SUPPLEMENTARY NOTE.

BY JAMES BARR AMES.

Two recent decisions suggest the need of amending two sections of the Negotiable Instruments Law, not considered in the preceding articles reprinted from the "Harvard Law Review."

In Tolman v. American Bank,' one Louis Potter, representing himself to be Ernest Haskell, induced Tolman to give him his check upon the American Bank, payable to Haskell. Potter indorsed this check in Haskell's name, and the indorsee collected it from the drawee bank. The bank, it was decided by the Supreme Court of Rhode Island, could not debit Tolman, the drawer, with this payment, but must bear the loss due to Potter's fraudulent impersonation. The Court based this decision upon common law principles and also upon Section 23 of the new Code. The decision is a surprising one in either aspect. Not one of the common law cases cited in its support is in point. On the other hand, all the reported cases on the point of fraudulent impersonation are against the decision. As a statutory question, but for this decision, the liability of the drawer would seem clear under the last clause of the section. He expected that the physical person before him, to whom he delivered the check, would indorse it, as he did. Is he not, therefore, by his conduct, "precluded from setting up forgery or want of authority"? But the opinion was delivered by the learned Chief Justice Stiness, one of the most influential of the Commissioners who framed the Negotiable Instruments Law. It is difficult to believe that the courts which decided the cases opposed to Tolman v. American Bank will agree with the view of the Rhode Island Court, that those cases are nullified by Section 23 of the new Code. But this section, in the light of the only judicial interpretation it has received, unless amended, must be a source of mischievous uncertainty.

In Jeffrey v. Rosenfeld, a note secured by a mortgage was altered, but by whom did not appear. It is a long-established doctrine in

1 48 Atl. R. 480.

2 U. S. v. Nat. Bank, 45 Fed. R. 163; Meridian Bank v. First Bank, 7 Ind. App. 322; Meyer v. Indiana Bank (Ind. App. 1901), 61 N. E. Rep. 596; Maloney v. Clark, 6 Kan. 82; Emporia Bank v. Shotwell, 35 Kan. 360; Robertson v. Coleman, 141 Mass. 231; First Bank v. American Bank, 49 N. Y. App. Div. 349; Merch. Bank v. Metropolitan Bank, 7 Daly, 137; Elliot v. Smitherman, 2 Dev. & B. 338; Forbes v. Espy, 21 Oh. St. 474; Land Co. v. N. W. Bank, 196 Pa. 230. See also Hoge v. First Bank, 18 Ind. App. 501; Metzger v. Franklin Bank, 119 Ind. 359.

If those decisions are nullified by the new Code, the similar decisions in regard to the sale of chattels (Edmunds v. Merch. Co., 135 Mass. 283) remain intact. This certainly would be a singular antinomy. 4 61 N. E. R. 49.

England that a material alteration of a note, though made by a stranger, avoids it. This doctrine is perpetuated in Section 64 (1) of the English Bills of Exchange Act. In this country the English rule was not followed. The holder's rights were not impaired by an alteration by a stranger. But Section 124 of the Negotiable Instruments Law relating to "alteration" is almost a verbatim copy of the English act. We are then in this dilemma, — either the English and American sections, although expressed in the same terms, must be interpreted differently, or else the American law is changed, and, as it seems to the writer, for the worse. To avoid the second horn of the dilemma involves a great straining, not to say perversion, of simple English words. The Supreme Court of Massachusetts found it possible to sustain the holder's right to foreclose his mortgage without interpreting this section of the new Code, but remarked that the question of its interpretation was one that deserved serious consideration. There seems to be no good reason why, for the sake of uniformity, a state which has not yet adopted the Negotiable Instruments Law should deliberately introduce the difficulties sure to arise from this section and Section 23. JAMES BARR AMES.

REPLY TO SUPPLEMENTARY NOTE.

BY LYMAN DENISON BREWSTER.

TOLMAN V. American Bank. The exact point in Tolman v. Bank was simply this: Was it "precluding" negligence for Tolman to trust the stranger Potter with no further inquiry than that stated in the opinion? On this precise point as to a "stranger payee" there are but two exact precedents. The first is Nat'l Bank v. Nolting.2 This case holds the bank liable, saying "to hold that giving a check to a stranger . . . was sufficient . . . evidence to excuse the bank ... would be to relieve the bank from a just responsibility." The second case is Smith v. Mech. Bank. This case by a divided court held the bank not liable. The theory of the Dean as to the drawer's expectation that the "physical person before him" would indorse the note had already been shown to be a fallacy. The real intent is that the payee named shall be the actual payee.

...

1 5 Am. & Eng. Enc. of Law, 2d ed., 1066.

2 94 Va. 263; 26 S. E. 326.

86 La. Ann. 610.

The robust com

4 See criticism on this case, 2 Morse on Banking, 2d ed., sec. 474.

5 Note in 50 L. R. A., to Land Co. v. Bank, 83; article on "Loss by Check de

livered to Impostor," Case & Comment, vol. 7, No. 7, Dec. 1900, page 75.

mon sense of Judge Stiness's opinion on this "intention" point ought to make further discussion thereon needless. And this, too, whatever question there may be as to the correctness of his conclusion in regard to the common law precedents on the general question of fraudulent impersonation. As the Louisiana and Virginia cases above cited put their decisions on the facts attending the giving the checks to a stranger, the question of negligence in such cases would seem to be considered by the courts largely a question of fact. Such being evidently the rule, one would say it was hardly within the province of a short code to provide in detail as to what particular acts of negligence should preclude the drawer from setting up forgery" or "want of authority" as to a signature, or any negligence by which the fraud was facilitated by his own action. As both the Judge and the Dean agree that the Code does not change the true common law, whatever that may be, the Code on this matter would seem to be about right after all, and to specialize as much as the nature of the case permits.

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Jeffrey v. Rosenfeld. Section 124 changes both the English and the American law in both clauses, since the second clause affects the first fundamentally. Mr. Tiffany, in his new edition of Norton,1 says of section 124 that under the second clause alteration has ceased to be a defense." Perhaps he should have said "practically ceased to be a defense." Why then is the old rule of the common law in England as to the note itself not the debt-regarding alterations by a stranger as now modified by clause 2 not the best rule between the parties themselves? It makes the law of the two countries uniform on this important point, and like the Statute of Frauds preserves the benefit of written evidence. The Dean gives no reason to the contrary. Such was Mr. Crawford's view as given to the Conference in 1896 and approved by it. That is, he held with the Dean contrary to the dictum intimated by Judge Morton, that the American rule was so far changed by the Code. As the Dean says, to hold otherwise would indeed "be a perversion of simple English words." As this appears to be the first case so far in which any judge has suggested any ambiguity in the Code, and this in an obiter dictum, and Dean Ames says there is no ambiguity, the Code seems to have fared well on that score. It seems to me, therefore, the critic has shown no sufficient reasons why either section 23 or section 124 should be changed.

I beg to add in regard to the exceedingly few decisions on the Negotiable Instruments Act two cases well worthy of the attention of any student of the subject, Wirt v. Stabblefield 2 and Andrews v. Robertson. As I read them, both hold to the construction hitherto

insisted on in the articles previous to this. That method of interpretation of itself practically disposes of all the serious questions raised by the critic.

Nevertheless, lest the " shadow of a great name" should cause any legislature to delay the adoption of the Negotiable Instruments Law, I venture to add that since the four previous articles have appeared and after a very careful study of them the judiciary committee of the Pennsylvania legislature thought it inadvisable to change a word of the act, and the legislature passed the law without any change whatever after a very thorough discussion of all the points raised by Dean Ames, including the case of Jeffrey v. Rosenfeld.

The same conclusion was arrived at by the American Bankers' Association. Judge Chalmers, author of the English act, after going over the whole discussion, while highly extolling the infinite ingenuity of the critic, regarded none of his serious contentions tenable. As to its practical reception wherever adopted, Mr. Trácy, chairman of the Committee on Uniform Laws of the American Bankers' Association, says: "The Negotiable Instruments Law has worked satisfactorily to all classes of business men."

LYMAN DENISON BREWSTER.

THE NEGOTIABLE INSTRUMENTS LAW.1

A REVIEW OF THE AMES-BREWSTER CONTROVERSY.

BY CHARLES L. MCKEEHAN.

THE Negotiable Instruments Law has now been adopted by twenty states 2 as well as for the District of Columbia, and there is little doubt that in a very few years, at the longest, it will be the law throughout this country. Aside from the importance of the subject with which it deals, the act claims a peculiar interest as being the first important step taken in this country towards codifying any branch of the law. In 1878 Judge Chalmers published his digest of the law relating to bills of exchange, in the preparation of which he read through all the English cases (some twenty-five hundred in number) beginning with the first reported case in 1603. Where there was a dearth of English authority, he states that he had recourse to the American decisions and to the usages among bankers and merchants. Two years after the publication of the digest, the Institute of Bankers and the Associated Chambers of Commerce instructed him to prepare a bill on the subject. This he did, his aim being, to use his own words, " to reproduce, as exactly as possible, the existing law, whether it seemed good, bad, or indifferent in its effects." The bill was introduced into Parliament in 1881, and after a few amendments had been made by the Select Committee of merchants, bankers, and lawyers, to which it was referred by the House of Commons, and by the Select Committee headed by Lord Bramwell, to which it was referred by the House of Lords, it passed both houses without opposition. It is worth noticing that amendments were inserted only when the Committee was unanimous in their favor, no amendments being pressed on which there was a difference of opinion. Practically, the English bill was an enactment into law of Judge Chalmers' digest. For the most part the propositions of the act were taken word for word from the propositions of the digest, and excepting a few amendments which

1 Reprinted by permission from 41 American Law Register, N. S. 437, 499, 561, with a few changes and additions subsequently made by Mr. McKeehan.

2 Arizona, Connecticut, Colorado, Florida, Iowa, Maryland, Massachusetts, New Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Virginia, Washington, and Wisconsin. (See supra, p. iii, for other states which have since adopted the law.)