Sec. 17. Unconditional Promise Or Order

A negotiable Instrument "must contain an unconditional promise or order-------."

(1) In general. Absolute promise or order is essential.

A note must contain an absolute promise, a bill or check, an absolute order, to make them negotiable. The introduction of any condition in an instrument is fatal to its negotiable character, and the performance or happening of the condition does not confer negotiability. The certainty or absoluteness of the promise or order must appear from the language of the instrument, not from external events. Any condition inserted in the instrument is fatal to its negotiable character (though it may well be the statement of a good non-negotiable contract), but we may briefly discuss the chief ones under the headings just below.

(2) Reference to the transaction or consideration. If the promise or order is made conditioned upon the performance of consideration, negotiability is destroyed; but a mere reference to the transaction which gives rise to the instrument, whether executed or executory, does not in itself condition the promise or order.

Of course as between the parties themselves, where the consideration consists in a promise to do some act or to deliver some thing and that act is not done and that thing not delivered, the party promising to pay may set up the failure of the other party to do or deliver what he promised, notwithstanding that the promise or order is absolute in its terms according to the requirements of the negotiable instruments act. But it is to be considered that if the maker or drawer or the acceptor inserts express terms in the instrument that it is not payable except upon certain conditions, he thereby intends to notify any possible purchaser that he must take it subject to the conditions imposed and that such instrument is not meant to have a negotiable character.

One who becomes the transferee of negotiable paper knowing that there is no consideration to support the paper, or that it has failed or that the contract has been broken, is subject to these defenses. One of the main purposes, however, for putting a promise into negotiable form is to prevent those apparently indebted thereon from setting up that the contract out of which the paper arose has been broken by the payee, or that there was no contract upon which the paper was founded. A purchaser of negotiable paper is entitled to presume that which is generally the fact that a negotiable instrument has been given for "value received," either in the shape of an act now performed or a promise of a future act. That this consideration may fail or that the contract may be broken by the payee is a possibility, as the purchaser must know, yet it does not concern him whether this has occurred or is occurring so long as he has no actual knowledge that that is the case. The law protects him unless he knows of the defense of no consideration, failure of consideration, or breach of contract. He may say in effect: "I am buying from B a note made by A to B's order. Inasmuch as this note has been put in negotiable form the law allows me as a purchaser to presume that B gave A something for which A made his note to B. The thing given may have been a horse, or a loan of money or a promise to perform work or any other thing for which parties may bargain. B may have given A the thing, or he may merely have given his promise thereafter to give the thing. This is no concern of mine. B may have broken his contract. The horse, or whatever it was, may have been worthless, the promise may not have been kept. This does not concern me so long as I did not know before I purchased this paper that such was the fact." Now suppose that the purchaser of this paper is informed at the time the note is purchased, and it is so stated in the note, that it was a horse for which the note was given. Does the fact that he has knowledge of the particular sort of transaction instead of a general presumption that there was a consideration, affect his rights? Obviously it makes no differ-ence. He need no more assume that the particular contract of which he is informed has been broken any more than he need assume that the contract whose existence he is entitled to presume in the absence of such knowledge has been broken. Consequently it is well settled that the mere fact that the particular transaction out of which the instrument arose, or the consideration, is stated, does not affect the negotiability if the instrument is otherwise correctly drawn. If however, the terms of the instrument provide that its operation is to depend upon the performance of the contract as recited, this is obviously a provision made for the purpose of qualifying its character and depriving it of negotiability for it places a condition upon its operation. The promise then becomes conditional. The mere recital, then, of the consideration does not affect the negotiability of the instrument. But a provision that in any way makes the instrument subject to the performance of the consideration destroys negotiability, and the instrument becomes the expression of a non-negotiable contract.

One should be warned however, to scrutinize with the utmost care any instrument which sets forth the transaction and be very sure that the statement no way qualifies the promise or order.

In one case7 these facts appear:

Siegel, Cooper & Co., merchants of Chicago, contracted with one D. Dalziel, for street car advertising to be placed by him, and gave in consideration for his undertaking the following note:

"$300. Chicago, March 5, 1887.

On July 1, 1887, we promise to pay D. Dalziel, or order, the sum of three hundred dollars, for the privilege of one framed advertising sign, size - x - inches, one end of each of one hundred and fifty nine street cars of the North Chicago City Railway Co., for a term of three months, from May 15, 1887. Siegel, Coopeb & Co."

On the day of the date of this instrument when Dalziel received it, he indorsed it for value to the Chicago Trust & Savings Bank.

The advertising promised by Dalziel was never done, and the instrument was refused payment for that reason. But the bank contended that this defense of failure of consideration could not be asserted against it as a purchaser in good faith and for value of a negotiable instrument, and on this theory brought suit. The defense of the makers was that the instrument was not negotiable because it showed (as they claimed) that the payment depended upon a contract to be performed, and therefore, because non-negotiable, the transferee took it subject to such defenses as might be interposed against his transferror.