Story Case

Martin Peterson rented offices in a building managed as part of "The Estate of Martha Spriggs." In payment of the rent for one month, he drew a bill of exchange upon a local broker against whom he had an account, which he made payable to "The Estate of Martha Spriggs" The executor of the estate indorsed the bill in the exact form in which it was payable, and deposited it with his bank. It was accepted by the broker, and was then sold by the bank, with a great quantity of other commercial paper, to a private investor, Carter. At maturity, the broker was insolvent and could not pay the bill. Notice was given to all parties, and Carter brought suit against Peterson. Peterson admitted his liability as drawer, but denied that Carter had a right to recover. He contended that an estate was not a legal person, so that the bill was void for want of a payee, or that even if valid, it had never been validly transferred for want of a valid indorsement.

Ruling Court Case. Grey Vs. Cooper, Volume 3 Douglas Reports, Page 65

Cooper drew a bill of exchange payable to Walker. Walker indorsed the bill to Halbrook, and from him it came to Grey. Grey presented it to the drawee, who refused to accept it. Then Grey, at maturity, demanded of Cooper that he pay it. Cooper refused, and this action was brought against him upon the bill.

He contended that he was not liable, because Walker was an infant when the bill was made to him, and therefore incompetent to pass title to it.

Decision: A drawer, by drawing a bill of exchange, admits the existence of a payee and that he has then the capacity to indorse the instrument. He cannot, therefore, be heard to say that there is no payee, or that the payee is not competent to indorse. Accordingly, Grey may recover of Cooper upon this bill.

Lord Mansfield said: "The ground on which the drawer is charged is that he drew a bill by which he engaged to pay, according to the order of the payee, whoever that payee might be. He might give the infant an authority which the law itself does not give him, in the same manner in which he may give a bill to his own wife. The drawer says, 'Let anybody trust the payee on my credit.' " Judgment was given for Grey.

Ruling Law. Story Case Answer

The drawer, by drawing the bill, assures every holder thereof, that the person named therein as payee is an actually existing person and has capacity to indorse this paper. Accordingly, if he draws a bill, payable to a non-existing person, he cannot deny this fact as against one who purchased the instrument in ignorance of such fact. For the same reason he cannot escape liability on the ground that the payee is an infant, or a married woman, or a bankrupt, who have no capacity, ordinarily, to enter into contracts.

If Peterson admits that he drew this bill payable to "The Estate of Martha Spriggs," it is not open to him to question the existence of such a person, or to deny the legal capacity of that payee to make a valid indorsement. If he has no other defense to the bill, nor to Carter's right to enforce it, he is liable.