person, he is liable to the payee and to all subsequent parties.

2. If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.

These rules are made clearer by examples. An illustation of the operation of Rule 1 is a case where A makes a note payable to the order of B, his creditor, and offers the note in payment of the debt. B refusing to receive the note, A induces X to indorse his name upon the note in order to give it credit with B, who, relying on the indorsement of X, takes the note in payment of A's debt. The manifest intention of the parties is that X shall be liable to B and holders subsequent to B. This intention is effectuated by Rule 1. An example of Rule 2 is a case where A, the drawer of a bill drawn payable to his own order, secures X's indorsement, before he delivers it to B. Here again X's intention appears to be to bind himself to B and subsequent holders. Rule 2 fixes X's liability in accordance with this intention. The peculiarity in both of these cases is, that, as a formal matter, B is the payee and therefore the first indorser, and, were it not for the anomalous character of X's indorsement, would be liable to X who is subsequent to him.

§ 126. Qualified indorsement. An indorser "without recourse" refuses to assume the contract obligation of an indorser, and consequently is not bound as such. His responsibility to his transferee is described in § § 135-40, below.

§ 127. Indorser of bearer instrument. The holder of a bearer instrument need not, and usually does not, indorse it, but "where a person places his indorsement on an instrument negotiable by delivery he incurs all the liabilities of an indorser" (5). If he transfers without indorsement he assumes none of the contract liabilities of an indorser, but stands under a responsibility to his transferee similar to that of an indorser without recourse. See §§ 135-40, below.

§ 128. Indorsement by infant. The indorsement of an infant, whatever its effect, does not subject the infant to any contract liability as indorser. The contracts of an infant are either void or voidable. The same is true in the case of indorsement by any person who has not capacity to contract, as for example a corporation whose powers do not include that of being a party to negotiable paper (6).

SECTION 2. ADMISSIONS OF MAKER, DRAWER AND

ACCEPTOR.

§ 129. Admissions of maker, drawer, and acceptor as to payee. The maker of a note, or the drawer of a bill, designates the payee. If the instrument is negotiable in form, the maker expressly authorizes and apparently contemplates its transfer by the payee. Therefore, if an insane person, a "fictitious person," an infant, or any person not having full legal capacity to deal with his property, is designated by the maker or drawer as payee, the maker or

(5) Neg. Inst. Law, sec. 67. (6) Neg. Inst. Law, sec. 22.

drawer is not permitted to set up as a defense against a purchaser of the instrument from the payee, his non-existence or want of capacity and the consequent want of title in his transferee, the purchaser. The drawee, also, after promising to pay a bill, for the same reason is not permitted to question the existence or capacity of the payee named in it. The N. I. L. states this rule as follows:

Sec. 60. The maker of a negotiable instrument by making it admits the existence of the payee and his

then capacity to indorse.

Sec. 61. The drawer by drawing the instrument admits the existence of the payee and his then capacity to indorse. Sec. 62. The acceptor by accepting the instrument the existence of the payee and

admits

his then capacity to indorse.

§ 130. Same: Illustrations. An example of the operation of this rule is a case where Massey made a note payable to Hess, or order. Hess was an infant. Hess indorsed to the plaintiff, who brought an action against the maker, Massey. The maker's defense that the infant's indorsement did not transfer the note to the plaintiff was disallowed (7). The court said: "The disability of an infant to make a valid, binding contract, is a personal privilege intended for the benefit of the infant himself, and none but he, or his representatives, can take advantage of such disability. Besides this, the defendant, by making the note to Hess, asserted to the world his competency to negotiate and assign the paper, and he cannot (7) Frazier v. Massey, 14 Ind. 382.

be permitted to gainsay the assertion so made." Another illustration is a note made payable to "X, attorney general, or order." X's indorsee, even though the indorsement was beyond X's official authority, would be entitled to recover from the maker (8).

§ 131. Admissions of acceptor. An acceptance operates not only as a promise to pay the bill, and as an admission of the existence and capacity of the payee, but also as an admission of "(1) the existence of the drawer, (2) the genuineness of his signature, and (3) his capacity and authority to draw the instrument” (9).

§ 132. Acceptor's admission of drawer's existence, capacity and authority. For the same reason that the maker, drawer, and acceptor are precluded from denying the existence and capacity of the payee, the acceptor by accepting a bill, i. e., by assenting to the order of a drawer, admits the drawer's existence, his legal capacity, and authority to draw the bill, and to that extent the validity of the bill to which he has given currency by his acceptance. In an action against him upon his acceptance, it is no defense that in fact there was no drawer, the name signed to the bill not designating any person; or that the drawer was an infant, or a lunatic, with no capacity to draw a bill; or that he was not indebted to the drawer, who drew upon him without right or authority. Thus, if A, upon presentment to him, accepts a bill purporting to be drawn by a person of whom he has never heard, and to whom he owes nothing, he is bound by his acceptance to a holder for

(8) Wolke v. Kuhne, 109 Ind. 313.

(9) Neg. Inst. Law, sec. 62.

value. "The delivery of a bill or check by one person to another for value implies a representation on the part of the drawer that the drawee is in funds for its payment, and the subsequent acceptance of such check or bill constitues an admission of the truth of the representation, which the drawee is not allowed to retract. By such acceptance the drawee admits the truth of the representation, and, having obtained a suspension of the holder's remedies against the drawer, and an extension of credit by his admission, is not afterwards at liberty to controvert the fact as against a bona fide holder for value of the bill” (10).

§ 133. Acceptor's admission of drawer's signature. A drawee, by accepting, admits the signature to the bill to be the genuine signature of the drawer and not a forgery. But, as the result of an arbitrary distinction, he does not admit that the body of the bill has not been altered between the time of drawing and accepting. Thus, if A forges B's signature as drawer to a bill drawn on C, inserting his own as payee, and negotiates the instrument to D, who pays value in good faith, and C accepts the bill in ignorance of the forgery, D may recover from C on his acceptance. But had B drawn a genuine bill on C payable to A, and had A altered it by raising the amount, for example; in such a case C's subsequent acceptance would not bind him, and D, the innocent purchaser, could not recover against him on his acceptance. In other words, the acceptor admits the genuineness of the signature but not the genuineness of the body of the bill. A striking illustration of this rule is the case of the National Park

(10) Heuertematte v. Morris, 101 N. Y. 63.