Negotiable contracts were an exception to the common-law rule that contract rights could not be assigned.1 If a negotiable contract were assigned in a proper manner, the holder could maintain an action at law thereon in his own name. It "may be transferred and assigned from the payee to any other man, contrary to the general rule of the common law that no chose in action is assignable, which assignment is the life of paper credit. "2 This right to sue in his own name implied that the party sued was prevented from making defenses which he would have been allowed to make against the party who had transferred the contract.3 At common law, therefore, there was no need to distinguish between contracts which were assignable generally and negotiable contracts. All contracts which were assignable generally were also negotiable, and all negotiable contracts were also assignable. At modern law contracts are as a general rule assignable, so that the assignee may sue thereon in his own name.4 At modern law, some different test must therefore be found for negotiability, to distinguish it from mere assignability. This test is found in the fact that the transferee of a legal title of a negotiable contract takes it free from many defenses which might have been made against his transferee.5

A justification for the theory of negotiability and for the rule that an instrument in the hands of a bona fide holder may be free from defenses which can be interposed as against the original party, has been said to be the rule that as between two innocent persons the loss must fall upon the one who caused it.8 This reason, however, is insufficient. If applied to its fullest extent, it would include contracts which were assignable but non-negotiable, and it would enable an innocent assignee to enforce against a promisor a contract which was subject to defenses in the hands of the original promisee. In spite of the fact that in such cases the original promisor has been more at fault than the innocent assignee, the loss in such cases falls upon the innocent assignee.7

1 See Sec. 2236.

2 II Black Com. 468.

3 What these defences were will be discussed hereafter. See Sec. 2348 et seq.

4 See Sec. 2241 et seq. 5 See Sec. 2347.

6 Fisk Rubber Co. v. Pinkey, 100 Wash. 220, 170 Pac. 581.

See, Negotiability and Estoppel, by John S. Ewart, 16 Law Quarterly Review, 13.5.

7 See Sec. 2269 et seq.

It has also been said that those who execute and deliver negotiable instruments are to be charged with a higher degree of care than those who purchase such instruments.8 This, however, is rather a consequence of the quality of negotiability than an explanation of such quality. The real justification of the theory of negotiability is that for business purposes it is very important to give to certain instruments qualities which make them as much like money as is possible.

A negotiable instrument was for many purposes treated as the contract itself, rather than as the evidence thereof. Payment to the original holder, who has not the note in his possession, is not operative as against a bona fide holder who took for value and before maturity, although the maker has no notice of such transfer.9

The meaning of negotiability here given is that of negotiability in its fullest sense. A limited meaning of negotiability also exists. In many jurisdictions the statutes have made instruments, like bills of lading and warehouse receipts, " negotiable." The courts have generally held that such a statute does not give such instrument negotiability in the full and complete sense of the word, but rather a quality differing from assignability only in the fact that the transfer of the instrument operates as a symbolical transfer of the property called for thereby,10 and that notice of the transfer of such instrument need not be given to the party issuing it.11

8 Colona v. Parksley National Bank, 120 Va. 812, 92 S. E. 979.

9 Miles v. Dodson, 102 Ark. 422, 50 L. R. A. (N.S.) 83, 144 S. W. 908; Calhoun v. Sharkey, 120 Ark. 616, 180 S. W. 216; Fowle v. Outcalt, 64 Kan. 352, 67 Pac. 889; Loizeaux v. Fremder, 123 Wis. 193, 101 N. W. 423.

10 Alabama. Commercial Bank v. Hurt, 99 Ala. 130, 42 Am. St. Rep. 38, 19 L. R. A. 701, 12 So. 508.

California. Cavallaro v. R. R., 110 Cal. 348, 52 Am. St. Rep. 94, 42 Pac. 918.

Georgia. Zellner v. Mobley, 84 Ga. 746; 20 Am. St. Rep. 390, 11 S. E. 402.

Kentucky. Douglas v. Bank, 86 Ky. 176, 9 Am. St. Rep. 276, 5 S. W. 420.

Minnesota. National Bank v. R. R., 44 Minn. 224, 20 Am. St. Rep. 566, 9 L. R. A. 263, 46 N. W. 342, 560.

Oregon. Anderson v. Mills, 37 Or. 483, 82 Am. St. Rep. 771, 50 L. R. A 235, 60 Pac. 839.

Wisconsin. Geilfuss v. Corrigan, 95 Wis. 651, 60 Am. St. Rep. 143, 37 L. R. A. 167, 70 N. W. 306. "What is negotiability? It is a technical term derived from the usage of merchants and bankers, in transferring, primarily bills of exchange, and, afterwards, promissory notes. At common law no contract was assignable, so as to give to an assignee a right to enforce it by suit in his own name. To this rule bills of exchange and promissory notes, payable to order or bearer, have been admitted exceptions, made such by the adoption of the law merchant. They may be transferred by indorsement and delivery, and such a transfer is called negotiation. It is a mercantile business transaction, and the capability of being thus transferred, so as to give to the indorsee a right to sue on the contract in his own name, is what constitutes negotiability. The term 'negotiable' expresses, at least primarily, this mode and effect of a transfer. In regard to bills and notes, certain other consequences generally, though not always, follow. • • • (Discussing the rights of a bona fide holder.) But none of these consequences are necessary attendants or constituents of negotiability or negotiation. That may exist without them." Shaw v. R. R., 101 U. S. 557, 562. 11 See Sec. 2341.

In this connection negotiability will be discussed only in so far as concerns the liability of the promisor to the promisee and those claiming under him. There are many other results that flow from negotiability. Among these are the liability of the indorser to the indorsee, the necessity of demand, notice and protest, and the liability of sureties and guarantors. These subjects belong to a discussion of negotiable instruments, and will not be treated of in this work.