NEGOTIABLE INSTRUMENTS IN GENERAL 1. Introductory.—Bills, notes and checks are nego tiable instruments—that is, they are instruments or contracts, the legal right to which is transferable from one person to another by delivery of the instrument itself. A check, for instance, is transferable by de livery when it is payable to bearer; by indorsement and delivery, when it is payable to order. Bills, notes and checks are, as the case may be, unconditional promises or orders by one person to another to pay money, at a given or ascertainable time. They are then, not only a substitute for money, but evidences of indebtedness. Bonds are negotiable instruments. Bills of exchange, promissory notes, checks and bonds, are classed together as the typical negotiable instru ments.
Certain other instruments, tho often so called, are not, in the fullest sense, negotiable. Among these are bills of lading, dock warrants, warehouse receipts and certain certificates of stock. They are salable and can pass from hand to hand, and are thus quasi-nego tiable, but are not true negotiable instruments. They are documents of title.
Speaking of these quasi-negotiable instruments, the Honorable Mr. Justice Maclaren says: In England, warehouse receipts were not fully recognized as negotiable instruments, like bills of lading and other docu ments of title, until the Factors' Act, 1877. They are ne gotiable only in the lower or secondary sense of the term in that they may be transferred by indorsement and delivery, or by delivery alone, and may thereby vest in the transferee the rights of the transferor. They are not negotiable in the higher sense, like bills of exchange and promissory notes, which by indorsement or delivery before maturity may vest in the bona fide holder for value not only the rights of the transferer, but the right to claim the full amount for which the instrument is drawn. If the receipt is in favor of a certain person or his order, it must be indorsed by him ; if it is drawn in favor of the bearer or indorsed in blank, it is transferable by delivery alone. . . . The bill of lading is a very ancient document, and by the custom of merchants is negotiable, when made to bearer or order or to assigns.
2. a negotiable instrument is actually negotiated—i.e., transferred for value to a person without notice of any defect in it—the trans feree has an absolute right to collect from the persons liable upon the instrument as maker, indorser or ac ceptor. But if A has bought a horse from B and has contracted to pay B one hundred dollars, B can assign or transfer his claim against A to C. If C sues A, the latter can raise against him any defence that he might have raised against B—e.g., that he had been defrauded, that the money was to have been paid only after he had used the horse for a month, and so on.
In effect, C has no better rights against A than B. He has bought B's rights for what they are worth.
3. Presumptionof consideration.—A negotiable in strument, is always presumed to have been given or negotiated for value. And when value has, at any time, been given for a bill, the holder is deemed to be a holder for value, and entitled to collect as against any previous acceptor or any parties who became par ties to the bill before value was given. In the case of an ordinary contract, the debtor may show by way of defence that there was no valid consideration to sup port the contract upon which it is attempted to hold him. In other words, if A gives B the following— "On demand I promise to pay to B $25. A"—the debt so incurred by A is non-negotiable, because the words "or order" are not added after "to pay to B." B, if he sues A, must prove consideration received by A. But if A gives B a note—"Thirty days after date I promise to pay $25 to the order of B"—and B dis counts the note at a bank, or indorses it and hands it to C in payment of a shipment of goods, the bank or C, as the case may be, can collect from A. A can raise no defence. If B had held the note until after maturity and had then sued A, B would not have had to prove consideration received by A. The burden of alleging and proving lack of consideration would be on A.