This section is from the "Practical Banking" book, by Albert S. Bolles.
An immense number of notes are given in liquidation of purchases and other obligations, and which sooner or later are delivered to banks for collection. Our readers will understand from what has been already said, that many of the notes thus received by the depositors of a bank are offered for discount, and the mode of procedure with regard to them has been explained. But the remainder are lodged for collection, and their future history needs explanation.
They are first entered by the collection clerk in the customers' book, after careful examination. Informality of endorsement, obscurity of date, or other accident might render the bank liable to the holder, although it was acting merely as a collection agent. The clerk must scrutinize every note carefully before entering it, and must always require the final endorsement of the owner, so that it may not be placed to the wrong credit when due. Banks generally will not receive for collection notes that have been disfigured or changed after issue by the drawer; nor will they receive them from strangers on any terms.
Promissory notes are transferred by endorsement from one merchant to another in settlement of debts, until the time of their maturity, when, of course, they must be presented for payment. There are several varieties of endorsement which may be briefly mentioned. An endorsement may be (1 ) in full, or (2) in blank ; it may be (3) absolute, or (4) conditional; it may be (5) restrictive; it may be (6) without recourse on the endorser; and there may be (7) joint endorsements of the instrument ; (8), successive endorsements, and (9) irregular ones. An endorsement in full mentions the name of the person in whose favor it is made, and to-whom, or to whose order, the sum described in the note is to be paid. An endorsement in blank consists simply of the name of the endorser written on the back of the instrument. "The receiver of a negotiable instrument endorsed in blank, or any bona fide holder of it, may write over it an endorsement in full to himself, or to another, or any contract consistent with the character of an endorsement, but he could not enlarge the liability of the endorser.
In blank by writing over it a waiver of any of his rights, such as demand and notice."* By an absolute endorsement the endorser binds himself to pay on no other condition than the failure of the prior parties to do so, and of due notice to him of their failure, while a conditional endorsement contains some other condition to the endorser's liability. An endorsement may be so worded as to restrict the further negotiability of the instrument; it is then called a restrictive endorsement. The words" for collection," which are frequently written on notes that are put in a bank to be collected, render the endorsement restrictive. The endorser in such a case may prove that he is not the owner of the note, and did not mean to give a title to it or its proceeds when collected. Such an endorsement merely makes the endorsee agent for the endorser in collecting the note. The sixth kind is a qualified endorsement, or endorsement without recourse. This consists in writing the words "without recourse," or "at the endorsee's own risk" on the back of the note. The endorser is then a mere assignor of the title to the note, and is relieved of all responsibility for its payment. A joint endorsement is made when a note is payable to several persons who are not partners. Successive endorsements are those made by several persons on a note, the legal effect of which is to subject them as to each other in the order they endorse. The endorsement imparts a several and successive, and not a joint obligation. Lastly may be mentioned irregular endorsements, which may originate in various ways. But in all cases an endorser guarantees the genuineness of all the preceding endorsements.
* Daniel on Negotiable Instruments, 694.
The clerk marks on each note the date of its maturity. If he should mark it one day too late, and the drawer should fail to pay, the bank would be liable to the owner, because the notice of the protest to the endorsers would be too late to hold them. A careful clerk will revise his "timing" of notes so as to guard against any error of this kind.
Dishonest customers have been known to mark a wrong date of maturity on notes for the purpose of " catching" the bank; in other words, of making it liable. The bank could not escape by showing that the wrong date was the customer's, without proving that he intended to render the bank liable. It must be exact in its own business, and cannot escape by showing that it adopted the errors of others.