LAW OF BILLS, NOTES, AND CHEQUES.

CHAPTER I.

INTRODUCTION.

§ 1. CUSTOM OF MERCHANTS: COMMON LAW.

It is common to say that the law of bills of exchange, promissory notes, and cheques is derived from the custom of merchants. Rightly understood, that is true; it is not quite true in a sense in which the statement might naturally be taken by a person not familiar with the subject. Not all of the law of bills and notes - to use, for the sake of convenience, the shorter and familiar designation is derived from the custom of merchants; not even the greater part of it, in point of bulk, is derived directly from that custom. Indirectly, most of the law of the subject finds there its source; for it has mainly grown out of elements supplied by the custom of merchants. But the development of the subject has taken the ordinary course in English jurisprudence; it has in the main followed lines of judicial reasoning; the courts have declared the law of the subject, in its growth out of the original material supplied by the custom of merchants, as matter of reasoning, without inquiring of the custom.

It is important rightly to apprehend the meaning of the statement referred to; only what may be called the elements of the law of bills and notes are drawn from the

very life of the custom of merchants. In other words, only that which is peculiar to the subject, peculiar not as a special manifestation of fact to which ordinary rules of law might well apply, but peculiar in matter of law, is derived from that custom. What then is peculiar to the subject? That is, excluding growth and mere manifestations of fact, what is essentially peculiar to it, what are its elements?

Before answering that question it will be well to recall the state of things existing in England during, let us say, the later period of the Hanseatic League. London and the other commercial towns of England were full of foreign merchants engaged there in trade. These foreigners not only trained the fine hand of England to its cunning in commerce, but what is more to the present purpose, they brought with them the usages of business on the continent whence they had come. The custom of

merchants was a foreign importation into England. That is sufficient to explain its unlikeness to the great domestic product, the common law.

What these foreign merchants brought to England in the way of peculiar usage, so far as the present subject is concerned, was negotiability and grace; they brought bills of exchange, and with those instruments, as part and parcel of them, the property of circulation and a short extension of time in ease of the payor.

Negotiability is the property by which certain choses in action, that is, undertakings to pay, pass from hand to hand like money. The common law knew nothing of that; or rather the common law repudiated entirely the notion that a promise by A to B could be treated as a promise extending also to C. The utmost which the law allowed was assignment; and that only after long debate and serious misgiving. Assignment merely works the appointment of another as beneficiary of the assignor's

rights; the assignee 'takes the shoes' of the assignor. That would never have served the purpose of circulating paper; that purpose required a denial of the maxim Nemo dat quod non habet. The new taker of a bill of exchange must have a perfect right, if his purchase of it was in due course, a right in no way to be affected by the rights of him from whom he bought it.

Something much like negotiability, touching property, the common law learned long ago from equity.

Purchase

of land or goods for value, and without notice, cuts off equities; that is a cardinal rule of law, and always has been in courts of equity.1 But it has never been applicable to undertakings to pay, in the case of common law contracts; applied to undertakings to pay, as purchase for value, without notice, often is, the principle has reference to bills, notes, and cheques only.

The notion of grace was even more repugnant to the common law of England, for there was nothing like it. Contracts were to be performed on the day named; no indulgence was allowed without the consent of the promisee. Indeed grace, as the term itself indicates, was at first indulgence by consent of the promisee, even in the matter of bills and notes; but the practice after a time hardened into requirement, the judges ceasing by degrees to inquire of the custom, and applying it to the contract as law.

The merchants had a long struggle before they succeeded in getting their custom recognized by law. Great judges pointed out the antagonism of the custom to most fundamental and cherished conceptions of the law of England. The urgency of commerce however prevailed, though only step by step. First foreign bills of exchange, as they were and are called, were by a clever fiction in pleading admitted to a place in the common law; a fiction by which 1 'Market overt' may also be noticed.

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it was made to seem that the custom after all was nothing less than a sister of the common law, bearing under a strange garb the family likeness. Then the door having been opened, inland bills were after a season and much debate similarly admitted. The door was now closed, though once and again some judge appears to have opened it stealthily to let in a wandering promissory note. But the fear of promissory notes was so great, the danger that the common law would be eaten away was SO threatening, that the courts on the whole, led by their greatest judge, Lord Holt, successfully resisted the pressure from without. Parliament was finally called in aid, and responded. Promissory notes were admitted into the law on an equality with bills of exchange by the Statute of 3 & 4 Anne, c. 9.

If the custom of merchants brought something new to the law of England, it received at the same time something new from that law. The common law doctrine of consideration is indigenous to English soil; the custom of merchants knew nothing of it before the custom was admitted into the jurisprudence of England. A common law principle was now added to a foreign product; and while neither the common law nor what must now be called the law merchant has undergone any essential change in the contact of each with the other, certain minor modifications of each, in the mingling of the two, have taken place. This is more manifest in those cases, to be considered later, in which some contract of the common law, such as a contract of suretyship, has been annexed to one of our contracts of the law merchant. But the same is true in regard to the common law doctrine of consideration.

That doctrine was imposed upon an unwilling custom; but it was not imposed in the usual way, for the force of 1 See Rastell's Entries, 338 (A. D. 1595); Dunlop v. Silver, 1 Cranch, 367.

the custom was granted expression in part. In a suit upon any simple written contract of the common law it is incumbent upon the plaintiff to give some express evidence of consideration; production of the writing is no evidence upon the point, unless the language of it shows consideration. In the case of a suit upon a bill, note, or cheque however, while it is still necessary that the plaintiff should prove consideration, he proves it, prima facie, by producing the paper in evidence. The promise to pay is presumed to have been based upon consideration. So far the old law appears to have made concession to the custom, which treated the paper as the sufficient evidence, presumptively, of the liability of the promisor.

§ 2. CHARACTERISTICS OF BILLS, NOTES, AND CHEQUES.

These then are the characteristics of paper of the law merchant, or bills, notes, and cheques: namely, negotiability (with its incidents), grace, and presumptive consideration. These are the ordinary characteristics of such paper; negotiability is not necessary; that is, it is not necessary to a bill or note, in order to give the paper grace and to bring it within the favoring rule concerning consideration, that the instrument should be negotiable. Nor is grace necessary; that is, it is not necessary to a bill or note, in order to give it negotiability, that it should be entitled to grace. Cheques too are commonly negotiable, though not entitled to grace. But there is some conflict of authority whether an unnegotiable note and the doubt would in principle apply as well to a similar bill or cheque carries the presumption of consideration; though the words 'value received,' or the like, commonly used, would be enough, prima facie, to meet the requirement of the law.