$ 31.

Negotiation of

bills.

NEGOTIATION OF BILLS.

Sections 31 to 38 inclusive treat of the negotiation of bills. The Act only treats of the negotiation or transfer of bills according to the law merchant, that is, by delivery when a bill is payable to bearer, and by indorsement and delivery when it is payable to order.

Other methods by which negotiable bills may be transferred, or the methods by which non-negotiable bills may be transferred are not considered at all. These are left to the operation of the ordinary laws. It is to be observed that by none of these other methods can a transferee become a bolder in due course or acquire greater rights than were possessed by the transferrer.

Thus bills, whether negotiable or non-negotiable, may pass by death, by assignment in bankruptcy, by ordinary execution, by gift, by donatio mortis causa, or by any method recognized by the law of any of the provinces.

31. A bill is negotiated when it is transferred from one person to another in such a manner as to constitute the transferee the holder of the bill: Imp. Act, s. 31 (1).

"Holder has been defined in section 2 as the payee or indorsee of a bill or note who is in possession of it, or the bearer thereof. He need not be the owner, he may have it merely for discount, collection or the like, or may even hold it unlawfully; so that the negotiation of a bill or note is not necessarily a sale of the instrument, but may be a pledging or a mere transfer of possession, provided the transferee is in a position thereby to acquire the

status of a holder as above defined.

holder, see section 38.

As to the rights of a § 31.

In Crouch v. Credit Foncier, L. R. 8 Q. B. (1873) at p. 381, Lord Blackburn speaks of negotiation as follows:In the notes to Miller v. Race in Smith's Leading Cases, where all the authorities are collected, the very learned author says: "It may therefore be laid down as a safe rule, that where an instrument is by the custom of trade transferrable, like cash, by delivery, and is also capable of being sued upon by the person holding it pro tempore, then it is entitled to the name of a negotiable instrument, and the property in it passes to a bona fide transferee for value, though the transfer may not have taken place in market overt. Bills of exchange and promissory notes, whether payable to order or to bearer, are by the law merchant negotiable in both senses of the word. See also Wookey v. Pole, 4 B. & A. at p. 10 (1820), and Swan v. N. B. Australasian Co. 2 H. & C. at p.184 (1863).

Where a merchant in London, England, drew upon a firm in Toronto, who accepted payable in London, it was held that the bill was not negotiated in Upper Canada within the meaning of the statute 12 Vict. c. 76: Foster v. Bowes 2 U. C. P. R. 256 (1857).

2. A bill payable to bearer is negotiated by To bearer. delivery: Imp. Act, s. 31 (2); C. C. 2286.

A bill is payable to bearer when it is expressed to be so payable, or when the only or last indorsement is in blank: section 8, 8-8. 3. Delivery means the transfer of possession, actual or constructive, from one person to another: section 2. As to the conditions under which a valid delivery takes place, see section 21. Where the holder of a bill payable to bearer, negotiates it by delivery without indorsing it, he is called a "transferrer by delivery": section 58. See that

§ 31. section and the notes thereon as to the liability of a person who negotiates a bill by delivery. The holder of a bill payable to bearer may indorse it before delivering it, and he then becomes an indorser and liable as such, but in such a case the indorsement is no part of the negotiation but precedes it: section 56.

To order.

Quebec notarial note.

3. A bill payable to order is negotiated by the indorsement of the holder completed by delivery: Imp. Act, s. 31 (3); C. C. 2286.

A bill is payable to order which is expressed to be so payable, or which is expressed to be payable to a particular person, and does not contain words prohibiting transfer, or indicating an intention that it should not be transferable : section 8, 8-s. 4. The conditions necessary to a valid indorsement are set out in section 32, and the different kinds of indorsement in sections 34 and 35. The indorsement and delivery must be by the same person. The delivery in order to be effectual must be made either by or under the authority of the party indorsing: section 21, s-s. 2 (a). Where the payee of a note indorsed it in blank before his death, and his executrix delivered it to plaintiff, it was held that the latter could not recover: Bromage v. Lloyd, 1 Ex. 32 (1847); Clark v. Boyd, 2 Ohio 56 (1825); Clark v. Sigourney, 17 Conn. 511 (1846).

In Quebec a promissory note executed before notaries and payable to order, is negotiable by indorsement in the ordinary way: Morrin v. Legault, 3 L. C. J. 55 (1859). It may be negotiated by a special indorsement, but not by an indorsement in blank: Brunet v. Lalonde, 16 L. C. R. 347 (1866). But held later by the Court of Review that such instruments are ordinary promissory notes: Marc Aurele v. Durocher, 5 R. L. 165 (1873).

Negotiation in this sub-section is a transfer by the

law merchant, and has no reference to a transfer that may § 31. take place in various other ways, as by sale and assignment, by transmission, by death, by will, or by gift.

ment.

A bill of exchange was indorsed to the order of the Bank Indorseof Nova Scotia at Amherst, and by the agent at Amherst to the order of the Bank of Nova Scotia at Halifax "for collection." It was dishonored by non-payment and returned to the agent at Amherst, who sold it to L. without indorsing it. L. was sued by the assignee of the drawers, and pleaded the bill by way of set-off. Held, that he could not do so. without indorsement: Forsyth v. Lawrence, 19 N. S. (7 R. & G.) 148; 7 C. L. T. 174 (1886).

Plaintiff sued on notes alleging himself to be the holder. The payee had indorsed them, but his indorsement was erased. Held, that plaintiff had shown no title: Hempsted v. Drummond, 10 L. C. R. 27 (1859).

On the death of the holder of a bill payable to his order all his rights pass to his executors or personal representatives who may negotiate it by indorsement: Rawlinson v. Stone, 3 Str. 1260 (1746). So also if a bill be made payable to a dead man in ignorance of his death: Murray v. E. I. Co., 5 B. & A. 204 (1821).

4. Where the holder of a bill payable to his Without order transfers it for value without indorsing it, the ment. transfer gives the transferee such title as the transferrer had in the bill, and the transferee in addition acquires the right to have the indorsement of the transferrer: Imp. Act, s. 31 (4).

Such transfer may be made to a purchaser or to a pledgee. While the bill remains payable to the order of the transferrer, the transferee is not the holder of the bill, even if he has given full value for it. Even if he receive M'C.B.E.A.-14

§ 31. it before maturity, he cannot become a holder in due course, and does not acquire a better title than the transferrer had. He holds the bill subject to any defect of title in the transferrer, of which he becomes aware before the indorsement of the bill to him, and if it is not indorsed before maturity, it is subject to any defects of title that existed in the transferrer. This is in accordance with principle. In the interest of commerce, the law makes an exception to the general rule, which is that no person can give to another greater rights than he himself has. This exception being part of the law merchant, it applies only where a transfer takes place according to the law merchant, and the law merchant does not recognize any transfer of a bill payable to order, except by indorsement.

Scotch law.

Quebec law.

In a Scotch case where the payee of a bill transferred it for value without indorsing it, it was held that the transferee was entitled to recover from the acceptor: Hood v. Stewart, 17 Court of Session Cases, 749 (1890).

In a Quebec case, Dupuis v. Marsan, 17 L. C. J. 42 (1872), it was held that the transferee of a note for $35 payable to order, could become the holder without indorsement by the payee, and that he might prove the transfer by parol under Art. 1234 of the Civil Code, which says that proof may be made by testimony in all matters in which the sum in question does not exceed $50. In another Quebec case it was held, that where the payee of a note, payable to order, gave it without indorsing it as collateral security to a creditor, and the payee became insolvent and his whole estate was sold by the assignee to the creditor who held the note, such sale and transfer was equivalent to indorsement, and he could collect from the maker: Guerin v. Orr, 5 L. N. 379 (1882). The former of these decisions at least, is not in accordance with the present Act, or indeed with article 2286 of the Civil Code.