§ 1157. A bill of exchange is a written order or request, and a promissory note is a written1 promise, to pay to a certain person named, or to such person or order (or, what is the same thing, to the order of such person), or to such person or bearer, or simply to bearer, a certain sum of money, absolutely, at a certain time.2
§ 1158. Bills of exchange are called foreign bills where the drawer and drawee live in different States3 or countries: they are called inland bills where these parties live in the same State or country.4
§ 1159. There may be three parties to a promissory note, - the maker, the payee, and the indorser.5 The term "maker," though loosely used in some of the early books, signifies the party who executes a note by signing his name at the right lower corner of the paper. Such party is to be carefully distinguished from the drawer of a bill. The payee is the party to whom the money is made payable. In the case of paper payable to bearer merely, there is, of course, no special payee; the instrument being payable to any bond fide holder for value. The indorser, generally speaking, is the party who writes his name across the back6 of a negotiable instrument.
1 It seems that ink need not be used; an indorsement with a black-lead pencil has been held good. Geary v. Physic, 7 Dowl. & R. 653. 2 See the various definitions in Story on Promissory Notes, § 1.
3 Story on Bills of Exchange, § 23.
4 lb. §§ 22-25.
5 These are the only parties properly belonging to notes as such, though it is common to add guarantors and sureties also. And such parties are sometimes added to bills.
6 Sometimes, though rarely, indorsement is made by writing the name from whom he received the paper, or than any other party to it. But it is not necessary, as we have said, to a note or bill that it should be negotiable.1
§ 1160. There may be four parties to a bill of exchange, - the drawer, the drawee, the payee, and the indorser. The term "drawer" signifies the party who executes a bill of exchange, by signing his name at the right lower corner of the instrument. Though the position of the signature corresponds to that of the maker of a note, the legal rights and liabilities of these parties are very different, as we shall see. The drawee is the person to whom the bill is directed, i. e., the person requested to pay it. Upon acceptance of the order or request, he becomes the acceptor. The payee and the indorser of a bill correspond precisely with the parties of the same name in the case of a note. An indorsee is one to whom a negotiable bill or note has been passed, whether by indorsement or by mere delivery.
§ 1161. While, however, there may be three parties to a promissory note and four to a bill of exchange, there need not be more than one to the former and two to the latter; the unnecessary parties in each case being the payee and the indorser. That is to say, it is not necessary to the formation of a note or bill that there should be a payee named or an indorser, or even that indorsement should be possible. In other words, negotiability is not essential.
§ 1162. This leads us to an explanation of the term "negotiability." This term, in a strict, legal sense, has reference only to bills of exchange and promissory notes. No other instrument is negotiable in the full sense of the term.1 The word signifies that the note or bill may be transferred so as to pass a perfect title to the transferree or, more properly, indorsee, - a title free from any defect or defence (usually termed "equity," or, in the plural, "equities") which could be alleged against the payee. The word, therefore, implies that an indorsee may be in a better situation than was the party across the face of the note or bill, and sometimes upon a separate piece of paper, attached thereto. Folger v. Chase, 18 Pick. 63; Partridge v. Davis, 20 Vt. 499, 503.
1 Bills of lading and warehouse receipts possess a limited negotiability, sufficient to pass a title by delivery. See the note to the celebrated case of Lickbarrow v. Mason, 1 Smith's Leading Cases, 1147 (7th Am. ed.); Voss v. Robertson, 46 Ala. 483 (1871).
§ 1163. In order to make a note or bill negotiable, the common law requires that apt words should be used. If a payee be named in the instrument, the proper words are "or order," or "to the order of" the payee, or "or bearer." Thus, a bill or note, if in other respects properly executed, will be negotiable if payable "to A. or order," or "to the order of A.," or "to A. or bearer." But any other equivalent expressions, clearly demonstrating the intention to make the paper negotiable, will be effectual.2
§ 1164. The parties to a bill of exchange or promissory note are termed either " original " or " subsequent." The original parties are, in the case of a bill, the drawer, the drawee, and the payee; in the case of a note, the maker and the payee. In other words, the original parties are those whose names appear on the face of the paper. If the instrument be payable to bearer without naming a payee, the person for whom it is executed will generally be an original party. Subsequent parties are those into whose hands the paper passes from the original parties.
§ 1165. As the definition above given indicates, the promise or request must be to pay money in order to constitute the paper a promissory note or bill of exchange; and by money is meant the legal tender currency of the country. It was therefore held in the times of gold and silver, though with some conflict of authority, that a written instrument containing a promise to pay a sum of money in bank-notes was not a promissory note.3 So of a promise to pay in Canada money, where the instrument was executed in New York.4
1 Smith v. Kendall, 6 T. R. 123; Coursin v. Ledlie, 31 Penn. St. 506; Redfield & Bigelow's L. C. 6.
2 Story, Promissory Notes, § 44.