Story Case

The ten banks of Springfield were compelled by financial stress to issue certificate notes among themselves to settle their own balances. This was done to conserve their cash revenues. These were sometimes issued to depositors. One of these certificates issued by the Springfield Second Bank was received by Howard Haft, who indorsed it and passed it to the Springfield Fourth Bank. Before the Springfield Fourth Bank could collect on the instrument, the Second Bank became insolvent. The Fourth Bank, thereupon, chose to look to Haft for payment as an indorser of a negotiable instrument. Haft maintained that these certificates were negotiable only as between the banks and, therefore, he could not be held liable as an indorser of a negotiable instrument.

Ruling Court Case. Oaste Vs. Taylor, Croke's English King's Bench Reports, Page 306

Oaste drew a bill of exchange upon Taylor, the defendant herein, in substance as follows: "£100

Taylor, pay to bearer, one hundred pounds.

(Signed) Oaste." When it was presented for acceptance, Taylor accepted the bill by promising, in writing thereon, to pay it, but when the bill was presented, Taylor refused to settle. Suit was brought against him on the bill. In defense, Taylor contended that he was not liable upon this bill, because it was not shown or alleged that he was a merchant, and therefore was not rendered liable by his acceptance.

Decision: Originally the rules governing liability upon negotiable paper had applied only to merchants. In order, therefore, to charge a person upon negotiable paper, it was necessary to state and show that such person was a merchant. As this was not done, Taylor was not bound by his acceptance. Judgment was given for Taylor.

Ruling Law. Story Case Answer

We have just seen that the Law Merchant grew up among merchants for mercantile convenience. We are, therefore, not surprised to find, in the early history of the Law Merchant, that the use of negotiable paper, according to the customs of the merchants, was confined to merchants in mercantile transactions. In 1613, a suit was brought on a note which was signed by a person who was not a merchant, and the court held that he was not liable. In 1692, a similar suit was brought against a man who had signed a bill; in defense, he pleaded that he was not a merchant, but a gentleman; the court then held that gentlemen, as well as merchants, were liable on such instruments; thus the law has stood since that time. A negotiable or commercial paper is valid and binding, regardless of the person who signs it, and regardless of whether it is a mercantile or non-mercantile transaction. Assuming that the certificates in the Story Case are negotiable instruments, their negotiability is not restricted to a class of persons or institutions. Haft is liable as an indorser.