Opinion
No. 2170
Decided April 10, 1952.
Negotiable instruments — Check a bill of exchange — Obligation incurred by drawer — Payment stopped on check issued without consideration — Drawer's liability to holder in due course.
1. A check is a bill of exchange payable on demand and a complete negotiable instrument.
2. By drawing a bill of exchange the drawer admits the existence of the payee and his then capacity to indorse; and engages that on due presentment the instrument will be accepted and paid, or both, according to its tenor. (Section 8166, General Code.)
3. Where a check drawn and issued without consideration is indorsed for value by the payee to an indorsee, a holder in due course, and is refused payment upon timely presentation by such indorsee to the drawee bank because of the drawer's having stopped payment thereon, the drawer of such check is liable to such indorsee for the amount thereof.
APPEAL: Court of Appeals for Montgomery county.
Messrs. Shaman, Winer, Shulman Ziegler, for appellee.
Mr. William A. Swaney, for appellant.
This appeal is prosecuted by the defendant Victory Motor Express, Inc. The judgment under review was entered by the Municipal Court of the City of Dayton, on behalf of the plaintiff and against such defendant.
The cause of action is predicated upon a check drawn upon The Farmers Bank, New Lebanon, Ohio, the maker of which was defendant Victory Motor Express, Inc. The check was payable to defendant Maynard Tanner, who indorsed it to plaintiff.
The statement of claim alleges that "Payment of said check was duly demanded at the bank upon which it was drawn at maturity but same was not paid because the defendant, Victory Motor Express, Inc., had the payment stopped on same."
A default judgment was taken against defendant Tanner.
There is no dispute in the evidence. The facts developed disclose that there was no consideration for the check, although this was not known when it was drawn by the duly authorized agent of the defendant Victory Motor Express, Inc. However, defendant Tanner received value from the plaintiff when he had it cashed, and if the check is a negotiable instrument the plaintiff was a holder in due course. Prior to the time of its presentment for payment, the maker had stopped payment on the check. Thereafter the indorsee made demand for payment both upon defendant Victory Motor Express, Inc., and upon defendant Tanner. Payment being refused, this action was instituted. As we understand the contention of the defendant, appellant, the determinative question presented is whether the check here under consideration was a negotiable instrument.
It is developed further that the check was cashed by the plaintiff on the day it was drawn, and that defendant Tanner indorsed it on that day, applying some of the proceeds on an old account, some on a purchase made at the time, and receiving the balance in cash. Four days after the check was given, the maker instructed the bank not to pay it, and when the indorsee presented it to the bank upon which it was drawn, payment was refused.
We shall not labor the question or attempt to cite extended authorities because we believe the issue is clearly determinable by the applicable and controlling sections of the Negotiable Instruments Act.
Section 8290, General Code, defines a check:
"A check is a bill of exchange drawn on a bank payable on demand. Except as herein otherwise provided, the provisions of this division applicable to a bill of exchange payable on demand apply to a check."
Section 8231, General Code, defines a bill of exchange as follows:
"A bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer."
A bill of exchange and a check are included in the term "commercial paper." 10 Corpus Juris Secundum, 406, Section 3. A check is a complete negotiable instrument. Kullberg Mfg. Co. v. Smith, 173 Minn. 504, 216 N.W. 249, 218 N.W. 99. This check was due and payable on demand at the bank upon which it was drawn.
Section 8165, General Code, provides:
"By making it, the maker of a negotiable instrument engages that he will pay it according to its tenor, and admits the existence of the payee and his then capacity to indorse."
Section 8166, General Code, provides:
"By drawing the instrument the drawer admits the existence of the payee and his then capacity to indorse; and engages that on due presentment the instrument will be accepted and paid, or both, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who is compelled to pay it. * * *"
In Cummings v. Kent, 44 Ohio St. 92, 4 N.E. 710, 58 Am.Rep., 796, it is held that:
"By the act of drawing and issuing a bill of exchange, the drawer contracts that it will be accepted and paid according to its terms, and that if it is not he will pay it."
A holder in due course is defined by Section 8157, General Code. The plaintiff here meets all of the requirements of the statute as to a holder in due course. The second condition in the section is applicable, viz., "that he became the holder of it before it was overdue and without notice that it previously had been dishonored, if such was the fact."
The extent to which an indorsee of a negotiable instrument in good faith will be protected is illustrated by the syllabus of Miller Brothers Star Shoe Co. v. Griffiths, 11 Ohio App. 277:
"One who purchases of the payee in good faith by indorsement and delivery for value, before maturity, a negotiable promissory note without notice of any infirmity in the instrument or defect in the title, is a holder in due course, even though a receiver of the property of the payee had been appointed and qualified, the purchaser having no knowledge of that fact, and the receiver never having been in actual possession of the instrument."
We have examined the cases cited by defendant, but find that they are not applicable to the factual development here. Some of them differentiate between checks and other types of negotiable instruments. Some of them treat of the right of the maker, as between him and the payee, to stop payment on a check. Speroff v. First-Central Trust Co., 149 Ohio St. 415, 79 N.E.2d 119, 1 A. L. R. (N.S.), 1150; Kahn, Jr., v. Walton, 46 Ohio St. 195, 20 N.E. 203. One relates to the liability of a bank which honored a check after it had been notified not to pay it. Cincinnati, Hamilton Dayton Rd. Co. v. Metropolitan National Bank, 54 Ohio St. 60, 42 N.E. 700, 56 Am. St. Rep., 700, 31 L.R.A., 653. No one of them is in derogation of the express terms of the sections of the Code which we have quoted.
There is no error in the judgment from which the appeal is taken in this case, hence, it is affirmed.
Judgment affirmed.
WISEMAN and MILLER, JJ., concur.