against B, he might, for a consideration, assign those rights to C, who, though not a party to the original contract, would, nevertheless, become thereby entitled to receive its benefits from B; and, at common law, C, in such case, could not sue B directly; he was obliged to bring suit in the name of A, and the suit was, not "C versus B," but "A to the use of C, versus B."

This was true only in case of such contracts as were possessed of the character of assignability. But negotiable instruments, such as bills, notes, and checks, derive from the law merchant the quality of negotiability, and the indorsee, who is in reality only the assignee of the contract represented by such an instrument, may sue thereon in his own name, and payment to him in due course operates as a discharge of the contract or instrument.

The assignee of a merely assignable contract succeeds to those rights only which his assignor enjoyed, and is subject to all equities and defenses available as against him. But, in case of a negotiable contract, the law is otherwise. Here, as we have seen, the assignee, or indorsee, has the right to sue in his own name; accordingly, in a suit brought by him, the defendant cannot allege matters that would constitute a good defense as against the indorser or prior holder of the instrument, but of which the indorsee had no knowledge at the time of taking it.

In the event of a suit on a negotiable instrument, unless illegality, failure of consideration, fraud, or duress be alleged, against the holder, consideration may be proved simply by a production of the instrument, which establishes, against all parties, that the instrument is supported by a valuable consideration; whereas, under the common law, it was required to give actual evidence of consideration.""

89 Chal. Dig. Eng. B. of E. Act, (5th Ed.) pp. 93, 94.

THE LAW OF COMMERCIAL PAPER

(PART 3)

BILLS AND NOTES

BILLS OF EXCHANGE

1. Bills of exchange, or drafts, as they are often called, were formerly used to transfer trade debts due in one place and payable in another. For example, A, of London, owes B, of New York, $1,000, when C, of New York, is about to cross the ocean, and who desires, upon his arrival in London, to have $1,000 cash at his disposal. If A, in order to pay his debt to B, find it necessary to send him $1,000 in coin, while, on the other hand, it is necessary for C to carry $1,000 in coin with him from New York to London, besides the great inconvenience to the parties, and risks of loss and robbery to which each sum is exposed during its transmission, it would be necessary to withdraw $2,000 from the world's currency for a certain length of time, and, for such period, the earning power of such sum, and interest upon the same, would be lost. But, instead of this cumbersome method of transmitting money, with its attendant disadvantages, C goes to B (both living in the same city) and, paying him $1,000, receives from him a bill of exchange drawn upon A, of London, for that amount. C takes this bill of exchange with him to London, and, upon his arrival there, A pays the face value of it to him. Thus,

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A's debt has been paid in New York, and C finds himself arrived in London with $1,000 cash in hand, without the physical transmission of a single dollar of actual currency.

In this way, bills of exchange were at first used to avoid the necessity of sending cash from place to place; later, they developed into a paper currency, and have grown into a system which has acquired the force of custom by which merchants in the same or different places carry on business. They are often used for the sake of convenience where the parties are doing business within a short distance of each other. A draft may be drawn payable at sight, or on demand, or at a special time after date.

The following is the ordinary form of a draft or bill of exchange:

$1,000.

PHILADELPHIA, August 1, 1901. Ten days after sight pay to the order of Adam Wilcox, One Thousand Dollars, and charge the same to the account of

TO JAMES B. MILES, New York.

JOHN ARMSTRONG.

In the foregoing instrument, Armstrong is the drawer, Wilcox, the payee, and Miles, the drawee. The instrument is given by the drawer to the payee, whose duty it is to present it to the drawee for his acceptance, and after it has been accepted by him, he is no longer known as the drawee, but as the acceptor.

No particular words or phrases need be used in order to constitute a bill of exchange, but, in order to be negotiable, it must be made payable to order or to bearer. A bill may be drawn upon two or more drawees jointly, whether they be partners or not; but not upon two or more drawees in the alternative or in succession.' Thus, a bill may be drawn upon B and C, whether they be partners or not; but it may not be drawn upon B or C; or upon B, and, in case of his refusal to accept, upon C; in either of which cases the instrument is neither a bill of exchange nor a negotiable instrument of any kind, because of the uncertainty as to the

1 Eng. B. of E. Act, Sec. 6 (2); N. Y. N. I. L., Sec. 212.

drawee. Alternative or successive drawees would give rise to difficulty as to the recourse, if the bill were dishonored. This difficulty does not arise in the case of a note; consequently, the makers of a note may be liable jointly, or jointly and severally, according to its tenor, while the acceptors of a bill can only be liable jointly."

2. Referee in Case of Need. - Though a bill may not be drawn upon two drawees in succession, or in the alternative, the drawer or indorser may insert in the bill the name of a person to whom the holder may resort in case of need, that is to say, in case the bill be dishonored by non-acceptance or non-payment. Such person is called the referee in case of need. It is in the option of the holder to resort to the referee in case of need or not, as he may think fit.' The referee in case of need is sometimes called the drawee in case of need, or simply the case of need; but his status is wholly different from that of an ordinary drawee. A bill must be protested or noted for protest before it can be presented to the case of need.*

Where, in a bill, drawer and drawee are the same person, or where the drawee is a fictitious person, or a person not having capacity to contract, the holder may treat the instrument, at his option, either as a bill of exchange or as a promissory note. Suppose a firm carries on business in London and Liverpool, and the London house draws a bill on the Liverpool house. The holder may treat it as a note made by the London house payable in Liverpool; and, if it be not paid, the omission to give notice of dishonor to the London house is immaterial. Or, suppose A draws a bill on B and negotiates it, B being a fictitious person, the holder may treat the bill as a note made by A, and need not prove presentment or give notice of dishonor.' Or, suppose the directors of a joint stock company draw a bill in the

2 Chal. Dig. Eng. B. of E. Act (5th Ed.), p. 19.

3 Eng. B. of E. Act, Sec. 15; N. Y. N. I. L., Sec. 215.

Chal. Dig. Eng. B. of E. Act (5th Ed.), p. 38.

5 Eng. B. of E. Act, Sec. 5 (2); N. Y. N. I. L., Sec. 214.

63 M. & G. (Eng.) 576 (1841); Chal. Dig. Eng. B. of E. Act (5th Ed.), p. 17.

72 Stark (Eng.) 223 (1817); Chal. B. of E. Act (5th Ed.), p. 17.