The same attitude has been taken by the courts in many states toward similar provisions in another common type of commercial paper, called chattel notes. Such a note is usually given by the buyer of a chattel for the unpaid portion of the purchase price, and states that the seller retains title to the chattel until the note is paid.3 For example, the purchaser of an automobile has it delivered to him for a small sum in cash and a chattel note for the balance of the price, payable to the seller or his order at a distant day, but containing an acceleration clause that the holder of the note may sue at once and seize the automobile if the buyer attempts to sell it or remove it permanently from the state, or suffers it to be taken by a third party on legal process. Such a provision is often held to destroy the negotiability of the note and turn it into an ordinary contract in writing. If so, the purchaser of the note from the seller can not recover from the buyer of the automobile if the car was defective or the sale fraudulent.

This conflict between mercantile understanding and judicial decision may have far-reaching consequences in the business world. The cases are not unanimous against negotiability, and the legal problem of the effect of these acceleration provisions in collateral time paper is still unsettled. It is therefore worth while to examine the rules of the law of negotiable instruments which are said to be violated by these provisions, and the application of those rules to still other types of paper, which also have a fixed date for payment but mature earlier upon the happening of some event. It will then be possible to determine whether the bank form of promissory notes and the chattel notes are rendered not negotiable by their acceleration clauses.

A negotiable instrument is a substitute for money. It was first used to aid in the payment of money at distant points, and the international bill of exchange still serves that purpose. As an addition to money it increases the purchasing medium in circulation. For instance, if many people did not pay their monthly bills

In states which hold that the clause as to title makes the instrument invalid as a note, the effect of the acceleration clauses is of course immaterial. Sloan v. McCarty, 134 Mass. 245 (1883). It is usually held, however, that the transaction is equivalent to a chattel mortgage by the buyer to the seller, who retains title for security only; the beneficial ownership and risk of loss are in the buyer, who is therefore unconditionally liable upon a negotiable note. Chicago, etc. Equipment Co. v. Merchants' Bank, 136 U. S. 268 (1889). The cases are collected in 8 CORPUS JURIS, 129.

by checks, more specie or paper money would be needed in circulation, and economically as well as practically, there is often not enough money to go round. The manufacturer who cannot obtain cash from his customers insists upon a note or accepted bill instead, which he can immediately discount at his bank and turn into money for his pay roll. The bank in turn rediscounts the bill or note with the Federal Reserve Bank, which makes it part of its reserve for the issue of more money in the form of bank notes. Like money a negotiable instrument is intended to have a definite value and to be taken almost at sight, free from the need for investigation into outside facts and unaffected by the claims of former owners, even if it was stolen or lost. When genuine, it ought to serve as the equivalent of money, except for the distant maturity and the risk of insolvency of private persons and their legal incapacity.

Anything so closely related to money and circulating almost as rapidly must be plainly distinguishable from the ordinary nontransferable written contract, just as a five-dollar gold piece is distinguishable from uncoined gold. Therefore, business custom has established several "formal requisites" for a negotiable instrument, which adapt it for quick circulation and give it an unmistakable label. Although the law usually cares little about the form of a contract and looks to the actual understanding of the parties who made it, the form of a negotiable instrument is essential for the security of mercantile transactions. The courts ought to enforce these requisites of commercial paper at the risk of hardship in particular cases. A business man must be able to tell at a glance whether he is taking commercial paper or not. There must be no twilight zone between negotiable instruments and simple contracts. If doubtful instruments are sometimes held to be negotiable, prospective purchasers of queer paper will be encouraged to take a chance with the hope that an indulgent judge will call it negotiable. On the same principle, if trains habitually left late, more people would miss trains than under a system of rigid punctuality.

A few careless persons must be sacrificed so that the world at large will know just what the rule is and regulate its affairs accordingly. Consequently, as Chief Justice Emery puts it,*

"Commercial paper has long been governed by special rules which, while designed to ensure justice, are also designed to ensure the free and Neal v. Coburn, 92 Me. 139, 145, 42 Atl. 348 (1898).

safe use of an indispensable commercial agency. The commercial world needs and seeks for the plain workable rule rather than for the somewhat abstract right in each case.”

It must not be forgotten, however, that these rules of certainty are not mathematical formulæ evolved out of the pure reason of the judges, but are business requirements created by business needs and susceptible of modification with changing commercial conditions. Law is made for business, not business for law. While the influence of custom on legal principles has sometimes been exaggerated, the history of negotiable instruments leaves no doubt that the courts have based the governing principles upon actual commercial practice, though modifying it when it seemed unreasonable or out of accord with general considerations of justice. Judge Amidon remarks with his refreshing common sense: 7

...

"The rule requiring certainty in commercial paper was a rule of commerce before it was a rule of law. It requires commercial, not mathematical, certainty. An uncertainty which does not impair the functions. of negotiable instruments in the judgment of business men ought not to be regarded by the courts. The fine phrase of Chief Justice Gibson in the case of Overton v. Tyler, 3 Pa. 346, . . . that a negotiable instrument 'is a courier without luggage,' has been made to do much service in the discussion of this subject. The real question, however, is who shall determine what constitutes 'luggage' the business world, or the judge in his library? In no branch of the law has the sound judgment of the English courts shown itself more conspicuously than in the treatment of this subject. Whenever a new instrument, varying in some of its features from the ordinary promissory note or bill of exchange, J. C. CARTER, LAW, ITS ORIGIN, GROWTH, AND FUNCTION; criticized by J. C. GRAY, THE NATURE AND SOURCES OF THE LAW, §§ 598–641.

Б

• Goodwin v. Robarts, L. R. 10 Ex. 337 (1875); 2 CAMPBELL'S LIVES OF THE CHIEF JUSTICES, 407, and note, London, 1849.

7 Cudahy Packing Co. v. State National Bank, 134 Fed. 538, 542-43 (C. C. A., 8th, 1904). For presentations of a similar view as to corporate bonds, see 2 MACHEN ON CORPORATIONS, § 1734 f. Edelstein v. Schuler, [1902] 2 K. B. 144; Mercer County v. Hacket, 1 Wall. (U. S.) 83, 95 (1863), per Grier, J.: "A mere technical dogma of the courts or the common law can not prohibit the commercial world from inventing or using any species of security not known in the last century. Usages of trade and commerce are acknowledged by courts as part of the common law, although they may have been unknown to Bracton or Blackstone. And this malleability to suit the necessities and usages of the mercantile and commercial world is one of the most valuable characteristics of the common law." First National Bank of Springfield, Ohio v. Skeen, 101 Mo. 683, 687, 14 S. W. 732 (1890). The unfortunate results of a rigid a priori doctrine are pointed out by A. M. Kidd in 6 CAL. L. Rev. 444 (1918). See note 166.

has been presented for admission to the class of commercial paper, those courts have called for their guidance men from the actual business world, best qualified to speak on the subject. If, from their evidence, it has appeared that the instrument in question was by the general custom and practice of the business world treated as a negotiable instrument, the court has given effect to that usage, and adjudged the instrument to be subject to the same law as other negotiable paper. This was true not only in the early and formative periods of the commercial law, coming down to the age of Lord Mansfield, but has been followed with the same freedom from time to time down to the current year. Those courts have never forsaken the business world to pursue a definition."

Consequently, we must always interpret the formal requisites with our eyes upon the actual conduct of life, continually testing them by the ultimate purpose of negotiable instruments, free circulation as a substitute for money. In other words, a formal requisite is only a concise statement of a method for avoiding the evils of uncertainty, and when those evils do not arise the requisite cannot properly be said to be violated.

8

The formal requisites which may conceivably render invalid instruments with acceleration provisions are three in number: the sum payable must be a sum certain; the instrument must be payable on demand, or at a fixed or determinable future time; it must not contain an order or promise to do anything in addition to the payment of money.10 Of these, the second is the most important and must be fully considered at once. The other two will be discussed subsequently.

Much of the confusion in the cases is due to the failure of the courts and textbooks " to distinguish between the requisite of certainty of time and that which forbids the instrument to be conditional.12 Some instruments violate both requisites. For instance, if a note is payable when the maker marries, it is conditional since he may never marry, and furthermore, if he does the time of pay

8 NEGOTIABLE Instruments Law, §§ 1 (2), 2; 2 AMES, CASES ON BILLS AND NOTES, 830; 1 DANIEL, NEGOTIABLE INSTRUMENTS, 6 ed., § 53.

• NEGOTIABLE INSTRUMENTS Law, §§ 1 (3), 4; 2 AMES, CASES ON BILLS AND NOTES, 831.

10 NEGOTIABLE INSTRUMENTS LAW, § 5; 2 AMES, CASES ON BILLS AND NOTES, 829;

I DANIEL, NEGOTIABLE INSTRUMENTS, 6 ed., § 59.

11 An example is 1 DANIEL, op. cit., Chap. II, Section III.

12 NEGOTIABLE INSTRUMENTS Law, §§ 1 (2), 3; 2 AMES, CASES ON BILLS AND NOTES,

ment is very uncertain.13 On the other hand, if it is payable when he dies, it is unconditional and sure to be payable eventually, but no one can say when. A condition is a fatal objection for purposes of free circulation on the money market. The prospective purchaser cannot tell from inspection of the paper whether it will ever be exchanged for money, but must inquire into outside facts, oftentimes in the future, to learn if the condition is performed. There is not time in the rapid dealings of the market to ascertain more than the genuineness of the signatures, and the solvency and legal capacity of the signers. Consequently, it has always been settled that a conditional order or promise is not negotiable.

Unfortunately many judges have jumped to the opposite proposition, that any unconditional promise or order is negotiable.14 If the day of payment is sure to arrive some time, the objection just considered does not arise, and therefore they conclude that it is immaterial when that day is to arrive. The statutes perpetuate the confusion.15 The law tends to overlook the fact that an unconditional instrument with an uncertain time for payment may be open to other and very serious objections.

1. Its value is rendered uncertain. The time element in value is well understood. The distance to maturity determines the discount upon a non-interest-bearing obligation. If it bears interest above the market rate, a long-time security will command a premium diminishing as maturity approaches; vice versa, if the interest is low. So close is the relation of time to value, that the price of a gilt-edged bond may be accurately ascertained from mathematical tables, given the maturity, return, and current interest-rate. On the other hand, if the maturity of an instrument is uncertain, the premium or discount becomes purely speculative. One hesitates to offer a premium for even a ten per cent note due at the maker's death, for it may be paid off next week at par. Nobody can tell what it will sell for a year hence. Life-tables cannot determine the 13 Such instruments are always held bad. 1 AMEs, Cases on BILLS AND NOTES, 30, and note.

14 Colehan v. Cooke, Willes, 393 (1743), note payable ten days after death of maker's father, is the leading case.

15 NEGOTIABLE INSTRUMENTS LAW, § 4 (3): "An instrument is payable at a determinable future time, within the meaning of this act, which is expressed to be payable, . . . on or at a fixed period after the occurrence of a specified event, which is certain to happen, though the time of happening be uncertain." BILLS OF EXCHANGE ACT, § 11 (2) is practically the same.