THE NEGOTIABLE INSTRUMENTS LAW — A REJOINDER TO DEAN AMES.

THE

HE best test of a good shield," says the proverb, "is a sharp lance." No keener weapon than that wielded by the accomplished Dean of the Harvard Law School could be turned against the Negotiable Instruments Law. The fact that in his two elaborate attacks on that code he has failed to disclose a single serious flaw is the most conclusive proof of its invulnerability. A word of recapitulation and introduction may be allowed before making a direct reply to his "One Word More" in the February number of the HARVARD Law Review.

Of the twenty-three sub-sections of the law to which the critic objects, eleven are taken from the English Bills of Exchange Act,1 one follows the German code,2 one is taken from a New York statute,3 three are mere matters of form, and the objections to the remaining seven chiefly come, it would seem, from misinterpretations of the meaning of the law on the part of the critic.

The eleven sub-sections taken, most of them word for word, from the English Bills of Exchange Act, and all so identical therewith that the critic's objections apply to the acts equally, need no justification at this late date. They have been the satisfactory law of England and her colonies for twenty years. On them criticism is barred by the natural statute of limitations and the universal approval of the commercial world. One might as well criticise the Bill of Rights or the Lord Chancellor's wig. No text-book that I know of holds any doctrine contrary to the law of these eleven sections. Nor in fact has the Dean suggested any text-book which is in favor of any one of his twenty-three strictures. As to the practical working for twenty years of these eleven sub-sections, I beg to refer to the testimony of one of the committee who helped to draft the English Act.

In December last I wrote Mr. Arthur Cohen, Q. C., who was one of the committee who framed the English Act, stating the

1 3-2 from 3-3 of English Act; 9-3 from 7-3, with an addition not in question; 9-5 from 8-3; 22 from 22-2; 29 from 28; 37-2 from 35-2; 49 from 31-4; 70 from 52; 175 from 65-5; 186 from 74, and 66 from 52-2.

sections of the English Act which Dean Ames had criticised in his first article, and asked him if those sections had caused any difficulty in English practice. Unfortunately the copy of the American Act which I sent to him did not reach him, and he could only answer partially the points suggested. I wrote again, sending the two articles of the Dean, the answer, and the American Act, expecting to be able to publish his reply in this article. As it has failed to reach me at this writing,1 I can only give the substance of the letter received from him dated January 30, 1901. It was evidently not intended for publication as a whole, but I am permitted to make the following quotations:

"No difficulties have arisen in England with reference to the suggested points, nor any litigation except as to the meaning of 'fictitious person.' The question came before the House of Lords in Vagliano v. Bank of England, 1891, Appeal Cases, 107.

"I think you are to be congratulated if your Act has not been and cannot be objected to for more formidable reasons."

In a letter received several years ago Mr. Cohen had written as follows:

"In my opinion the language of your bill is singularly felicitous. It is more clear, concise, less stiff and artificial than our Bills of Exchange Act, and in this respect —one by no means unimportant — your draft is an improvement on our Act."

Perhaps it ought to be added here that Judge Chalmers, the draftsman of the English Act, to whom a draft of the Negotiable Instruments Act was sent in 1896, after congratulating Mr. Crawford on the success of his work, recommended Mr. Cohen as one of the three best authorities in England on the law of bills and notes, the other two, I believe, being eminent London bankers, who had participated in the drafting of the English Act.

One word as to those eight sections which the Dean does not think it necessary to re-argue. As my answer to the criticisms on those eight sections, founded chiefly on their utility and convenience, does not seem convincing to the critic, I pause, deprecatingly, to suggest that the same eight sections are also well sustained by authority, as well as by reasons of convenience.

Let us see. Section 20, it is claimed, makes by implication an unauthorized agent liable personally on the note. In addition to the answer already given in the Yale Law Journal for January, 1901, i. e. "that the agent alone is in law, as in fact, the real

1 For letter received after sending to press, see Appendix, p. 36.

maker of the note" in such cases, and might well be made directly liable, as he always is ultimately, it is proper to refer to the fact that the rule which the Dean claims is laid down in the Negotiable Instruments Law is adopted in the German Code, to which the Dean refers us as a model,1 and is declared in Byars v. Doores,2 as having "the weight of authority" decidedly in its favor at that time. Tiedeman (sec. 84) cites eleven cases so holding, to which we may add 147 Ill. 520; 104 Ind. 32. There are more cases one way and more states the other.

The Dean's criticism on sections 23-2-3 was that the word "trustee" was more descriptive of the position of the indorsee in restrictive indorsement than the word "agent," and so but one word should be used. It is proper to say that the text-writers take exactly the opposite view,3 and so did Dean Ames when he published his Leading Cases. In his Index and Summary, p. 837,

is the following section:

"The term 'restrictive indorsement' is commonly but loosely applied to two distinct kinds of orders, namely, to an order, whereby the holder indorses a bill to one person in trust for another, e. g. 'Pay A for account of B;''Pay A for the use of B;' and to an order whereby the holder simply deputes to an agent the business of collecting a bill, e. g. 'Pay to A for my use.' It was with reference to this "common," i. e. ordinary use of the word that the section in question was framed.

Mr. Tiffany, in the new Norton Hornbook on Bills and Notes, as usual hits the exact distinction tersely and clearly (p. 124):

"The first and commonest variety, and the one which is generally spoken of by the text-writers as the restrictive indorsement, is that where the holder deputes to some other person the business of collecting the bill; the other where the holder indorses the instrument to one person for the use or benefit of, or as the trustee of another."

Regarding section 49, which treats of the right to have the transferrer indorse, which follows the English Act and does not follow the Colorado Act, as the critic would have it do, it may be pertinent to say that the annotator of the Colorado Act, Mr. J. Warner Mills, (p. 23), says, speaking of the two forms of expression, "but either form of expression establishes the equitable rule of law."5

1 American Law Register, March, 1900, vol. 39, p. 145.

2 20 Mo. 284.

8 See especially Chalmers, 5th ed.; McLaren on Canadian Bills of Exchange Act, 214; Tiffany's Norton, 124.

4 The italics are ours.

5 See, also, Huffcutt, 26, to the same effect.

Section 66 is substantially in the line of section 55 of the English Act, as already suggested.

Section 68, making joint indorsers liable severally, which the critic called "a blunder," and now calls "unprecedented" and "arbitrary," is in accord with the theory of the law already established in most of the states which adopt the reformed procedure, say three quarters of the states of the Union.1 "The liability of each indorser is several. So now by statute generally." "2

Section 137, making destruction of a bill acceptance, at first was objected to as "a perversion of language," "fantastic and inexplicable." It is now described as "crystallizing an unscientific conception." Whether it is fantastic, or crystalline, or scientific, is not, perhaps, so very material. But instead of its being "a conception" of the draftsman or of the conference, the section was taken from the statutes of eight states, including the state of New York, from all of which the report was that "it had worked well." The bankers regarded it as a simple, practical, definite working rule, and none of the twelve commentators on the Negotiable Instruments Act have suggested the least objection to it.

Section 175. Payment for Honor. The Dean argued in the December number of the REVIEW that because Mr. Chalmers adopted in the English Bills of Exchange Act the doctrine of an overruled case, the fact of its having been overruled must have been overlooked. By reference to note 3, page 237, of the fifth edition of Chalmers, he will see that the overruling case 5 is duly cited as well as the continental codes. There was no "slip of memory" there. Daniel favors the overruled case."

DIRECT ANSWER TO "ONE WORD MORE IN THE FEBRUARY

NUMBER.

Section 3-2. This section asserts the familiar doctrine that an order or promise is not rendered conditional by "a statement of the transaction which gives rise to the instrument."7 The Dean's first article declared this clause "unmeaning, deplorable, nullifying

1 Connecticut Rules of Practice, p. 1, sec. 2; 2 Bliss, 53; Pomeroy, 2d ed., 326. 2 Norton, 159.

8 See our answer to these adjectives and others, 10 Yale Law Journal, 88, January,

1901.

4 Ex parte Lambert, decided by Lord Erskine.

5 Ex parte Swan.

6 Daniel, sec. 1255; Norton, 301.

7 English Act, 3-3; 4th Am. & Eng. Enc. of Law, 89, citing 43 cases.

several decisions," and either "mischievous or "obscure, inartistic, and useless." He cited, to show the inefficiency of the Negotiable Instruments Act on this point, the case of Third Bank v. Spring,1 an Erie County Supreme Court case, in which he said "the judge ruled that the Negotiable Instruments Law had no application to such a note." In the answer it was stated that that case was reversed in the Appellate Division.2 The Dean now replies that the reversal did not affect the point he made that the Negotiable Instruments Act was not applicable. On reëxamination it turns out that the note in question in that case was made in 1896 and negotiated in May, 1897. Whereas the New York Negotiable Instruments Law did not go into effect until October, 1897, and therefore, as the judge said, had no application to it. The law had not then become operative in the state of New York. So much for the wee Supreme Court case of Erie County, which was supposed to demonstrate the inefficiency of the Negotiable Instruments Law as expressed in section 3-2. As this is the only case decided on the Negotiable Instruments Law cited by the Dean, and that did not come under the law at all, the natural inference is that the Dean labors under some difficulty in treating the subject under the "case law system." He is likely to continue to so labor, for the Negotiable Instruments Law, not only in England, but in this country, diminishes litigation and the necessity for it to an astonishing degree.

Next page, in note 3, the Dean speaks of "Judge Brewster's startling suggestion that a note payable to the order of unincorporated associations or the estates of deceased persons is payable to bearer by force of this section 9-3." But in point of fact, by referring to the answer published in the Yale Law Journal, on the criticism on section 9-3, it will be seen that, instead of being put down as a statement of the writer in the Law Journal, it is put down as follows:

"His [the Dean's] criticism seems to imply that the act should cover rare and imaginary exceptions rather than serve the commendable purpose which he concedes that the section has, of providing for common cases, such as notes payable to unincorporated associations, estates of deceased persons, and the like."

If the concession is denied, that is a question of fact. If it is admitted, is it quite right to exploit one's own admission as the opinion of his opponent? As to the section criticised, it is not

1 28 N. Y. Misc. 9.

2

50 App. Div. 66.