Delivery essential to liability: es toppel to deny delivery. CHAPTER XVI. ABSOLUTE DEFENCES. § 1. DELIVERY: ESTOPPEL. We have elsewhere seen that the defendant's signature to the instrument does not of itself make him liable; he must have delivered the instrument. We have also seen that he may have done that by intention, by agency, or by negligence, and in no other way.1 But we have also seen that the defendant may have estopped himself to deny that he has delivered the instrument. may have done by words or acts; but only in favor of a holder in due course. This then is the place for considering that subject. arises. This he The most obvious case of an estoppel upon the defendant to deny delivery by himself would be where by statements made to How estoppel the plaintiff or to some prior holder of the instrument, ignorant of the facts, he had induced such person to purchase the paper as valid against himself. It would not be necessary for him to state, or in any way represent, that he had delivered the instrument; enough that he has represented that he is liable upon it, for that imports that he has delivered it. And if the representation be without qualification, the effect will be that the defendant will be estopped to say that the delivery was conditional, except as his contract itself may have been conditional. But conduct as well as statements may have the same effect. Possibly delivery by negligence, or by agency in violation of instructions, may be considered examples of esNegligence. toppel; but the better view, it seems, is to treat such cases as cases of true delivery and not as cases of estoppel, "Ante, p. 15. 1 Ante, pp. 13-15. which imports that, as a mere matter of fact, there may have been no delivery. Holding in necessary. No estoppel of the kind however, whether from words or acts, can arise except in favor of a holder in due course, that is, a bona fide holder for value, and without notice of the facts; unless the estoppel amounts to an under- due course taking like a warranty, not to contest liability at all towards any one. But whether the defendant knew the real state of things would no doubt be immaterial, if the representation was made to a holder in due course. The defendant would doubtless be bound to know the facts.2 It will not be enough to create an estoppel that the defendant has done or omitted something which has enabled another to put the instrument into circulation, as might be the Making theft case from merely executing and signing the instru- easy. ment, or writing an indorsement upon it. Thus it is laid down that where a negotiable instrument is stolen or fraudulently taken from the acceptor or maker, such party cannot be required to pay it to any holder whatever; and that too though the acceptor or maker may have made the theft or fraud easy by putting the paper in an unlocked drawer in a desk to which clerks and servants and others had access. For example: The plaintiff is bona fide holder for value of a promissory note signed by the defendant, and now sued upon. A third person fraudulently obtains it from the defendant upon the false representation that he is taking something else, and puts it into circulation. The defendant is not liable; there has been no delivery by him or by any act attributable to him, nor is the defendant estopped to say so.1 The doctrine of estoppel should never, it is well laid down, be 1 As to ignorance of the facts by the person to whom the representation is made see Bigelow, Estoppel, 626-628, 5th ed. 2 See id. 609-626. Baxendale v. Bennett, 3 Q. B. Div. 525. * See Burson v. Huntington, 21 Mich. 415; Cases, 227; Gibbs v. Linabury, 22 Mich. 479; Chapman v. Rose, 56 N. Y. 137; Kellogg v. Steiner, 29 Wis. 626; Corby v. Weddle, 57 Mo. 452; 1 Bigelow, Fraud, 618, 619. But gee N. I. L. § 23, where a doubt has been created. 1 invoked without necessity. It should be applied only in cases where the person against whom it is set up has so conducted himself, in what he has done or omitted, that, unless estopped, he would be doing something contrary to his former conduct, in what he then did or omitted. That principle does not apply to a case of theft or the like, even though the party stolen from was negligent; for theft is not the natural consequence of negligence, though the negligence make it possible; 1 unless perhaps the theft were by one's servant whom one knew or had reason to suppose dishonest.2 Nor in any case of negligence, even without theft or other criminal or fraudulent act, does estoppel apply unless the negligence was in or in immediate connection with putting the paper into circulation; the negligence must have been the cause, the proximate, legal cause, of what happened.* For example: The defendant executes a promissory note payable to the order of A, and leaves the same on his table before A and B, while he (the defendant) goes out of an errand, saying to A that he must not take the note. In violation of this prohibition and indorses it to the plaintiff A takes the note, carries it off, for value and without notice. The defendant is not liable; he is not estopped to deny delivery of the note.5 'One of two innocent persons.' The statement then sometimes found even in books of the law merchant, that whenever one of two innocent persons must suffer by the act of a third person, he who has enabled such third person to bring about the loss must bear the loss, is too broad, as will more fully be seen further on. The statement indeed, like many another started when judges were feeling after the law, if 1 Baxendale v. Bennett, supra, Bramwell, L. J. 6 2 Even then there would be no liability where the dishonest servant forged his employer's signature, though the employer might by due care have known that he was dishonest. Shepard Lumber Co. v. Eldridge, 171 Mass. 516. See post, p. 220. p. 15. See Arnold v. Cheque Bank, 1 C. P. D. 578, and other cases ante, See Bank of England v. Vagliano, 1891, A. C. 107, 135, and other cases ante, p. 15. 6 Burson v. Huntington, supra. But qu. if defendant was negligent? See Arnold v. Cheque Bank, supra. haply they might find it,' is a dangerous one, so much so that the danger fairly overbalances its usefulness. § 2. WANT OF CONTRACT: FRAUD IN ESSE CONTRActus. Fraud in esse contractus, as we use the term, is fraud by which legal agreement itself in the supposed contract was prevented. The case is to be distinguished sharply This kind of from fraud in its more common form of misrep- fraud distinguished. resentation of facts touching the inducement or desirability of the contract, or the fraud of an agent in wrongfully filling up and delivering a blank instrument signed by his principal. That sort of fraud does not prevent contract; it only makes a case in which it is or may be probable that there would have been no such contract as took place, had the state of things been known by the defendant, or had the instrument been under his control at the moment. Fraud of that kind creates an equity only, not an absolute defence. of contract. Fraud in esse contractus may be committed in any of the various contracts with which we are concerned, and in a variety of ways; enough that assent to the particu- Misrepresentalar alleged contract was never given. One of the tion of nature forms which fraud of the kind assumes is misrepresentation (not of facts of inducement, but) of the very kind of contract which the party is induced to sign, or by the substitution, unperceived or misunderstood by such party, of the paper he intended to sign for another which he did not intend to sign. For example: The plaintiff is bona fide holder for value of a bill of exchange, upon which there is an indorsement in the handwriting of the defendant, upon which indorsement the suit is brought. The defendant, a man advanced in years, is induced to write his name upon the back of the bill by the fraud of the acceptor in telling the defendant that the contract he is signing is a guaranty; only the back of the paper being shown. The defendant had previously signed a guaranty at the request of the same person, for the same purpose and 1 See Willard v. Nelson, 35 Neb. 651; s. c. 37 Am. St. Rep. 455 and note. amount, and he is now led to suppose that he is signing a similar guaranty to the former one (out of which no liability resulted). There has been no negligence by the defendant. The plaintiff is not entitled to recover, the defendant having been deceived, not in respect of the legal effect, but of the actual contents of the instruments.1 'One of two innocent persons.' That shows again that the statement that whenever one of two innocent persons must suffer by the act of a third person, he who has enabled such third person to bring about the loss must bear the loss, can only be accepted with important qualifications. The proposition is too broad even in cases of negligence, as was seen in speaking of delivery; and in the example last given there was not even negligence. The burden of the loss cannot be shifted over to the shoulders of one who never contracted, though his act or conduct may have been the occasion, assuming that it was not the cause, of the loss. § 3. WANT OF CONTRACT: ALTERATION: FORgery of Another case of want of contract arises where there has been a material, unauthorized alteration of the instrument to which the defendant gave his signature. The authorities on the unwritten law in general declare that to alter materially the terms, written or printed, of a negotiable note, bill, or cheque, after the defendant's signature was written to it, is to destroy its validity against him, even in the hands of a holder in due course, so that no action can be maintained upon it even in its original form. The reason is plain. The altered instrument 1 Foster v. Mackinnon, L. R. 4 C. P. 704; Cases, 237. Compare certain statutory cases of tricks or devices by which men have been induced by trav elling agents for patent-rights and other things to sign promissory notes. Champion v. Ulmer, 70 Ill. 320. See Gibbs v. Linabury, 22 Mich. 479. 2 If that statement were true, a man might be held as maker of a promis sory note who had merely written his name upon a blank sheet of paper which another had afterwards fraudulently filled out as a promise to pay money. Of course no liability towards any one could be created in such a case. See Cline v. Guthrie, 42 Ind 227; Caulkins v. Whisler, 29 Iowa, 495. |