11. Notes Of Drunken And Insane Persons

Next may considered the notes of drunken persons and persons of unsound mind. A person who gives his note and reieives money from a bank or individual not knowing of his con dition must nevertheless pay unless a fraud was practiced on him. This is just; there is no reason why he should not return it; for he has had the worth of it. A person who takes advantage of the drunkenness of another and obtains his signature to a note commits a fraud, and the law will not recognize the act. But when there is a good consideration for the note, the maker may afterward ratify his act and become bound thereby. A third person, however, who receives the note in good faith, paying a consideration therefor, can collect the amount should the maker decline to pay. Of course, the original payee commits a fraud in transferring it to another; but the innocent third person, so the law says, shall not suffer. It may be asked, is not the maker innocent too? Not so much so as the other; he has done what he ought not, and if another suffers from his act, he and not the third person must bear the consequences.

An accommodation maker or indorser who receives no benefit therefrom and was not himself at the time of making or indorsing, whether this was known at the time by the other parties or not, is not liable. But he is liable when his indorsement was a renewal of another given at a time when he was unquestionably sound.

12. How Notes Can Be Transferred

Having described the parties to a negotiable note, let us describe how it may be transferred. This can be done by indorsement, whereby the new owner comes into possession of all the rights of the other. Nay, more, for if the original payee retains possession of the note until maturity, and it is not paid, his claim is confined to the maker; but if the note has been transferred to a third person and it is not paid, he can proceed against both the maker and the other from whom he immediately took it, the indorser. And if a note were transferred half a dozen times before maturity, each indorsee would be an additional guarantor or security to whom the holder could look for payment if the maker failed to fulfill his agreement. Of course, the holder in no case can collect any more than the amount due, but every additional indorser to a note is an extension of the security for its ultimate payment.

The indorsement is made on the back of the note, though it may be made on a separate paper called an allonge. This additional paper is used when the note is covered with names, or has been mislaid and can not be had at the time the owner wishes to indorse and transfer it to another.

13. Indorsements

There are several kinds of indorsement, but the two in most general use are known as an indorsement in blank and an indorsement in lull. A blank indorsement consists simply of the name of the owner of the note or other instrument written across the back By doing this and delivering it to another, the transferee or new owner is authorized to write over the signature an order to pay the sum mentioned therein to himself or to any one else, or, in short, to till in any contract of indorsement in harmony with usage. An indorsement in lull contains the name of the person to whom, or to whose order, the money specified in the instrument is to be paid. Thus, a note indorsed, "Pay to John Wakedog or order," and signed by the owner, is an indorsement in full. It will be seen therefore that an indorsement in blank can be con verted into an indorsement in full, but the form of the latter cannot be changed.

An indorsement also may be conditional, by which the indorser directs payment to be made on the happening happening a certain event It may be absolute, whereby the indorser promises to pay without regard to the taking of the usual steps to obtain payment of the instrument. The indorsement may be qualified. For example, when he adds the words, "without recourse," he means that the holder can not look to him for payment if the maker or other prior parties fail to pay it. And finally, another kind of indorsement is known as restrictive, in which the action of the indorsee is restricted; for example, that he must pay to B for the use of C.

Indorsements are not confined to the narrow formulas already given; they may be in other words. When departures occur, questions may arise concerning their intent and effectiveness. Thus, a promissory note was indorsed, "For value received I hereby assign, transfer, and set over to B all my right, title, interest, and claim in the within note." This passed the legal title without destroying its negotiability. Nor is the negotiability of a note destroyed by affixing a seal to the indorsement, either by a corporation or an individual.

Concerning a person's authority to indorse some questions have arisen. Whenever an agent or the secretary of a company indorses a note, and the principal or company has received the benefit of the indorsement, neither the principal nor company can repudiate the agent's authority. The acceptance of the benefit of the act cuts them off from questioning the authority of the agent to indorse. Again, an agent who transacts business for another and takes notes in payment and indorses and transfers them to his principal, may recover the amount from him whenever he is compelled to pay by reason of his indorsement.

If two or more payees indorse jointly, they do not render themselves liable as partners; furthermore their liability is equal regardless of the order of their indorsement.

Sometimes a note drawn in the usual form is indorsed by a third person. Buck owes John Smith money and is willing to give his note payable in a year in payment. Smith says to him, "If you can get your brother to sign it, I will take the note in settlement of the debt." Buck's brother consents to indorse the obligation, and it is drawn in this form: -

"New York. July 1, 1901.

"One year from date, for value received, I promise to pay to the order of John Smith $1,000.

"John Buck."

This is indorsed, "Richard Buck." What kind of a liability has Richard Buck assumed

In some states Richard Buck is regarded as a surety or guarantor; in others, as a first indorser; in others, as a joint maker. The highest legal tribunal has declared that "when a promissory note, made payable to a particular person or order, is first indorsed by a third person, such third person is held to be an original promisor, guarantor, or indorser, according to the nature of the transaction, and the understanding of the parties at the time the transaction took place." 1 And this is the rule in the new Negotiable Instruments law.

One other view may be mentioned. If the note has not been transferred, but remains with the original payee, the intention of the parties may be shown by oral proof in the event of a legal Controversy. This rule, however, does not prevail everywhere. In some states public policy for bids the explanation of an indorsement by oral evidence except in cases of fraud, accident, or mistake.