This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Any defense which goes to the execution of the instrument, and shows that no instrument was ever in fact executed, may be made.1 Thus if the instrument is never delivered, and passes into the possession of the payee without the fault of the maker, as where it was drawn for practice, and taken by the payee without the maker's knowledge,2 or is taken by the payee without the maker's consent before he is ready to deliver it,3 the maker may defend against a bona fide holder. There are some authorities, however, which hold that in such cases the maker is liable to a bona fide holder even if he is free from negligence in allowing the payee to take possession of the instrument,4 as where the instrument is taken from him forcibly,5 or is stolen from him.6 In these last cases, however, it does dation indorser while sane and renews when insane, the payee being ignorant of his insanity, A is liable.not always appear affirmatively that the maker was free from negligence; though that inference must be drawn from the facts appearing in the opinions. If the maker has been negligent, and thereby has allowed the instrument to come into the possession of the payee, he is liable to a bona fide holder, on principles of estoppel, though as between himself and the payee no delivery took place.7 Even where negligence does not exist, the maker is liable to a bona fide holder on negotiable instruments not delivered by him which are put into circulation by one to whom the maker has voluntarily entrusted their custody. Thus if the maker allows the payee to take possession of the instrument upon the understanding that it is to take effect only if others sign it, he cannot defend against a bona fide holder to whom it passes without such signature,8 though he could interpose such defense against the payee.9 So if a note is deposited in escrow and is delivered in breach of the conditions of delivery and without the knowledge of the maker, he is liable thereon to a bona fide holder.10 If a maker signs a note by reason of operative mistake, misrepresentation or fraud in the execution,11 he may interpose such defense even as against a bona fide holder, if he has not been negligent in so signing it.12 Some authorities, however, hold that the maker is liable in such cases to a bona fide holder even if he was free from negligence.13 If the maker is negligent in executing the instruinent without knowing its contents, he is liable to a bona fide holder of the instrument.14 Thus where A knew that B had tried to defraud him by an alleged order for lightning-rods, and A, who cannot read, relies further on B's representations and signs a note, understanding that it is to be non-negotiable, A is liable thereon to a bona fide holder by reason of his negligence in trusting B after knowing that B was trying to defraud him.15 Irrespective of questions of negligence, the maker may be estopped as to bona fide holders by his own conduct in delivering an instrument to the wrong party. Thus X represented himself to be A, the traveling agent of Y. X telegraphed to Y, using A's name, to send him fifty dollars by telegraph. Y did so. The telegraph company drew a check to A and delivered it to X. While there was such a mistake as to the identity of the parties as would make the contract void between them, and while X was obliged to forge A's name, in indorsing the check, it was held that as against a bona fide indorsee, the telegraph company was estopped from denying that X was the true payee.16 Bank v. Sneed. 97 Tenn. 120; 56 Am. St. .Rep. 788; 34 L. R. A. 274; 36 S. W. 716.
3 Hosier v. Beard, 54 O. S. 398; 56 Am. St. Rep. 720; 35 L. R. A. 161; 43 N. E. 1040.
4 State Bank v. McCoy, 69 Pa. St. 204; 8 Am. Rep. 246.
5 Married woman surety for husband contrary to statute. Voreis v. Nusbaum, 131 Ind. 267; 16 L. R. A. 45; 31 N. E. 70. Note by married woman to husband, even if indorsed for debt of wife. National Granite Bank v. Tyndale. 176 Mass. 547; 51 L. R. A. 447; 57 N. E. 1022; National Granite Bank v.
Whicher, 173 .Mass. 517; 73 Am. St. Rep. 317; 53 N. E. 1004.
1 Vannatta v. Lindley, 198 111. 40; 64 N. E. 735.
2 Salley v. Terril, 95 Me.. 553; 85 Am. St. Rep. 433; 55 L. R. A. 730; 50 Atl. 896.
3 Burson v. Huntington, 21 Mich. 415; 4 Am. Rep. 497; Branch v. Sinking Fund, 80 Va. 427; 56 Am. Rep. 596.
4 Clarke v. Johnson, 54 111. 296; Kinyon v. Wohlford, 17 Minn. 239; 10 Am. Rep. 165.
5 Clarke v. Johnson, 54 111. 296.
6 Shipley v. Carroll. 45 111. 285. So of bank-notes. Worcester County Bank v. Bank, 10 Cush. (Mass.) 488; 57 Am. Dec. 120; or treasury-notes, Cooke v. United States, 91 U. S. 389.
7 Dodd v. Dunne, 71 Wis. 578; 37 N. W. 430.
8 Micklewait v. Noel, 69 la. 344; 28 N. W. 630; Smith v. Moberly, 10 B. Mon. (Ky.) 266; 52 Am. Dec. 543; First National Bank of Free-port v. Mfg. Co., 61 Minn. 274; 63 N. W. 731; Porter v. Andrews, 10 N. D. 558; 88 N. W. 567; Lookout Bank v. Aull, 93 Tenn. 645; 42 Am. St. Rep. 934; 27 S. W. 1014.
9 See Sec. 595.
10 Graff v. Logue, 61 la. 704; 17 N. W. 171; Chase National Bank v. Faurot, 149 N. Y. 532; 35 L. R. A. 605; 44 N. E. 164. Contra, Chipman v. Tucker, 38 Wis. 43; 20 Am. Rep. 1.
11 See Sec. 66.
12 Cline v. Guthrie, 42 Ind. 227; 13 Am. Rep. 357; Green v. Wilkie, 98 la. 74; 60 Am. St. Rep. 184; 36 L. R. A. 434; 66 N. W. 1046; Gihbs v. Linabury, 22 Mich. 479; 7 Am. Rep. 675; Willard v. Nelson, 35 Neb. 651; 37 Am. St. Rep. 455; 53 N. W. 572; De Camp v. Hamma, 29 O. S. 467; Walker v. Ebert, 29 Wis. 194; 9 Am. Rep. 548.
13 Rowland v. Fowler, 47 Conn. 347; First National Bank of Par-kersburg v. Johns, 22 W. Va. 520; 46 Am. Rep. 506.