(a) The instruments which are negotiable by and subject to the negotiable instruments law or law merchant.
"A negotiable promissory note within the meaning of this act is an uncon-ditional promise in writing, made by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a Sum certain in money to order or to the bearer. When a note is drawn to the maker's own order, It Is not complete until indorsed by him."2
A promissory note, as the name indicates, is the expression of a promise. To be valid as a contract between the parties, there must be all the essential elements necessary to the formation of a contract. To be a negotiable instrument, it must contain other elements. What those elements are is indicated in the definition above, but as they are hereafter more particularly discussed, they will not be further noticed here.
The parties to a negotiable promissory note are: the maker, who is the promisor, and the payee, or the one to whom the promise to pay is made. But the payee may be described as "the bearer," in which event the instrument may be transferred with or without indorsement. If the payee is named he must indorse, and he is then called an indorser, as are all other subsequent transferors who place their names on the back of the instrument.
The power to evidence a debt in the form of a negotiable promissory note secures to one a better credit than perhaps he could otherwise obtain. For it may in any particular instance enable his creditor to immediately realize on the debt by a sale to another, who purchasing before maturity and with no knowledge of any defense against the note, knows that he can enforce it according to its tenor, restrained only by the insolvency of both the maker and the payee, who is now indorser, and even this restraint would be removed were the note adequately
2. Uniform Negotiable Instruments Act, SEC. 184. (Appendix A.) secured. And this advantage of securing credit that might not in a particular case be otherwise obtainable, comes of the fact that a promissory note has some of the attributes of money, and to a limited extent, may serve in place thereof. And in a suit upon a promissory note it is not necessary to prove the consideration, that is, the transaction out of which it arose, unless a defense is made denying consideration.
Forms of negotiable promissory notes are set out in Appendix B.
"A bill of exchange is an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money, to order or to bearer."3
A bill of exchange is an order drawn by one person, in favor of another upon a third. To be negotiable it must contain the elements indicated in the definition, but as these are discussed hereafter, they need not be further noticed here.
There are two sorts of bills of exchange, foreign and inland. "An inland bill of exchange is a bill which is, or on its face purports to be, both drawn and payable within this state. Any other bill is a foreign bill. Unless the contrary appears on the face of the bill, the holder may treat it as an inland bill." The importance of distinguishing between foreign and inland bills will appear later herein.
3. Uniform Negotiable Instruments Act, Sees. 126-131.
The party who makes the bill of exchange is called the drawer; the person in whose favor the order is made is called the payee; the party upon whom the order is made is called the drawee; if he accepts he is called the acceptor, and he is not liable upon the instrument until he does accept. The instrument may be indorsed either before or after acceptance.
Bills of exchange are sometimes drawn in "sets." This is usually true only of foreign bills drawn on distant parties, and means that there are several papers, called "parts," usually three, similarly drawn, numbered consecutively, and referring to each other ; and altogether constituting only one bill. The purpose of drawing a bill in a set is to insure the prompt arrival of the bill at its destination. This is accomplished by sending each part separately. The parties are protected from becoming liable on all parts by the fact that each refers to the others, and their outstanding existence is thereby made known. If the drawee accepts one part he accepts the bill, and should not write his acceptance on more than one part, for he may become thereby liable to pay the bill to purchasers of the various parts. So in paying the bill he should take up the accepted part. The idea of drawing bills in sets is that any part may be treated as the bill of exchange; if any part is accepted, that is an acceptance of the bill; if any accepted part is indorsed, that is an indorsement of the bill; if any part is paid or otherwise discharged, that is a payment or other discharge of the bill. There is no especial danger in drawing a bill in parts if the rules are complied with; but by careless treatment of the various parts, a two or three fold liability might be incurred.
The right to draw an instrument in the form of a bill of exchange, given by the law this property of negotiability, gives one, as in the case of promissory notes, and for similar reasons, a better means of securing credit than he might otherwise have, and that springs from the fact that the bill of exchange, like the promissory note, has a quasi-monetary value, and the liability of several parties, primary, or secondary, may go to support its credit. But it also has the great advantage of serving to adjust accounts or draw credit from one place to another without the actual transfer of funds.
To illustrate some uses of the bill of exchange, we may suppose these situations:
A, being in immediate need of funds, and being informed by B, to whom he has applied for a loan, that B will be able to get the money for him if the security or credit furnished is satisfactory, thereupon draws a bill of exchange on C, a business friend, requesting C to accept it, and advising C that he, A, will have ample funds to pay the bill before it matures. C thereupon accepts the bill. By means of C's acceptance whereby C loans A his credit, A is thus enabled to secure from B the money needed. This bill may pass through a number of hands before it matures, being supported by the credit of C, and of A, and of every one indorsing it. Or, Again;
A is B's creditor and C's debtor. He draws a bill of exchange on B in favor of C. B accepts this and thus A pays his account without any transfer of funds. Again;
A has a place of business in Chicago, and often finds it necessary to transfer funds to parties living in or around New York. B has a place of business in New York and often finds it necessary to transfer funds to parties, living in or around Chicago. They arrange that each shall accept the paper of the other. In this way they accomplish their purpose of putting the various payees in funds, without any transfer of coin or currency between New York and Chicago, except upon accountings made between them at stated intervals.
A form of bill of exchange is set out in Appendix B.