First National Bank of Central City v.

Utterback
L.R.A. 1918B, 838, 197 S.W. 534; October 9, 1917; Clark, J.
I. FACTS
1. This is an action brought by the First National Bank of Central City against Alice
M. Utterback.
2. Alice M. Utterback issued a negotiable note payable to Davis Coal Company.
3. However, it was alleged by Utterback that the payee Davis Coal Company fails
to comply with sections 199b and 571, of Kentucky Statutes. As a result of
which, Davis Coal Company cannot do business in the state.
4. Hence Utterback argued that the note is uncollectible in the hands of an owner
in due course due to the payees incapacity to do business.
II.
ISSUE
Whether or not Utterback can deny the existence and capacity to indorse, as
against a holder in due course, of the original payee Davis Coal Company
III. HELD
No. Utterback cannot deny the capacity of payee Davis Coal Company.
IV. RATIO
The Negotiable Instruments Act was adopted by several states for the purpose of
establishing uniformity in the law by embodying it in a code. Two provisions are of
relevance in this case:
Subsection 60- The maker of a negotiable instrument by making it engages that he
will pay it according to its tenor, and admits the existence of the payee, and his then
capacity to indorse.
Subsection 57- A holder in due course holds the instrument free from any defect of
title of prior parties
and free from defenses available to prior parties among themselves, and may enforce
payment
of the instrument for the full amount thereof against all parties liable thereon

The defendant could not deny either the existence of the original payee or its
capacity to indorse as against a holder in due course. Under the Negotiable
Instruments Act, the maker of an instrument, by making it, admits the capacity of
the payee to indorse it. Hence, the act takes away from the maker the right to deny
the capacity of the payee to indorse and negotiate the note free from defences
available against the payee, even though as between the original parties, the note
was void and unenforceable for any reason.
The intention of the statute is to render a negotiable paper, after its negotiation,
free from all defences available to prior parties among themselves. Hence, a note to
a foreign corporation that has not complied with the local law making it incapable of
doing business is valid against the maker in the hands of a holder in due course.