§ 22. Capacity of parties. Capacity and authority. Capacity and Authority of Parties. 22. (1) Capacity to incur liability as a party to a bill is co-extensive with capacity to contract. Provided that nothing in this section shall enable a corporation to make itself liable as drawer, acceptor, or indorser of a bill unless it is competent to it so to do under the law for the time being in force relating to corporations. (2) Where a bill is drawn or indorsed by an infant, minor, or corporation having no capacity or power to incur liability on a bill, the drawing or indorsement entitles the holder to receive payment of the bill, and to enforce it against any other party thereto. Sub-sect. (1) is declaratory. Sub-sect. (2) is probably declaratory, but the law was not very clear. The word "minor" was added in committee as the Scotch equivalent of the English term "infant." Capacity must be distinguished from authority. Capacity means power to contract so as to bind oneself. Authority means power to contract on behalf of another so as to bind him. Capacity to contract is the creation of law. Authority is derived from the act of the parties themselves. Want of capacity is incurable. Want of authority may be cured by ratification. Capacity or no capacity is a question of law. Authority or no authority is usually a question of fact. Again, capacity to incur liability must be distinguished from capacity to transfer. An executed contract is often valid where an executory contract cannot be enforced. An indorsement usually consists of two distinct contracts, one executed, the other executory. It transfers the property in the bill, and it also involves a contingent assumption of liability on the part of the indorser. When laws conflict, capacity is perhaps determined according to the lex domicilii of the contracting party.1 § 22. Conflict of The continental codes for the most part draw a distinc- laws. tion between traders and non-traders, but English law now draws no such distinction as regards capacity to contract by bill or note. 2 The incapacity of one or more of the parties to a bill in Incapacity of no way diminishes the liability of the other parties thereto. one party. Thus the acceptor cannot set up the incapacity of the drawer (sect. 54 (2)), and the drawer cannot set up the incapacity of the acceptor or payee, and the indorser cannot up the incapacity of the drawer or a previous indorser. (Sect. 55.) set A clergyman, though liable to penalties for trading, has Clergyman. full capacity to contract by bill.3 As to convicted felons, see 33 & 34 Vict. c. 23, sects. 8, Felon. 14 and 15. woman. At common law a married woman incurred no liability Married by drawing, indorsing, or accepting a bill, unless she was a sole trader in the City of London, or unless her husband was civiliter mortuus, or an alien resident abroad. Subject, also, to the like exceptions, her indorsement did not transfer the property in a bill, unless she indorsed it with her husband's consent." In equity, however, if a married woman having available separate estate drew, indorsed, or accepted a bill, she was liable to the extent of such estate; 7 and if the bill was part of her separate estate, her indorsement transferred it. Under the Married Women's Property Act, 1882,8 if a married woman, married either before or after the Act, draws, indorses or accepts a bill, she can be sued thereon 1 Cf. Sottomayor v. De Barros (1877), 3 P. D. 1, at p. 5-C. A., but perhaps lex loci contractus. See Westlake's International Law, 3rd ed. p. 44. 2 Cf. Grey v. Cooper (1782), 3 Dougl. 65; French Code, Art. 144; German Exchange Law, Art. 3. 3 Cf. 1 & 2 Vict. c. 106, ss. 29, 31; Lewis v. Bright (1855), 24 L. J. Q. B. 191. Cannam v. Farmer (1849), 3 Exch. 698, note signed by married woman as widow. 5 Cf. Smith v. Marsack (1848), 18 L. J. C. P. 65. 6 Prince v. Brunatte (1835), 1 Bing. N. C. 435. 7 McHenry v. Davies (1870), L. R. 10 Eq. 88. As to form of order to charge such estate, see Davies v. Jenkins (1877), 6 Ch. D. at p. 730. As to Married Women's Property Act, 1870, see Summers v. City Bank, L. R. 9 C. P. 580. 8 45 & 46 Vict. c. 75, commencing January 1, 1883. § 22. Divorced woman. Lunatic or as if she were a single woman. But before judgment can be obtained, it must be shown that she had separate estate when she made the contract; and the judgment, when obtained, does not bind her personally, but only such separate estate as she may have free from restraint on anticipation. By the Married Women's Property Act, 1893, it is no longer necessary to show that she had property at the time the contract was made, in the case of contracts entered into after the commencement of that Act.2 If a bill be made payable to a married woman, her indorsement now clearly transfers the property therein. A woman who is divorced, or a woman who is judicially separated from her husband, is on the same footing as a single woman. See 20 & 21 Vict. c. 85, ss. 21-26. The contracts of a lunatic or drunken man, known to be drunken man. such, are voidable and not void. It is clear, therefore, that neither lunacy nor drunkenness can be set up against a holder in due course. Complete drunkenness is a defence against an immediate party with notice.5 Minor or infant. An infant incurs no liability by drawing, indorsing, or accepting a bill. Thus : 1. B., an infant, within three months of attaining his majority, accepts a bill payable six months after date. He ratifies the transaction on attaining his majority, and the bill is negotiated. B. is not liable on his acceptance.7 2. B., after attaining his majority, accepts a bill to pay a debt contracted before his majority. The bill is indorsed to a holder in due course. The holder can sue B.8 3. B., after attaining his majority, accepts a bill to compromise a joint liability on a bill which he accepted during his minority. He is not liable to a holder with notice. If the consideration for a bill given by an infant be 1 Cf. Palliser v. Gurney (1887), 19 Q. B. D. 519. As to ante-nuptial contracts and the husband's liability, see Beck v. Peirce (1889), 23 Q. B. D. 316, C. A. As to the liability of a widow in respect of a note made during marriage, see Beckett v. Tasker (1887), 19 Q. B. D. 7. 25 Dec. 1893. 3 Pollock on Contracts, ed. 4, p. 91. As to proving against a lunatic's estate on a voluntary note, see Re Whitaker (1889), 42 Ch. D. 119, C. A. Imperial Loan Co. v. Stone, (1892) 1 Q. B. 599, C. A. Gore v. Gibson (1845), 13 M. & W. 623. 6 Cf. Infants Relief Act, 1874 (37 & 38 Vict. c. 62). 7 Ex parte Kibble (1875), L. R. 10 Ch. 373. 8 Belfast Banking Co. v. Doherty (1879), 4 Ir. L. R. Q. B. D. 124. necessaries supplied to him, he may be liable on the consideration, though not on the bill.i The age at which infancy ceases differs much in different countries: e.g., in India it is 18; in England, 21; in Germany, 23. In most continental countries a distinction is drawn between infant traders and non-traders; the former having full capacity. It was formerly held that if an infant traded and accepted bills he was estopped from setting up his infancy, but this ruling is no longer law.3 By this section, when a bill is payable to the order of an infant, his indorsement transfers the property therein. As an infant may be an agent, his indorsement in that character gives rise to no difficulty. In America it is not uncommon to get a bill made payable to the order of an infant clerk. His indorsement then operates as an indorsement sans recours, though without discrediting the bill. A corporation incurs no liability by drawing, indorsing, or accepting a bill, unless expressly or impliedly empowered by its act of incorporation so to do. Thus : 1. A joint stock company is incorporated for the purpose of forming a société anonyme abroad for the construction of railways. The directors are empowered by the memorandum and articles of association to do whatever they may from time to time think incidental or conducive to the main object of the company. These terms cover the issue of bills, and such a company is liable on its acceptance.5 2. A railway company, incorporated under an ordinary Railway Act, accepts bills which are negotiated. The company is not liable on its acceptances.6 In the case of a trading corporation the fact of incorporation for the purposes of trade would give capacity. In the case of non-trading corporations, the power must be expressly given, or there must be terms in the charter wide enough to include it. The Companies Act, 1862, s. 47, does not confer capacity on all companies under that Act. It merely 1 Ex parte Margrett, Re Soltykoff, (1891) 1 Q. B. 413, C. A. 2 Ex parte Lynch (1876), L. R. 2 Ch. D. 227. 3 Ex parte Jones (1881), 18 Ch. D. 109, C, A.; Pollock on Contracts, 4th ed. pp. 52, 75. 4 Cf. Lebel v. Tucker (1867), 8 B. & S. at p. 833; Nightingale v. Withington (1818), 15 Mass. 272; Grey v. Cooper (1782), 3 Dougl. 65. 5 Re Peruvian Railways Company (1867), L. R. 2 Ch. 617. 6 Bateman v. Mid Wales Railway Company (1866), L. R. 1 C. P. 499. § 22. Liability of company or corporation. § 22. Power of corporation to transfer. Banker and banking company. prescribes the mode in which such companies as have the requisite capacity are to exercise it. A mining company, a cemetery company, a salvage company, a gas company, an alkali works company, and a waterworks company, have been held non-trading companies. See post, p. 69, as to nontrading partnerships. There is this distinction: A nontrading partnership can adopt a bill, but the bill of a company lacking capacity is, as regards the company, incurably bad; for a contract ultra vires of a corporation cannot be ratified. Query, if the rule as to drawing bills or making notes applies to cheques? Is a non-trading corporation liable on the instrument to the bearer of a dishonoured cheque which it has drawn, or is it only liable on the consideration to its immediate obligee? In America, the capacity of a corporation to bind itself by bill or note is co-extensive with its capacity to contract. The capacity of a company ceases when a resolution to wind it up has been passed, although the resolution may not have been notified in the Gazette. By this section, when a bill is payable to the order of a corporation, the indorsement of the corporation passes the property therein, though from want of capacity the corporation may not be liable as indorser.5 So, too, bankers may be justified in paying cheques out of the funds of a company where clearly, by the form of the cheques, the company would not be liable as drawers if they had not been paid. Statutory Disabilities of Bankers. It is unlawful for a banker or banking company, other than the Bank of England (a) To issue in England or Wales any bill of exchange or promissory note which is expressed to be, or in legal effect is, payable to bearer on demand.7 (b) To draw, accept, make, or issue in England or Wales any bill of exchange or promissory note which is 1 Cf. Re Peruvian Railways Company (1867), L. R. 2 Ch. 617. 2 Bateman v. Mid Wales Railway (1866), L. R. 1 C. P. 499, at p. 505. 3 Parsons, pp. 164, 165. 4 Bolognesi's Case (1870), L. R. 5 Ch. 567. 5 Smith v. Johnson (1858), 3 H. & N. 222; 27 L. J. Ex. 363. Mahony ▼. East Holyford Mining Company (1875), L. R. 7 H. L. 869 and 884. 7 7 & 8 Vict. c. 32, §§ 10 & 28 (Bank Charter Act, 1844), as explained by 17 & 18 Vict. c. 83, §§ 11 & 12, set out post, pp. 335 and 337. |