^{page 7 note 1} See Introductory remarks in 3rd ed. of Chalmers', Bills of Exchange, reproduced in the 13th ed. (1964) p. xli.Google Scholar

^{page 7 note 2} Martin v. Boure (1602) Cro. Jac. 6 is generally regarded as the first case decided by the common law courts in England concerning bills of exchange: see Holden, , History of Negotiable Instruments in England (1955) 30Google Scholar.

^{page 7 note 3} See Blackburn's, Lord speech in McLean v. Clydesdale Bank (1883) 9 App. Cas. 95, 105Google Scholar and the judgment of Story, J. in Swift v. Tyson (1842) 16 Pet.Google Scholar (U.S.) 1, 10 L. Ed. 865. Chalmers, rightly remarks that liability on a bill is “the most cosmopolitan of all contracts”: Bills of Exchange 3rd ed. (1887) p. xi.Google Scholar

^{page 7 note 4} Especially the Frenchman Pothier (see Best C.J. in Cox v. Troy 5 B. & Aid. 481) and the American Story.

^{page 7 note 5} Bills of Exchange Act, 1882, 45 and 46 Vict., c. 61.

^{page 7 note 6} Expressions appearing in the English Act are sometimes copied although unknown in the copying legal system. See “Defects of title” appearing in sec. 29 and other sections of the English Act. The more familiar expression is “equity attaching to the bill”, but as the latter expression is unknown in Scottish law the English legislator added the former. For the same reason sec. 29 (2) refers to “force and fear” equivalent to the common term “duress”—See Chalmers, , Bills of Exchange 13th ed. (1964) 98, 122Google Scholar. A legislature may sometimes copy a provision intended to negative liability which is not recognized by the law of the borrowing country and which is therefore unnecessary. This was the case of sec. 80 of the South African Act, copied from sec. 82 of the English Act, which provides for relief from a claim in tort made against a bank collecting a crossed cheque; South African law does not impose any tortious liability in such cases: Yorkshire Insurance Co. Ltd. v. Standard Bank, 1928, W.L.D. 251. This anomaly was corrected only in 1943; see Cowen, , The Law of Negotiable Instruments in South Africa 4th ed. (1966) 434Google Scholar.

^{page 8 note 7} Some of these changes are of great importance. For example, the Canadian legislature has not adopted the provisions of sec. 60 of the English Bills of Exchange Act, dealing with the payment in due course of a cheque bearing a forged indorse ment. Secs. 49 and 50 of the Canadian Act provide different rules instead: See n. 34 in Section F, below. Sec. 56 of the English Act, dealing with the “quasi indorser” was altered in Canada, in sec. 131, an alteration which resulted in differ ences in adjudication. For a list of other changes see Falconbridge, , Banking and Bills of Exchange 6th ed. (1956) 403–05Google Scholar. In Israel, sec. 60 of the English Act was adopted, but its application was extended to any person paying a bill: sec. 23(b) of the Bills of Exchange Ordinance. Israel law recognizes in addition to sec. 56 of the English Act, the guarantee pour aval: sec. 57 of the Ordinance. Sec. 60 of the English Act was adopted by sec. 58 of the South African Act, but its application was curtailed. The English rules as to consideration were modified in South Africa by the substitution of cause for consideration in connection with the creation of an obligation on a bill: sec. 25 of the South African Act. On the question of consideration see also (1967) 2 Is.L.R. 499–514.

^{page 8 note 8} In addition to the countries set out in nn. 9—15 below, mention should be made of Hong Kong (1885), British Guiana (1891), Bahamas (1892), the Gold Coast (1894), Southern Rhodesia (1895), Pahang (1899), Gibraltar (1907) and others. The Indian Bills of Exchange Act was enacted in 1881 and, although also based on common law, it differs in wording from the English Act which was passed a year later. See e.g. the payee as holder in due course, in n. 35 in Section E, below. It will be remembered, of course, that most of the countries in which the English Bills of Exchange Act was adopted were not at the time independent.

^{page 8 note 9} Bills of Exchange Act, 1890, R.S., c. 16, s. 1. For a commentary on the Canadian law, see Falconbridge, op. cit.

^{page 8 note 10} Bills of Exchange Act, 1909–1958, No. 27 of 1909. For a commentary on the Australian law, see Riley, , Bills of Exchange 2nd ed. (1964)Google Scholar.

^{page 8 note 11} Bills of Exchange Act, 1908, No. 15. For a commentary on the New Zealand Law, see Dickinson, , Bills of Exchange, Cheques and Promissory Notes in Australia and New Zealand, 1948Google Scholar.

^{page 8 note 12} Bills of Exchange Act, No. 34 of 1964. For a commentary on the South African law, see Cowen op. cit.

^{page 8 note 13} Bills of Exchange Ordinance, Ch. 68, 1938.

^{page 8 note 14} Bills of Exchange, Cap. 181, p. 1273, Laws of Cyprus.

^{page 8 note 15} Bills of Exchange Ordinance. The authoritative text is now the New Version in Hebrew, 1957 (Israel Laws No. 2). For a commentary on Israeli law, see Sussmann, , The Law of Bills of Exchange 3rd ed. (1965) (in Hebrew)Google Scholar.

^{page 9 note 16} For a list of amendments see Chalmers, , Bills of Exchange 13th ed. (1964) 172, 264, 268Google Scholar. The last and most important amendment was introduced by the Cheques Act, 1957 (6 Eliz. 2, c. 36).

^{page 9 note 17} For amendments see the various laws mentioned in nn. 9–15 above.

^{page 9 note 18} In Bank Polski v. Mulder [1942] 1 K.B. 497, 500.

^{page 9 note 19} Uniformity was reached, inter alia, owing to the ruling of the House of Lords in Bank of England v. Vagliano Bros. [1891] A.C. 107, which limited the applicability of the common law preceding the passing of the English Bills of Exchange Act.

^{page 9 note 20} See e.g. judgment of Wessels, J. in the South African case Venter v. Smit (1913) T.P.D. 231, 236Google Scholar. Needless to say, there was a strong English law influence in countries whose laws made specific reference to English common law for the interpretation of their bills of exchange law. See e.g. sec. 2 of the Israeli Bills of Exchange Ordinance. A number of countries provide for a reception of English common law to fill in lacunae in their law. See e.g. sec. 10 of the Canadian Act and sec. 97(2) of the Ceylon Act. The influence of English common law is understandably marked in the countries from whose higher courts appeals lie to the Privy Council.

^{page 9 note 21} See e.g. case law in Quebec—on a section identical in its relevant terms to the English Act—according to which cause replaces consideration: Stephen v. Perrault (1918) 56 Que. S.C. 54. Also see (1967) 2 Is.L.R. 499, 510.

^{page 9 note 22} For an illustration of this trend, see Venter v. Smit (1913) T.P.D. 231.

^{page 9 note 23} See e.g. rejection of the English rule in Price v. Neal (1762) 3 Burr. 1354, in the Ceylon, case Imperial Bank of India v. Abeysinghe (1927) 29 N.L.R. 258Google Scholar. And see n. 30 in Section F, below.

^{page 9 note 24} This may be seen in the latest editions of English text-books on bills of exchange, where numerous authorities are cited from countries whose statutes follow the English Act. See e.g. Byles, , Bills of Exchange 21st ed. p. v.Google Scholar

^{page 10 note 25} See e.g. the South African case National Bank v. Paterson, 1909, T.S. 322 cited in Smith v. Commercial Banking Corp. of Sydney Ltd. (1910) 11 C.L.R. 667.

^{page 10 note 26} For example, it has been held in Canada that a bill to the order of “cash” is a bearer bill, contrary to the English law view that such a bill is not negotiable at all: Judmaier v. Standard Bank of Canada [1927] 1 W.W.R. 270. In South Africa it was held that the holder for value of an unindorsed bill to order may sue in his own name, contrary to the English view that he must sue in the name of the transferor: see Factory Investments (Pty.) Ltd. v. Ismails 1960 (2) S.A. 10 (T.). It has also been held in South Africa, contrary to the English view, that the right of set-off may be exercised against an ordinary holder who is a remote party: see Walker v. Syfret (1911) A.D. 141.

^{page 10 note 27} Such as guarantee pour aval in South Africa and in Israel, or the requirement for cause in South Africa, Quebec (see n. 21 above) and Scotland (see Law v. Humphrey (1876) S.C. 1192). See also (1967) 2 Is.L.R. 499, 510.

^{page 10 note 1} Referred to as N.I.L.

^{page 10 note 2} For the legislative history, see Britton, , Bills and Notes 2nd. ed. (1961) pp. 9–15, 707Google Scholar and authorities quoted.

^{page 10 note 3} See Britton op. cit. 11.

^{page 10 note 4} See Beutel, , “Problems of Interpretation Under the Negotiable Instrument Law” (1948) 27 Neb. L.R. 485.Google Scholar

^{page 11 note 5} Ibid. 495.

^{page 11 note 6} See Britton, op. cit. 12. In Cosway, , “Innovations in Articles 3 and 4 of the Uniform Commercial Code” (1951) 16 Law & Contemp. Prob. 284, 287CrossRefGoogle Scholar, the writer points out that 116 out of the 198 sections of the N.I.L. have been amended.

^{page 11 note 7} See n. 19 in Section A, above.

^{page 11 note 8} See Eaton, , “The Attitude of the Bench and Bar Towards the Negotiable Instrument Law” 77 Kent. Law J. 282Google Scholar; “The Attitude of the Bench and Bar of Pennsylvania Toward the Negotiable Instrument Law” (1913) 62 U. Pa. L.R. 407; “Uniformity in Judicial Decisions of Cases Arising Under the Uniform Negotiable Instru ment Act” (1913) 12 Mich. L.R. 89; Buetel, op. cit.

^{page 11 note 9} See Buetel, op. cit.

^{page 11 note 10} See the celebrated dispute between Ames and Brewster, in McKeehan, , “The Negotiable Instrument Law—a Review of the Ames-Brewster Controversy” 50 Am. L.R., 437, 499, 561Google Scholar.

^{page 12 note 11} The international conventions drawn up in Geneva, in 1930 and 1931, relating to bills of exchange and cheques, which were adopted by most European nations and in South America, are an indication of the need for uniformity. See Hudson, and Feller, , “The International Unification of Laws Concerning Bills of Exchange” (1931) 44 H.L.R. 333CrossRefGoogle Scholar; Feller, , “The International Unification of Laws Concerning Cheques” (1932) 45 H.L.R. 668CrossRefGoogle Scholar. For previous attempts at uniformity in this field, see Lorenzen, , The Conflict of Laws Relating to Bills and Notes (1919) 17–19Google Scholar; Falconbridge, op. cit. 410, n. (v).

^{page 12 note 12} Referred to as U.C.C. For legislative history, see Braucher, , “The Legislative History of the Uniform Commercial Code” (1958) 58 Col. L.R. 798CrossRefGoogle Scholar. With the publication of the first drafts of the U.C.C. a voluminous professional literature has appeared on the subject. For bibliography, see Uniform Commercial Code Bibliography. A short summary of the law of bills of exchange in the U.C.C. is given in Hawkland, Commercial Paper (1959).

^{page 12 note 13} For a list of amendments, see Hawkland, op. cit. 112–27; Sutherland, “Article 3: Logic, Experience and Negotiable Paper” (1952) Wis. L.Rev. 230Google Scholar; Miller, and Crea, , “Uniform Commercial Code Effect on the Law of Negotiable Instruments in New York” (1964) 30 Brooklyn L.R. 204Google Scholar; Moreau, , “Effect of the Adoption of the Uniform Commercial Code on the Oregon Law of Negotiable Instruments” (1964) 43 Ore. L.R. 144Google Scholar; Sweringen, , “Effect of the Adoption of the Uniform Commercial Code on the Oregon Law of Negotiable Instruments” (1964) 43 Ore. L.R. 315Google Scholar.

^{page 13 note 14} Thus it is provided e.g. by sec. 3–104 of the U.C.C. (official text of 1962; all further citations of sections from the U.C.C. are according to this text) that the definition of a negotiable instrument applies only to sec. 3 of the U.C.C. and does not detract from the negotiability of any instrument which does not fall within the definition. This provision is intended to alter the extensive definition in sec. 1 of the N.I.L. and its interpretation in Enoch v. Brandon (1928) 164 N.E. 45; 249 N.Y. 263. This problem does not arise under English law: see Aigler, , “Recognition of New Types of Negotiable Instruments” (1924) 24 Col. L.R. 563CrossRefGoogle Scholar; Beutel, , “Common Law Technique and the Law of Negotiable Instruments” (1934) 9 Tulane L.R. 64Google Scholar.

^{page 13 note 15} Most of the changes connected with the requirement of form must be viewed against the background of commercial life in the United States, and it is doubtful whether they are of importance in other countries. For a review of these changes, see Britton, , “Formal Requisities of Negotiability—The Negotiable Instrument Law Compared with the Proposed Commercial Code” (1953) 26 Rocky Mountain L.R. 1Google Scholar.

^{page 13 note 16} Thus e.g. sec. 3–204 of the U.C.C. provides that “Any instrument specially indorsed becomes payable to the order of the special indorsee and may be further negotiated only by his indorsement.” This is a departure from common law, under which “once a bearer bill, always a bearer bill”. The principal ground for this change appears to be the desire to harmonize the law of bills of exchange with the law applying in other fields of American law in this connection. See Cosway, , “Innovations in Arts. 3 and 4 of the Uniform Commercial Code” (1951) 16 L. & Contemp. Prob. 284, 285CrossRefGoogle Scholar.

^{page 13 note 1} In the second edition of his book, published in 1881, Chalmers dealt with the law of bills of exchange “in the wide sense”, dividing it into 297 sections. The Act, which appeared a year later, did not follow this pattern.

^{page 13 note 2} “As a rule”, “usually” and “mainly” as a number of provisions in the statutes go beyond the scope of the law of bills “stricto sensu”. See, for example, the statutory provision regarding “transfer by delivery” which is simply the application to bills of exchange of the ordinary law of sale. (Sec. 58 of the English Act, sec. 56 of the South African Act; sec. 63 of the Australian Act; sees. 137 and 138 of the Canadian Act; sec. 59 of the Israeli Ordinance; sec. 65 of the N.I.L.)

^{page 14 note 3} In some States this distinction has important constitutional consequences: See Falconbridge, op. cit. 45 (Canada) and Riley, op. cit. 15 (Australia). In other States the distinction is of importance in connection with the applicability of English law in the interpretation of or in addition to the local law: See Falconbridge, op. cit. 426.

^{page 14 note 4} Sec. 31 of the English Act; sec. 29 of the South African Act; sec. 36 of the Australian Act; sec. 60 of the Canadian Act; sec. 30 of the Israeli Ordinance; secs. 30 and 44 of the N.I.L.

^{page 14 note 5} The problem does not arise in the case of a bill to bearer, as the heir is the bearer and therefore also the holder.

^{page 14 note 6} The laws relating to bills of exchange deal with the transferee's rights in an unindorsed bill to order if the transfer is for value (see n. 4 above). This provision does not directly apply where the transfer is for no value; see also n. 18 below.

^{page 14 note 7} The typical case of a remitter is when a person buys a bill from the drawer of a bill or a note from the maker of a promissory note, in order to give it to his creditor— the payee. For some reason the payee-creditor refuses to take the bill, which re mains in the hands of the purchaser. The question which arises concerns his rights against the drawer or maker and the guarantors. See Moore, , “The Right of the Remitter of a Bill or Note” (1920) 20 Col. L.R. 749CrossRefGoogle Scholar; Beutel, , “Rights of Remitters and Other Owners not Within the Tenor of Negotiable Instruments” (1928) 12 Minn. L.R. 584Google Scholar.

^{page 14 note 8} See Chalmers, , Bills of Exchange 13th ed. (1964) 131Google Scholar.

^{page 14 note 9} See Bishop v. Curtis (1852) 21 L.J.Q.B. 391. This rule is reflected in bills of exchange statutes providing that “Where any person is under obligation to indorse a bill in a representative capacity, he may indorse the bill in such terms as to negative personal liability”. (Sec. 31 of the English Act; sec. 29 of the South African Act; sec. 36 of the Australian Act; sec. 60 of the Canadian Act; sec. 30 of the Israeli Ordinance, sec. 44 of the N.I.L.)

^{page 15 note 10} The doubt raised in connection with holding in due course is due to the fact that the bill is prima facie not regular as it does not bear the indorsement of the deceased to the heir. It may be argued that the heir's indorsement in that capacity would indicate the fact that there has been succession and that the irregularity was caused by the missing indorsement. A nice point is whether the heir may, in order to remedy the irregularity, indorse the bill with the signature of the deceased in addition to his own signature. This signature of the deceased's name may well, it is true, constitute a forgery which “is wholly inoperative” (sec. 24 of the English Act) but in our case the signature is not operative in any sense. Can it then be said that a signature which is “wholly inoperative” exists in fact and makes the bill regular?

^{page 15 note 11} See Byles, , Bills of Exchange 22nd ed. (1965) 237Google Scholar. Sussmann, loc. cit. p. 201, is also of the opinion that the recipient of the bill as a gift is entitled to payment.

^{page 15 note 12} See Britton, op. cit. 175.

^{page 15 note 13} See e.g. Rothwell v. Taylor (1922) 303 111. 226; 135 N.E. 419.

^{page 15 note 14} See e.g. Moore v. Moore (1926) 35 Ga. App. 39, 131 S.E. 922.

^{page 15 note 15} See e.g. Britton, op. cit. 175.

^{page 15 note 16} Obligation under the bill, being a contractual obligation, is assignable in the normal manner applying to obligations; see Chalmers, op. cit. 133. The assignment does not require consideration, see In re Westerton [1952] 2 Ch. 104.

^{page 15 note 17} See n. 4 above.

^{page 15 note 18} See Cowen, op. cit. 117.

^{page 15 note 19} See Vance v. Youngberg, Tex. Civ. App. (1936) 94 S.W. 2d. 1211.

^{page 15 note 20} See Britton, op. cit. 177.

^{page 15 note 21} See authorities quoted in Beutel, , “Rights of Remitters and other Owners not Within the Theory of Negotiable Instruments” (1928) 12 Minn. L.R. 584, 589Google Scholar.

^{page 16 note 22} Ibid. 589.

^{page 16 note 23} Ibid. 591.

^{page 16 note 24} Ibid.

^{page 16 note 25} See Britton, op. cit. 179.

^{page 16 note 26} Ibid.

^{page 16 note 27} Ibid.

^{page 16 note 28} See Beutel, “Rights of Remitters etc…” op. cit. 600. This is of course possible only if the transferee is a holder, such as when the bill is transferred to the payee. As to the question whether the payee can be a holder in due course, see n. 5 in Section E, below.

^{page 16 note 29} Sec. 3–201 of the U.C.C.

^{page 17 note 30} One finds only rarely a clear recognition of this principle in professional literature. The nearest approach to this view is Chafee, , “Rights in Overdue Paper” (1918) 3 H.L.R. 1104CrossRefGoogle Scholar. See also Britton, op. cit. 179.

^{page 17 note 31} e.g. that the bill was destroyed or lost. See in this connection sec. 3–804 of the U.C.C., considered in Section H, below.

^{page 17 note 32} Such as ownership of a bill, acquired by virtue of a judgment; see n. 12 in Section F, below.

^{page 17 note 33} See n. 4 above.

^{page 17 note 34} See Chalmers, op. cit. 111. The authorities quoted all ante-date the Act.

^{page 18 note 35} See Cowen, op. cit. 263.

^{page 18 note 36} See Falconbridge, op. cit. 638.

^{page 18 note 37} See Riley, op. cit. 125.

^{page 18 note 38} See Hirsch v. Egged (1957) 11 P.D. 1317; Tamari v. Lifschitz (1960) 14 P.D. 1145.

^{page 18 note 39} See C.I.T. Co. Ltd. v. Carmi (1963) 17 P.D. 587.

^{page 18 note 40} See Britton, op. cit. 172.

^{page 18 note 41} Ibid. 176.

^{page 18 note 42} Ibid. 175.

^{page 18 note 43} Ibid. 176.

^{page 18 note 44} Sec. 3–201 of the U.C.C., which provides:

“(1) Transfer of an instrument vests in the transferee such rights as the transferor has therein.”

^{page 18 note 45} This is the accepted view, although it is not specifically set out in sec. 3–201 of the U.C.C.

^{page 18 note 46} See sec. 3–201 of the U.C.C. as quoted in n. 44 above.

^{page 18 note 47} Sec. 3–201 of the U.C.C., which provides:

“(2) Unless otherwise agreed any transfer for value of an instrument not payable to bearer gives the transferee the specifically enforceable right to have the unqualified indorsement of the transferor.”

What is the law when the bill is transferred by way of gift? Or as regards a person who acquired the bill from the transferee? See Britton, , “Transfers and Negotiations under the Negotiable Instrument Law and Article 3 of the Uniform Commercial Code” (1953) 32 Tex. L.R. 153, 156Google Scholar.

^{page 19 note 48} See also Britton, , Bills and Notes 2nd ed. (1961) 172Google Scholar.

^{page 19 note 49} Ibid.

^{page 19 note 50} Ibid. 173.

^{page 19 note 51} Sec. 3–201 of the U.C.C., which provides:

“(3) Negotiation takes effect only when the indorsement is made and until that time there is no presumption that the transferee is the owner.”

^{page 19 note 52} See Chalmers, , Bills of Exchange 2nd. ed. (1881) 112Google Scholar.

^{page 19 note 53} See Chalmers, op. cit. 112–13.

^{page 19 note 54} Sec. 35 of the English Act; sec. 32 of the South African Act; sec. 40 of the Australian Act; sec. 68 of the Canadian Act; sec. 34 of the Israeli Ordinance.

^{page 19 note 55} Secs. 30, 44 and 49 of the N.I.L.

^{page 19 note 56} Another example is when the transferee is the trustee of a third party. See Britton, op. cit. 170.

^{page 19 note 57} See Falconbridge, op. cit. 648. See also Chafee, , “Restrictive Indorsements” (1945) 58 H.L.R. 1182CrossRefGoogle Scholar; Wilson, , “Restrictive Indorsee of a Negotiable Instrument—Why Can't He Be a Holder in Due Course?” (1946) 34 Ohio Opin. 302Google Scholar.

^{page 20 note 58} See Ames, , “The Negotiable Instrument Law” (1900) 14 H.L.R. 240, 248Google Scholar. For a continuation of the Ames-Brewster controversy in this connection, see McKeehan, “Review of the Ames-Brewster Controversy”, op. cit.

^{page 20 note 59} See Britton, op. cit. 168.

^{page 20 note 60} See Bank Iggud Le'Israel Ltd. v. “Yona” Ltd. (1964) (III) 18 P.D. 90 (successful defence of the maker against an indorsee under a restrictive indorsement, that the indorser was paid).

^{page 20 note 61} See e.g. Britton, op. cit. 159; Smith, , “The Concept of Negotiability as used in Section 47 of the N.I.L.” (1929) 7 Tex. L.R. 520Google Scholar; Aigler, and Steinhemer, , Cases on Bills and Notes (1962) 391Google Scholar. See also n. 57 above.

^{page 20 note 62} See e.g. Atlantic City National Bank v. Commercial Lumber Co. 107 N.J.L. 492; 155 A 762; 75 A.L.R. 1413.

^{page 20 note 63} Sec. 3–206 of the U.C.C. provides:

“(1) No restrictive indorsement prevents further transfer or negotiation of the instrument.

(2) An intermediary bank, or a payor bank which is not the depositary bank, is neither given notice nor otherwise affected by a restrictive indorsement of any person except the bank's immediate transferor or the person presenting for payment.

(3) Except for an intermediary bank, any transferee under an indorsement which is conditional or includes the words “for collection”, “for deposit”, “pay any bank”, or like terms (sub-paragraphs (a) and (c) of Section 3–205) must pay or apply any value given by him for or on the security of the instrument consistently with the indorsement and to the extent that he does so he becomes a holder for value. In addition such transferee is a holder in due course if he otherwise complies with the requirements of Section 3–302 on what constitutes a holder in due course.

(4) The first taker under an indorsement for the benefit of the indorser or another person (sub-paragraph (d) of Section 3–205) must pay or apply any value given by him for or on the security of the instrument consistently with the indorsement and to the extent that he does so he becomes a holder for value. In addition such taker is a holder in due course if he otherwise complies with the requirements of Section 3–302 on what constitutes a holder in due course. A later holder for value is neither given notice nor otherwise affected by such restrictive indorsement unless he has knowledge that a fiduciary or other person has negotiated the instrument in any transaction for his own benefit or otherwise in breach of duty (subsection (2) of Section 3–304).”

^{page 21 note 64} See also Palmer, , “Negotiable Instruments Under the Uniform Commercial Code” (1950) 48 Mich. L.R. 255, 276CrossRefGoogle Scholar; Leary, , “Some Clarifications in the Law of Commercial Paper Under the Proposed Uniform Commercial Code” (1949) 97 U. of Pa. L.R. 354, 385.CrossRefGoogle Scholar

^{page 21 note 65} See Uniform Law of Bills of Exchange and Promissory Notes, § 18.

^{page 21 note 66} See Uniform Law of Cheques, §23.

^{page 21 note 1} The English Bills of Exchange Act provides that the holder in due course overcomes defects of title of a third party, but it does not specifically provide that an ordinary holder does not do so.

^{page 21 note 2} Sec. 3–306 of the U.C.C. provides: “Unless he has the rights of a holder in due course any person takes the instrument subject to:

(a) all valid claims to it on the part of any person; and

(b) all defenses of any party which would be available in an action on a simple contract; and

(c) the defenses of want or failure of consideration, non-performance of any condition precedent, non-delivery or delivery for a special purpose (section 3–408); and (d) the defense that he or a person through whom he holds the instrument acquired it by theft, or that payment or satisfaction to such holder would be inconsistent with the terms of a restrictive indorsement. The claim of any third person to the instrument is not otherwise available as a defense to any party liable thereon unless the third person himself defends the action for such party.”

The section does not distinguish between claims and defences. Sub-sec. (b) appears to be too wide. It is customary to differentiate between personal defects and mere personal defences; the former also prevail against an ordinary holder who is a remote party, the latter are not available against a remote party even if he is not a holder in due course. See Burrough v. Moss (1830) 109 E.R. 558; Falconbridge, op. cit. 668; Britton, op. cit. 449. Does this distinction continue to apply under the wording of sub-sec. (b)?

^{page 22 note 3} This question does not arise when there is a forgery in the indorsements) as the person in possession of the bill is not a holder; see n. 11 in Section F, below.

^{page 22 note 4} The problem also arises in the case of a bill to order, whose negotiation to the indorser was made fraudulently or illegally. The liability of the indorser is defective and the question of ius tertii does not arise in his case; it can be raised in the case of the liability of the maker of a note or of the drawer or acceptor of a bill.

^{page 22 note 5} The expression ius tertii is current in the law of torts. The question there is whether a person may negate his liability in tort by raising the defence that the right to the converted chattel is owned by a third party. It is similarly possible to speak of a defence of ius tertii when the person who converted the bill raises the defence that the right to the bill belongs to a third party. But in the present case the claim is not for conversion of the bill but for payment of the amount due, and the expression ius tertii is of doubtful application. It was Chalmers who used the expressison in this context: see Chalmers, , Bills of Exchange 2nd ed. (1881) 49, 89, 205Google Scholar. It was also accepted in the United States literature; see Britton, op. cit. 464.

^{page 22 note 6} See Bell v. Lord Ingestre (1848) 116 E.R. 888; Lloyd v. Howard (1850) 117 E.R. 735.

^{page 22 note 7} See e.g. Chalmers, , Bills of Exchange 13th ed. (1964) 102Google Scholar. See also the provision in sec. 59(1) of the English Act, whereby payment to the holder with knowledge of a defect in his title is not payment in due course. It is unreasonable that the holder should be entitled to payment notwithstanding a defect in his title, and that the debtor is not discharged from his obligation under the bill. But see Britton, op. cit. 464–77.

^{page 22 note 8} Britton, op. cit. 470.

^{page 23 note 9} See e.g. Parsons v. Utica Cement Mg. Co. (1909) 82 Conn. 333, 73 A 785.

^{page 23 note 10} See e.g. Brown v. Penfield (1867) 36 N.Y. 473. According to this view, the question arises whether a person stealing a bearer bill is also, as against the debtor, entitled to payment of the bill. The accepted view is that the thief is not entitled to payment. Those who hold this view do not base it on the defence of ius tertii, but rely on the broad principle that exturpi causa non oritur actio.

^{page 23 note 11} Sec. 3–306(d) of the U.C.C., quoted in n. 2 above. This rule does not apply to a person who stole the bill or who obtained possession of the bill through the thief.

^{page 23 note 12} Sec. 3–207 of the U.C.C. provides:

“(1) Negotiation is effective to transfer the instrument although the negotiation is

(a) made by an infant, a corporation exceeding its powers, or any other person without capacity; or

(b) obtained by fraud, duress or mistake of any kind; or

(c) part of an illegal transaction; or

(d) made in breach of duty.

(2) Except as against a subsequent holder in due course negotiation is in an appropriate case subject to rescission, the declaration of a constructive trust or any other remedy permitted by law.”

^{page 23 note 13} Sec. 3–603 of the U.C.C. provides:

“(1) The liability of any party is discharged to the extent of his payment or satisfaction to the holder even though it is made with knowledge of a claim of another person to the instrument unless prior to such payment or satisfaction the person making the claim either supplies indemnity deemed adequate by the party seeking the discharge or enjoins payment or satisfaction by order of a court of competent jurisdiction in an action in which the adverse claimant and the holder are parties. This subsection does not, however, result in the discharge of the liability

(a) of a party who in bad faith pays or satisfies a holder who acquired the instrument by theft or who (unless having the rights of a holder in due course) holds through one who so acquired it; or

(b) of a party (other than an intermediary bank or a payor bank which is not a depository bank) who pays or satisfies the holder of an instrument which has been restrictively indorsed in a manner not consistent with the terms of such restrictive indorsement.

(2) Payment or satisfaction may be made with the consent of the holder by any person including a stranger to the instrument. Surrender of the instrument to such a person gives him the rights of a transferee (Section 3–201).”

^{page 24 note 14} Sec. 3–306 of the U.C.C., quoted in n. 2 above.

^{page 24 note 15} Sec. 3–603 of the U.C.C., quoted in n. 63 above.

^{page 24 note 16} See the continuation of Section F in the second part of this article.

^{page 24 note 17} This right, which is not mentioned specifically in the U.C.C., derives from the general law of quasi-contract. The provision relating to “finality of payment” does not apply: see sec. 3–418 of the U.C.C., quoted in n. 37 of Section F, below.

^{page 24 note 18} Under the rules of the vendor's warranty: see sec. 3–417 of the U.C.C., quoted in n. 26 in Section F, below.

^{page 24 note 19} See Britton, op. cit. 468. See also commentary on sec. 3–306 of the U.C.C. in the official issue of 1962, p. 282.

^{page 24 note 20} Notwithstanding the decision of the first court rejecting the plea of defect, the holder cannot be said to have acted in good faith.

^{page 24 note 21} See Britton, op. cit. 468.

^{page 24 note 22} See Hawkland, Commercial Paper (1953) 96.

^{page 25 note 22a} For the import of this principle see para. 3(4) below.

^{page 25 note 23} See n. 17 above.

^{page 25 note 24} In fact, the provision in the U.C.C. regarding finality of payment (sec. 3–418, quoted in n. 37 of Section F) does not itself negative the possibility of restitution, as the finality of payment applies only to the holder in due course or to a party who bona fide changed his position for the worse by relying on the payment. In the present case we assume that the person paid had knowledge of the defect. Nevertheless the right of restitution does not appear to me to exist at all, as the payment is made in due course and not under a mistake. The U.C.C. imposes upon the drawer the duty to pay the holder and confers upon the latter the right to be paid. What defence can the drawer therefore raise? Furthermore, payment by the drawer discharges the basic transaction between him and the payee (see sec. 3–802 of the U.C.C. ), and it is unjustified to give him a double advantage.

^{page 25 note 25} As payment by the debtor discharges him from liability on the bill (sec. 3–306 of the U.C.C., quoted in n. 2 above). This discharge results in the discharge of every party entitled on the bill to recourse against the party first discharged (see sec. 3–608 of the U.C.C.). As the drawer will usually receive the bill on payment thereof, every intermediate party will be discharged (see sec. 3–208 of the U.C.C.). See also sec. 3–601 of the U.C.C.

^{page 25 note 26} Sec. 3–207 of the U.C.C., quoted in n. 12 above. It should not be assumed that the fact that the holder has been paid deprives the innocent party of the right to rescind the transfer of the bill. When negotiation of the bill is effected in circumstances making the transaction void, as distinct from voidable, I doubt whether the right of rescission under the provisions of this section is affected. What is the position when the bill reaches the last holder, who knows of the defect, through a previous holder unaware of it—dots the right of the innocent holder to rescind still exist?

^{page 26 note 27} If the drawer pays of his own free will, there is, of course, no ground for such a claim.

^{page 26 note 28} See Comment “Automatic Discharge of Negotiable Instrument in the Proposed Commercial Code” (1949) 44 Ill. L.R. 88, 92.

^{page 26 note 1} See Whistler v. Forster (1863) 14 C.B. (N.S.) 248.

^{page 26 note 2} See Miller v. Race (1758) 1 Burr 452.

^{page 26 note 3} See Chalmers, , Bills of Exchange 2nd ed. (1881) 80–82Google Scholar.

^{page 26 note 4} Sec. 29 of the English Act; sec. 27 of the South African Act; sec. 34 of the Australian Act; sec. 56 of the Canadian Act; sec. 28 of the Israeli Ordinance; sec. 52 of the N.I.L.

^{page 26 note 5} The legislator appears to have erred in some sections by calling “holder in due course” a person formerly called a bona fide holder for value. See in this connection Britton, op. cit. 636, and Schweitz v. Sandor (1965) (II) 19 P.D. 113. (Israel).

^{page 26 note 6} Sec. 3–302 of the U.C.C. provides:

“(1) A holder in due course is a holder who takes the instrument

(a) for value; and

(b) in good faith; and

(c) without notice that it is overdue or has been dishonored or of any defense against or claim to it on the part of any person.”

^{page 27 note 7} See the definition of “value” in sec. 2 of the English Act; sec. 1 of the South African Act; sec. 4 of the Australian Act; sec. 2 of the Canadian Act; sec. 1 of the Israeli Ordinance; sec. 191 of the N.I.L. See Wickham, , “Consideration and Value in Negotiable Instruments” (1926) 3 Wis. L.R. 321Google Scholar.

^{page 27 note 8} The definitions in the sections mentioned in n. 7 above are all subject to the assumption that the context does not otherwise require. For an additional example of the context “otherwise requiring” see n. 5 above.

^{page 27 note 9} Sec. 27 of the English Act; sec. 25 of the South African Act; sec. 32 of the Australian Act; sec. 53 of the Canadian Act; sec. 26 of the Israeli Ordinance; sec. 25 of the N.I.L.

^{page 27 note 10} See Britton, op. cit. 227.

^{page 27 note 11} Ibid. 228.

^{page 27 note 12} Ibid. 235. See also sec. 54 of the N.I.L. adopting the ruling in Dresser v. Missouri & Iowa R. Const. Co. (1876) 93 O.S. 92, 23 L. Ed. 815.

^{page 27 note 13} See Britton, op. cit. 241.

^{page 27 note 14} See Miller v. Marks (1914) 46 Utah 257, 148 P. 412.

^{page 27 note 15} See Cartier v. Morrison (1925) 323 Mich. 352, 205 N.W. 108.

^{page 27 note 16} See Chalmers, , Bills of Exchange 13th. ed. (1964) 100Google Scholar quoting with approval the Dresser case mentioned in n. 12 above. But on the question of the defence available to a bank in England under sec. 60 of the Act it has been held that crediting a customer's account constitutes giving value by the bank: Capital and Counties Bank v. Gordon [1903] A.C. 240.

^{page 28 note 17} See Sussmann, op. cit. 285.

^{page 28 note 18} See 3–408 of the U.C.C. which provides:

“Want or failure of consideration is a defense as against any person not having the right of a holder in due course (section 3–305), except that no consideration is necessary for an instrument or obligation thereon given in payment of or as security for an antecedent obligation of any kind. Partial failure of consideration is a defense pro tanto whether or not the failure is in an ascertained or liquidated amount.”

^{page 28 note 19} Sec. 3–303 of the U.C.C. which provides:

“A holder takes the instrument for value

(a) to the extent that the agreed consideration has been performed or that he acquires a security interest in or a lien on the instrument otherwise than by legal process; or

(b) when he takes the instrument in payment of or as security for an antecedent claim against any person whether or not the claim is true; or

(c) when he gives a negotiable instrument for it or makes an irrevocable commitment to a third person.”

^{page 28 note 20} The compilers of the U.C.C. weighed the possibility of doing away with the requirement of consideration for the creation of liability under the bill, but ended by rejecting the suggestion.

^{page 28 note 21} Sec. 3–302 of the U.C.C., quoted in n. 6 above.

^{page 28 note 22} Sec. 3–303 of the U.C.C., quoted in n. 19 above. It is interesting to note that the U.C.C. uses the term “claim” and not “debt”; cp. Sussmann op. cit. 141.

^{page 28 note 23} See Hawkland, , Commercial Paper (1959) 79Google Scholar.

^{page 28 note 24} See Beutel, , “Comparison of the Proposed Commercial Code, Article 3 and the Negotiable Instrument Law” (1951) 30 Neb. L.R. 531, 543Google Scholar.

^{page 29 note 25} This directly derives from the definition of “value” in sec. 3–303 of the U.C.C., quoted in n. 19 above, and is specifically provided in sec. 4—209 of the U.C.C.: “For purposes of determining its status as a holder in due course, the bank has given value to the extent that it has a security interest in an item provided that the bank otherwise complies with the requirements of section 3–302 on what constitutes a holder in due course.” See also Note, “Bank Credit as Value—The Commercial Code Articles III” (1948) 57 Yale L.J. 1419. For the position under the N.I.L. see Frye, , “Crediting an Account as Value” (1924) 2 Wis. L.R. 408Google Scholar; Turner, , “Deposits of Demand Paper as ‘Purchases'” (1928) 37 Yale L.J. 874CrossRefGoogle Scholar; Bolles, “When is a Bank the Bona Fide Owner of a Cheque Left for Deposit or Collection” (1908) 56 U. of Pa. L.R. 375Google Scholar.

^{page 29 note 26} See Britton, op. cit. 238.

^{page 29 note 27} Hawkland, op. cit. 79, advances a number of arguments and admits that the problem has not been fully explored.

^{page 29 note 28} See Uniform Law of Bills of Exchange and Promisory Notes, §§ 16, 17; Uniform Law of Cheques, §§ 19, 21, 22.

^{page 29 note 29} But see Cowen, op. cit. 283–85.

^{page 30 note 30} See Blackstone, , Commentaries vol. 2, p. 446Google Scholar.

^{page 30 note 31} See e.g. Pillons v. Van Mierop (1664) 97 E.R. 1035; see also Hodges v. Steward (1691) 1 Salk 125. Lord Mansfield's opinion was finally rejected in Rann v. Hughes 7 D. & E. 350.

^{page 30 note 32} See Ames, , Cases on Bills and Notes (1894) vol. 2, p. 35Google Scholar.

^{page 30 note 33} See Langdel, , Summary of Contract 2nd ed. (1880) 62Google Scholar.

^{page 30 note 34} See Wickham, , “Consideration and Value in Negotiable Instruments” (1926) 3 Wis. L.R. 32Google Scholar; Britton, op. cit. 211–14.

^{page 30 note 35} See Aigler, , “Payees as Holders in Due Course” (1927) 36 Yale L.R. 608, 619CrossRefGoogle Scholar; cp. sec. 9 of the Indian Negotiable Instrument Act, and Khergamuala, , The Negotiable Instrument Act 13th. ed. (1966) 1Google Scholar. See also Chalmers, , Bills of Exchange 2nd ed. (1881) 80Google Scholar.

^{page 30 note 36} Sec. 29 of the English Act; sec. 27 of the South African Act; sec. 34 of the Australian Act; sec. 56 of the Canadian Act; sec. 28 of the Israeli Ordinance; sec. 52 of the N.I.L. All these statutes provide negotiation to the holder as a condition for holding in due course. Negotiation in the case of a bill to order, means transfer from a holder to another holder. As the drawer of a bill or the maker of a note are not holders, the bill is not negotiated to the payee.

^{page 30 note 37} See Jones v. Waring [1926] A.C. 670.

^{page 30 note 38} See Moti & Co. v. Cassini's Trustee (1924) A.D. 720 (South Africa); Gallagher v. Murphy [1928] 4 D.L.R. 618 (Canada); Palestine General Trust v. Braude (1948) 1 P.D. 1147 (Israel). A similar rule applies in Australia: Riley, op. cit. 118, and in New Zealand: Dickinson, op. cit. 69.

^{page 30 note 39} See Britton, op. cit. 309.

^{page 30 note 40} See Feezer, , “May a Payee of a Negotiable Instrument be a Holder in Due Course?” (1925) 9 Minn. L.R. 101Google Scholar; Britton, , “The Payee as a Holder in Due Course” (1934) 1 U. Ch. L. Rev. 4Google Scholar; Aigler, , “Payees as Holders in Due Course” (1927) 36 Yale L.J. 608CrossRefGoogle Scholar; Hamilton, , “Holder in Due Course” (1912) 24 Jur. Rev. 41.Google Scholar

^{page 31 note 41} See Britton, , Bills and Notes 2nd ed. (1961) 308Google Scholar.

^{page 31 note 42} Why should the payee not be a holder in due course, when the first holder of a bill to bearer may be recognized as such?

^{page 31 note 43} See Britton, op. cit. 310, 316.

^{page 31 note 44} See Lloyd's Bank v. Cooks [1907] 1 K.B. 794; see also Johnson v. Johnson [1928] 2 D.L.R. 531, following Watson v. Russell (1862) 122 E.R. 14.

^{page 31 note 45} See Schweitz v. Sandor (1965) (II) 19 P.D. 113 (Israel).

^{page 31 note 46} Schweitz v. Sandor, ibid. This presumption is of assistance when a question of fact arises, not for questions of law. What evidence should the defendant lead in order to rebut the presumption?

^{page 31 note 47} See McDonald and Co. v. Nash and Co. [1924] A.C. 625 (England), Dominion Bank v. Fassel & Baglier Construction Co. Ltd. [1955] 4 D.L.R. 161 (Canada).

^{page 31 note 48} Sec. 3–302 of the U.C.C., quoted in n. 6 above.

^{page 31 note 49} Sec. 3–302 of the U.C.C., which provides:

“(2) A payee may be a holder in due course.”

^{page 31 note 50} It seems to me that the articles mentioned in n. 40 above are capable of satisfying the court that the payee may be a holder in due course. See also Cowen, op. cit. 278, who believes that the change should, for greater certainty, be made by legislation.

^{page 31 note 51} (1789) 3 T.R. 80. The majority opinion was followed in Fisher v. Leland (1849) 4 Cush. (Mass.) 456, 50 Am. Dec. 805.

^{page 31 note 52} See Chalmers, , Bills of Exchange 2nd. ed. (1881) 118Google Scholar.

^{page 31 note 53} In the definition of “holder in due course”.

^{page 31 note 54} Sec. 52 (2) of the N.I.L.

^{page 32 note 55} See Chafee, , “Right in Overdue Paper” (1918) 31 H.L.R. 1104CrossRefGoogle Scholar.

^{page 32 note 56} Even under Ghafee's analysis the right of a bona fide holder for value of an overdue bill should be distinguished from the question of ius tertii: see Hawkland, , Cases on Bills and Notes (1956) 259Google Scholar.

^{page 32 note 57} See in particular Wolf v. American Trust & Saving Bank (1914) 214 F. 761.

^{page 32 note 58} See n. 52 above and Chalmers, , Bills of Exchange 13th. ed. (1964) 122Google Scholar.

^{page 32 note 59} See 36 (2) of the English Act; sec. 34 (2) of the South African Act; sec. 41 of the Australian Act; sec. 70 (1) of the Canadian Act; sec. 35 of the Israeli Ordinance. There is no corresponding provision in the N.I.L.

^{page 32 note 60} Sec. 3–306 of the U.C.C., quoted in Section D, n. 2 above.

^{page 32 note 61} A legal system recognizing the principle of market overt may apply it to bills. The point was raised but not decided in one of the Israeli cases: Adir v. Holon Municipality (1964) (II) 18 P.D. 463.

^{page 32 note 62} Sec. 3–302 of the U.C.C. quoted in n. 6, above.

^{page 32 note 63} Sec. 1–201 of the U.C.C. provides:

“(25) A person has ‘notice’ of a fact, when

(a) he has actual knowledge of it; or

(b) he has received a notice or notification of it; or

(c) from all the facts and circumstances known to him at the time in question he has reason to know that it exists.”

^{page 33 note 64} Sec. 3–304 of the U.C.C. provides:

“(3) The purchaser has notice that an instrument is overdue if he has reason to know:

(a) that any part of the principal amount is overdue or that there is an uncured default in payment of another instrument of the same series; or

(b) that acceleration of the instrument has been made; or

(c) that he is taking a demand instrument after demand has been made or more than a reasonable length of time after issue. A reasonable time for a check drawn and payable within the states and territories of the United States and the District of Columbia is presumed to be thirty days.”

^{page 33 note 65} For a criticism of legislative technique see Beutel, , “Comparison of the Proposed Commercial Code, Article 3, and the Negotiable Instrument Law” (1951) 30 Neb. L.R. 531, 546Google Scholar.

^{page 33 note 66} See sec. 20 of the Uniform Law on Bills of Exchange and Promissory Notes.

^{page 33 note 67} See Britton, op. cit. 244. On the question of good faith see Ames, , “Purchase for Value Without Notice” (1887) 1 H.L.R. 1CrossRefGoogle Scholar; Ballantine, , “Purchase for Value and Estoppel” (1922) 6 Minn. L.R. 87Google Scholar; Rightmire, , “The Doctrine of Bad Faith in the Law of Negotiable Instruments” (1920) 18 Mich. L.R. 355CrossRefGoogle Scholar; Gilmore, , “Commercial Doctrine of Good Faith Purchase” (1954) 63 Yale L.J. 1057CrossRefGoogle Scholar; Mulhearn, , “Meaning of ‘Good Faith’ in the N.I.L.” (1934) 9 Tulane L.R. 128Google Scholar.

^{page 34 note 68} See Lawson v. Weston (1801) 4 Esp. 56.

^{page 34 note 69} See Gill v. Cubit (1824) 3 B & C. 466.

^{page 34 note 70} Goodman v. Harvey (1836) 4 Ad. & El. 870.

^{page 34 note 71} Sec. 90 of the English Act; sec. 94 of the South African Act; sec. 96 of the Australian Act; sec. 3 of the Canadian Act; sec. 92 of the Israeli Ordinance.

^{page 34 note 72} See Britton, op. cit. 246.

^{page 34 note 73} Sec. 56 of the N.I.L.

^{page 34 note 74} See Britton, op. cit. 269.

^{page 34 note 75} Ibid. 271.

^{page 34 note 76} Ibid. 273.

^{page 34 note 77} Ibid. 285.

^{page 34 note 78} See Jones v. Gordon (1877) 2 App. Cas. 616, 628.

^{page 34 note 79} See Britton, op. cit. 295–96. See also Corker, and Landman, , “Can a Preferred Creditor be a Holder in Due Course?” (1951) 3 Stanf. L.R. 220CrossRefGoogle Scholar; Palmer, , “Ne gotiable Instrument Under the Uniform Commercial Code” (1950) 48 Mich. L.R. 255, 281.CrossRefGoogle Scholar

^{page 34 note 80} See Walker v. Bartlesville State Bank (1923) 91 Okl. 231; 216 Pac. 928.

^{page 34 note 81} See Baird v. Lorenz (1929) 224 N.W. 206; 61 A.L.R. 1385.

^{page 34 note 82} See draft U.C.C., published in 1951. This objective test was defined as follows: “in the case of a merchant, honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” It is worthy of note that this objective test is confined to merchants; an attitude approaching that current in a number of European States where commercial laws are made to apply only to merchants. See Rabel, , “The Sales Law in the Proposed Commercial Code” (1950) 17 U. Chi. L.R. 427, 430CrossRefGoogle Scholar; Note, , “Merchant Provisions in the Uniform Commercial Code—Sales” (1950) 39 Geo. L.J. 130.Google Scholar

^{page 35 note 83} Sec. 1–201 of the U.C.C. provides:

“‘Good faith’ means honest in fact in the conduct or transaction concerned.” The objective definition applies in other chapters of the U.C.C.

^{page 35 note 84} Sec. 3–304 of the U.C.C., which provides:

“(4) Knowledge of the following facts does not of itself give the purchaser notice of a defense or claim

(a) that the instrument is antedated or postdated;

(b) that it was issued or negotiated in return for an executory promise or accompanied by a separate agreement, unless the purchaser has notice that a defense or claim has arisen from the terms thereof;

(c) that any party has signed for accommodation;

(d) that an incomplete instrument has been completed, unless the purchaser has notice of any improper completion;

(e) that any person negotiating the instrument is or was a fiduciary;

(f) that there has been default in payment of interest on the instrument or in payment of any other instrument, except one of the same series.”

^{page 35 note 85} Sec. 3–304 of the U.C.C., quoted in n. 84 above.

^{page 35 note 86} Sec. 3–302 of the U.C.C., quoted in n. 6 above. Emphasis is placed on “any defense”.

^{page 35 note 87} Sec. 3–302 of the U.C.C., quoted in n. 6 above.

^{page 35 note 88} See n. 63 above.

^{page 35 note 89} See n. 65 above.

^{page 36 note 90} See also Britton, , “Holder in Due Course—A Comparison of the Provisions of the Negotiable Instrument Law with those of Article 3 of the Proposed Commercial Code” (1954) 49 Northwestern L.R. 417, 436.Google Scholar

^{page 36 note 91} See Falconbridge, op. cit. 663 seq.; Britton, , Bills and Notes 2nd ed. (1961) 329Google Scholarseq.

^{page 36 note 92} See Green, , “Real Defenses and the Negotiable Instrument Law” (1934) 9 Tulane L.R. 78Google Scholar; Burdick, , “Real and Personal Defenses in Actions on Negotiable Paper” (1913) 3 Corn. L.Q. 171.Google Scholar

^{page 36 note 93} Sec. 3–305 of the U.C.C., which provides:

“To the extent that a holder is a holder in due course he takes the instrument free from

(1) all claims to it on the part of any person; and

(2) all defenses of any party to the instrument with whom the holder has not dealt except

(a) infancy, to the extent that it is a defense to a simple contract; and

(b) such other incapacity, or duress, or illegality of the transaction, as renders the obligation of the party a nullity; and

(c) such misrepresentation as has induced the party to sign the instrument with neither knowledge nor reasonable opportunity to obtain knowledge of its character or its essential terms; and

(d) discharge in insolvency proceedings; and

(e) any other discharge of which the holder has notice when he takes the instrument.”

^{page 36 note 94} Ibid.

^{page 36 note 94a} Ibid., incorporating the rule in Foster v. MacKinnon (1869) L.R. 4, C.P. 704. See also Britton, , “Fraud in the Inception of Bills and Notes” (1924) 9 Corn. L.Q. 138.Google Scholar

^{page 36 note 95} Sec. 3–404, which provides:

“(1) Any unauthorized signature is wholly inoperative as that of the person whose name is signed unless he ratifies it or is precluded from denying it; but it operates as the signature of the unauthorized signer in favour of any person who in good faith pays the instrument or takes it for value.

(2) Any unauthorized signature may be ratified for all purposes of this Article. Such ratification does not of itself affect any right of the person ratifying against the actual signer.

(3) ‘Unauthorized’ signature or indorsement means one made without actual, implied or apparent authority and includes a forgery.”

^{page 37 note 96} The provisions relating to forgery also apply to an ordinary holder.

^{page 37 note 97} Sec. 3–404 of the U.C.C., quoted in n. 95 above.

^{page 37 note 98} See Chalmers, , Bills of Exchange 13th ed. (1964) 74.Google Scholar

^{page 37 note 99} See Britton, , Bills and Notes 2nd ed. (1961).Google Scholar

^{page 37 note 100} Sec. 3–404 of the U.C.C., quoted in n. 95 above.

^{page 37 note 101} Ibid. Some writers hold that this was also the law under the existing bills of exchange statutes. See Britton, , “Defenses, Claims of Ownership and Equities—A Comparison of the Provisions of the Negotiable Instrument Law with Corresponding Provisions of Article 3 of the Proposed Commercial Code” (1955) 7 Hastings L.J. 1, 7.Google Scholar

^{page 37 note 102} See Baxendale v. Bennet (1878) 3 Q.B.D. 525 (undelivered inchoate bill); sec Falconbridge, op. cit. 513 note (d); Chalmers, , Bills of Exchange 2nd ed. (1881) 47–48.Google Scholar

^{page 37 note 103} See Britton, , Bills and Notes 2nd ed. (1961) 201, 204.Google Scholar

^{page 37 note 104} Sec. 21 of the English Act; sec. 19 of the South African Act; sec. 26 of the Australian Act; sec. 40 of the Canadian Act; sec. 20 of the Israeli Ordinance; sec. 16 of the N.I.L.

^{page 37 note 105} This was specifically provided in sec. 15 of the N.I.L. There is no similar provision in England, but the accepted view is that the rule in Baxendale's case (n. 102 above) continues to apply: see Smith v. Prosser [1907] 2 K.B. 735. This is also the rule in South Africa: Herbert v. Steele (1953) (3) S.A. 271 (T), and in Canada: Hubert v. Home Bank of Canada (1910) 2 D.L.R. 651. The rule is supported by the wording of the statute. The presumption of delivery, in the case of a holder in due course, does not apply to an inchoate instrument and the presumption of completion does not act retrospectively.

^{page 38 note 106} Sec. 3–115 of the U.C.C., which provides:

“(1) When a paper whose contents at the time of signing show that it is intended to become an instrument is signed while still incomplete in any necessary respect it cannot be enforced until completed, but when it is completed in accordance with authority given it is effective as completed.

(2) If the completion is unauthorized the rules as to material alteration apply (section 3–407), even though the paper was not delivered by the maker or drawer; but the burden of establishing that any completion is unauthorized is on the party so asserting.”

The section refers to the rules of material alteration which, in turn, provide that unauthorized alteration cannot be raised against a holder in due course: sec. 3–407 of the U.C.C.

^{page 38 note 107} See McCobe, , “Infants' Liability—When not Liable” (1932) 7 Notre D. Law. 292Google Scholar; Britton, op. cit. 334; Falconbridge, op. cit. 534.

^{page 38 note 108} Sec. 3–305 of the U.C.C., quoted in n. 93 above.

^{page 39 note 109} See Scott, , “Participation in a Breach of Trust” (1921) 34 H.L.R. 454CrossRefGoogle Scholar; Britton, op. cit. 319; Falconbridge, op. cit. 627.

^{page 39 note 110} Sec. 29 of the English Act; sec. 27 of the South African Act; sec. 34 of the Australian Act; sec. 57 of the Canadian Act; sec. 28 of the Israeli Ordinance; sec. 58 of the N.I.L.

^{page 39 note 111} See Chafee, , “The Reacquisition of a Negotiable Instrument by a Prior Party” (1921) 21 Col. L.R. 538.CrossRefGoogle Scholar

^{page 39 note 112} See Britton, op. cit. 325.

^{page 39 note 113} See Horam v. Mason (1910) App. Div. 89, 125 N.Y.S. 668.

^{page 39 note 114} See Britton, op. cit. 326.

^{page 39 note 115} See Chafee, , “The Reacquisition of a Negotiable Instrument by a Prior Party” (1921) 21 Col. L.R. 538.CrossRefGoogle Scholar

^{page 40 note 116} See Britton, op. cit. 326.

^{page 40 note 117} See Gruntal v. United States Fidelity and Guaranty Co. and National Surety Co. (1930) 254 N.Y. 468; 173 N.E. 682; 73 A.L.R. 1337.

^{page 40 note 118} Sec. 3–201 of the U.C.C., quoted in n. 44 of Section C above. According to this provision the possessor of a bill to order, acquired for value but without indorsement, enjoys the preferred rights of a holder in due course.

^{page 40 note 119} See sec. 3–201 of the U.C.C., quoted in n. 44 of Section C above. The section continues to provide that: “A transferee who has himself been a party to any fraud or illegality affecting the instrument or who as a prior holder had notice of a defence or claim against it cannot improve his position by taking from a later holder in due course.”

^{page 40 note 120} See Beutel, , “The Proposed Uniform Commercial Code as a Problem in Codification” (1951) 16 Law & Contemp. Prob. 141, 145.CrossRefGoogle Scholar

^{page 40 note 121} See Britton, , “Holder in Due Course—A Comparison of the Provisions of the Negotiable Instrument Law with Those of Article 3 of the Proposed Commercial Code” (1954) 49 Northwestern L.R. 417, 446.Google Scholar

^{page 41 note 122} See Britton, op. cit. 319.

^{page 41 note 1} See n. 95 in Section E above.

^{page 41 note 2} Ibid.

^{page 41 note 3} See Mead v. Young (1790) 4 T.R. 28; Britton, Bills and Notes 2nd ed. (1961) 341.

^{page 41 note 4} For similar problems, see Britton, op. cit. 399–405.

^{page 42 note 5} I chose the cheque for a number of reasons. First, cases of forgery of cheques are more frequent than those of other negotiable instruments; secondly, the use of cheques is on the increase and the problems in this field are therefore more practical; thirdly, the bills of exchange laws deal with this question with particular reference to cheques. This choice suffers nevertheless from a serious limitation. A cheque has a double purpose: it is a bill of exchange and it also constitutes evidence of the drawer-customer's instruction to the drawee-bank. These two functions usually complement each other, but this is not always the case.

^{page 42 note 6} See n. 95 in Section E, above.

^{page 42 note 7} Ibid.

^{page 42 note 8} Ibid.

^{page 42 note 9} But see sec. 4—401 of the U.C.C., which provides:

“(1) As against its customer, a bank may charge against his account any item which is otherwise properly payable from that account even though the charge creates an overdraft.”

^{page 42 note 10} See Paget, , Law of Banking 7th ed. (1966) 455.Google Scholar

^{page 42 note 11} According to one view, as the drawing is forged the document is not a bill and the question of payment in due course can therefore not arise. See Paget, op. cit. 455. I doubt whether this view is correct. First, the document may be regarded as the forger's bill (see n. 101 in Section E, above); secondly, the document is a bill for every party who signed after the forgery.

^{page 42 note 12} Greenwood v. Martins Bank Ltd. [1933] A.C. 51; Broekman v. T.C.D. Motors (Pty.) Ltd., 1949 (4) S.A. 418 (T) at 425. In should be noted that the estoppel in these examples acts in favour of the drawee bank. Another question is, what is the law if the drawer is estopped from alleging, against the holder of a bill, that his signature is forged—may the drawee bank which paid the amount of the bill debit the drawer's account?

^{page 43 note 13} See Paget, op. cit. 456; Britton, op. cit. 362.

^{page 43 note 14} See Chorley, , Law of Banking 4th ed. (1960) 84Google Scholar; Paget, op. cit. 456.

^{page 43 note 15} See Britton, op. cit. 362.

^{page 43 note 16} See Chorley, op. cit. 84; Paget, op. cit. 456.

^{page 43 note 17} See Britton, op. cit. 362.

^{page 43 note 18} See Paget, op. cit. 459; Britton, op. cit. 374.

^{page 43 note 19} Sec. 4–406 of the U.C.C. which provides:

“(1) When a bank sends to its customer a statement of account accompanied by items paid in good faith in support of the debit entries or holds the statement and items pursuant to a request or instructions of its customer or otherwise in a reasonable manner makes the statement and items available to the customer, the customer must exercise reasonable care and promptness to examine the statement and items to discover his unauthorized signature or any alteration on an item and must notify the bank promptly after discovery thereof.

(2) If the bank establishes that the customer failed with respect to an item to comply with the duties imposed on the customer by subsection (1) the customer is precluded from asserting against the bank

(a) his unauthorized signature or any alteration on the item if the bank also establishes that it suffered a loss by reason of such failure; and

(b) an unauthorized signature or alteration by the same wrongdoer on any other item paid in good faith by the bank after the first item and statement was available to the customer for a reasonable period not exceeding fourteen calendar days and before the bank receives notification from the customer of any such unauthorized signature or alteration.

(3) The preclusion under subsection (2) does not apply if the customer establishes lack of ordinary care on the part of the bank in paying the item(s).

(4) Without regard to care or lack of care of either the customer or the bank a customer who does not within one year from the time the statement and items are made available to the customer (subsection (1)) discover and report his unauthorized signature or any alteration on the face or back of the item or does not within three years from that time discover and report any unauthorized indorsement is precluded from asserting against the bank such unauthorized signature or indorsement or such alteration.

(5) If under this section a payor bank has a valid defense against a claim of a customer upon or resulting from payment of an item and waives or fails upon request to assert the defense the bank may not assert against any collecting bank or other prior party presenting or transferring the item a claim based upon the unauthorized signature or alteration giving rise to the customer's claim.”

^{page 44 note 20} Ibid.

^{page 44 note 21} See the summary of this section at the end of Section F in the second part of this article.

^{page 44 note 22} The question does not arise if the drawee bank legally debited the drawer's account. In such cases, the drawee bank can have no cause for complaint, but then the question arises, of course, whether the drawer has any right against the person paid. This question is discussed below, sec. 1. d.

^{page 44 note 23} Adir v. Holon Municipality (1964) (II) 18 P.D. 463 (Israel); see also Guaranty Trust Co. of New York v. Hanney & Co. [1918] 2 K.B. 623.

^{page 44 note 24} See State Planters Bank & Trust Co. of Richmond v. Fifty-Third Union Trust Co. (1937) 56 Ohio App. 309; 10 N.E. 2d. 935.

^{page 45 note 25} See Britton, op. cit. 397.

^{page 45 note 26} Sec. 3–417 of the U.C.C. which provides:

“(1) Any person who obtains payment or acceptance and any prior transferor warrants to a person who in good faith pays or accepts that

(a) he has a good title to the instrument or is authorized to obtain payment or acceptance on behalf of one who has a good title; and

(b) he has no knowledge that the signature of the maker or drawer is unauthorized, except that this warranty is not given by a holder in due course acting in good faith

(i) to a maker with respect to the maker's own signature; or

(ii) to a drawer with respect to the drawer's own signature, whether or not the drawer is also the drawee; or

(iii) to an acceptor of a draft if the holder in due course took the draft after the acceptance or obtained the acceptance without knowledge that the drawer's signature was unauthorized; and

(c) the instrument has not been materially altered, except that this warranty is not given by a holder in due course acting in good faith

(i) to the maker of a note; or

(ii) to the drawer of a draft whether or not the drawer is also the drawee; or

(iii) to the acceptor of a draft with respect to an alteration made prior to the acceptance if the holder in due course took the draft after the acceptance, even though the acceptance provided “payable as originally drawn” or equivalent terms; or

(iv) to the acceptor of a draft with respect to an alteration made after the acceptance.”

^{page 45 note 27} See Hawkland, , Commercial Paper (1959) 55–56Google Scholar. Beutel, on the other hand, believes that the recipient of payment of a bill, the drawer's signature on which is forged, commits a breach of warranty that he has a good title to the bill. See Beutel, , “Comparison of the Proposed Commercial Code, Article 3 and the Negotiable Instrument Law” (1951) 30 Neb. L.R. 531, 554.Google Scholar For a criticism of this view see Comment, , “Allocating Losses from Cheque Forgeries of Negotiable Instruments and the Uniform Commercial Code” (1953) 62 Yale L.J. 417, 458.Google Scholar

^{page 46 note 28} See Chalmers, , Bills of Exchange 13th ed. (1964) 208.Google Scholar

^{page 46 note 29} See Britton, op. cit. 376.

^{page 46 note 30} (1762) 3 Burr 1354. The rule was accepted in Canada: Bank of Montreal v. King (1907) 38 S.C.R. 258 and rejected in Ceylon: Imperial Bank of India v. Abeysinghe (1927) 29 N.L.R. 258. For the extensive literature on the subject, see esp. Ames, “The Doctrine of Price v. Neal” (1891) 4 H.L.R. 297; Aigler, “The Doctrine of Price v. Neal” (1926) 24 Mich. L.R. 809.

^{page 46 note 31} See Britton, op. cit. 377. The reasoning is not convincing: a. the drawee bank is not entitled to restitution even if not guilty of negligence; b. negligence does not generally defeat restitution—Kelly v. Solari (1841) 9 M. & W. 54.

^{page 46 note 32} See London and River Plate Bank v. The Bank of Liverpool [1896] 1 Q.B. 7.

^{page 46 note 33} See Goff, and Jones, , Restitution (1966) 498.Google Scholar

^{page 46 note 34} Secs. 54 and 55 of the English Act; secs. 52 and 53 of the South African Act; secs. 59 and 61 of the Australian Act; secs. 128–131 of the Canadian Act; secs. 54 and 55 of the Israeli Ordinance; secs. 62 and 63 of the N.I.L. These sections deal with the acceptor and not with the drawee, but the argument seeks by analogy to apply the acceptor's estoppel to the drawee as well.

^{page 46 note 35} See Woodward, , On Quasi-Contracts § 86.Google Scholar

^{page 46 note 36} See summary of this section at the end of Sec. F in the second part of this article.

^{page 46 note 37} Sec. 3–418 of the U.C.C. which provides:

“Except for recovery of payment as provided in the Article on Bank Deposits and Collections (Article 4) and except for liability for breach of warranty on presentment under the preceding section, payment or acceptance of any instrument is final in favour of a holder in due course, or a person who has in good faith changed his position in reliance on the payment.”

The section referred to is sec. 4–301 of the U.C.C., which allows the bank to revoke payment within a very short time.

^{page 47 note 38} Ibid.

^{page 47 note 39} See the summary of Section F which will appear in the second part of this article. Cowen, op. cit. 393 is of a different opinion.

^{page 47 note 40} See Britton, , “Defenses, Claims of Ownership and Equities—A Comparison of the Provisions of the Negotiable Instrument Law with Corresponding Provisions of Article 3 of the Proposal Commercial Code” (1955) 7 Hastings L.J. 1, 41.Google Scholar

^{page 47 note 41} The problem does not arise if the drawer's account has not been debited, as he suffers no damage and there is no enrichment at his expense. The question which arises in such cases is, naturally, whether the drawee is entitled to a remedy against the person paid. But see p. 44 above.

^{page 47 note 42} Adir v. Holon Municipality (1964) (II) 18 P.D. 463.

^{page 47 note 43} But what if the bill bears the signatures of indorsers and is held by a holder in due course? I think that the denial of a recourse in tort is justified as the drawer is not entitled to possession of the bill.

^{page 48 note 44} The court relied on Foley v. Hill (1848) 2 H.L. 28.

^{page 48 note 45} On the face of it, the mistaken payment is made by the drawee and not by the drawer, so that no restitution can be claimed by the latter. But the drawee lawfully debited the drawer's account so that the payment by the drawee may be considered as having been made by the drawer himself.

^{page 48 note 46} For a criticism of this condition, see Paget, op. cit. 359. The court recognized the importance of the condition, although it cited London and River Plate Bank v. The Bank of Liverpool [1896] I Q.B. 7 which did not accept the condition and relied on the possibility of change of position for the worse.

^{page 48 note 47} The Court relied on the case of London and River Plate Bank n. 46 above.

^{page 48 note 48} The court relied on Imperial Bank of Canada v. Bank of Hamilton [1963] A.C. 49.

^{page 48 note 49} See n. 45 above.

^{page 48 note 50} See Britton, op. cit. 378.

^{page 48 note 51} For the drawee's rights see sec. 2. c. above.

^{page 48 note 52} Sec. 3–418 of the U.C.C. quoted in n. 37 above.

^{page 49 note 53} Sec. 3–417 of the U.C.C. quoted in n. 26 above.

^{page 49 note 54} See sec. 2. a. above.

^{page 49 note 55} See sec. 2. c. above.

^{page 49 note 56} The accepted view in Anglo-American law is that the drawing of a bill does not serve as an assignment to the holder of the drawer's rights against the drawee. Sec. 53 of the English Act; sec. 51 of the South African Act; sec. 58 of the Australian Act; sec. 127 of the Canadian Act, sec. 53 of the Israeli Ordinance; sec. 127 of the N.I.L., Sec. 3–409 of the U.C.C. which provides:

“(1) A check or other draft does not of itself operate as an assignment of any funds in the hands of the drawee available for its payment and the drawee is not liable on the instrument until he accept it.”

The position is different in Scotland and on the Continent. See Baxter, , “The Bill of Exchange as an Assignment of Funds” (1953) 31 Can. Bar Rev. 1131.Google Scholar

^{page 49 note 57} See a later part of Section F in the second part of this article.

^{page 49 note 58} See Sec. 66 of the N.I.L. above.

^{page 49 note 59} Cit. n. 57 above.