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Bank v. Ninth National Bank (11). A bill was drawn by the Ridgely Bank of Illinois on the National Park Bank, payable to one Shirly. The draft was stolen, the name of the payee changed, the amount raised from $14.20 to $6,300, and the signature of the drawer erased and then re-written as before. The instrument was then negotiated to the Ninth National Bank, which paid value for it in good faith. Thereafter it was accepted by the Park Bank. It was conceded that the Park Bank would not have been bound by its acceptance if the only alteration had been as to the payee and amount, for its acceptance admitted the genuineness of the drawer's signature only. But the drawer's signature was not genuine. It had been erased and re-written. In consequence, the court held the Park Bank bound to pay; for the bill had not been altered since the signature, which its acceptance admitted to be genuine, had been attached to the instrument. The court said: "For more than a century it has been held and decided, without question, that it is incumbent upon the drawee of a bill to be satisfied that the signature of the drawer is genuine, that he is presumed to know the handwriting of his correspondent, and, if he accepts or pays a bill to which the drawer's name has been forged, he is bound by the act, and can neither repudiate the acceptance nor recover the money paid."

§ 134. Forged indorsements. The drawee of a bill payable to order is bound by his acceptance to pay the payee or his order, but no one else. If the payee's indorsement is forged, the instrument is not transferred and

(11) 46 N. Y. 77.

the payee is not deprived thereby of his right to receive payment. It makes no difference in the application of this rule that the drawee accepted the instrument after the forgery of the payee's indorsement, and that the holder purchased innocently after the drawee had placed his acceptance on the bill. The acceptor does not admit the genuineness of the indorsements. He promises to pay the legal holder of the bill at maturity (12).

SECTION 3. VENDOR'S WARRANTIES OF TRANSFEROR.

§ 135. Liability of transferor as seller. The transfer of a negotiable instrument for a consideration is a sale, and the transferor is therefore subjected as seller to certain liabilities to his transferee, similar to those of the seller of any property. These liabilities are not the result of indorsement, but arise quite independently because the transfer is a sale. In consequence, they are the same in a case of a transfer of a bearer instrument by delivery, and in the case of a transfer by a qualified indorsement, by which the holder of an instrument payable to order indorses it without assuming the contract obligation of an indorser to pay if the maker or acceptor does not. That the liability of a transferor as indorser and his responsibility as seller are distinct is made clear by two examples. A, the holder of a note payable Jan. 1, 1911, sells and indorses it to B on Jan. 1, 1910. Immediately after the transfer, the maker absconds, a bankrupt without assets. B has no action against A on his indorsement, until the maturity of the note on Jan. 1, 1911. But, if the note had been a (12) First Bank v. Bank, 152 Ill. 296.

forgery, B, upon discovering the invalidity of the instrument, might have sued A at once upon his implied warranty as seller that the note was genuine.

§ 136. Warranties of transferor. The N. I. L. states the warranties of the seller of a bill or note as follows:

Sec. 65. Every person negotiating an instrument by delivery or by a qualified indorsement, warrants:

1. That the instrument is genuine and in all respects what it purports to be;

2. That he has a good title to it;

3. That all prior parties had capacity to contract;

4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.

But when the negotiation is by delivery only, the warranty extends in favor of no holder other than the immediate transferee. The provisions of subdivision three of this section do not apply to persons negotiating public or corporate securities, other than bills and notes.

Sec. 66. Every indorser, who indorses without qualification, warrants to all subseqent holders in due course: 1. The matters and things mentioned in subdivisions one, two and three of the next preceding section.

§ 137. Warranty of genuineness. The warranty of the transferor that "the instrument is genuine and in all respects what it purports to be" makes him responsible to his transferee, if the instrument is forged, or void by statute, or for any reason never had an inception as the obligation of the maker, acceptor, or drawer, whose name

appears thereon; and his ignorance of the invalidity of the paper does not affect his liability. For example in Hannum v. Richardson (13) the defendant sold and indorsed "without recourse" to the plaintiff a piece of paper which purported to contain a promissory note. In fact the obligation was absolutely void by a statute of the state. It did not appear that the defendant acted in bad faith or knew of he illegality. It was held that the defendant was nevertheless liable on his warranty. The court said:

"By indorsing the note 'without recourse' the defendant refused to assume the responsibility and liability which the law attaches to an unqualified indorsement, so that, in respect to such liability, it may perhaps be regarded as standing without an indorsement. If it be so regarded, then in what position do these parties stand in respect to the transaction? The principle is well settled that where personal property of any kind is sold, there is on the part of the seller an implied warranty that he has title to the property, and that it is what it purports to be, and is that for which it was sold, as understood by the parties at the time; and, in such case, knowledge on the part of the seller is not necessary to his liability. The implied warranty is, in this respect like an express warranty, the scienter need not be alleged or proved. In this case the

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note in question was given for intoxicating liquor sold in this state in violation of law, and therefore was void at its inception; in short, it was not a note, it was not what it purported to be, or what it was sold and purchased for; it is of no more effect than if it had ben a blank piece of

(13) 48 Vermont, 508.

paper for which the plaintiff had paid his fifty dollars. In this view of the case, we think the defendant is liable upon a warranty that the thing sold was a valid note of hand."

§ 138. Warranty of title. If a note is stolen from the payee, his indorsement forged, and the paper sold by the thief to an innocent holder, the holder does not obtain title. Nor can he transfer what he does not own. If he attempts to sell the instrument, his sale passes nothing to the transferee. The transferee, therefore, may recover under such circumstances from the transferor for breach of the warranty that "he had good title" to the instrument (14).

§ 139. Warranty of capacity of prior parties. Not only is the transferee entitled to get from his transferor title to a valid instrument, but he has a right to the contract obligations of the parties as the paper discloses them. For example, an infant holder of a bill or note may transfer the instrument by his indorsement, although his indorsement places him under no liability as indorser (15). One, therefore, who buys a note bearing a prior indorsement by an infant, may recover from his transferor. One at least of the prior parties did not have capacity to contract, and the transferee did not obtain the obligations of all the parties he naturally expected were bound on the instrument.

§ 140. Warranty of no knowledge of facts rendering instrument valueless. The insolvency of the acceptor or maker at the time of the transfer, or at any other time,

(14) Williams v. Savings Institution, 57 Miss. 633. (15) Neg. Inst. Law, sec. 22.

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