7. Siegel v. Bank, 131 Illinois Reports, 669.
"If it be conceded, as it must, that a condition inserted in a promissory note, postponing the day of payment until the happening of some uncertain or contingent event, will destroy its negotiability * * * yet under the authorities, if by the instrument the maker promises to pay a sum certain at a day certain, to a certain person or his order, such instrument must be regarded as negotiable, although it also contains a recital of the consideration. * * *"
In another case,8 a suit was brought on a promissory note in the usual form, except that it contained the words "given for a patent right." It was sold by the payee and when suit was brought by the holder, the maker set up that the note was secured through fraud by which he was sold a worthless patent right, and claimed the right to assert this defense against the purchaser of the note on the theory that this recitation made it non-negotiable, or put the purchaser on notice.
The court in deciding that the note was negotiable, said in part: "Mercantile paper by legal inference imports a consideration. But if this implication is strengthened by a statement on the face of the paper that there was a consideration, and in what the consideration consisted, can it be said that this will impair or degrade the security?"
8. Hereth v. Meyer, 33 Indiana Reports, 511.
The following cases show a different result.
This instrument was given:9
"Chicago, July 12, 1877. Mrs. Martha A. Miller:
Please pay to the Excelsior Stone Company, or order, for stone in your buildings, $600 in installments, as follows: $200 when first floor joists are in; $200 when building is ready for the roof; $200 when stoops are finished; and charge same to my account. James Parrott.
Accepted July 12, 1877.
Martha A. Miller."
This instrument is not a negotiable instrument, as payment is to be made only as work progresses and upon certain things being done. Anyone taking this instrument, though giving value, having no notice and acquiring it before maturity, would take it subject to the defenses which might have been made against the payee therein.
Another note10 read "12 months after date, we promise to pay to ourselves or order $321.25 for value received, payable in Boston and subject to a policy." The court held that this reference to a policy rendered the note non-negotiable and impressed it as a contract merely assignable and subject to defenses in the hands of the assignee.
The principle is illustrated by these cases, that a mere recital of the consideration, even though that consideration appears to be executory in nature, does not in itself destroy negotiability, but if the promise is in any way qualified by a reference to the consideration, the instrument may express a good contract and be assignable but it is not negotiable.
9. Miller v. Excelsior Stone Co., 1 Illinois Appellate Reports, 273.
10. Am. Exch. Bank v. Blanchard, 7 Allen (Massachusetts), 333.
(3) Reference to particular fund, account, credit, etc. A promise or order to be negotiable must be on the general credit of the maker or drawer, and not of a particular fund or account. Yet a mere reference to a fund or account to indicate the source of reimbursement or for bookkeeping purposes does not hinder negotiability.
If a promise or order is made to pay out of or by means of a certain fund, negotiability is prevented, for the reason that the fund may not be ample. That it is, in fact, ample, is immaterial; the negotiability of an instrument cannot rest upon such extrinsic circumstance. One having funds with another, or being a creditor of that other, may give an order upon such other to transfer the funds or pay the debt to a third. That could not be a negotiable bill of exchange; it would operate as an assignment (which a bill of exchange does not) ; but it would not be drawn on the general credit of the drawer.
It is no objection however that the fund or an account be referred to in order to indicate how the drawee shall upon payment re-imburse himself, provided that there would still be a right of recourse to him if the fund were not sufficient. The negotiable instrument law in this respect provides, that the promise or order is unconditional when there is "an indication of a particular fund out of which reimbursement is to be made, or a particular account to be debited with the amount."11 An order read as follows:12
"StaRkey, N. Y., Jany. 6, 1869. To A. You will please pay to M., or order, the sum of $2,000.00, on demand, and deduct the same from my share of the profits of our partnership business in malting.
(sd) B." on which was indorsed: "Accepted, Feb. 6, 1869. (sd) A."
This was a direction to pay out of a particular fund and was not on B's general credit. In other words, had there been no profits, or not sufficient profits, A could not have charged the deficiency to B, for B could have replied: "I directed you to pay out of a certain fund but you saw fit to advance money to supply the deficiency of that fund. This my order did not authorize, nor your acceptance bind, you to do."
The court said in part: "The true test would seem to be whether the drawee is confined to the particular fund, or whether though a specified fund is mentioned, he would have the power to charge the bill up to the general account of the drawer, if the designated fund should turn out to be insufficient. In the final analysis of each case, it must appear that the alleged bill of exchange is drawn on the general credit of the drawer."
11. Uniform Negotiable Instruments Act, See. 3.
12. Adapted from Munger v. Shannon, 61 New York Re-ports, 251.
In the case of an assignment of a fund or debt, there is a direction to the debtor to pay it to the assignee named. In the case of a bill referring to a fund, there is a direction to the drawee to pay a certain amount, and having done so, then to reimburse himself out of the fund mentioned, or if insufficient, to charge the balance up to the general credit of the drawer.
It may be noted here that if an order is really an assignment of a fund or credit it needs no acceptance to give the assignee a right to sue the debtor upon it, as the right of assignment by the creditor is not dependent on the debtor's assent. But a drawee of a bill of exchange cannot be made liable on the instrument until he accepts it, and this even though it amounts to a breach of contract or duty as between himself and the drawer. This is illustrated in the case of a bank check. The bank is under contract with the depositor to pay his checks if his deposit is ample to cover them. Yet the payee of the check can take no action against the bank if it refuses to accept or pay the check, but is left to his rights against the drawer. If the giving of the check amounted to an assignment, the assignee could demand payment of the bank and have judgment if it refused to recognize the assignment without cause.
Promise or order must be "to pay a sum certain."
Certainty of sum payable must appear from the Instrument to render it negotiable. Thus a note read:
"Waterbuby, Conn., Aug. I, 1893. One year after date I promise to pay to the order of Norman D. Grannis, thirty five hundred dollars at the Fourth National Bank. Value received, with interest at the rate of 6% per annum and taxes. W. C. Myers."
The court held that though this instrument might be the expression of a valid contract between the parties, it was not a negotiable instrument for the reason that the words "and taxes" made the amount payable uncertain.13
(2) When sum held not uncertain.
"The sum payable is a sum certain within the meaning of this act, although it is to be paid: 1. With interest; or
2. By stated installments; or
3. By stated installments, with a provision that upon default in payment of any installment or of interest, the whole shall become due; or
4. With exchange, whether at a fixed rate or at the current rate; or
5. With costs of collection, or an attorney's fee, in case payment shall not be made at maturity.14
Instruments often provide for payment in fixed installments, and often also contain a provision that on the failure of the payment of any installment or of interest, then the entire sum shall become due and payable; and these are valid provisions and do not affect the negotiability of the instrument.
13. Smith v. Myers, 207 Illinois Reports, 128.
14. Negotiable Instruments Law, SEC. 2.
Instruments often contain provisions as to payment of exchange, sometimes expressing the rate, sometimes merely stating "at current rate," and this does not make the amount uncertain within the meaning of the law.
Where a provision is to pay an attorney's fee, stating or not stating the amount thereof, if payment is not made at maturity, this does not render the amount uncertain within the meaning of the law. The costs of collection and the attorney's fee never become chargeable or of any effect if the instrument is paid at maturity. It is only in case it becomes necessary after maturity to incur liability for costs or an attorney's fees, that they may be added.
If the amount of the attorney's fee is not stated, a reasonable amount is allowed by the court.
Aside from the provisions stated, any provision whatsoever that renders the sum payable uncertain in amount destroys negotiability.
Promise or order must be to pay a sum certain "in money."
The payment promised or ordered must be in money. Promise or order to pay in notes or other evidences of indebtedness or in securities of any sort, or in goods, or in money and goods, or in money or goods at the option of the maker or drawer or acceptor, prevents negotiability.