payment or to postpone the holder's right to enforce the instrument, unless the right of recourse against such party is expressly reserved. (§ 201.)

The reservation of liability against the parties secondarily liable could, of course, only be made with their consent; also any extension of time for payment, no matter how short, will discharge the endorsers or sureties, unless made with the express agreement of these secondary parties.

§ 309. Payment by Party Secondarily Liable.

Where an instrument is paid by a party secondarily liable thereon, it is not discharged, but the party so paying it occupies the same position that he did before endorsing the instrument as regards all prior parties and he may, if he wishes, strike out his own and all subsequent endorsements and again negotiate the instrument except (1) where it is payable to the order of a third person and has been paid by the drawer, or (2) where it was accommodation paper and has been paid by the party accommodated.

The holder may by written renunciation or by delivering the instrument to the person primarily liable thereon, renounce his rights against any party to the instrument at any time. An absolute and unconditional renunciation of his rights against. the principal debtor made on or after the maturity of the instrument discharges it absolutely, but renunciation made before maturity does not affect the rights of a holder in due course without notice. (§ 203.)

CHAPTER XXIX.

BILLS AND NOTES.*

§ 311. General.

In the preceding chapters the subject of negotiable instruments is treated at some length. Bills of exchange-or drafts as they are more commonly termed and notes come under the general rules laid down in those chapters. The present chapter therefore confines itself to features which are peculiar to bills and notes, or which are of special importance.

§ 312. Payment by Drafts and Notes.

When payment is made by a note, the debt for which it is given is extinguished as completely as if payment were made in cash. Payment by draft is equally effectual as soon as the draft has been accepted by the party upon whom it is drawn. If either note or draft is not paid when due, suit for payment may be brought against the parties liable thereon but the original claim is not revived. The obligation of the note or draft has been substituted for that of the original account.

As long as a note or draft remains in the hands of the party in whose favor it is drawn, the fact that it is a negotiable instrument is of no particular advantage. The instrument when due is subject to all of the ordinary defenses for debt, and any amounts owing from the payee to the party who gave the note or draft may be set off against it, or if the consideration for which the instrument was given has failed, payment might be refused entirely.1

* Sectional references in text are to the Negotiable Instruments Law as enacted in New York.

1See § 261.

As soon, however, as a note or draft passes into the hands. of a third party, it comes with a clean bill of health, i. e., its full amount must be paid in accordance with its terms and usually entirely regardless of the conditions under which it was given.

Notes and drafts may therefore be taken by endorsement without concern as to the relations existing between the original parties. It is also to be noted that when a note or draft is taken by endorsement in settlement of a debt, the status of the debt is materially strengthened. The original debtor is still held as an endorser of the note or draft. In addition to this the holder has the prior obligation of the maker of the note or the acceptor of the draft and also of any endorsees and, in the case of a draft, of the drawer as well. If the party primarily liable on the instrument does not pay, the holder may proceed against these others until payment is secured.

3

A note or draft may not, however, be taken by endorsement with safety unless the instrument itself is correct ir form2 and is taken in good faith and for valuable consideration. Also as a matter of ordinary business precaution, the parties to the instrument should be responsible. In addition to this, if the instrument is not accepted or paid when properly presented to the parties primarily responsible, the requirements of the law as to protest and notice must be strictly complied with if the parties secondarily responsible are to be held.

§ 313. Bills of Exchange.

A bill of exchange-commonly known as a draft—is a written order, unconditional in its terms, signed by the giver and addressed to some specified party, directing him to pay a certain sum of money to the party named in the draft or to his order, or to the bearer. A draft payable in the state or the

2See § 262.

3See $274.

Ch. XXVIII, "Collection."

country in which it is drawn is termed an "inland" bill of exchange but if payable in another state or country, is known as a foreign" bill of exchange.

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The party by whom a draft is drawn is termed the "drawer." The party on whom it is drawn is the "drawee." The party to whom its amount is to be paid is termed the "payee." If the payee transfers the draft by endorsement, he becomes the "endorser " of the draft and the party to whom it is transferred is known as the "endorsee."

A draft implies that the drawer has funds in the drawee's hands or that money is due him from the drawee to the amount of the draft and that in either case the amount is subject to his order. If the draft is payable at some future time it is usually presented at once to the drawee for his acceptance. If the drawee intends to pay, he writes "Accepted" across the face of the draft and signs his name.

It

Up to this point the draft is much in the nature of a check. It is merely an order for money and the payee has no legal claim against the drawee, nor is the draft necessarily a payment of the debt against which it was given. As soon as accepted, however, the legal effect of the draft is changed. then becomes an absolute obligation of the acceptor, and the debt against which it was given is extinguished. The drawer is responsible for the payment of the draft in case the acceptor fails to meet it when due, but he is no longer liable on the original claim.

§ 314. Promissory Notes.

A promissory note or a note of hand is the written promise of the party by whom it is made to pay to some person specified in the instrument or his order, or to bearer, a certain sum of money. The party by whom the note is made is known as the "maker." The party to whom it is payable is termed the "payee." If this payee transfers the note by endorsement,

he is then known as the "endorser" and the party to whom it is transferred is known as the "endorsee."

§ 315. Similarity between Drafts and Notes.

A draft is an order for money. A note is a promise to pay money. When, however, a draft is accepted, it becomes the promise of the acceptor to pay its amount and then the draft and the note are practically the same thing.

The acceptor of the draft corresponds to the maker of the note, both promising to pay their respective obligations. The payee of the note and the payee of the draft likewise occupy corresponding positions. The drawer of the draft, however, has no counterpart in the note as long as it remains unendorsed. If, however, the payee of the note transfers it by endorsement to some one else, his position as endorser of the note is legally identical with that of the drawer of the draft and the resemblance between the two instruments is complete.

§ 316. Negotiability of Drafts and Notes.

As stated in a preceding chapter, certain features must appear in drafts and notes as a prerequisite of negotiability.5 If any of these are omitted, the instrument may still be perfectly valid but it is not negotiable. It cannot be transferred by mere endorsement and delivery, or by delivery alone but only by assignment as in any other ordinary contract. Also when so transferred it is still subject to all the defenses existing between the original parties.

While this is true, any additional matter desired may be brought into a note or draft, and, provided this does not interfere with the requisites of negotiability, the instrument is still negotiable. For instance, a statement in a note that it is given in payment of a certain account, or that it is one of a

See $262.