The maker's contract Is to pay the note, according to Its tenor, to the payee, or his transferee. He cannot deny the payee's existence or his then capacity to indorse. His liability Is primary.
The maker's liability is to pay the instrument according to its tenor. Of course, if he has defenses he may set them up where that is allowable according to the principles hereinbefore discussed. He engages to pay primarily. By this we mean that no one else is to be resorted to.before the maker's liability will accrue.
He engages to pay the amount of the note. It is no defense that the holder did not pay the face value.
The drawer's contract is that If the bill be not accepted or paid, according to its tenor, to the payee therein, or his transferee, he, the drawer, will pay it, provided the necessary steps be taken to charge him. He cannot deny the payee's existence or his then capacity to indorse. His liability is secondary. He may by apt words negative his liability.
A bill is drawn as an order on someone else. If that other on whom it is drawn does not accept, he may thereby incur a liability to the drawer if he thereby break his contract, but does not incur any to the payee or other holder, unless he has accepted. Where the holder is entitled to have the bill accepted before payment, in the cases hereafter stated, a refusal by the drawee to accept, gives the holder immediate right of recourse to the drawer. Because the drawer must apply to the drawee for acceptance or payment before he can resort to the drawer, his liability is said to be secondary. The liability of a drawer of a check is governed by the same considerations.
40. Uniform Negotiable Instruments Law, SEC. 60-69.
A person, firm, or corporation upon whom a bill or check Is drawn cannot be made liable thereupon unless there is acceptance. But to the drawer there may be a liability for failure to accept or failure to pay, If such failure amounts to a breach of contract.
One cannot be made liable by reason of the fact that a check or bill has been drawn upon him. His failure to honor such check or bill may indeed amount to a breach of a previous contract upon his part to honor it when drawn, but his liability in that event is only to the drawer and only upon the previous contract, not upon the instrument.
When a bank refuses to honor a check when there are sufficient funds to cover its amount, that constitutes a breach of the implied contract that the bank will honor checks drawn upon it when there are funds to pay it and the drawer can have damages.
The acceptor of a bill of exchange, contracts to pay it according to the tenor of his acceptance. , He cannot deny the existence of the drawer or payee, or the capacity of the first to draw, the second to Indorse the instrument, or the genuineness of the drawer's signature. His liability is primary.
A drawee, it was stated, may accept by general or modified acceptance, if the holder consents to take a modified acceptance. Whatever the tenor of the contract is, that is the acceptor's undertaking.
He admits the drawer's existence and the capacity to draw the paper. If the paper has been indorsed by payee, he cannot question the capacity to so endorse. He may not question the signature of the drawer. It is his duty to know such signature. But signatures of indorsers he need not know and if any has been a forgery he may set that up.
His contract is complete when the acceptance is made and delivered to the holder or his agent, and innocent purchasers for value may thereafter hold such acceptor to his contract whether they became such before or after his acceptance.
An unqualified Indorser warrants (1) the capacity of prior parties; (2) the genuineness of the instrument; (3) the genuineness of his title thereto; (4) that the Instrument will not be dishonored by non-acceptance (If bill) or non-payment; and undertakes that if for any of these reasons or otherwise the instrument Is unpaid at maturity he will pay the amount thereof to the holder provided proper steps are taken to charge him. His liability is secondary.
An indorser who indorses specially or in blank, but without qualification, by his indorsement warrants the several things above set out. If the instrument is not paid at maturity by reason of any defense that could be set up against a holder in due course, as minority, forgery, and the like, the in-dorser may be sued upon the warranties contained in his indorsement. So if the instrument is simply unpaid not by reason of any defenses, but merely because the party primarily liable is insolvent or will not pay, the indorser may be proceeded against by the holder.
He undertakes that he will pay the amount of the instrument to the holder. It doesn't concern him whether the present holder became such before or after maturity, or what value he gave, or that he did or did not give any value, unless these questions become material for the reason the holder has a defense to make, and desires to show that the holder was not such in due course or did not derive a title from a holder in due course.
An indorser must, unless he has a defense which he can interpose as above, pay the face value of the note. His liability, when fixed, becomes similar to that of a maker of a note and is governable by the same rules except that it is secondary and must be fixed by certain procedure hereafter discussed.
Such party warrants to his Immediate transferee and him only (1) capacity of prior parties; (2) the genuineness of the Instrument; (3) the genuineness of his own title; and (4) that he knows of nothing Impairing the validity of the Instru-ment.
In all the cases in which an instrument may be construed as payable to bearer, it may be transferred by mere delivery. In such case the transferor warrants the things set forth in the text above, but only to his immediate transferee. If, however, he indorses the instrument, without adding words of qualification, he then becomes liable as set forth in the section next above.
An Indorser who qualifies his Indorsement warrants all the things set forth In section 88.
An indorser whose liability is qualified by the words "without recourse" nevertheless warrants to all subsequent holders, that he knows of nothing impairing its validity, the capacity of all prior parties, and the validity of his own title. But he does not warrant that the instrument will be paid where the defense is not based on any of these grounds, but simply refused because of the maker's insolvency, etc.
Thus, suppose A makes a note to B's order, which B indorses to C who in turn indorses it "without recourse" to D. A is an infant and refuses payment on that ground. D can hold C. But if A is an insolvent, C cannot be held, for he has said "without recourse."
An anomalous Indorser is liable as a general Indorser unless he provides otherwise by appropriate words.
An irregular indorsement is called an "anomalous indorser." One who makes an irregular or anomalous indorsement of a negotiable instrument is deemed to have indorsed in order to assume the liability of a regular indorser. He may, however, by adding other words, vary his contract.
"As respects one another indorsers are liable prima facie In the order in which they indorse; but evidence Is admissible to show that as between or among themselves they have agreed otherwise." (Uniform Law, SEC. 68.)
Suppose that M makes a note payable to A, which is by A indorsed to B, and by B to C, and by C to D. In order to hold any one except M, D must present the note to M for payment at maturity and save his rights against the indorsers by notice. He then may sue A, or B, or C. If he sues B, B may sue A, but not C.