c. Striking out special indorsements.—A negotiable instrument, the first indorsement on which is in blank, is afterward assignable by a mere delivery, as against the payee, maker, drawer, or acceptor, although it have subsequent indorsements in full; because a subsequent holder by delivery may declare and recover as the indorsee of the payee, and strike out all the subsequent indorsements, whether special or not.75 But where an instrument is transferred by a special indorsement, the holder has no right to strike out the name of the person mentioned in such indorsement and insert his own in the place thereof;76 nor can he strike out such name and convert such special indorsement into a blank indorsement.67 Where an instrument is indorsed to a bank or other agent for collection, on the instrument being returned to the owner, he may strike out the special indorsement and bring an action in his own name; and it is unnecessary in such a case that there should be a reindorsement.78

$69. Transfer without indorsement.

a. Statutory provision. It is provided in the Negotiable Instruments Law that: "Where the holder of an instrument pay"able to his order transfers it for value without indorsing it, the "transfer vests in the transferee such title as the transferrer had "therein, and the transferee acquires, in addition, the right to "have the indorsement of the transferrer. But for the purpose "of determining whether the transferee is a holder in due course,

Mitchell v. Fuller, 15 Pa. St. 268, 53
Am. Dec. 594.

In New York, in the case of Pentz v. Winterbottom, 5 Den. 51, where the note purported to be indorsed by the payee in blank and several others, the plaintiff sufficiently shows his title to the note by proving the indorsement of the payee, without giving any evidence respecting the genuineness of the indorsements subsequent to his. The plaintiff was held in such case to be at liberty to make title to the note directly from the first indorser, disregarding the others. See also United States v. Barker, Fed. Cas. No. 14,517.

75. Mitchell v. Fuller, 15 Pa. St. 268, 53 Am. Dec. 594. See also Chitty on Bills (5th ed.), pp. 175, 176.

The

making the note payable to a bank,
for collection on his account.
bank failing to collect, returned the
note to him indorsed by its cashier
"Without recourse." It was held
that the indorsee on the return of the
note had the right to strike out the
indorsement he had written over the
payee's signature, and fill up the in-
dorsement to himself.

76. Porter v. Cushman, 19 Ill. 572.

77. Bank of United States V. Moore, Fed. Cas. No. 930, 3 Cranch (C. C.) 330; Morris v. Foreman, 1 Dall. (Pa.) 193, 1 Am. Dec. 235.

78. Chautauqua County Bank v. Davis, 21 Wend. (N. Y.) 584; Utica Bank v. Smith, 18 Johns. (N. Y.) 230; Watervliet Bank v. White, 1 In the case of Fawsett v. National Den. (N. Y.) 608; Reading v. BeardsLife Ins. Co., 96 Ill. 11, 37 Am. Rep. ley, 41 Mich. 123, 1 N. W. 965; Cassel 95, the payee of a note indorsed it in v. Dows, Fed. Cas. No. 2,502, 1 blank, the indorsee filled up the blank Blatchf. (U. S.) 335.

979

"the negotiation takes effect as of the time when the indorsement "is actually made.' This section, with the exception of the last sentence, is taken from the English Bills of Exchange Act.80

b. Effect of transfer. If there is a valid consideration for the transfer of a negotiable instrument without an indorsement, the transfer passes the title of the transferrer and will enable such transferee to maintain an action upon the instrument and vests in

him the rights possessed by the transferrer.81 Where paper is

transferred for collection, without indorsement, title thereto does not pass sufficient for any other purpose than to enforce the collection of the instrument.8 82

c. Effect as equitable assignment.- There are a number of cases to the effect that the transfer of a negotiable instrument without indorsement does not pass the legal title to the instrument, but

79. Neg. Inst. L. (N. Y.), § 79. For the same section in statutes of other States see Appendix.

80. English Bills of Exchange Act, 1882, 31 (4).

ceived before he does so. Until he does so, he is merely in the position of an assignee of an ordinary chose in action, and has no better title than his assignor."

81. Effect of certification of check

Title of transferee where instrument is transferred without indorsement. transferred without indorsement.In the case of Whistler v. Forster, 14 C. B. (N. S.) (Eng.) 258, 32 L. J. C. P. (Eng.) 161, 4 Eng. Rul. Cas. 332, it was said by Willes, J.: "The general rule of law is undoubted that no one can transfer a better title than

he himself possesses. To this there

are

In the case of Freund v. Importers & Traders' Nat Bank, 76 N. Y. 352, a person drew a check and delivered it to another for his accommodation, with no restrictions as to its use. The payee delivered it without indorsement to a third person in paysome exceptions, one of which ment of a previous indebtedness. arises out of the rule of the law mer- After such check had been certified chant as to negotiable instruments. by the bank, the maker thereof notiThese being part of the currency are fied the bank not to pay it. But the subject to the same rule as money, bank paid the check, notwithstandand if such an instrument be trans- ing, to the third person. It was held ferred in good faith for value, before that the transfer from the payee to it is overdue, it becomes valuable in the third person, resting on a valid the hands of the holder, notwith- consideration, the certification had the standing fraud which would have rendered it unavailable in the hands legal effect of an indorsement, and of a previous holder. This rule, how- bound the bank to pay the instrument ever, is only intended to favor trans- to the third person. fers in the ordinary and usual manner, whereby a title is acquired according to the law merchant, and not to a transfer which is valid in equity according to the doctrine respecting the assignment of choses in action; and it is, therefore, clear that in order to acquire the benefit of this rule, the holder must, if it be payable to order, obtain an indorsement, and that he is affected by notice of a fraud re

v. Stover, 48 Mo. 163.

See also Nutter

A transferee of negotiable paper without indorsement can only recover upon it, by proving consideration. Farris v. Wells, 68 Ga. 604.

82. Carter v. Layman, 90 Ala. 126, 7 South. 735; Little v. O'Brien, 9 Mass. 423; Sherwood v. Roys, 13 Pick. (Mass.) 172; Mills v. Porter, 2 Hun (N. Y.), 524; Manwell v. Briggs, 17 Vt. 176.

merely constitutes the transferee an equitable assignee thereof,83 and an action on such a note must be brought by the transferrer,84 or by the transferee in the name of the transferrer.85 And where a note payable to order is transferred by delivery only, without indorsement, the transferee may, by proper proceedings, compel an indorsement to be made.86 In many of the States the commonlaw rule that the holder of the equitable title to a negotiable instrument transferred to him by delivery only and without indorsement could sue on such instrument only in the name of the last holder of the legal title, has been abrogated by the statutory requirement that actions shall be prosecuted in the name of the real party in interest.8

87

In New York it has been held that where a promissory note payable to order is not indorsed by the payee, but is transferred by delivery merely to another, the holder of the note is a mere assignee, and his rights are to be settled by the same rules which govern the case of an assignee of any other chose in action. Hedges v. Sealy, 9 Barb. (N. Y.) 214.

84. Freeman v. Perry, 22 Conn. 617. 85. In the case of Jones v. Witter, 13 Mass. 304, it was held that a negotiable promissory note is assignable by delivery only, without writing, for an adequate consideration; and the assignee may recover judgment in the

name of the promisee, notwithstanding payments made by the maker to the promisee after notice of the assignment.

86. Brown v. Wilson, 45 S. C. 519, 23 S. E. 630; Schoepfer v. Tommack, 97 Ill. App. 562.

87. Right of assignee to sue.-Davis v. Johnson, 4 Colo. App. 545, 547, 36 Pac. 887, in which the court said: "But it is not true that such a transfer of a note does not invest the purchaser with title. At common law he took the equitable title, and at law could sue only in the name of the last holder of the legal title; but this distinction has been abrogated by the requirement of the Code that actions shall be prosecuted in the name of the real parties in interest; so that, subject to defenses in favor of the maker, existing at the time of the notice of the transfer, such purchaser now takes a complete title to the note."

In Pease v. Rush, 2 Minn. 107, it was said: "A promissory note like any other personal property can be transferred by mere delivery, so as to pass the title, and the right to sue in the name of the holder; when a note is payable to order, and is found in the hands of a person not the payee, without the indorsement of the payee, the difference between such a holder and one who holds by an indorsement, is that the former is not entitled to the privileges of a bona fide holder, while the latter is; a note payable to order passed without indorsement is not taken in the regular course of business, but is subject to the same disabilities as if it had been taken after

d. Notice of transfer without indorsement. It is well settled that the owner of negotiable paper, who obtains title without indorsement by the payee, holds it subject to all the equities and defenses which exist between the original parties.88 But while, like other assigned choses in action, it is subject to all the equities and defenses existing in favor of the maker, including the payment of the note to the payee if the payment is made without notice of the title of the holder, still, when a debtor has notice of the assignment, he may not thereafter make a valid payment to the assignor.89 It is the duty of an assignee of a nonnegotiable chose in action, in order to protect himself against payment by the debtor to the original creditor, to notify the former of the assign

e. Indorsement when made does not relate back to time of transfer. It has been declared as a general rule that an indorsement of a negotiable instrument by a transferrer subsequent to its transfer cannot relate back to the time of such transfer so as to destroy the intervening rights and remedies of a third party.' The rea

91

son for this rule is that before an indorsement the holder of a note transferred to him by delivery alone is not a holder in due course and is not within the protection of the law merchant.92 The holder

due, but the title passes sufficiently to maintain a suit in the name of the owner."

In the case of Wangner v. Grimm, 169 N. Y. 421, 428, 62 N. E. 569, the court said: "Where such an instrument is so transferred it is treated as a chose in action, assigned to the holder, and the assignee acquires all the title of the assignor and may maintain an action thereon in his own name."

See also Lewis v. Hathman, 7 Ind. 585; White v. Callinan, 19 Ind. 43; Williams v. Norton, 3 Kan. 290; Lewis v. Bowen, 29 Mo. 202; Davis v. Lane, 8 N. H. 224. But see Beard v. Dedolph, 29 Wis. 136; Roane v. Williams, 12 Ark. 74.

88. Goshen Nat. Bank v. Bingham, 118 N. Y. 349, 354, 23 N. E. 180; Freund v. Importers & Traders' Nat. Bank, 76 N. Y. 352, 358; First Nat. Bank v. Henry, 156 Ind. 1, 58 N. E. 1057 Sackett v. Montgomery, 57 Neb. 424, 77 N. W. 1083, 73 Am. St. Rep. 522; Hays v. Plummer, 126 Cal. 107, 58 Pac. 447, 77 Am. St. Rep. 153; Gray Tie & Lumber Co. v. Farmers'

Bank, 22 Ky. L. Rep. 1333, 84 N. W. 930; Galusha v. Sherman, 105 Wis. 263, 81 N. W. 495.

89. Wangner v. Grimm, 169 N. Y. 421, 428, 62 N. E. 569. 90. Heermans v. Ellsworth, 64 N. Y. 159.

91. Goshen Nat. Bank v. Bingham, 118 N. Y. 349, 354, 23 N. E. 180; Huntington v. Lombard, 22 Wash. 202, 60 Pac. 414.

92. Reason for rule.- In the case of Clark V. Whitaker, 50 N. H. 474, the court said: "Ordinarily the assignee of a chose in action has no greater rights than his assignor. The superior right claimed for the holder of negotiable paper can rest only upon the custom of merchants and the Statute of 3 & 4 Anne, chap. 9. An exception is thereby made in favor of those who take notes by indorsement, for value, before maturity, and without notice of any defense. Until the note is indorsed, the holder is not an indorsee. If it is not indorsed until after maturity, he cannot be said to have taken the note by indorsement' before maturity. So too

of such a note is in no better position than was the transferrer at the time of the transfer. Upon indorsement by the transferrer the transferee becomes vested with the rights of an indorsee. But where the indorsement is made after maturity the maker is not thereby divested of the defense of fraud or failure of consideration.94 The section of the Negotiable Instruments Law above quoted contains a legislative enactment of this rule,95 and the rule now in force in all States which have adopted that act makes the indorsement of an instrument transferred by delivery effectual only from the time it is made, and, therefore, where such an indorsement is made after maturity, it has the same effect upon the rights and liabilities of the parties, as any other transfer by indorsement after maturity."

96

if the note is not indorsed till after
the purchaser had notice of a defense,
he cannot be said to have taken the
note by indorsement without notice of
any defense.
Before he had obtained
the indorsement, he was not within
the protection of the law merchant,
and when he did obtain it, he had no-
tice that he could not gain any title
to the note on account of its original
invalidity."

93. Savage v. King, 17 Me. 301; Lancaster Nat. Bank v. Taylor, 100 Mass. 18, 1 Am. Rep. 71; Clark v. Callison, 7 Ill. 263; Gilbert v. Sharp, 2 Lans. (N. Y.) 412; Harrop v. Fisher, 30 L. J. (C. L. N. S.) (Eng.) 283; Whistler v. Forster, 14 C. B. (N. S.) (Eng.) 246.

Nat. Bank v. Taylor, 100 Mass. 18, 1 Am. Rep. 71, the court said: "A note not negotiable may be assigned and transferred like any other chose in action, but can be sued only in the name of the payee, and is liable to every defense existing against him. A negotiable note, not transferred until it is overdue, may be sued in the name of the indorsee, but as to defenses must be treated precisely like one not negotiable, and a negotiable note which is transferred before maturity, but not indorsed until afterward, in our opinion can stand on no better footing. Whoever receives it takes a contract which upon its face shows that it is subject to every defense that could have been made between the original 94. Indorsement after maturity of parties. There is no custom of merinstrument transferred by delivery.- chants in favor of such an assignee, In the case of Haskell v. Mitchell, 53 and no rule of law by which he is enMe. 468, 89 Am. Dec. 711, the note in titled to greater rights than the payee. suit was sold and assigned by delivery If the contract was originally invalid before and indorsed after its maturity. for want of consideration or other The court said: "Before such note cause, so will it be in any other hands was indorsed, and up to the time of into which it passed before the legal its indorsement, a suit to enforce its title is transferred by regular indorsepayment must have been brought in ment. No such indorsement having the name of the payee. If so brought, been made before the note is overdue it would have been competent for the and dishonored, any subsequent one maker to show fraud or a failure of takes effect only from its date. There consideration by way of defense. The is no doctrine known to the mercantile plaintiff, by his purchase, acquired law by which it can relate back to the only the rights of an assignee. The indorsement after maturity enables the plaintiff to maintain an action in his own name, but it does not divest the defendant of the defense to which he was entitled prior to such indorsement." And in the case of Lancaster

time of the equitable transfer, and place the assignee in the same position as if he had been, before maturity, the holder of the note for value."

95. Neg. Inst. L. (N. Y.), § 79, last sentence. See ante, § 69, p. 347. 96. See post, § 73, (d), (3).