1. What Is Meant By Negotiable Paper

Besides the legal principles that have been incidentally stated relating to checks, notes, and other instruments taken by banks, it is proposed to devote a chapter to this subject. And first, a bank deals only with negotiable paper. But when a bank has made a loan on insufficient security, it will take whatever it can get to secure itself from loss, and thus it sometimes comes into possession of a note that is not negotiable.

A negotiable note is transferable by indorsement and delivery, or by delivery alone. Thus a note which is made by A payable to the order of B, he, by indorsing his name thereon and delivering to C, can order A to pay the money to C. Again, a note which is made by A payable to the bearer and given to B, he can transfer to C simply by delivery without any indorsement.

2. Four Characteristics

A negotiable note, draft, or check possesses four characteristics. First, the person to whom it is transferred can sue thereon in his own name to collect the amount if the maker or indorsers should not pay. Second, an innocent purchaser of a note payable to bearer or indorsed in blank, which is stolen and transferred by the thief to the purchaser before it is due, acquires a good title thereto and can collect the amount. The true owner could not forbid the maker from paying the purchaser. A different rule applies to every other kind of property. If A's horse is stolen and bought by B in good faith from a man who claims to be the owner, nevertheless A can reclaim it, and B must be the loser. The law prescribes a different rule for negotiable property in order to remove all doubts concerning its title that might otherwise lurk in the minds of buyers. But should they have any doubt or suspicion that a note or bond offered to them for sale was stolen, they would not be innocent purchasers and the true owner could recover it from them. Third, a third person C, who has become the purchaser of a note before its maturity, is entitled to the full amount, mentioned therein. The maker can not say that he had paid a part to B who had forgotten to credit the amount. Such a defense would he good if B had not parted with the note, but whenever it is taken by C, not knowing of any defects or defenses that A had against it while it was in B's pus-session, he is protected by the law from any defense of the kind that A may attempt to make Fourth, a nego-tiable note imports, or is presumed to have been given for, a consideration. In other words, when A.'s note to B has been transferred to C, A can not say to C "I did indeed sign it and give it to B, but he never gave me any money in return. He promised to do so, but has failed to keep his promise" The law cuts off this defense it imports or presumes that A did receive something a consideration, and this presumption is so strong that the law will not permit A to escape paying C unless he can clearly show that he did not receive anything from B, and that C knew this at the time he took the note These four great principles attach alone to negotiable paper to give it more currency, to render it more fluid.

1 The new Negotiable Instruments law, which, in a few years, will doubtless he adopted by all the states, should be studied with this chapter. A few of the rules here stated have been modified or entirely changed by that law; but it is only an outline, and the need of knowing the general principles set forth in this chapter is as great as ever.