not that, besides false representations of the kind, the paper has passed for value and without notice into the hands of an indorsee. In some States a contrary rule obtains with regard to unauthorized contracts made by a partner in trade in the name of his partnership.1

Capacity to transfer distinguished.

It does not follow in law, however, from the fact that incapacity is a defence to an action upon the party's supposed contract, that he may not have capacity, when a holder, to transfer the paper to another. In regard to the power of transferring ownership of the instrument, some authorities appear to distinguish between mental or natural incapacity, and incapacity created by or due to some regulation of law merely, that is, legal incapacity. According to such authorities, if the party's incapacity is due to mental defect, he cannot, of his own will and act, transfer the title to the paper which he owns.2 Other authorities hold that transfer in such a case would be voidable only, not void, and hence would be good in favor of a holder for value without notice of the incapacity, at least until repudiated by the lawful guardian of the party. If the incapacity, aside from that of a married woman at common law, is merely legal, as in the case of an infant possessed of full mental capacity, or of a corporation, the title clearly may be passed by him in favor of any subsequent holder against other parties than the infant or corporation; and that too whether the transfer is by indorsement or not.*

1 See the cases cited in Farmers' Bank v. Butchers' Bank, 16 N. Y. 125, 135; Smith v. Weston, 159 N. Y. 194; American Co. v. Bourn, 29 S. E. 182; s. c. 69 Am. Dec. 678. But see Worster v. Forbush, 171 Mass. 423, not a trade partnership.

2 Rogers v. Blackwell, 49 Mich. 192; Hosler v. Beard, 54 Ohio St. 398; s. c. 35 L. R. A. 161 and note; Moore v. Hershey, 90 Penn. St. 196; Wirebach v. Bank, 97 Penn. St. 543. It is admitted in Hosler v. Beard that the contrary would be true by the weight of authority if the instrument were given for necessaries, or where it was obtained in ignorance of the party's incapacity (insanity) and for full consideration received by him. Mathiessen v. McMahon, 38 N. J. 536; Young v. Stevens, 48 N. H. 133.

3 Hosler v. Beard, supra; Carrier v. Sears, 4 Allen, 336, explaining Peaslee v. Robbins, 3 Met. 164, seemingly contra; Burke v. Allen, 29 N. II. 106; Ashcroft v. De Armond, 44 Iowa, 229; Riggan v. Green, 80 N. C. 236.

4 N. I. L. § 29; Burke v. Allen, 29 N. H. 106. But see Hosler v. Beard,

A few words further should be said concerning corporations in this connection. A corporation created by statute has, by reason of its creation by statute, such powers only Corporations. as the statute directly or by plain inference confers upon it, in other words, only the powers conferred and their incidents. A corporation, as such, has no inherent power to bind itself generally by making, accepting, drawing, or indorsing paper of the law merchant even in favor of a bona fide holder for value; power so to bind itself must be given to it by the legislature, either directly or by plain inference. But in so far as the corporation has power to make a particular contract, it has power incidentally, that is, by plain inference, to make, accept, draw, or indorse in respect of such contract. For example: A company is incorporated to construct a railway. The directors are empowered to do whatever they may consider incidental or conducive to the object. In furtherance of that object they accept a bill drawn upon them. The acceptance is binding.* Again: The same corporation accepts a bill drawn upon it in favor of the objects of another railway-construction company. The acceptance is not binding.*

A corporation then may have power to make one kind of contract, and not have power to make a contract of another kind; and the result is, that accepting, making, or indorsing paper of the law merchant in the latter sort of case is not binding even in favor of a holder in due course. Nor, by the better view, will the case be affected by the circumstance that the corporation may have made false representations of its powers. But

supra. That assumes of course that the party owns the paper (or has authority of the owner to transfer). At common law a married woman could not transfer paper made or indorsed to her when single; but the reason was, not because she was incompetent to contract, which is another thing, but because the paper, after her marriage, was no longer hers.

1 Mott v. Hicks, 1 Cowen, 513; In re Peruvian Ry. Co., L. R. 2 Ch. 617.

2 In re Peruvian Ry. Co., supra; Came v. Brigham, 39 Maine, 35; Curtis v. Leavitt, 15 N. Y. 9.

8 In re Peruvian Ry. Co., L. R. 2 Ch. 617.

Smead v. Indianapolis Co., 11 Ind. 104. Qu. whether overruled by Madison R. Co. v. Norwich Society, 24 Ind. 457, 461.

Northern Bank v. Porter, 110 U. S. 608.

if, instead of being wholly without power to make the contract, it had power to make it, though not in the way or by the means employed, or if it had power to make contracts which ordinarily would include the one in question,1 the corporation will be liable to holders in due course.2 It should further be observed, as was said above of other cases, that the incapacity of a corporation to contract in the particular case does not imply incapacity to transfer title."

common law invalidity dis

§ 7. ILLEGALITY: INSTRUMENTS VOID BY STATUTE. Illegality is not necessarily an absolute defence; in most cases it is only an equity. And that may be true though the courts go so far as to say in a particular case that Statute and the contract is absolutely void for illegality, unless the statement is made upon authority of statute. tinguished. If statute in terms declare a contract void without qualification, it cannot be enforceable even under the law merchant; whereas if a contract is declared void by the common law, or by construction of some statute which does not plainly declare it void, it will not necessarily be void in the law merchant. In other words, a contract which, by loose construction of statutes or under the operation of the common law, or between immediate parties under the operation of the law merchant, may be called void or even 'absolutely void,' a term sometimes used, but with doubtful fitness, is not necessarily void when it takes the form of negotiable paper, and is found in the hands of a bona fide holder for value.

The difference between what we have called loose construction, and plain language of statute, may be shown by comparing the case of a promissory note made on Sunday, with that of a promissory note made under a statute like an old one in Massachusetts which declared that notes under $5.00 should be entirely in writing, otherwise they were to be 'utterly void;' or

1 American Bank v. Gluck, 68 Minn. 129.

2 N. I. L. § 29. See upon this whole subject, Bigelow, Estoppel, 464469, 5th ed.

8 Brown v. Donnell, 49 Maine, 427.

under the old usury statutes. The statutes in regard to Sunday observance do not declare that contracts made on Sunday shall be void, nor do they use language which necessarily or naturally bears such a meaning; it is only by loose language that Sunday contracts have been declared to be 'void' or 'absolutely void.' ' Now, no action could be maintained under the old statute in regard to notes under $5.00, or under any other statute using the like plain language, not even a bona fide holder for value could maintain an action; whereas the contrary would be true of such a holder of a note made on Sunday. The statute in the one case creates a legal defence, in the other an equity. For example: The plaintiff is bona fide holder for value, and the defendant maker, of a large number of promissory notes sued upon, each under $5.00, and each bearing the impression of printing, and issued after April 1, 1805, though bearing an earlier date. They are antedated with a view to avoid a statute which declares notes of the kind, made or issued after said date, to be 'utterly void.' The plaintiff cannot recover.2 Again: The plaintiff is holder for value bona fide, and the defendant is maker of a promissory note sued upon, made and payable in the State of New York upon a usurious consideration; the statutes of that State declaring contracts made upon usurious consideration to be void, without qualification. The plaintiff cannot recover.' Again (under Sunday laws): The plaintiff is a bona fide holder for value, and the defendant is maker of a promissory note sued upon, which note was made, dated, and delivered Sept. 4, 1892, which day was Sunday, and payable four months after date. The plaintiff discounted the note in the month of December following. He is entitled to recover."

Sometimes statutes which declare that contracts made in violation of them shall be void, make an exception in favor of bona

1 Between the parties the contract may properly be said to be absolutely void where it is incapable of being ratified or otherwise made good.

2 Bayley v. Taber, 5 Mass. 286; Cases, 286.

3 See Holmes v. Williams, 10 Paige, 326; Mordecai v. Dawkins, 9 Rich. 262; Towne v. Rice, 122 Mass. 67, 71.

See State Bank v. Thompson, 42 N. H. 369. And compare Horton v. Buffinton, 105 Mass. 399.

fide holders for value of negotiable instruments so made, as in the case of a prohibitory liquor law which declares paper made in violation of its provisions utterly null and void against all persons, and in all cases, excepting only as against the holders

who may have paid therefor a fair price . . . without notice or knowledge of such illegal consideration.' In such a case, again, the illegality becomes an equity, and by force of the statute itself the bona fide holder for value is entitled to recover payment of the paper.1

$8. STATUTES OF LIMITATION.

These statutes make an absolute defence. Holders do not necessarily have notice whether the period of limitation has run out or not. The instrument may not be dated, or, Not a mere what is usual, an indorsement may not be dated; equity.

but the real date of the act, or rather of the delivery following it, may be shown, where there is nothing, such as subsequent payments of interest,2 or instalments, to prevent the running of the statute from that time.

1 Paton v. Coit, 5 Mich. 505.

2 Topeka Company v. Merriam, 60 Kans. 397.

Payment by the maker of an indorsed note will not stop the running of e statute in favor of the indorser. Maddox v. Duncan, 143 Mo. 613.