumstances from which a jury may infer that the implied contract was that the transferor should be responsible, without indorsement, if the bill or note were dishonored; as, for instance, if cash were given for the instrument by a friend as a favor, and not by way of sale or discount.
12. A person transferring by delivery for value always impliedly warrants that the bill is not forged or fictitious, and if there be a single fictitious signature there will be a breach of warranty, and any cash given for the bill must be returned; or if any other consideration be given, an action may be brought for the breach of warranty. Whether the transferor has himself received the bill by delivery appears to make no difference. (See chap. vii., 8. 6.)
13. Bills or notes payable to bearer circulate as money. The bona fide possessor of them is their true owner. Therefore, a cheque, bill, or note, payable to bearer passes to any person honestly taking it for value, though the person transferring had no right to transfer.
I say honestly taking it; for mere negligence, however gross, will not of itself invalidate his title. Gross negligence, however, in a man at all acquainted with business, may be sufficient evidence of dishonesty and bad faith.
And these rules apply to the pledging of bills and notes, as well as to their absolute transfer; the honest pawnee obtains a property in the bills or notes, and cannot be compelled, as in the case of goods improperly pledged, to return the bill to their rightful owner.
Exchequer bills, before the blank is filled up, and India bonds, have also, like bills and notes payable to bearer, the qualities of money.
14. An indorsement (which, as we have seen (sec. 3), may be made before acceptance) may also be made on a blank piece of paper, on which no note or bill has been made or drawn; and the effect of this is to make the drawer liable upon any bill or note afterwards drawn or made on the same paper to the extent of the stamp. The indorser cannot, when sued, set up as a defence that the note or bill was not made or drawn at the time when he signed his name at the back.
15. When a transferee takes by indorsement an unaccepted bill, with notice that the acceptance has been refused, he takes it solely on the credit of the indorser, so that, if the indorser cannot sue the drawer, neither can the indorsee. As, for instance, if the drawer, owing money to A, were to draw upon a third party a bill payable to A or order," and were afterwards to pay the money to A, and caution the drawee not to accept, and A were then, instead of returning the draft, to present it to the drawee for acceptance, and upon his refusal were to indorse the draft to B with notice of such refusal, and suppose then B were to sue the drawer upon his dishonored draft, the drawer might successfully defend the action on the ground that A, who indorsed the draft, could not have recovered on it, and that the plaintiff took it with notice of non-acceptance.
But, if the transferee have no such notice, he may
sue the other parties to the bill, although his transferor could not.
16. The same principle is applied in the case of a bill being transferred overdue; for such a bill is said to come disgraced to the indorsee," who takes it at his peril, and "subject to all the equities with which it may be encumbered."
For instance, suppose a bill, drawn on a person for a gaming debt and accepted, were indorsed by the drawer, when overdue, to an innocent indorsee for value, the latter could not recover against the acceptor; for the indorsee took the bill under circumstances of suspicion, and solely on the credit of his indorser.
But, if the same bill had been indorsed in the same way before it was due, the indorsee could have recovered against the acceptor, as well as against the person from whom he took the bill.
In the above case of an overdue bill the person who indorsed it overdue could not himself recover upon it, but if the indorser be able to sue upon the bill, so can his indorsee. As if, for instance, in the above case, the drawer had indorsed the bill to an innocent indorsee for value before it was due, and then the indorsee had indorsed to another after due, the latter could recover.
But an indorsee of a bill or note overdue takes subject only to the equities attaching upon the instrument itself, and he is not affected by those which are only collateral to it, as, for instance, a set-off due from the payee to the maker of a note.
17. A note payable on demand is not to be considered overdue unless there be some evidence of payment having been refused, for such notes are often intended to be a continuing security, and interest is often paid on them for many years.
18. When once paid at maturity by the acceptor or maker, bills and notes are extinguished, and cannot again be negotiated; but if paid before maturity, they will still be good in the hands of a bona fide indorsee for value, who has taken them without notice of their having been paid. They should, therefore, on payment by the acceptor or maker, be given up to them.
An accommodation bill paid by the party accommodated at maturity cannot be re-issued by him.
But, with this exception, until a bill is paid by the