§ 488. (Nego. Instru., Sec. 96.) Obligation of maker of

note.

Case 512. Uniform Negotiable Instruments Act, Sec. 60.

"The maker of a negotiable instrument by making it engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse."

Question 512: What does the maker of a note undertake? Is his liability primary or secondary?

Case 513. McMann et al. v. Walker, 31 Col. 261. Facts: The plaintiff sues as indorsee of a note made by defendant to the order of the Sprague Collection Agency and by such payee endorsed to plaintiff. The Sprague Collection Agency was a foreign corporation in the state of Colorado and had not complied with the foreign corporation law of the state of Colorado, requiring compliance therewith before qualified to transact business in that state. The defendant contends that the note is invalid.

Point Involved:

Whether the maker of a note can set up as against the indorsee that the note is void because

the payee corporation has not complied with the foreign corporation laws.

GARBERT, J.:

*

The question is one which has been discussed by the courts of several states, with the result that the decisions on the subject are not altogether harmonious. Whether or not the note in question be invalid as between the maker and the payee is a question upon which we express no opinion, because that proposition is not involved, In this state the general rule of law prevails that negotiable paper, although invalid as between the original parties, is valid as to third persons obtaining if for value before maturity and without notice of its infirmities, unless so declared by statute. The defendant, by giving

* *

a note which is not the subject of statutory enactment thereby conclusively admitted as to third parties purchasing before maturity and in good faith, the legal existence of the payee, and its authority to take such note and to negotiate and transfer it by endorsement.

Question 513: By whom and against whom is the suit brought in this case? The defense of the maker? The Court's decision?

§ 489. (Nego. Instru., Sec. 97.) Obligation of drawer of bill or check.

61.

Case 514. Uniform Negotiable Instruments Act, Sec.

"The drawer, by drawing the instrument, admits the existence of the payee and his then capacity to indorse; and engages that on the presentment the instrument will be accepted or paid, or both, according to its tenor, and that, if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it. But the drawer may insert in the

instrument an express stipulation negativing or limiting his own liability to the holder."

Question 514: (1) Can the drawer deny the existence of the payee or his capacity to endorse?

(2) Suppose the drawee refuses to accept or pay according to the tenor of the instrument, can recourse be had to the drawer? Upon what condition?

§ 490. (Nego. Instru., Sec. 98.) Of drawee of bill or check.

(Note: The drawee of a bill or check cannot be sued upon it by the payee or other holder unless he accepts it. A bill or check does not operate as an assignment of funds or credits, being drawn upon the general credit of the drawer and not upon the credit of any fund. This is true although there is a reference to a particular fund, unless it is payable out of a fund or is a direction to pay a fund in which case it is not a bill or check but an assignment which the assignee upon notice may be bound to honor according to the law governing assignments of rights.

A drawee of a bill or check may be liable to the drawer for non-acceptance if thereby he violates a contract and injures the credit of the drawer. A bank has a contractual duty to honor checks drawn upon it so long as the depositor has in his checking account sufficient funds to cover the check. For dishonor of his check it is liable to the holder for damages, it being held in some cases that depositor is entitled to substantial damages without proof of actual damages, even if dishonor was by reason of innocent mistake. (Schaffner v. Ehrman, 139 Ill. 109.) And in other cases that he is entitled to only nominal damages unless he proves actual damages if the dishonor was by reason of an innocent mistake. (Schaffner v. Herman, 83 N. Y. Suppl. 447). But in Wildenberger v. Ridgwood National Bank, 230 New York 425 (1921) the depositor had ample funds to cover outstanding checks, and the depositor's wife made a claim to half of the funds. The bank dishonored the checks by a statement "account closed." The lower court held that plaintiff, the depositor, was entitled to only nominal damages as he did not prove any special damages. The upper court reversed this holding and said: "In this state the liability is for nominal damages

and no more if the dishonor of the checks is the result of innocent mistake. We find nothing of accident or mistake in the defendant's dishonor of these checks. It dishonored them with full knowledge of the state of the accounts, setting one risk against another, the risk of adverse claims against the risk of broken contracts. Here was no heedless act, but one direct and wilful. *** Injury to credit and ensuing damage might even then have been averted if the holders had been informed in plain and direct words of the cause of the dishonor. The plaintiff was placed before his customers in the attitude of a trader who had drawn worthless checks.

*

**

Liability existing, we cannot say, as a matter of law that the damages were merely nominal. The plaintiff was a trader. Some injury to credit may therefore be inferred. The damages to be awarded whether nominal or substantial must suffice for reparation. It is for a jury to assess them.")

§ 491. (Nego. Instru., Sec. 99.) Obligations of acceptor of bill or check.

Case 515. Uniform Negotiable Instruments Law, Sec. 62.

"The acceptor by accepting the instrument engages that he will pay it according to the tenor of his acceptance, and admits:

"1. The existence of the drawer, the genuineness of his signature, and his capacity and authority to draw the instrument; and

"2. The existence of the payee and his then capacity to indorse."

Question 515: What are the acceptor's undertakings and admissions in accepting the bill?

Case 516. Price v. Neal, 3 Burrows, 1354.

Facts: Suit brought by Price against Neal. It was proved on the trial that two bills were drawn, one of which read as follows:

"Leicester, 22d November, 1760. Sir, six weeks after date pay Mr. Rogers Ruding or order forty pounds, value received for Mr. Thomas Poughfor; as advised by, Sir,

your humble servant Benjamin Sutton. To Mr. John Price, in Bush-lane, Gennon Street, London," indorsed, etc.

The signature of Sutton, the supposed drawer, was forged. Ruding, the payee indorsed the bill and it was presented for payment by Neal, the holder who had paid full value for the bills. The bills were paid by Price to Neal, and Price now sues to recover back from Neal the amount paid him.

Point Involved: Whether a drawee of a forged bill of exchange, who pays the same to a bona fide holder for value, can recover back the amount so paid on discovering the forgery.

LORD MANSFIELD: "But it can never be thought unconscientious in the defendant to retain this money when he has once received it on a bill of exchange indorsed to him for a fair and valuable consideration, which he had bona fide paid, without the least privity or suspicion of any forgery."-Verdict for defendant.

Question 516: Is a drawee who pays the bill drawn on him entitled, according to this case, to recover back what he has paid on the bill when he discovers that the bill was forged and therefore he cannot charge it to the account of the supposed drawer?

(This English case decided in 1762 is a well known and leading case on the liability of the acceptor. But there were divergent views on this point, but the N. I. L. has apparently adopted the view of Price v. Neal. See next case.)

Case 517. National Bank of Rolla v. First National Bank, 141 Missouri Appeals, 719.

Facts: Martin L. Chambers made out a check payable to J. B. Ragan, on the National Bank of Rolla, and forged the signature of H. W. Lennox thereto. The said Chambers thereupon went to the First National Bank of Salem and represented himself to be the payee . and endorsed the payee's name and secured the money, the cashier knowing none of the parties and requiring