Story Case

In the days of slavery in the United States, a planter, Carter Kenyon, sent one of his trusted slaves to Charleston to transact various business, and to provide him with the necessary expense money while there, gave him the following bill of exchange, drawn upon a cotton buyer in that city.

"$300. September 28, 1854.

Pay to Canaan Lexington, or his order, the sum of three hundred dollars, on demand, value received, and charge same to my account.

(Signed) Carter Kenyon." To Mr. Kelsey Dunham, Broker, Charleston, South Carolina."

Dunham had bought cotton from Kenyon and was very ready to honor his draft. As the negro did not want the money at once, Dunham accepted the bill and it was later cashed in the city of Caneaan. It was presented for payment by the First Bank of Charleston, after having passed through several indorsers. Dunham refused payment and was sued by the bank. He pleaded that the indorsement by Canaan Lexington was void, because he was a slave, and therefore that the bank had acquired no right to his acceptance.

Ruling Court Case. Hallifax Vs. Lyle, Volume 3 Exchequer Reports, England, Page 446

In this case, it seems that the Governor and Company of Copper Miners in England, on July 15, drew a bill of exchange in writing, and directed the same to Lyle, the defendant herein, and thereby directed him to pay to the order of the said Governor and Company of Copper Miners in England £2000. This bill was accepted by Lyle. The company, although without authority as a corporation to do so, indorsed this paper to Hallifax. Hallifax now sues upon it. Lyle contends that he is not liable upon this instrument because the payee, the company, had no corporate capacity to indorse, and therefore, Hallifax recovered no interest by the indorsement and, accordingly, could not sue upon the bill.

Decision: A drawer, by accepting a bill of exchange, admits the existence of a competent payee, and the capacity of the payee to indorse. The acceptor is bound by the instrument, notwithstanding the non-existence of a payee, or his incapacity to indorse.

Mr. Baron Parke said: "The law is well settled by former cases that the acceptor of a bill, or maker of a note, payable to the order of another, cannot be permitted to deny the authority of that person to indorse. It is, in truth, a contract with that other person, prima facie for a valuable consideration, to pay to his order, and which is transferable by the Law Merchant." Judgment was given for Lyle in this case.

Ruling Law. Story Case Answer

A drawee, by accepting a bill of exchange drawn upon him, admits the existence of a payee, and his capacity to indorse the instrument. We have seen heretofore that the maker of a note makes the same admissions by drawing a note. The acceptor cannot assert that there was no payee; by his acceptance he virtually contracts with all subsequent bona fide holders, without notice, that there is a payee; and he also contracts, or agrees, not only that there is an actual payee, but that this payee has the capacity to indorse the instrument. This principle is well illustrated in the court case of Hallifax vs. Lyle; there Lyle accepted a bill of exchange which was drawn to the order of a corporation; the corporation was without corporate power to indorse a negotiable instrument; but the corporation transferred the instrument to Hallifax; the defendant Lyle contended that he was not liable, because the corporation had no power to indorse. But the court held that his acceptance was a contract with all bona fide holders thereafter that the payee did have power to indorse; and this they could not thereafter deny.

Since the law regarded slaves as chattels and not as persons, the contention of Dunham was in its essence sound. But it had become immaterial because of the acceptance, which amounted to a conclusive admission of the point. As the payee had indorsed, the acceptor is bound, becaiise he can not deny the capacity. The First Bank of Charleston should recover.