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Sec. 54. ture to a bill is “wholly inoperative,” and no right can be acquired
through or under that signature." By s. 22, want of capacity to contract, means freedom from liability. By s. 25, the signature by procuration operates as a notice of a limited (and it may be of a want of) authority in an agent. But in emphasizing the three indefeasable qualities of a bill of exchange, or a promissory note, given in the Introduction, and in order to give absolute security and protection to a “holder in due course,” and to assure to bills and notes a ready circulation and extensive credit as part of the commercial currency of the country, the several provisions of the Act above quoted, are negatived as to their practical effect, so as to maintain the credit and confidence due to the instrument; making it equivalent to and as the representative of money, in the hands of the person specially favored and protected by the Act, a “ holder in due course.” Thus in the case of a bill drawn in the name of an existing person, but whose signature is forged, the acceptor, who accepts in ignorance of the forgery, is, as to such holder, estopped from alleging that the drawer's signature is forged ; and that estoppel equally precludes him from denying the other three facts : the (1) existence, and (2) capacity, and if signed per proc., the (3) authority of the agent, of such drawer. For an acceptor is bound to know the signature of his drawer, and “that the bill drawn upon him was the drawer's hand :” Per Lord Mansfield, C. J., in Price v. Neal, 3 Burr. 1354 ; s. p. London and North Western Bank v. Wentworth, 5 Ex. D. 96. Whatever neglect there is in such a case as that given above, the law imputes it to the acceptor; and he is therefore drawn within the penalty of the equitable doctrine, that where one of two innocent persons must suffer by the fraud of a third party, that one who was bound to do, or avoid, an act, or be diligent, or who, though innocently, enabled the fraud to be perpetrated on the other, must bear the loss. And so the acceptor of such a bill cannot set up any denial of the four facts specified in this clause, as a discharge of his liability to a bona fide holder for value. For the same reasons, where a bill is drawn in the name of “a fictitious or non-existing person,” and payable to the order of the drawer, the acceptor is similarily estopped as against a holder in due course ; and he is considered as undertaking to pay to the order of the person who has signed as drawer : Cooper v. Meyer, 10 B. & C. 469. See also Beeman v. Duck, 11 M. & W. 251 ; Fort v. Meacher, Riley (S. C.) 248, and Vagliano v. Bank of England, 23 Q. B. D. 243.
3 The distinction between “capacity” and “authority” is pointed out in note 2 to s. 22. Capacity in a person to draw a bill (other than those referred to in s. 22), necessarily includes capacity to indorse ; and by s. 22, persons having no capacity or power to incur liability on a bill, are authorized to indorse bills. This clause does not use the expression “authority,” for authority to draw a bill as agent for another, does not necessarily include an authority to indorse on behalf of the principal: Robinson v. Yarrow, 7 Taunt. 455. But while the clause enables a holder in due course to have one fact, the capacity of the indorser, conclusively
presumed in his favor, he has to establish two other facts against the Sec. 54 acceptor before he can obtain a verdict, viz., (1) the genuineness, and (2) the validity, of the indorsement. If the indorsement is in the name of a fictitious, or non-existing person, the bill is payable to bearer (s. 7). If the name of the drawer is forged, and the bill is payable to the order of the drawer, the holder may give evidence to show that the signatures of the supposed drawer to the bill, and to the first indorsement, are in the same handwriting : Cooper v. Meyer, 10 B. & C. 469. But a break in the holder's chain of title to the bill, may be shown by a want of authority in the person actually writing the indorsement on the bill, such as the forgery of the signature of the indorser, or the limitation, or absence, of authority in the person assuming to sign as agent. An acceptor of a bill is not liable to any one who claims a title to the bill, upon a forged indorsement of the payee (alleged indorser) of the bill ; for he is not estopped from showing that the person demanding payment from him, has no title to the bill. But he is estopped from denying to a holder in due course the genuineness of the signature of the drawer of a bill, even although such signature be a forgery : Ryan v. Bank of Montreal, 12 Ont. R. 39, 14 App. R. 533.
55. The drawer of a bill, by drawing it,
(a) Engages that on due presentment it shall be accepted 30 & 122 and paid according to its tenor, and that if it is dishonored he will compensate the holder or any indorser who is compelled to pay it, 1 provided that the requisite proceedings on dishonor are duly taken;2
(6) Is precluded from denying to a holder in due course Estoppels. the existence of the payee and his then capacity to indorse :3
Contract of indorser.
2. The indorser of a bill, by indorsing it,
(a) Engages that on due presentment it shall be accepted and paid according to its tenor, and that if it is dishonored he will compensate the holder or a subsequent indorser who is compelled to pay it, provided that the requisite proceedings on dishonor are duly taken ;4
(6) Is precluded from denying to a holder in due course Estoppels the genuineness and regularity in all respects of the drawer's signature and all previous indorsements;
(c) Is precluded from denying to his immediate or a subsequent indorsee that the bill was, at the time of his indorsement, a valid and subsisting bill, and that he had then a good title thereto. 5
1 The contract of the drawer is an undertaking that the acceptor shall pay the bill at maturity. All the parties to the bill (subject to the provisions in ss. 5, 7, 22, and 24) are liable to the holder. The acceptor of a bill is the principal debtor ; the drawer is secondarily liable, and the indorsers are sureties to the holder, who is the creditor of the principal debtor. But as the law-merchant has given technical titles to the contracting parties to a bill of exchange, different from the titles ordinarily used in other contracts, the relations of the several parties to the bill inter se, may be illustrated by the above analogy. The drawer, therefore, on the dishonor of the bill, is (1) liable to the holder ; but in the event of the holder compelling an indorser to pay him, then the drawer becomes (2) liable to such indorser.
2 As to dishonor of a bill, and the requisite proceedings to be taken by a holder on the dishonor of such bill, see the sections under the title, General Duties of the Holder, ss. 39 to 52.
ILLUSTRATIONS. The contract which a person transfering for value the property in a bill, makes with the transferee is, that he warrants that the bill, having been accepted, shall on being presented at the time it becomes due, be paid ; that is, he engages as surety for the due performance by the acceptor of the obligation which the latter takes upon himself by the acceptance : Rouquette v. Overmann, L. R. 10 Q. B. 525.
Where the payee indorsed a note to A. upon an usurous consideration, and A. afterwards failed to recover against the maker upon the ground of usury ;– Held, that such payee could recover against the drawer, and it was not necessary to prove a re-indorsement by the usurer A. to the payee : Bidwell v. Stanton, Tay. U. C. 366.
* The principles of equity are not less applicable to cases in which there is, strictly speaking, no contract of suretyship, but in which there is a primary and secondary liability of two persons for one and the same debt, by virtue of which if it is to be paid by the person who is not primarily liable, he has a right of reimbursement or indemnity, from the other. To this class of cases, the rights of an indorser against an acceptor of a bill may be most properly referred : Duncan v. North & South Wales Bank, 6 App. Cas. 13. This clause may be compared with clause (b) in
The drawer is by this clause, estopped from denying two facts in connection with the payee, (1) his existence ; (2) his capacity to indorse. The acceptor of a bill payable to A., or order, intimates to all persons by his acceptance, that he considers A. capable of making an order, or an indorsement, sufficient to transfer the property in the bill. See Drayton v. Dale, 2 B. & C. 299.
Subject to the observations in the several notes to ss. 16, 25 and 26, as to indorsements limiting or negativing the liability of an indorser, the contract of an indorser with the holder, is an engagement by him that if the drawee or acceptor shall not pay the bill at maturity, he, the inclorser, will on due notice, pay the holder the sum which the drawee or acceptor ought to have paid, together with such damages as the law prescribes or allows as in indemnity for the dishonor of the bill. The liability of an indorser to the holder is, by the law-merchant, conditional, and “ only secondary ;" but when the conditions required by that law are fulfilled, it becomes absolute, and is that of a principal ; and the indorser's right, if he pays the holder, to recover over against the acceptor, is not founded on any agreement between him and the acceptor, (who is as likely as not to be a stranger, without any communication with him before the indorsement), but is a right established by the same law : Duncan v. North and South Wales Bank, 6 App. Cas. 13. The words, “accepted and paid according to its tenor,” mean the tenor of the contract of acceptance and payment at the time of the indorsement, and not its tenor at the time the bill was drawn, nor its tenor if altered after such indorsement.
The indorser of a bill is estopped from denying either the signature of the drawer, or her capacity (being a feme covert in this case), to draw the bill. He is in the capacity of a new drawer: Ross v. Dixie, 7 U. C. Q. B. 414. But see Hanscome v. Cotton, 16 U. C. Q. B. 98.
In an action by the holder against the last indorser of a note, it is no defence that the names of the maker and of the prior indorsers were forged : Eastwood v. Westley, 6 U. C. 0. S. 55.
In an action against L. and A. as indorsers of a note payable to the order of L. ;-Held, that A. must be taken to be the immediate indorsee of L., and could not deny L.'s indorsement : Griffin v. Latimer, 13 U, C. Q. B. 187.
The drawee of a bill may accept or pay it under protest, for the honor of the drawer or indorser, but if he discounts it before maturity, he stands in the position of an indorsee, as against all prior parties : Swope v. Ross, 40 Pa. St. 186.
The liability of an indorser to his immediate indorsee arises out of a contract between them; and this contract does not consist in the writing, popularly called an indorsement, but arises out of the written indorsement itself, the delivery of the bill to the indorsee, and the intention with which the delivery was made and accepted, as evidenced by the spoken or written words of the parties, and the circumstances, such as the usage of the place, and the course of dealing between the parties : Castrique v. Buttigieg, 10 Moore P. C. C. 94.
If, for the purpose of raising funds, one of two joint owners of a vessel draws a bill, and the other indorses it, neither is liable to the other on the bill : Gardiner v. Cleveland, 9 Pick. (Mass.) 336.
When a promissory note is made payable to two payees, and one transfers his interest in it to the other, he cannot be charged as an indorser by the other payee : Foster v. Hill, 36 N. H. 526.
If an indorsement is written with an understanding that the indorsing was not to give credit to the note, nor for value, but only to comply with the forms of the holder's business as auctioneers, the indorser is not liable : Corcoran v. Hodges, 2 Cranch C. C. 452.
5 Whatever may have been the defects of title prior to that of the indorser's title, his contract with the holder estops him from any defence as to any irregularity or defect in his chain of title. His transfer is an implied covenant for a good and indefeasable title to the bill ; and under that covenant he is liable to the holder, even although, when he pays the bill, he finds his right of action against such prior parties defeated by forgery or by some other defect of title in his immediate transferor. See notes to s. 54. His indorsement is therefore a guarantee to all subsequent parties to the bill that his title, at the time of his indorsement, was indefeasable.
56. Where a person signs a bill otherwise than as a stranger becomes liable drawer or acceptor, he thereby incurs the liabilities of an Imp. Act,8.56 indorser to a holder in due course, and is subject to all the Ind. Act,s.15.
provisions of this Act respecting indorsers. 1
1 This section is apparently new law; and it seems to settle, by a statutory declaration as to the liabilities of parties signing a bill otherwise than as drawers or acceptors, the conflict of decision referred to in note 6 to s. 23. The decisions there referred to, claim to derive their authority from either the rules of the law-merchant relating to parties to bills, or the clause in the Statute of Frauds relating to guarantees. The law. merchant, according to English law, recognizes no stranger-guarantors to bills or notes. The parties to them must hold some right in, or title to, or
ability under, the bill or note, included within some one of the titles usually applicable to such securities ; and the simple signature of each of such parties imports into the security, the contract of that party according to his title or relation to the bill as defined by the law-merchant. The Statute of Frauds requires the liability, under a contract of guarantee to be evidenced in writing and signed by the party chargeable or his agent. And the Courts have held that where this latter contract of guarantee is written on the bill or note, the guarantor is subject to the liabilities of an indorser, but not to any of the rights, nor the protection, accorded by the lawmerchant to indorsers. In many of the commercial systems of Europe, the intervention of a stranger-guarantor is recognized, where the guarantee of a bill is known, in France as Aval, and in Germany as Avallum. This guarantee is usually placed at the bottom of the bill, and it binds the guarantor as surety, and subjects him to the like obligations as the party to the bill