ing to the indorsement a guaranty of payment 49 or a provision as to time of payment, rendering it payable on a contingency,50 or indorsing under seal 51 or at a usurious rate of discount,52 does not render it nonnegotiable. [58] 4. After Maturity. The mercantile character of the original bill or note as a negotiable instrument and of the contracts of the several parties to it continues after its maturity and until it is paid;53 and this applies to unpaid installments of interest. So a note cannot be negotiable before maturity and not negotiable thereafter by reason of the terms of the note itself.55 And an indorsement after maturity does not change the character of the original contract as to its negotiability or effect.50 The fact that a bill or note is transferred after maturity is of no importance except as to equities between prior parties,57 the rule being that an indorsee or a transferee after maturity takes subject to defenses between the original parties.58 .60 the approval is a quasi judgment.61 So the maker's discharge in insolvency is equivalent in this respect to a judgment.62 66 [60] 6. Payment.63 A bill or note remains negotiable even after payment, so far as the party who knowingly negotiates it thereafter is concerned, although the negotiable character of an instrument is lost after payment as respects the original parties.64 The payment of a bill or a note by a party primarily liable extinguishes it and puts an end to its negotiability, whether the payment is made by the maker,65 by his agent, by a comaker,67 by a surety, or by the acceptor; 69 and after payment by the party primarily liable the reissue of the bill or note neither revives old rights nor creates new ones against the existing parties to the paper.70 Payment by an indorser does not in general extinguish it or destroy its negotiability as against himself and parties liable to him; but his indorsee may sue the maker 72 or an earlier indorser.73 68 [61] G. Particular Instruments Negotiable-1. In General. Negotiable instruments regulated wholly by the law merchant, except where controlled by statute, include bills of exchange, checks,75 even though postdated,70 and promissory notes. Other quasi negotiable instruments having some of the same features and governed in part by the law merSee infra §§ 815, 827. See infra § 821. [§ 59] 5. Recovery of Judgment. The recovery by the payee of judgment on a note against the maker destroys its further negotiability, so that it cannot again be assigned as negotiable paper." Approval of a note by a judge as a claim against the estate of a deceased maker subjects it to defenses in the hands of a subsequent assignee, since AmD 260; Ketchell v. Burns, 24 Wend, ited" on the note does not affect its 70. 456; Lamourieux v. Hewit, 5 Wend. negotiability. Ege v. Kyle, 2 Watts 307. 51. Ege v. Kyle, 2 Watts (Pa.) 222. Pa.-McDoal v. Yeomans, 8 Watts 361. Tex.-Greg v. Johnson, 37 Tex. 558. "But the argument is further made that as Baxter indorsed the note in blank-that is, signed his name on the back of it without any other words he thereby converted the note into a negotiable instrument. It is true that section 9 of the act [Negotiable Instruments Law] provides that the instrument is payable to bearer when the only or last indorsement is an indorsement in blank;' but this does not mean that an indorsement in blank converts a note nonnegotiable on its face and by its terms into a negotiable note. This construction would enable the person who last signed his name on the back of the note to change entirely the contract as entered into between the parties, and have the effect of making the maker, payee, and all prior indorsers liable upon a negotiable instrument when they intended to and only become liable upon a note that was not negotiable, and this, as can readily be seen, would be a most important and material change in the obligation assumed by them when they signed the paper. To give the act this construction would place it in the power of any indorser who chose to sign his name in blank to change by this act the entire character of the paper as well as the rights and liabilities of the parties to it. It would make the character of the paper depend upon the manner of the indorsement and not upon the terms expressed in the paper." Wettlaufer v. Baxter, 137 Ky. 362, 371, 125 SW 741, 26 LRANS 804 and note. 49. Halbert v. Ellwood, 1 Kan. A. 95, 41 P 67; Upham v. Prince, 12 Mass. 14. [a] But an indorsement of parts of the note in severalty to two persons with a guaranty and a reservation of the balance to the indorser has been held to render the note nonnegotiable. Goldman v. Blum, 58 Tex. 630. 50. Tappan v. Ely, 15 Wend. (N. Y.) 362. (Pa.) 222. 53. Gardner v. Beacon Trust Co., 190 Mass. 27, 76 NE 455, 112 AmSR 303, 2 LRANS 767, 5 AnnCas 581; Hawkins v. Wiest, 167 Mo. A. 439, 151 SW 789; Lane v. Hyder, 163 Mo. A. 688, 147 SW 514; Beall v. Russell, 76 Misc. 244, 134 NYS 633. [a] In other words negotiable paper does not lose its mercantile character by being dishonored for nonpayment and nonacceptance. Scott v. Kokomo First Nat. Bank, 71 Ind. 445. [b] Evidence of debt.-A note in the hands of the payee is evidence of debt even after maturity. Goff v. Byers, 70 Nebr. 1, 96 NW 1037. 54. Cooper v. Merchants', etc., Nat. Bank, 25 Ind. A. 341, 57 NE 569; Cooper v. Hocking Valley Nat. Bank, 21 Ind. A. 358, 50 NE 775, 69 AmSR 365. 55. Roads v. Webb, 91 Me. 406, 40 A 128, 64 AmSR 246. 56. See infra § 522. 71. 72. Kirksey v. Bates, 1 Ala. 303; Eaton v. Carey, 10 Pick. (Mass.) 211; Guild v. Eager, 17 Mass. 615; Havens v. Huntington, 1 Cow. (N, Y.) 387. 73. McCarty v. Roots, 21 How. (U. S.) 432, 16 L. ed. 162; Mead v. Small, 2 Me. 207, 11 AmD 62 and note. But see Swann v. Schofield, 23 F. Cas. No. 13,676, 2 Cranch C. C. 140. 74. U. S. v. U. S. Bank, 5 How. (U. S.) 382, 12 L. ed. 199; McLean v. Clydesdale Banking Co., 9 App. (D. C.) 95. See also supra § 32. [a] By the common law, contracts are distinguished as of two kinds: Contracts under seal which are specialties; and contracts not under seal, which are simple contracts. It can hardly be necessary to say that a bill of exchange is not a specialty, for no contract by that law is held to be a specialty, unless it be under seal, or a matter of record. But notwithstanding a bill of exchange is only a simple contract, it nevertheless differs from other simple contracts in two very important particulars; namely, its negotiability, and its presumed valuable consideration. Conine v. Junction, etc., R. Co., 8 Del. 57. Capwell v. Machon, 21 R. I. 288, 89 AmD 230. 520, 45 A 259. 58. See infra § 576. 59. Brown v. Foster, 4 Ala. 282; Cole v. Matchett, 78 Ind. 601; Kelsey v. McLaughlin, 76 Ind, 379; Ward v. Haggard, 75 Ind. 381. [a] After recovery of judgment against the maker by an indorsee the indorser cannot take up the note and bring a fresh action against the maker. Prest v. Vanarsdalen, 11 N. J. L. 194. 60. 61. Sawyer v. Bradford, 6 Ala. 572. Weathered v. Smith, 9 Tex. 622, 60 AmD 186. 62. Moore v. Viele, 4 Wend. (N. 63. Payment generally see infra [a] Indorsing a receipt for goods "the net proceeds to be cred 75. U. S.-Bull v. Kasson First Nat. Bank, 123 U. S. 105, 8 SCt 62, 31 L. ed. 97. Ill-Kemp v. Northern Trust Co., 108 Ill. A. 242. Ind.-Reddick v. Young, 177 Ind. 632, 642, 98 NE 813 [quot Cyc]. Ky.-Boswell V. Citizens' Sav. Bank, 123 Ky. 485, 96 SW 797, 29 KyL 988. Mo.-Gate City Bldg., etc., Assoc. v. National Bank of Commerce, 126 Mo. 82, 28 SW 633, 47 AmSR 633, 27 LRA 401; Kansas City Casualty Co. v. Westport Ave. Bank, 191 Mo. A. 287, 177 SW 1092. Eng.-McLean v. Clydesdale Banking Co., 9 App. Cas. 95. Ont.-Re Central Bank of Canada, 6 OntWR 372. [a] Pension check held commercial paper. Providence Nat. Exch. Bank v. U. S., 151 Fed, 402, 80 CCA 632 [rev on other grounds 214 U. S. 302, 29 SCt 665, 53 L. ed. 1006, 16 AnnCas 1184]. 76. See infra § 192. chant are bills of lading,78 corporate bonds,79 county 93 Certificates of deposit are generally held to be negotiable.95 In England, at [62] 2. Promissory Notes. first, promissory notes were considered negotiable; but shortly thereafter Chief Justice Holt held the The inconvenience to trade arising contrary.96 therefrom led to the passing of the statute of Anne, 78. See Carriers [6 Cyc 416, 424]; Shipping [36 Cyc 211, 218]. 79. See Corporations [10 Cyc 1172 et seq]. Bonds distinguished from commercial paper see Bonds [5 Cyc 777]. 80. See Counties [11 Cyc 537]. See Bonds [5 Cyc 780]. Municipal Corporations See 81. 82. [28 Cyc 1570]. 83. See Municipal Corporations. See Schools and School Districts [35 Cyc 985]. 84. 85. See States [36 Cyc 897]. 86. See Warehouses [40 Cyc 414]. App. v. Wilson, 137 87 Manny Div. 140, 122 NYS 16 [aff 203 N. Y. 535 mem, 96 NE 1121 mem]. Mackin v. Blalock, 133 Ga. 550, 88. 66 SE 265, 134 AmSR 220 (holding that the indorsee of a duebill conwords is no negotiable taining chargeable with notice of all defects he in the consideration, although takes it for value before maturity). 89. See Banks and Banking § 320. 90. See Corporations [10 Cyc 589, 629]. Smith v. Holzhauer, 67 N. J. L. 202, 50 A 683. 91. 92. See Receivers [34 Cyc 302]. 93. U. S.-Lawrence v. U. S., 8 Ct. Cl. 252 (quartermaster's vouchers). Cal.-D. O. Mills, etc., Nat. Bank v. Herold, 74 Cal. 603, 16 P 507, 5 AmSR 476 (warrant drawn by the state comptroller on the state treasurer). Ill-Olson v. Peterson, 50 Ill. A. 327 (certificate by the superintendent of a building that a person who did work thereon is entitled to a certain sum). Ky.-Perry County v. Eversole, 98 SW 1019, 30 KyL 453 (claims against counties not). Mo.-Koch v. Branch, 44 Mo. 542, 100 AmD 324 (United States commissary voucher). Mont.-Creighton v. Black, 2 Mont. 354. N. J.-Headly v. Vanness, 3 N. J. L. 294 (an acknowledgment by one person that he had bought goods of another was person, for which the former to settle with the latter's creditors). Oh.-Smurr v. Forman, 1 Oh. 272 (order drawn by the colonel of a military regiment on the regimental paymaster). Tex.-Attoyac River Lumber Co. v. Payne, 57 Tex. Civ. A. 327, 122 SW 278 (employee's check payable only in merchandise at employer's store). whereby promissory notes were made capable of be- 1 In this country it has been held that notes were not negotiable at common law,98 although there is The statute of some authority to the contrary.99 Anne making them negotiable 2 has been enacted in substance in nearly all of the United States and was probably originally adopted in the common-law states as part of the English common law received by them from England. The rule that promissory notes are negotiable is limited, however, to those notes which comply with the requirements as to negotiability, since a note may be "valid" as a nonnegotiable instrument, al— all the conditions providing for its preamble only to notes made payable acceptance and negotiability must be to a designated person "or order," Val Blatz Brew- (1) but was applied without hesita Grant v. Vaughan, first complied with. ing Co. v. Inter-State Ice, etc., Co., tion to a note payable to "ship For161 Mo. A. 531, 143 SW 542 (holding tune,' or bearer." that, although signature in pencil is ordinarily sufficient, yet if the agreement calls for signature in ink the not negotiable where paper signed with pencil). was a [c] Certificates issued by the secretary of the treasury under the treaty with Mexico are legally assignable, and possession under blank indorsement is prima facie evidence of right to receive payment. Baldwin v. Ely, 9 How. (U. S.) 580, 13 L. ed. 266. V. that 3 Burr. 1516, 97 Reprint 957 (Lord Mansfield saying in this case such notes are by law negotiable). (2) It applied also to foreign notes (Milne v. Graham, 1 B. & C. 192, 8 ECL 82, 107 Reprint 72; Houriet v. been quesMorris, 3 Campb. 303; Bentley Northouse, 1 M. & M. 66, 22 ECL 474), (3) although this had tioned at first (Carr v. Shaw, Bayley Bills Exch. 23), (4) and to foreign Chaumette v. Bank of England, 9 B. transfers of English notes (De la & C. 208, 17 ECL 100, 109 Reprint 78). 94. Lowe v. Murphy, 9 Ga. 338. 98. De Haas v. Dibert, 70 Fed. 227, 95. See Banks and Banking § 340. 96. Clerke v. Martin, 2 Ld. Raym. 17 CCA 79, 30 LRA 189; Patterson v. 757, 92 Reprint 6; Buller v. Crips, 6 Carrell, 60 Ind. 128; Holloway v. PorSee Wil- ter, 46 Ind. 62; Davis v. Miller, 14 Mod. 29, 87 Reprint 793. liams v. Cutting, 2 Ld. Raym. 825, Gratt (55 Va.) 1; Caton v. Lenox, 92 Reprint 51; Burton v. Souter, 25 Rand. (26 Va.) 31; Norton v. Rose, Ld. Raym. 774, 92 Reprint 17; Pear- 2 Wash. (2 Va.) 233. son v. Garrett, 4 Mod. 242, 87 Reprint 371; Carlos v. Fancourt, 5 T. R. 482, 101 Reprint 272, 4 ERC 180. [a] "Promissory notes were not governed by the law merchant, until they were put upon a footing with (1). That statute was never [a] The early practice of mer- bills of exchange, by the statute of Our act of chants, traders, and others, of treat- Anne. the assembly upon the subject provides, ing promissory notes, whether pay-in force in this state. able to order or to bearer, on of same footing as bills of exchange that the assignee, having used due the diligence to obtain the money from had received the sanction courts; but Holt having become chief the maker of the note, without efjustice a somewhat unseemly conflict fect, may maintain an action against arose between him and the merchants the assignor. (2). The enquiry here as to the negotiability of promissory is not, as in England, whether the notes, whether payable to order or to rules of the law merchant have been bearer, the chief justice taking a pursued, but whether the assignee narrow-minded view of the matter, has used due diligence, without efThe law of Virthese instruments, maker of the note. setting his face strongly against the fect, to obtain the money from the negotiability of contrary to the opinion of Westmin- ginia is similar in principle to ours. ster Hall, and in a series of succes- There the general rule is, that there Bullitt v. Scribner, 1 Blackf. sive cases, persisting in holding them must be due diligence by a suit at not to be negotiable by indorsement law against the maker of a bond or Goodwin v. Robarts, L. note." the or delivery. R. 10 Exch. 337 [aff 1 App. Cas. 476, (Ind.) 14. [b] So in Virginia, where 97. Goodwin v. Robarts, L. R. 10 statute of Anne was not adopted, and 5 ERC 199]. the assignee of a note could not sue Exch. 337 [aff 1 App. Cas. 476, 5 ERC until the act of 1807, it was held that 199]. a remote indorser, but could only sue Caton v. Lenox, 5 Rand. (26 the maker and his immediate indorser. Va.) 31. can [a] "It is obvious from the preamble of the statute, which merely recites that it had been held that such notes were not within the custom of Merchants,' that these deciNor fession or the country. sions were not acceptable to the prothere be much doubt that by the usage prevalent amongst merchants, [a] But drawer may be estopped these notes had been treated as seto insist that voucher is nonnegoti-curities negotiable by the customary able. Cudahy Packing Co. v. Sioux method of assignment as much as may indeed, Nat. Bank, 75 Fed. 473, 21 CCA 428 bills of exchange properly so called. The Statute of Anne [aff 63 Fed. 805]. practically speaking, be looked upon as a declaratory statute, confirming Goodwin V. Robarts, the decisions prior to the time of Lord Holt." L. R. 10 Exch. 337, 350 [aff 1 App. Cas. 476, 5 ERC 199]. [b] Limitation of rule.-Although a voucher or other paper is not a bill of exchange, it is within the power of the person issuing it to make it such by contract when properly accepted and receipted by the payee; but in order to [b] The statute referred in its 99. Dunn v. Adams, 1 Ala. 527, 35 (after indorsement). AmD 42; Irvin v. Maury, 1 Mo. 194 St. 3 & 4 Anne c 9 § 1. 1. 2. De Hass v. Dibert, 70 Fed. 227, 17 CCA 79, 30 LRA 189; Wirt v. Stubrup v. Chambers, 90 Mo. A. 61. blefield, 17 App. (D. C.) 283; North 3. See Hatcher v. McMorine, 15 N. C. 122. [a] Where negotiability of a note is derived from the statute only the St. Charles statutory requirements. instrument must comply with all the 170. 4. See infra §§ 206-326. First Nat. Bank v. Hunt, 25 Mo. A. later cases, developments though, because of omissions or provisions therein, it is not negotiable. And a note, in order to be negotiable under the Negotiable Instruments Law, must comply with the requirements thereof." [§ 63] 3. Collateral Securities. Mortgages and other securities given as collateral to negotiable paper are generally held to partake of the negotiability of the instrument secured to the exclusion of defenses by the maker as against bona fide purchasers of the note and security, but in some states a different rule is followed." [§ 64] 4. Guaranty-a. In General. Whether a guaranty written on a negotiable note is itself negotiable is governed by the general rules relating to guaranties.8 [65] b. Letters of Credit. A letter of credit may be defined to be a letter of request whereby one person requests some other person to advance money or to give credit to a third person and promises that he will repay or guarantee the same to the person making the advancement. Such an instrument is in effect a guaranty 10 or an agreement to accept drafts or bills to be drawn by the payee.1 It is not in general negotiable except in so far as a promise to accept a bill to be drawn follows the bill in the hands of successive holders.12 14 11 [66] H. Nonnegotiable Paper-1. In General.13 While a bill or note may be valid, although not negotiable, nonnegotiable bills and notes are, in many respects, governed by rules different from those applicable to negotiable bills and notes.15 A bill or note may be nonnegotiable because of its express terms,16 because of an indorsement expressly making it so,17 or because it contains, or omits, certain words or provisions, according to the law merchant.18 Particular instruments which are negotiable, where their terms do not make them nonnegotiable, have already been noticed.19 Whether a bill or note is negotiable under particular conditions has also been considered,20 and in another subdivision the particular provisions or omissions which will render a bill or note nonnegotiable will be fully treated.21 An instrument not negotiable when executed cannot become negotiable because of matter ex post facto.22 Certain rules apply equally well to both kinds of paper, such as those relating to the sufficiency of 5. See supra § 52. 6. See infra § 206. 7. See Mortgages [27 Cyc 1324]; Chattel Mortgages [7 Cyc 58]. 8. See Guaranty [20 Cyc 14311435]. 9. See Guaranty [20 Cyc 1399]. 10. Birckhead V. Brown, 5 Hill (N. Y.) 634 [aff 2 Den. 375]. See also Banks and Banking § 237; Guaranty [20 Cyc 1399]. 11. Roman v. Serna, 40 Tex. 306 (holding that letters of credit are special contracts, not negotiable in the full sense of that term or to be construed as actual acceptances of bills or orders drawn under them, but rather as agreements to accept such as may be drawn in good faith and within the limits of the credit or deposit specified). 12. See infra §§ 483-485. 13. Authority of holder to fill blank indorsement of nonnegotiable note see infra § 538. [67] 2. Subject to Equities. The most important distinction between negotiable and nonnegotiable paper is that a bona fide holder in due course of the former takes it free from all defenses between prior parties of which he had no notice,28 while nonnegotiable paper in the hands of a transferee is subject to defenses originally existing against the payee or prior holder.29 [68] 3. Consideration. In some states a nonnegotiable note imports a consideration, but this is not so in others and was not so at common law.30 It follows that the general rule is that, unless there is a statute otherwise providing, a consideration must be pleaded, where the instrument sued on is not negotiable.31 The sufficiency of the consideration is governed by the same rules as those applicable to negotiable paper.32 18. See infra §§ 206-326. 19. See supra §§ 61-65. 20. See supra §§ 55-60. 21. See infra § 206 et seq. Kelley v. Hemmingway, 13 Ill. recognizing the rule that sureties 604, 56 Am D 474. 22. See infra §§ 626-665. 29. See infra § 577. 30. See infra § 1296. 31. See infra § 1136. 32. See infra §§ 342-396. 33. See also Principal and Surety [32 Cyc 44]. 34. Daniels v. Gower. 54 Iowa 319, 321, 3 NW 424, 6 NW 525 (where the court said: "In one sense, it is true, there would be no delivery as to the sureties if the delivery was made without their authority, but some of the cases seem to hold that where the sureties allow the note to pass into the hands of the principal, who has power to bind himself by delivery, the payees have a right to assume that the sureties authorized him to deliver it for them. But this doctrine, whether it is correct or not, is who sign a negotiable instrument and leave it in the hands of the principal who delivers it cannot be heard to say that they signed it upon conditions which were not fulfilled, held that it had no application to instruments that were not negotiable. It said that "in making this line of defense there is a clear distinction recognized between bonds or other instruments that are not negotiable, and those which are negotiable"). 35. Daniels v. Gower, 54 Iowa 319, 3 NW 424, 6 NW 525; Campbell Printing Press, etc., Co. v. Powell, 78 Tex. 53, 14 SW 245: Swanke V. Herdemann, 138 Wis. 654, 120 NW 414. 36. Power to revoke where paper negotiable see infra § 89. 37. Foster v. Dayton, 10 Daly (N. Y.) 225. 38. Nelson v. Southworth, 93 Kan. 532, 144 P 835. 39. See generally Assignments 5 C. J. p 830. only.40 Strictly speaking there can be no indorsement of nonnegotiable paper in the technical sense of the term "indorsement.''41 The term "indorsement" is, however, very commonly applied indifferently to both negotiable and nonnegotiable instruments.42 Nonnegotiable bills or notes are assignable like other choses in action.43 This may be done by indorsement and delivery, but it has been held that indorsement alone is insufficient." So the act of the payee in indorsing a guaranty on the back of a nonnegotiable note, on transferring it, is sufficient to pass title,16 the same as if the instrument was negotiable.* 47 44 Delivery. Nonnegotiable paper has been held transferable by mere delivery,48 although there is 40. Freeman's Bank v. Ruckman, 16 Gratt. (57 Va.) 126. 41. Cal.-San Diego First Nat. Bank v. Babcock, 94 Cal. 96, 29 P 415, 28 AmSR 94. Mo.-Herrick v. Edwards, 106 Mo. A. 633, 81 SW 466. N. M.-Terr. v. Perea, 6 N. M. 531, 30 P 928. N. Y.-Richards v. Warring, 39 Barb. 42 [aff 4 Abb. Dec. 47, 1 Keyes 576]. Va.-Orrick v. Colston, 7 Gratt. (48 Va.) 189. Ont. Skilbeck v. Porter, 14 U. C. Q. B. 430. Tenn.-Wolfe v. 313. [72] 7. Days of Grace.53 Some courts have held that notes not payable to the order of the payee or to the bearer, although not negotiable, are nevertheless entitled to grace.54 Other courts, however, hold that the statute of Anne and the law merchant have no application to nonnegotiable notes, and that the rule allowing grace therefore does not apply to them.55 Where this doctrine has been Tyler, 1 Heisk. | Land, etc., Co. v. Wimberly, 68 S 855. See generally Assignments § 65. Vt. Stiles v. Farrar, 18 Vt. 444. See also Heard v. Kennedy, 116 Ga. 36, 42 SE 509 (assignment by one of several payees). [a] Notice to the maker is unnecessary. Ammidown v. Wheelock, 8 Pick. (Mass.) 470. 44. Ky.-Wettlaufer v. Baxter, 137 Md. Chesley v. Taylor, 3 Gill 251. Wis.-Swedish-American Bank v. Koebernick, 136 Wis. 473, 117 NW 1020, 128 AmSR 1090. [a] Effect.-The indorsement of a name on the back of a nonnegotiable note may, or may not, be intended as an indorsement for the purpose of transferring title. Rock Island State Bank v. Pope, 179 II. A. 282. [a] Other statements of rule.(1) The payee of a nonnegotiable note, by writing his name on the back thereof, does not, in a commercial sense, become an indorser with N. M.-Southard v. Latham, 18 N. the rights and liabilities of a simple M. 503, 138 P 205, 50 LRANS 871. indorser, but he can be held as the N. Y.-Tulloss v. Rapelye, 3 AbbPr maker of the note or as the guaran- | 93. tor of its payment. McMullen V. Rafferty, 89 N. Y. 456; Griswold v. Slocum, 19 Barb. (N. Y.) 402. (2) A note not containing any words of negotiability is so far negotiable by indorsement of the payee in blank as to pass the title to a bona fide holder and to enable him to sue the maker in his own name; and while the maker of such note could, as against the holder, set up all the defenses which would have been open to him against the payee, nevertheless, if, when sued by the holder on the note, the maker fails to set up and sustain by evidence any defense which would have been good as against the payee, the holder is entitled to a recovery against the maker. Shelley v. Baker, 125 Ga. 663, 54 SE 653. (3) The assignee acquires the instrument subject to the law applicable to nonnegotiable paper. Wettlaufer v. Baxter, 137 Ky. 362, 125 SW 741, 26 LR ANS 804. [b] "The term endorse, when applied to bills of exchange, negotiable by the custom of merchants, or to papers made negotiable by our statutes, may, ex vi termini, import a legal transfer of the title. But, as to bonds and notes, not negotiable, the legal title to them passes by assignment only; and as to them, endorsement is not equivalent to assignment. As to them, assignment means more than endorsement; it means endorsement by one party, with intent to assign, and an acceptance of that assignment, by the other party." Marietta Bank v. Pindall, 2 Rand. (23 Va.) 465, 475. 42. Steere v. Trebilcock, 108 Mich. 464, 66 NW 342. 43. Ind.-King v. Vance, 46 Ind. 246; Parkinson V. Finch, 45 Ind. 122. Ky.-Maxwell v. Goodrum, 10 B. Mon. 286. Mass.-Norton v. Piscataqua F. & M. Ins. Co., 111 Mass. 532. N. J.-Halsey v. Dehart, 1 N. J. L. 109. N. Y.-Prescott v. Hull, 17 Johns. 284. [b] In California, by statute, such paper may be assigned by indorsement. Alexander v. McDow, 108 Cal. 25, 41 P 24. 50. See generally Assignments §§ 69-71. [a] A sealed note (1) payable to bearer has been held to pass by delivery (Porter v. McCollum, 15 Ga. 528; Craig v. Vicksburg, 31 Miss. 216; Merritt V. Cole, 14 Hun (N. Y.) 324); (2) but in some states indorsement (Sayre v. Lucas, 2 Stew. (Ala.) 259, 20 AmD 33; Osborn v. Kistler, 35 Oh. St. 99; Cushman v. Welsh, 19 Oh. St. 536), (3) formal assignment (Buckner v. Greenwood, 6 Ark. 200; Foster v. Floyd, 15 S. C. L. 159), (4) or an assignment with witnesses and under seal (Kinniken v. Dulaney, 5 Del. 384), is required, (5) and the note is nonnegotiable and subject to equities until transferred by indorsement (Spence v. Tapscott, 93 N. C. 246; Havens v. Potts, 86 N. C. 31). [b] A sealed bill, requiring an indorsement by statute, does not pass by delivery only so as to carry a warranty of attorney to enter judgment. Cushman v. Welsh, 19 Oh. St. 536. [c] The statute as to assignment of choses in action not negotiable does not apply to the transfer of an unaccepted bank check. Brennan v. Merchants', etc., Nat. Bank, 62 Mich. 343, 28 NW 881. 51. See supra § 57. 45. Marietta Bank v. Pindall, 2 Rand. (23 Va.) 465. See also Parkison v. McKim, 1 Pinn. (Wis.) 214. See generally Assignments § 68. 52. Herrick v. Edwards, 106 Mo. [a] "Assignment means more than A. 633, 637, 81 SW 466 (where the endorsement; it means endorsement court said: "But we believe it was by one party, with intent to assign, nevertheless assignable and transand an acceptance of that assign-ferable as any other non-negotiable ment, by the other party." Marietta paper. Weber v. Rosenheim, 37 Ill. Bank v. Pindall, 2 Rand. (23 Va.) A. 72. It is not within the power of 465, 476. a person executing a promissory note to another to take from it one of the principal rights of property, viz.: the right of disposal. We therefore regard defendant's undertaking to prohibit its transfer, either absolutely or as collateral, as non-effective"). also Sands v. Curfman, (Tex. Civ. A.) 177 SW 161 (where, to the knowledge of the holder, a deed recited that the purchase-money note was "nonnegotiable and nonassignable," and it was held not to preclude a transferee from suing on the note as owner thereof). Compare Ovett Land, etc., Co. v. Wimberly, (Miss.) 68 S 855 (where trade checks read: "void if transferred"). 46. McNary v. Farmers' Nat. Bank, 33 Okl. 1, 124 P 286, 41 LRANS 1009 and note, AnnCas1914B 248. 47. See infra § 533. 48. Buckley v. Collins, (Ark.) 177 SW 920; Moore v. Foote, 34 Mich. 443; Loftus v. Clark, 1 Hilt. (N. Y.) 310 (although payable to a particular person or order). See Johnson v. Hibbard, 27 Utah 342, 75 P 737 (equitable assignment). [a] Checks good for a certain 49. See 53. Negotiable paper see infra §§ 614-625. 236. 54. Ga.-Reed v. Murphy, 1 Ga. La.-Dubuys v. Farmer, 22 La. Ann. 478. Md.-Duncan V. Maryland Sav. Inst., 10 Gill & J. 299. Tex.-Hamilton Gin, etc., Co. v. Sinker, 74 Tex. 51, 11 SW 1056. Eng.-Burchell v. Slocock, 2 Ld. Raym. 1545, 92 Reprint 502; Smith v. Kendall, 6 T. R. 123, 101 Reprint 469. 55. U. S.-McLain v. Rutherford, 16 F. Cas. No. 8,868a, Hempst. 47. Conn.-Backus V. Danforth, 10 Conn. 297. [a] In Mississippi, by statute, an assignee of a nonnegotiable instrument cannot sue thereon unless there is an assignment in writing. Ovett Ind.-Luce v. Shoff, 70 Ind. 152. [73] 8. Liability of Indorser-a. In General.59 The liability of a regular indorser of a nonnegotiable note, to his indorsee, is the subject of much conflict in the decisions. While it would seem that a party indorsing a nonnegotiable note cannot but intend to Iowa. McCartney v. Smalley, 11 241. N. H.-Fletcher v. Thompson, 55 N. H. 308. Or.-McMullan V. Abbott, 1 Or. 258. Pa.-Overton v. Tyler, 3 Pa. 346, 45 AmD 645. 56. Backus v. Danforth, 10 Conn. 297: Luce v. Shoff, 70 Ind. 152; McMullan v. Abbott, 1 Or. 258. 57. Fletcher v. Thompson, 55 N. H. 308; Overton v. Tyler, 3 Pa. 346, 45 AmD 645; Davis v. Brady, 17 S. D. 511, 97 NW 719. 158. 563. 58. McCartney v. Smalley, 11 Iowa 85; Peddicord v. Whittam, 9 Iowa 471; Lamkin v. Nye, 43 Miss. 241. 59. See generally Assignments § Negotiable paper see infra §§ 55760. Helfer v. Alden, 3 Minn. 232. [a] In Maryland, indorsement of a "single bill," so far as the liability of the indorser is concerned, depends on the statute and not on the principles of mercantile law. Talbott v. Suit, 68 Md. 443, 13 A 356. 61. Carleton v. Brooks, 14 N. H. 149. See American Nat. Bank Sprague, 14 R. I. 410, 412 (where the court said: "Whether the defendants are liable as guarantors, joint makers, or otherwise, we are not now called upon to decide. We only decide that, the notes being not negotiable, the defendants are not liable as indorsers"). v. 62. Exchange Nat. Bank v. Chapline, 109 Ark. 242, 158 SW 151. 63. Kendall v. Parker, 103 Cal. 319, 37 P 401, 42 AmSR 117 [expl San Diego First Nat. Bank v. Falkenhan, 94 Cal. 141, 29 P 866 and dist Hamilton v. McDonald, 18 Cal. 128, as decided under a statute]. Compare however Haber v. Brown, 101 Cal. 445, 35 P 1035. 64. Jossey v. Rushin, 109 Ga. 319, 320, 34 SE 558, 77 AmSR 377 (where the court said: "The law seems to be well settled, that if a payee of a nonnegotiable instrument merely writes his name on the back thereof, he is not liable as indorser thereon. It seems also to be well settled by the weight of authority, that if he induces the transferee to purchase such non-negotiable instrument, and transfers or indorses the same to the transferee by writing his name thereon in blank, and receives valuable consideration therefor, the transferee may recover of him the amount which the instrument calls for, or, at least, the amount which the transferee paid him therefor"). Contra Columbus Nat. Bank v. Leonard, 91 Ga. 805, 18 SE 32. V. 65. South Bend Iron-Works Paddock, 37 Kan. 510, 514, 15 P 574 (where the court said: "We are inclined to the latter view, that the indorsement of a name upon a nonnegotiable note simply transfers the title of a party, and does not make him liable as if said note were a negotiable instrument. Such party guarantees the note to be genuine, and that it is what it purports to be; nothing more. He does not 03 69 make himself liable in some capacity,60 it is often 76 73 On the other hand, it has been held in Iowa, Minnesota," New York,78 North Carolina,79 the true rule seemed to be that a holder was permitted to recover from the indorser when he might have recovered as well on the common counts as on the special contract of indorsement. guarantee its payment, though he might do this, but to do so would take a contract, either expressed in the indorsement or by an independent contract between the parties"). 66. Barger v. Farnham, 130 Mich. 487, 90 NW 281; Steere v. Trebilcock, 108 Mich. 464, 66 NW 342; Port Huron First Nat. Bank v. Carson, 60 Mich. 432, 27 NW 589; Story v. Lamb, 52 Mich. 522, 528, 18 NW 248 (where the court said: "The so-called note being no more than a simple contract, not a note, and without negotiability, could only be transferred by assignment; and the endorsement 'pay to Thomas Story' on the contract, does no more than transfer the right to recover the money payable on the instrument, and the right to sue therefor, to Story. It is not an unusual way of transferring such claims, but such endorsement imports no legal liability on the part of the endorser to pay the amount of the claim in case of failure by the debtor. This would be giving the endorsement the character, and subjecting the maker of it to the liability, of the endorser of commercial paper'). 67. Davis v. McColl, 179 Mo. A. 198, 166 SW 1113 (holding that, where a note is nonnegotiable, the mere writing by the payee of his name on the back thereof will not make him liable as an indorser, but there must be proof of the actual agreement under which the indorsement was made and that it was for a sufficient consideration). [a] Extent of rule.-It follows that the mere introduction in evidence of a nonnegotiable note, with proof of the signature of the payee on the back, will not make out a case against one as an indorser; but there must be proof of the contract made at the time of the indorsement. Davis v. McColl, 179 Mo. A. 198, 166 SW 1113. [b] Earlier decisions, however, impose liability after exhaustion of remedy against maker. Trenton First Nat. Bank v. Gay, 71 Mo. 627; Samstag v. Conley, 64 Mo. 476; Ricketson v. Wood, 10 Mo. 547. 68. Barry v. Wachosky, 57 Nebr. 534, 77 NW 1080. 69. Carleton v. Brooks, 14 N. H. 149. 70. Mackintosh v. Gibbs, 81 N. J. L. 577, 80 A 554, AnnCas1912D 163 [aff 79 N. J. L. 40, 74 A 708]; Dilts v. Trimmer, 3 N. J. L. 507. 71. McEwen v. Black, 44 Okl. 644, 146 P 37; Pattee Plow Co. v. Beard, 27 Okl. 239, 110 P 752, AnnCas1912B 704 and note (not liable as indorser nor as guarantor). 72. Frevall v. Fitch, 5 Whart. (Pa.) 325, 34 AmD 558; Gray v. Donahoe, 4 Watts (Pa.) 400; Folwell v. Beaver, 13 Serg. & R. (Pa.) 311. See also Wright v. Hart, 44 Pa..454. 73. Smith Sons Gin., etc., Co. v. Badham, 81 S. C. 63, 61 SE 1031; Tryon v. De Hay, 41 S. C. L. 12; Pratt v. Thomas, 20 S. C. L. 654; Todd v. Twitty, 10 S. C. L. 261. 74. Simpson v. Moulden, 3 Coldw. (Tenn.) 429, 431 (where the court said: "The effect of an assignment of unnegotiable paper, is, to divest the legal property or interest out of the holder, and vest it in the assignee. He is authorized to sue in his own name, or in the name of the payee, for his use. But, without a special undertaking in the assignment, or fraud in the transfer, he is not liable"); Whiteman v. Childress, 6 Humphr. (Tenn.) 303: Lawrence v. Dougherty, 5 Yerg. (Tenn.) 435. [a] Restatement.-(1) The indorser of a nonnegotiable instrument is not liable to a holder unless he specially contracts to pay, or for fraud in the transfer, and in these cases the indorser must resort to a special action for the consideration (Simpson V. Moulden, 3 Coldw. (Tenn.) 429; Kirkpatrick v. McCullough, 3 Humphr. (Tenn.) 171, 39 AmD 158), (2) the liability in such case not being on the indorsement but on the agreement of the parties of which the signature is evidence (Whiteman v. Childress, 6 Humphr. (Tenn.) 303). 75. Bright v. Offield, 81 Wash. 442, 143 P 159. 76. Allison V. Hollembeak, 138 Iowa 479, 114 NW 1059; Lynch v. Mead, 99 Iowa 66, 68 NW 579; Billingham v. Bryan, 10 Iowa 317; Peddicord v. Whittam, 9 Iowa 471; Hall v. Monohan, 6 Iowa 216, 71 AmD 404; Wilson v. Ralph, 3 Iowa 450; Long v. Smyser, 3 Iowa 266. [a] Statute.-The indorser of a nonnegotiable note binds himself to pay the amount due, as provided in the note, according to its tenor, to his indorsee, or to any subsequent holder, under the express provisions of Code Suppl. (1902) § 3060-a66, and he assumes no greater liability than that of the maker. Allison v. Hollembeak, 138 Iowa 479, 114 NW 1059. 77. Hart v. Eastman, 7 Minn. 74; Helfer v. Alden, 3 Minn. 332. Smith v. Tyler First State Bank, 95 Minn. 496, 104 NW 369 (distinguishing the two preceding cases on the ground that the instrument in each case was a promissory note but nonnegotiable, and holding that the rule does not apply where the instrument is not a note, although in the form thereof). But see on 78. Cromwell v. Hewitt, 40 N. Y. 491, 100 AmD 527; White v. Low, 7 Barb. (N. Y.) 204 (holding that. [a] Explanation. While it is true where parties whose names are that in Leidy v. Tammany, 9 Watts the back of a note not negotiable can (Pa.) 353, the court said that such an be treated as indorsers, the holder indorsement was the making of a has no option to proceed against them new note, this decision is commented either as indorsers or as guarantors); on, the true point in issue in that Seymour v. Van Slyck, 8 Wend. (N. case is explained in Raymond v. Mid-Y.) 403; Herrick v. Carman, 12 Johns. dleton, 29 Pa. 529, and the proposi- (N. Y.) 159. tion is laid down, from a review of the authorities on the subject, that 79. Johnson v. Lassiter, 155 N. C. 47, 71 SE 23 (liable as a guarantor). |