When the transfer is by delivery only, the warranty is a pure warranty of the common law; accordingly it is not negotiable, extending only to the holder's immediate transwarranty: not ferree.1 Qualified indorsement, like special or blank negotiable. indorsement, is of course negotiable, and hence the warranty passes to all subsequent holders in due course.

Nature of the

It has sometimes been considered, under the unwritten law, that there was a distinction, in regard to the warranty of genuSale and trans- ineness, between cases in which the instrument was fer for security. sold and cases in which it was transferred in payment of a debt due or then created or to secure a debt. In the former case it has been thought that the common law doctrine of caveat emptor should apply, and that the buyer should be treated as having bought at his own risk; the warranty being applicable only to the second case. But the distinction has been more generally considered as not well taken, and the warranty, as in the Statute, held to cover both cases.3

On the other hand there has been some disagreement upon the question whether the warranty should not extend to the solvency Warranty as of the parties primarily liable. Some courts hold to solvency. that it should, where the paper was worthless, though genuine, when passed, and the transferee took it without notice, though the seller was also ignorant of the fact; other courts deny any such warranty. The latter is probably the better doctrine; the Statute is silent on the subject.

1 N. I. L. § 72.

4

2 Baxter v. Duren, 29 Maine, 434, 440; Fisher v. Rieman, 12 Md. 497, reversing 4 Am. Law Reg. 433; Buddecke v. Alexander, 20 La. An. 563.

Hussey v. Sibley, 66 Maine, 192, 196, overruling Baxter v. Duren, supra. See Cabot Bank v. Morton, 4 Gray, 156; Merriam v. Wolcott, 3 Allen, 258; Bell v. Dagg, 60 N. Y. 528; Allen v. Clark, 49 Vt. 390; Bankhead v. Owen, 60 Ala. 457; Bell v. Cafferty, 21 Ind. 411; Thompson v. McCullough, 30 Mo. 224; Gurney v. Womersley, 4 El. & B. 133.

Bayard v. Shunk, 1 Watts & S. 92; Ware v. Street, 2 Head, 609; Edmund v. Digges, 1 Gratt. 359, and other cases.

5 Ontario Bank v. Lightbody, 13 Wend. 101; Fogg v. Sawyer, 9 N. H. 365; Frontier Bank v. Morse, 22 Maine, 88; Harley v. Thornton, 2 Hill (So. Car.), 509; Townsends v. Bank of Racine, 7 Wis. 185; Westfall v. Braley, 10

The warranty in question arises of course by implication of law, and is only presumptive except perhaps in the case of qualified indorsement. The transferrer by delivery The warranty may therefore show that as a matter of fact he re- only presumpfused to warrant,' or that the warranty was modified

tive.

in the negotiation, or that some other agreement was substituted for it. In the case of qualified indorsement it may be doubted whether any such evidence would be admissible unless it was reduced to writing.

The Statute also provides that a broker or other agent who negotiates an instrument without indorsement incurs all the liabilities of warranty, unless he discloses the Brokers and name of his principal and the fact that he is act- other agents. ing only as agent.2

Ohio St. 188; Magee v. Carmack, 13 Ill. 289; Timmins v. Gibbins, 18 Q. B. 72, and other cases.

1 Bell v. Dagg, 60 N. Y. 528. General refusal to answer for the instrument would however be consistent with an implied warranty of genuineness. Id. 2 N. I. L. § 76.

contract.

CHAPTER XIII.

ACCOMMODATOR'S CONTRACT.

§ 1. NATURE: CONSIDERATION: SURETYSHIP.

THE legal effect of each of the contracts dealt with in the foregoing chapters, except the last one, will be modified somewhat, if it appears that the defendant signed the Meaning of accommodation instrument without consideration for the accommodation of another party. The result is an accommodation contract, which may be described as a gift by A to B, of A's credit, to be offered to another on payment of value. contract of the kind may take any of the forms of the law merchant; a promissory note may be made or indorsed for accommodation; a bill of exchange may be drawn, accepted, or indorsed for accommodation; a cheque may be drawn or indorsed for accommodation. In a word, any party to the instrument may be an accommodation party.1

A contract of law merchant.

A

Accommodation contracts of the kind are contracts of the law merchant as much as are those which are supported by a valuable consideration at the outset. At the outset, we say, for though accommodation contracts are not so supported when first executed, a valuable consideration must spring up afterwards to make the contract binding; some one afterwards must have taken the paper for value in order to have a claim upon the accommodation party. For example (hypothet ical): The defendant accepts a bill of exchange for the accommodation of the drawer, and the drawer makes a gift of the bill

1 N. I. L. § 36: An accommodation party is one who has signed the instru ment as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person.'

to the payee and plaintiff. The defendant is not liable upon his acceptance.1

There is then nothing peculiar in the case so far. Nor is there anything peculiar in any other phase of the contract of an accommodation party under the law merchant Peculiarity of in its ordinary application. Whatever would be the contract. necessary to make a case against one who had signed originally for value is equally necessary to make a case against an accommodation party; and whatever would be effective against a party who signed for value will also be effective against an accommodation party after a consideration has sprung up. What is peculiar to the situation of such a party lies in the fact that he is in a certain sense only a surety for the party for whom he has given his credit. Whatever the outward form of the contract, even though the accommodation party made as such his promissory note, and the person for whose accommodation it was made is an indorser of it, or indeed is not a party to it at all, the accommodated party or person is, between the two, the principal debtor, and the accommodation party the surety."

The accommodation party is a surety, however, not always in the full sense, but often only sub modo. It appears to have been considered at one time that he was in all How far a cases a surety in the full ordinary sense; but the surety. authorities now consider that the suretyship may be essentially modified by the natural character of this particular contract made by the accommodation party. Thus, if a person has accepted a bill of exchange for the accommodation of the payee, a subsequent indorsee, though with notice, may still treat him as an acceptor, not merely in point of liability in the ordinary way of acceptance, but also in regard to the more special questions of suretyship, because he has taken a principal's position. That is to say, the acceptor is not a surety towards the holder, though the holder knows that he accepted for accommodation; he is a surety only between himself and the party for whose accommodation he accepted. Accordingly, he will not be discharged by acts of the holder, which would discharge him if he 1 N. I. L. § 36, as just cited.

2 Burton v. Slaughter, 26 Gratt. 914.

were an ordinary surety, or if he were an accommodation indorser; for an indorser is a surety for parties before him.'

A person may lend his name to another for value, as an 'accommodation' in a popular sense; but lending will not be accommodation in the sense of the law merchant unless it was a gratuity. If the lending was for value, the paper is ordinary business paper; as much as if there had been no 'accommodation' at all. Thus, persons may, for each other's aid, exchange their own promissory notes, each for instance taking a note payable to the order of the other, of the same amount; and the exchange made, each note becomes an instrument for value. The exchange has converted accommodation paper in proper sense into business paper, and the makers of each are now liable as principal debtors.

Distinguished

from other

cases of notice.

8

§ 2. TAKING WITH NOTICE.

There is another doctrine touching accommodation acceptance of significance, and that is, that though the undertaking is (originally) without consideration, it stands upon a footing radically different from other cases of contracts wanting consideration. If a man makes a promissory note, accepts a bill of exchange, or indorses paper, upon the supposition that there is a valuable consideration for his undertaking when there is not, or if there is a failure of the consideration, a person taking the paper with notice, though for value, cannot hold him (with an exception which need not be mentioned here); whereas if the party's undertaking was for accommodation, he would be liable, though the holder did take

7

1 See post, p. 259.

2 Peale v. Addicks, 174 Penn. St. 543; Peoria Manuf. Co. v. Huff, 45 Neb. ; N. I. L. § 36.

3 State Bank v. Smith, 155 N. Y. 185. See also Merchants' Bank v. CumSo where A mings, 149 N. Y. 360; Hapgood v. Wellington, 136 Mass. 217. lends his own note to B, and B gives to A his (B's) note for security, A holds B's note for value, and it is well held may sue upon it before being compelled to pay his own. Merchants' Bank v. Cummings, supra; Hapgood v. Wellington, supra; Russell v. La Roque, 11 Ala. 352. But see Osgood v. Osgood, 39 N. H. 209; Child v. Powder Works, 44 N. H. 354.