CREATION OF NEGOTIABLE INSTRUMENTS
Language and Words Required to Create Negotiable Paper
Sec. 20. Requirements of a negotiable instrument. The Uni-
form Negotiable Instruments Act provides that "An instrument to
be negotiable must conform to the following requirements:
1. It must be in writing and signed by the maker or drawer;
2. Must contain an unconditional promise or order to pay a sum
certain in money;
3. Must be payable on demand, or at a fixed or de terminable
4. Must be payable to order or to bearer; and
5. Where the instrument is addressed to a drawee, he must be
named or otherwise indicated therein with reasonable certainty."
Sec. 21. Writing and signature. The Uniform Negotiable In-
struments Act provides that an instrument, to be negotiable, must
be in writing and signed by the maker or drawer. This stipulation
is necessarily a requirement, because the language used must re-
main uniform throughout the entire time of the paper. It is not
required that any particular type or kind of writing be used, neither
is it necessary that the signature be at any particular place upon
the instrument. 1 The signature of the maker or drawer may be in
any form: printed, written, or stamped. A sign or any kind of
written words is sufficient, if it is clear that such method was in-
tended to represent the signature of the party creating the liability
in a note. 2
Sec. 22. The necessity of a promise. A note must contain a
promise to pay money. It is not required that the exact word
"promise" be used, but the language must make it clear that a
promise was intended. 3 Mere admissions or written acknowledg-
ments of a debt are not promises. The following are illustrations
of acknowledgments of indebtedness and contain no promise :
I owe my brother $100.00.
Due Bronson and Brown $18.40.
I U Sam Smith the sum of $110.30.
l ln re Donohoe's Estate, 1922, 271 Pa. St. 557, 115 All. 878; p. 581.
2 Planters' Chemical and Oil Co. v. Morris, 1924, 19 Ala. App. 670, 100 So. 200; p.
3 Shemonia v. Verda, 1927, 24 Ohio App. 246, 157 N.E. 717; p. 582.
150 NEGOTIABLE INSTRUMENTS
Sec. 23. The necessity of an order in a bill of exchange. A
bill of exchange must contain an order. The purpose of the in-
strument is to order the debtor to pay a person other than the
creditor. It is necessary, therefore, that plain language be used,
showing an intention to make an order. The language must be
imperative. It must signify more than a request; it must unequiv-
ocally show a right to ask and a duty to obey. The order must be
further distinguished from an authority to pay. A written author-
ization to a debtor to pay a third person would not be sufficient.
The following are illustrations of language which cannot fairly be
interpreted as orders to pay:
Please let the bearer have $10.00 and place to my account.
We hereby authorize you to pay, on our account, to the order of
William Green the sum of $400.
Sec. 24. The promise or order must be unconditional. The
Uniform Negotiable Instruments Act states that an instrument, to
be negotiable, must contain an unconditional promise or order.
The promise or order to pay must not depend upon the happening
of some outside event. It must be payable absolutely; otherwise
its negotiable character would be impaired, in that no person would
wish to purchase paper, if the right to recover depended upon the
happening of some event. Although the event upon which the
instrument is payable occurs, this fact does not remove the objec-
tion. If a condition is stated upon the face of the paper, it is im-
possible to tell from an examination of the paper whether the event
has happened or ever will happen. The happening of the event
will not cure the defect.
A question of whether or not the promise or order is conditional
often arises when additional language is added; that is, when there
is a reference to a contract which gives rise to the instrument, or
when there is a reference to a particular fund out of which payment
may be made, or when there is a security contract supporting the
promise. Whether these different situations, stated upon the face
of the instrument, make the promise or order conditional, depends
upon how they are referred to and how closely the promise or order
is related to them.
Sec. 25. Statement of transactions giving rise to the instru-
ment. A statement upon the face of a note of the consideration
which gives rise to the instrument will not of itself make the prom-
ise conditional. 4 Likewise, a mere reference to some contract out
of which the note develops does not destroy the negotiability of the
instrument. Whether the language on the face of the instrument
'Siegel et al. v. Chicago Trust and Savings Bank, 1890, 131 111. 569, 23 N.E. 417;
CREATION OF NEGOTIABLE INSTRUMENTS 151
is merely an indication of the source of the consideration for which
the paper was given or language showing an intention to condition
the promise is a question of the construction of the language. The
words used and their place upon the paper are important in deter-
mining the relationship between the statement and the promise.
The courts usually construe the language so as to make the instru-
ment negotiable whenever possible and refrain from implying con-
ditions, on the grounds that the parties could have expressly con-
ditioned the promise. The words "as per contract" are generally
held not to make the promise conditional, but the words "subject
to contract" will ordinarily be construed as making the promise
conditional and the instrument nonnegotiable.
Sec. 26. An indication of a particular fund out of which reim-
bursement is to be made. An instrument may state upon its face
that a certain account is to be debited or charged. This statement
does not make the promise or order depend upon the existence of
the funds in such an account, but indicates that these funds are to
be used. If it is clear that the order or promise is to be paid at all
events, irrespective of whether the funds in the account are suffi-
cient, then the promise or order is not conditional. An instrument
drawn upon or payable out of a particular fund, whether the fund
has already accrued or is to accrue in the future, contains a condi-
tional promise and is not negotiable, 5 since it does not carry the
general personal credit of the drawer, and is contingent upon the
sufficiency of the fund on which it is drawn. An illustration of
such promise or order is as follows: To A. Pay to 5, or order, $500
out of funds due me from the X estate. Signed, Y.
Sec. 27. Security contracts upon the face of notes and bonds.
The two types of security contracts most frequently written upon
the face of notes or bonds, or incorporated therein by reference,
are conditional sales and mortgages. In either case the purpose is
to make clear to the holder that the promise to pay is secured by
something in addition to the general credit of the maker, and, as a
consequence, a mere reference to the security does not destroy ne-
Notes given in settlement of property purchased on installment
usually provide that title to such property shall not pass to the
maker of the note until all payments called for have been made.
Only upon full payment does the title to the goods pass to the
buyer. In other words, the transfer of title to the property is made
conditional on payment of the note, but there is nothing to indicate,
other than by implication, that payment is dependent on the trans-
fer of title. As a matter of fact, title passes automatically when
"Glendora Bank v. Davis et aL, 1928, 204 Cal. 220, 267 Pac. 311; p. 683.
152 NEGOTIABLE INSTRUMENTS
final payment is completed. Hence there is no sound reason for
holding conditional sale notes nonnegotiable. The majority of the
courts follow this line of reasoning, 6 but there are a few states which
hold conditional sale notes to be conditional and therefore non-
Notes and bonds which are secured by a mortgage or trust deed
usually make mention of such fact. A mere statement to the effect
that they are "secured by" a certain mortgage or deed in no respect
affects negotiability. 7 However, notes and bonds are occasionally
made "subject to" the terms of a particular trust deed or mortgage,
or the language of the note or bond is so worded as to incorporate
all the terms of a trust deed or mortgage and make such terms a
part of the instrument. In either case the note or bond is made
nonnegotiable, 8 ' 9 because it is not clear from the face of the paper
whether or not the promise is unconditional; reference must be
made to some other document to determine the net effect of the
Sec. 28. Time and other events as conditions. Notes and bills
of exchange that are payable when X marries, when certain goods
are sold, when pay check arrives> when work is completed, when
goods arrive, and so forth, are clearly not negotiable because pay-
ment is conditional upon the happening of the event.
Sec. 29. The sum must be certain. The language used in
creating negotiable paper must be certain with respect to the
amount of money promised or ordered to be paid. Otherwise, its
value at any period cannot definitely be determined. If the prin-
cipal sum to be paid is definite, the negotiability is not affected by
the fact that it is to be paid with interest, or in installments, or with
exchange at a fixed or current rate, or with costs of collection and
attorney's fee in case payment shall not be made at maturity. 10
If at any point of time during the term of the paper its full value
can be determined with certainty, the requirement that the sum
must be certain is satisfied. When the amount of costs and attor-
ney's fees is left blank, some courts hold that a reasonable amount
is recoverable. The obligation to pay costs and attorney's fees is
part of the security contract, separate and distinct from the pri-
mary promise to pay money, and does not, therefore, affect the re-
quirement as to a sum certain. The certainty of amount is not
affected if the instrument specifies different rates of interest before
Welch v. Owenby, 1918, (Okl.) 175 Pac. 746; p. 584.
7 Page v. Ford, 1913, 65 Or. 450, 131 Pac. 1013; p. 585.
8 Hull v. Angus, 1911, 60 Or. 95, 119 Pac. 284; p. 586.
9 Enoch v. Brandon, 1928, 249 N.Y. 263, 164 N.E. 45; p. 587.
10 Huston v. Rankin, 1922, 36 Ida. 169, 213 Pac. 345; p. 588.
CREATION OF NEGOTIABLE INSTRUMENTS 153
or after maturity; 11 neither is certainty affected if no rate of inter-
est is given, because the legal rate is then payable.
Sec. 30. Instruments must be payable in money. An instru-
ment, to be negotiable, must be payable in money ; but its validity
and negotiable character are not affected by the fact that it desig-
nates a particular kind of current money in which payment is to be
made. Instruments payable in chattels, such as one hundred bush-
els of wheat or one ounce of gold, are called promissory notes, and
by statute in some states pass by indorsement. Such instruments,
however, are not negotiable. Negotiable paper, passing as money,
must have a uniform standard of value, which commodities gener-
ally do not have.
Just what is meant by "money" and "current money" is not clear.
The better view on this problem is that "money" and "current
money " shall mean (( such circulating media as are legal tender or
are lawfully and actually circulating at par with legal tender at the
time and place of payment" Under such an interpretation the
instrument will have a known and uniform value.
The weight of authority seems to be that an instrument payable
in "current funds" is negotiable. Likewise, a bill or note payable
in specific foreign money is generally negotiable, because its value
is determinable by the rate of exchange, and therefore satisfies the
requirement as to certainty of the sum.
Time of Payment Must Be Certain
Sec. 31. In general. As a substitute for money, negotiable
paper would be of little value if the holder were unable to determine
at what time he could demand payment. It is necessary, there-
fore, that there be certainty as to time of payment. The law, as
codified by the Negotiable Instruments Act, requires that a negoti-
able instrument be payable on demand or at a fixed or determinable
Sec. 32. Demand paper. An instrument is payable on demand
when it so states, when payable at sight or presentation, when no
time of payment is given, or when the instrument is issued, ac-
cepted, or indorsed after it is overdue. In general, the words "pay-
able on demand" are used in promissory notes, the words "at sight"
in bills of exchange. If nothing is said about the due date, the
instrument is demand paper. A check is a good illustration of
such an instrument; it is a demand bill of exchange. Overdue
paper is necessarily demand paper, because the holder has an im-
mediate right of action for the money promised.
11 Union National Bank of Massillon. Ohio v. Mayficld et al., 1918, 71 Okl. 22, 174
Pac. 1034; p. 590.
154 NEGOTIABLE INSTRUMENTS
Sec. 33. Payable at a fixed or determinable time. An instru-
ment is payable at a fixed date when it is payable on a definite date,
such as June 1, 1933. Just what is a determinable time, however,
is a question of some difficulty. The Uniform Negotiable Instru-
ments Act states that an instrument is payable at a determinable
future time when it is payable at a fixed period after date or sight,
that is, "ninety days after date/' or "sixty days after sight, I prom-
ise." Time, by the Act, is determinable when the instrument is ex-
pressed to be payable on or before a fixed or determinable future
time specified therein, as on or before thirty days after date. Time
is also determinable within the meaning of the Act when the in-
strument is payable on or after a fixed period after the occurrence of
a specified event, which is certain to happen, though the time of
happening be uncertain. For example, a note payable on the death
of X or one year after Jf's death is payable at a determinable time.
But an instrument payable on a contingency which may or may
not occur is not determinable, and the happening of the contin-
gency does not cure the defect. A note payable "twenty days after
I become twenty-one" is not negotiable. Such an instrument also
lacks an unconditional promise, for the payment is conditional on
an event which may never take place. Since the promise is con-
ditional, the time is not necessarily fixed or certain.
Sec. 34. Accelerating clauses. A type of provision often found
in a negotiable instrument that hastens or accelerates the ma-
turity date of the instrument is called an accelerating clause. One
type of accelerating provision in constant use provides that in
case of default in payment of interest or of an installment of the
principal, the entire note shall become due and payable. A second
type of accelerating provision is one which stipulates that on de-
fault by the maker in carrying out a collateral agreement, the
whole instrument shall become due and payable at once. 12 An in-
finite variety of collateral agreements may be incorporated into an
instrument; for example, the instrument shall become due on fail-
ure to pay the taxes on Blackacre, on failure to insure a building,
on the removal of said goods, in case an incumbrance is placed on
the machine, in case of failure to supply additional security, and so
forth. Other types of acceleration provisions are those giving the
holder an option to declare the instrument due and payable when
he feels insecure, or giving the maker an option to pay the whole of
the said principal sum or any multiple thereof at any time or upon
any interest paying date. These and many other types of acceler-
13 McCormick and Co., Bankers, v. Gem State Oil and Products Co., 1923, 38 Ida.
470, 222 Pac. 286; p. 591.
CREATION OF NEGOTIABLE INSTRUMENTS 155
ating provisions are being used increasingly in instruments by the
commercial world, and the courts of the country are faced with the
problem of deciding whether such provisions destroy the negotia-
bility of an instrument otherwise negotiable. As might be ex-
pected, the courts are not entirely in accord as to whether such
clauses impair negotiability.
The first type of accelerating provision mentioned above is uni-
formly held not to affect negotiability, although it contains a pro-
vision that on default by the maker in the payment of interest or
principal the whole amount shall become due and payable at once.
The Act expressly provides that such a clause does not render un-
certain either the time or the amount.
The courts are in conflict as to the effect of an accelerating pro-
vision specifying that on default of the maker in carrying out a
collateral agreement the whole sum shall become due and payable.
The weight of authority seems to be that such provisions do not
affect the negotiability, but a respectable minority holds that such
clauses not only violate the rule as to certainty of time but also
require the performing of acts other than the payment of money.
While logically the minority seems to have the best of the argu-
ment, the majority rule is most practical and useful in that such
provisions aid in securing payment, thus making the instrument
more salable and acceptable in the business world.
With regard to the provision which allows the holder to declare
the instrument due when he feels insecure, the weight of authority
is against negotiability, 13 the objection being that the date of ma-
turity is placed wholly under the control of the holder and that
maturity may be accelerated upon his whim or caprice and is inde-
pendent of any act done or omitted by the maker. However, such
a provision in a demand instrument is not material, for the time of
payment is primarily at the volition of the holder in any event.
A provision which gives the maker the option to pay the whole or
any part of the principal at any interest-paying date or at any time
before maturity is generally held not to affect negotiability. Pro-
visions which permit the maker to hasten payment do not impair
the negotiability of paper.
Payable to Order or to Bearer
Sec. 35. The words "or order" and "or bearer." The words
"or order" and "or bearer" are said to be the words of negotiability.
It is not necessary that these exact words be used. Words express-
ing the same meaning and manifesting an intention that the instru-
13 First State Bank of Cheyenne v. Barton, 1928, 129 Okl. 67, 263 Pac. 142; p. 592.
156 NEGOTIABLE INSTRUMENTS
ment be negotiated are sufficient. In order to make certain the ne-
gotiability of the paper, words of negotiability should be used. 14
In the absence of such words, the paper has no capacity to pass
current as money. The maker of a promissory note, made payable
to X or order, may be said to make two promises. The maker
promises to pay X if X holds the paper ; he also promises to pay any
other person that X may order him to pay. A drawer of a bill of
exchange orders the drawee to pay the named payee, or any person
named by the payee. Likewise, in any instrument payable to X
or bearer, the maker promises to pay X or any person who is in
possession of the instrument. If the instrument is payable to the
bearer X, it is nonnegotiable, because the maker promises to pay
only one specific person.
Sec. 36. Order paper. According to the Uniform Negotiable
Instruments Act, an instrument is payable to order when it is drawn
to the order of a specified person, or to him or his order. It may
be drawn payable to the order of any person, or to the order of the
maker, drawer, or drawee, or to two or more persons jointly, or in
an alternative to one of several persons, or to the holder of an office
for the time being. When a note is drawn to the maker's own
order, it is not complete until indorsed by him.
Instruments payable to order require an indorsement for negotia-
tion, whereas bearer paper is negotiated by delivery.
Sec. 37. Bearer paper. The Uniform Negotiable Instruments
Act defines bearer paper as follows: "The instrument is payable to
bearer: (1) when it is expressed to be so payable; (2) when it is
payable to a person named therein or bearer; (3) when it is payable
to the order of a fictitious or nonexisting person and such fact was
known to the person making it so payable; (4) when the name of
the payee does not purport to be the name of any person; or (5)
when the only or last indorsement is an indorsement in blank."
Under (1) and (2) whether paper is bearer paper is self-evident.
Under (3) when an instrument is payable to the order of a ficti-
tious or nonexisting person and this fact is known to the person
creating it, it is bearer paper. This result follows because a ficti-
tious or nonexisting person would have no physical capacity to
indorse the paper; therefore, the maker or drawer intended title
to pass by delivery. For example, A draws a paper payable to the
order of F, knowing that Y does not exist; or, if he does exist, A
does not intend that Y shall have any interest in the paper. Such
a paper is bearer paper ; however, when the payee is fictitious but
the fiction is not known to the drawer, or maker, the paper is or-
"Wettlaufer v. Baxter, 1910, 137 Ky. 362, 157 S.W. 741; p. 593.
CREATION OF NEGOTIABLE INSTRUMENTS 157
dinarily held not to be bearer paper. 15 Likewise, under (4), if the
name of the payee does not purport to be the name of any person,
the paper is bearer paper. Checks for convenience, drawn payable
to "cash" or order, to "bills payable" or order, to "draft" or order,
are bearer paper. 16 Here, since we have no payee capable of in-
dorsing the instrument, title to the instrument passes by delivery;
otherwise the paper could not be circulated as the maker or drawer
undoubtedly intended that it should. But if the drawer of a check
draws a line through the blank space where the payee's name usu-
ally is inserted, the check is not bearer paper and is void for the lack
of a payee. An instrument originally order paper becomes bearer
paper when the only or last indorsement is an indorsement in blank.
For example, if an instrument is payable to the order of X, and X
indorses it to T by signing "X," or if .Y indorses "pay to the order of
F," and Y indorses it to T by signing "F," T is the holder of bearer
paper. (For further discussion of this topic see Section 53 under
"Indorsement of bearer paper," p. 169.)
Factors Not Affecting Negotiability
Sec. 38. Additional language not affecting negotiability.
Additional language may be added to the formal words which create
negotiable paper without affecting its negotiability. Such addi-
tional language usually pertains to security transactions as already
mentioned, or gives other privileges and options to the holder, in
that he may elect to take something in lieu of the payment of
The Uniform Negotiable Instruments Act definitely states that
authorization for the sale of collateral security in case the instru-
ment is not paid at maturity, and confession of judgment on de-
fault by the maker, do not affect its negotiability. Likewise, the
waiver of rights given by statute to the obligor does not affect the
negotiability. For example, the statutes of the various states usu-
ally provide that a certain amount of property may be exempt from
a judgment sale. There are any number of rights which may be
the subject of an exemption in a negotiable paper. Certain kinds
of rights cannot be waived. Whether or not the right is waivable
will not affect the negotiability of the paper.
A confession of judgment clause is in the nature of a security
agreement for the benefit of the holder. It usually provides that
* United Cigar Stores Co. v. American Raw Silk Co., Inc., 1918, 171 N.Y. Supp.
480; p. 594.
16 Mechanics Bank of the City of New York v. Straiton, 1867, 423 Keyes (N.Y.)
365; p. 594.
158 NEGOTIABLE INSTRUMENTS
the holder of the instrument may secure a judgment in any Court
of Record if not paid on the date of maturity by the maker. This
type of note is called a judgment note.
The law provides that a person cannot proceed against another
unless the person sued is notified by a summons. If the debtor
cannot be found, no suit can be brought. Furthermore, before a
judgment can be reached in a court, it is necessary to have a trial
by court or jury a procedure which means some delay and ex-
pense. The holder of the note, therefore, may have to wait a long
period of time before he can secure a judgment, which will be a lien
upon the property of the maker. During this period of time, the
debtor, or maker, may lose his property, conceal it, or convey it
away, so that the judgment will be valueless.
The effect of a confession of judgment clause is to waive the sum-
mons and the trial by court or jury, and to permit a confession of
the debt, allowing a judgment to be entered by the court against
the maker, or debtor, immediately after default of any interest or
payment of the principal. Immediately following the entry of the
judgment, any of the property owned by the maker may be sold to
satisfy the judgment, or his wages and bank account or other credits
may be attached or garnished. This method of securing a judg-
ment requires less than one-half hour, whereas, without such a
judgment clause to secure the holder, a judgment by trial might not
be obtained for weeks or months.
The law in at least one state, Illinois, apparently permits the
holder to take judgment any time after the date of the instrument,
without affecting the negotiability of the paper. However, in most
states an instrument which contains a provision authorizing a con-
fession of judgment at any time after the date of the instrument
makes the instrument nonnegotiable because it permits the holder
to declare the instrument due at his option and thus violates the
rule as to certainty of time. 17 The majority rule may thus be
stated that a provision in an instrument otherwise negotiable, au-
thorizing the holder to confess judgment after maturity or after the
instrument becomes due, does not render the instrument nonnego-
Sec. 39. Election by the holder to require something to be
done in lieu of the payment of money. The negotiable character
of an instrument otherwise negotiable is not affected by a provision
which gives the holder, at maturity, an option to take something,
or to require something to be done, in lieu of money. 18 It should
be made absolutely clear, however, that the option is given to the
holder and not to the maker. For example, an instrument which
permits the maker either to pay money, or to deliver certain prop-
erty, or to perform certain services is nonnegotiable. However, if
the instrument merely provides that the holder may elect to take
either money, property, or services, the negotiability is not affected.
Sec. 40. Omissions in negotiable instruments not affecting
negotiability. The Uniform Negotiable Instruments Act suggests
certain formal language to be used in order to give an instrument its
negotiable character. Nevertheless the instrument need not in-
clude the exact language of the Act, but may use any terms which
clearly indicate an intention to conform to the requirements of the
Act. Many words which would appear to be essential are, in fact,
nonessential. The validity and negotiable character of an instru-
ment otherwise negotiable are not destroyed by the fact that it is
not dated, or that the words "value" or "value received" are omit-
ted, or that it does not state what value was given for it. Neither
is it necessary that a negotiable instrument bear a seal. However,
it may bear a seal and its negotiability will not thereby be affected.
The instrument is negotiable although it does not specify the
place where it is drawn or the place where it is made payable.
Sec. 41. Omissions and blanks when they may be filled.
Any person in possession of an instrument has the power to com-
plete it by filling in any blanks. Such person is presumed to have
this authority, and this presumption continues until the person
who is liable thereon is able to show by some evidence that there
was no authority to complete the blanks or that the authority had
been improperly exercised. The canadian law provides that, where the in-
strument is wanting in any material particular, the person in pos-
session thereof has prima facie authority to complete the same by
filling in the blanks; as, for example, the amount, the date of pay-
ment, and so forth. If a person signs his name to a blank paper
and delivers it to another person, this delivery carries the authority
of the person signing the instrument to fill it in, provided the omis-
sions are supplied in compliance with the authority. If, after the
completion of the instrument, it is negotiated and comes into the
hands of a holder in due course, such holder may enforce the in-
strument for the full amount against the person who signed the in-
complete instrument, even though the instrument was completed in
violation of authority. But if the holder is not a holder in due
course, or if there is not a holder in due course prior to him in the
chain of title, then such a holder can enforce the instrument against
persons who became parties thereto prior to its completion only
when the instrument has been completed strictly in accordance
with the authority given and within a reasonable time after its
delivery. For example, suppose that D signed his name to a check
and handed it to his agent, A, with the instruction that A make it
payable to P, for $200, the, amount of a debt that D owed P. Dis-
regarding instructions, A, a year later, made it payable to X for
$1,000 and gave it to -XT 'as .a gift. Since X is not a holder in due
course, having given no consideration, he cannot enforce it against
D because it was not completed in accordance with D's instructions
or within a reasonable time.
Sec. 42. Antedated and postdated instruments. The mere
fact that an instrument is postdated or antedated does not affect
its negotiability, unless such dating is for some illegal or fraudulent
purpose. The person to whom the instrument is delivered acquires
title to the instrument; that is, he becomes the owner upon the date
of the delivery and may negotiate it immediately. It is not neces-
sary to hold the instrument until the day it is dated before trans-
ferring it to another. 19 Neither does antedating or postdating
make the instrument irregular on its face. If a check is postdated,
payment may be stopped the same as on a check dated the day it is
issued. The bank on which a postdated check is drawn may not
pay the check until the date on the check, because to do so would be
to pay before ordered by the depositor.
The date appearing on the instrument or on the acceptance or
on any indorsement is presumed to be the true date of the making,
drawing, acceptance, or indorsement, as the case may be; and the
burden is on the person disputing the correctness of the date to
establish that the named date is not the correct one.
The holder of an undated instrument which is made payable on
a fixed period after issue may insert therein the true date of the
instrument and it will be payable accordingly. To illustrate: P
is the holder of a promissory note payable 60 days after date, but
the note does not contain the date of issue ; P may insert the true
date of issue. Likewise the holder of a bill of exchange payable at
a fixed period after sight, the acceptance of which is not dated, may
insert the true date of acceptance. The insertion of a wrong date
does not void the instrument in the hands of a subsequent holder
in due course ; but as to him, the date so inserted is to be regarded
as the true date. However, it seems that insertion of a different
date from the true one, without the authority of all persons who
signed the instrument, renders the instrument void in the hands of
all those who are not holders in due course or have not taken title
through a holder in due course.
Sec. 43. Ambiguous language, construction, of. When the
meaning of the words and language used in a negotiable instrument
is not clear or when there are omissions in it, certain rules to deter-
mine the meaning are given in the law and are set out in the Uni-
form Negotiable Instruments Act as follows:
"1. Where the sum payable is expressed in words and also in fig-
ures and there is a discrepancy between the two, the sum denoted
by the words is the sum payable; but if the words are ambiguous
or uncertain, reference may be had to figured to fix the amount.
"2. Where the instrument provides for the payment of interest,
without specifying the date from which interest is to run, the in-
terest runs from the date of the instrument, and if the instrument
is undated, from the issue thereof.
"3. Where the instrument is not dated, it will be considered to
be dated as of the time it was issued.
"4. Where there is a conflict between the written and printed
provisions of the instrument, the written provisions prevail.
"5. Where the instrument is so ambiguous that there is doubt
whether it is a bill or a note, the holder may treat it as either, at his
"6. Where a signature is so placed upon the instrument that it is
not clear in what capacity the person making the same intended to
sign, he is to be deemed an indorser.
"7. Where an instrument containing the words 'I promise to pay'
is signed by twx> or more persons, they are deemed to be jointly and
severally liable thereon. "
Sec. 44. Liability of person signing as an agent. Liability on
negotiable paper may be created by an act authorizing another per-
son to sign the instrument for or on behalf of the party charged.
The person signing the instrument is called the agent, and the
agent's authority to sign may be written, oral, or implied. Whether
the instrument was signed in compliance with an authority given is
a question arising under the law of agency considered under the
section on Agency.
The Uniform Negotiable Instruments Act states that, where the
instrument contains, or when a person adds to his signature, words
indicating that he signs for or on behalf of a principal or in a repre-
sentative capacity, he is not liable on the instrument if he was duly
authorized; 20 but the mere fact that he adds words describing him-
self as an agent or as filling a representative capacity without stat-
ing clearly or disclosing who is his principal does not exempt him
from personal liability on the paper.
If the agent merely describes himself as an agent and the instru-
ment contains no words which show for whom he is acting, he will
be personally liable on the instrument to the holder, who has no
20 Jump v. Sparling, 1914, 218 Mass. 324, 105 N.E. 878; p. 597.
162 NEGOTIABLE INSTRUMENTS
knowledge of such fact. Thus, John Smith, agent, treasurer, secre-
tary, trustee, and the like, creates a personal liability on the instru-
ment. However, some conflict exists among the authorities as to
the right to admit parol evidence to show representative capacity,
where such fact was known to the payee, or holder. Following the
well-established rule in contracts, many courts hold that parol evi-
dence is not admissible to prove the agency, but some authorities
hold that even though there is nothing on the instrument to show
that it was issued by an agent, or where words merely indicating
agency are used, parol evidence may be introduced to show that the
parties intended the instrument to be issued for and in behalf of a
principal. If the agent signs the instrument without authority, he
is personally liable, whether or not it discloses the name of the pre-
tended principal. The safest way for an agent to sign a negotiable
paper is to sign the name of the principal first, followed by his
own name; as, for example, "The Urbana Foundry Company, per
Henry Brown, Secretary/' This method is used by corporation
officers signing corporate obligations.
A person conducting a business under a trade name, or acting
under an assumed name, may sign a negotiable instrument by the
name of such business or by such assumed name, and is liable in
the same manner and to the same extent as if he had signed the
instrument in his own name.
Sec. 45. Liability of infants and corporations. Under the
general law of contracts, transactions entered into by infants may
be avoided. Therefore, any negotiable instrument created by an
infant is voidable, in that the infant cannot be liable as a primary
party and he may disaffirm the instrument before or after he arrives
at maturity. An infant is liable for necessaries, but his liability
does not arise by reason of his having signed a check or a note for
such necessaries. Although the paper created by the infant can-
not, under the law, bind the infant, nevertheless, the infant has the
power, as a secondary party, to pass title to the same by indorsement
or assignment. When a note or a bill of exchange passes through
the hands of an infant, the indorsement upon it by the infant trans-
fers title to the holder as though the infant were under no disability,
and the instrument may be enforced against all other parties on the
paper before or after his indorsement. Such parties cannot be
heard to say that the person suing on the note has not good legal
title merely because he made his title through the infant's indorse-
ment. This rule is true in spite of the fact that such infant may
disaffirm all liability on the instrument. However, the power of
an infant to pass the property in the instrument by indorsement
does not affect his power to disaffirm his indorsement and recover
CREATION OF NEGOTIABLE INSTRUMENTS 163
the instrument even against an innocent indorsee for value. 21 It
seems that after notice of disaffirmance by the infant, payment of
the instrument must be made to the infant or else the instrument
is not discharged. An instrument executed, accepted, or indorsed
by an infant is usually considered as being voidable until ratified
A corporation has only those powers given to it by its charter or
such as are necessary and incident to carrying out the purposes for
which it was created. A corporation cannot be held for acts done
by its officers outside the scope of its corporate powers. However,
like an infant, a corporation may pass title to negotiable paper,
even though the transaction was made outside the powers given
by the charter.
Review Questions and Problems
1. Must the maker of a negotiable note sign it in ink? Must he sign
it at the bottom of the instrument?
2. Is the following a negotiable instrument?
If possible, pay to my brother Bill or order $250.
(Signed) Henry Rood.
3. S was a real estate agent and was attempting to find a buyer for a
house owned by M. The consideration which S was to receive in the
event a buyer was found was set at $250. Therefore, M gave the follow-
ing note to S:
I promise to pay to the order of S $250 if he sells my house.
Is the note negotiable? If S sells the house, is it negotiable?
4. A purchases an automobile from P and gives P a note which con-
tains the following statement:
"This note is given in payment of one used Overland car, title and the
right to possession of which rest in the payee until this note is fully paid."
The note was negotiated to a third party, who is now attempting to
recover on it. A desires to set up as a partial defense the fact that the
car was not as represented. May he do so?
5. Is an instrument payable in oats or wheat negotiable? If an in-
strument is payable in either money or a commodity, at the option of the
holder, is it negotiable?
6. A promised to pay to B or order the sum of $300 and the amount
of taxes to be paid upon a certain stipulated mortgage. Could such an
instrument be negotiable? Suppose it had been $300 and New York
7. May an instrument be negotiable, if no time of payment is speci-
fied? What is such an instrument called?
8. Is a note which has the following clause negotiable?
"Payable June 1, 1927, or sooner in case I sell my house."
Suppose it had read "on or before June 1, 1927"?
9. Is a note payable to the "order of a box of soda crackers" negotia-
ble? Name four instances in which paper is bearer paper. How is
bearer paper negotiated? May the name of a real person become a
10. A note contains a clause which permits the holder to obtain a
confession of judgment immediately after the note is issued. Does this
fact affect the negotiability of the paper?
11. A note otherwise negotiable contains no date, rate of interest, or
place of payment. Is it negotiable?
12. When there is a conflict between the figures and the words in a
check, which prevails?
13. How should an agent sign a negotiable note? May an infant
negotiate commercial paper?