In the preceding chapter the form requisite to negotiability was considered. In the present chapter we may consider what nonrequisite provisions may be included without destroying the negotiability of an instrument which has in it all the requisite matters of form. The inclusion of a reference to the consideration or to a fund was considered in the last chapter.
Such provision does not destroy negotiability.
"Collateral notes," that is, notes with a collateral clause, are frequently used, and borrowing money on collateral, in which such a note is used and the collateral deposited, is a well known commercial practice.
Such a provision aids rather than clogs negotiability.52
52. A provision that in case the securities decline in value, the maker will furnish additional collateral, and in default thereon the note will become due and payable is held to destroy negotiability in Holliday State Bk. v. Hoffman, 85 Kan. 71, 35 L. R. A. N. S. 390, and held not to destroy negotiability in Finley v. Smith, 165 Ky. 445, L. R. A. 1915 F. 777. See also page 47 herein.
An instrument secured by mortgage ought to so state, and in practice usually does so. A reference to the mortgage does not destroy negotiability.53
In some states a reference to a chattel mortgage is required by statute to be made in a chattel mortgage note, and the purchaser of such a note becomes subject to the defenses that the maker may have against his payee. Such a statute seriously modifies the negotiable character of the instrument. But notes secured by real estate mortgages (or trust deeds) are very common and are everywhere negotiable. Bonds issued by corporations are of this character.
Such a provision does not affect negotiability.
In some states it is a not unusual practice to include in a note a power of attorney by which the maker irrevocably authorizes some attorney or any attorney to appear for him in court and confess a judgment against him in favor of the holder for any amount then due thereon. Such a note is called a "judgment note." The negotiable instruments act provides that the negotiable character of an instrument is not affected by a provision which "authorizes a confession of judgment if the instrument be not paid at maturity." Under such
53. Nego. Instru. Law, SEC. 5.
a provision a note authorizing a confession "at any time hereafter" is not negotiable.54
The advantage to the holder of a judgment note is that it avoids the necessity of service of process in order to obtain judgment, and the judgment may be entered without delay and without the usual formalities of suit. But if the maker has a defense he could make he is not deprived of it by this judgment clause, as the court will upon a proper showing made by him, open up the case to allow the defense; generally, however, allowing the judgment to stand as a security to await the result of the trial.
A provision whereby the debtor waives the benefit of an exemption law or other law intended for his benefit does not affect negotiability, but whether a debtor has the power to waive the benefit of such a law depends on local public policy.
It is generally held that a debtor may waive the benefit of any law, such as an exemption statute, although he cannot waive the benefit of a law which is also for the benefit of his family. The public policy involved in the enactment of debtor's laws, and in the right of the debtor to waive their benefit, is a subject that involves the law of negotiable paper in no wise except to determine whether the insertion of such a waiver, whether effective or not, destroys negotiability of an instrument otherwise properly drawn. And the act provides that such an insertion shall have no effect on negotiability.
54. Wisconsin Yearly Meeting v. Babler, 115 Wis. 289, 91 N. W. 678. In Illinois the Act is modified to permit the negotiability of a note upon which judgment may be confessed at any time hereafter.
A seal affixed to a negotiable instrument does not destroy negotiability.
At common law an instrument to be negotiable had to be "open," that is, not under seal. The negotiable instruments act provides that negotiability is not altered by the fact that the instrument "bears a seal."
The omission of the date of the instrument does not impair its negotiability.
The date is a material part of the instrument but not a formal requisite. The instrument is still negotiable notwithstanding the lack of a date. In this respect the negotiable instrument law provides:
"Where an instrument expressed to be payable at a fixed period after date, is issued undated, or where the acceptance of an instrument payable at a fixed period after sight is undated, any holder may insert therein the true date of issue or acceptance, and the instrument shall be payable accordingly. The insertion of a wrong date does not void the instrument in the hands of a subsequent holder in due course, but as to him the date so inserted is to be regarded as the true date." 55
55. Nego. Instru. Law, SEC. 13.
Dating instrument before or after its issue, if not for fraudulent purposes, does not invalidate it.
The negotiable instrument law provides: "The instrument is not invalid for the reason only that it is antedated or postdated, provided this is not done for an illegal or fraudulent purpose. The person to whom an instrument so dated is delivered acquires title thereto as of the date of delivery." 56
Where an instrument is ambiguous the following rules of construction are applied.57
(1) Where the sum payable is expressed in words and figures, the words govern, in case of discrepancy.
(2) Interest provided for runs from the issue of the instrument in case no date is stated.
(3) Where the instrument is undated, it will be considered to be dated as of the date of its issue.
(4) Writing prevails over print where in conflict.
(5) If the instrument is so ambiguously drawn that it is doubtful whether it is a bill or note, the holder may treat it as either.
(6) Where one signs in such a manner that his intention is doubtful, he may be treated as an indorser.
(7) If two or more persons sign a note reading "I promise to pay," both are jointly and severally liable thereon.
56. Id. SEC. 12.
57. Id. SEC. 17.