Story Case

James Schouler delivered his own promissory note to Clarence Pound for $75. The entire note, except the amount payable, was written in ink. The sum payable - seventy-five dollars - was written in pencil. After Pound received the note, he erased the figures showing the sum payable and wrote into the blank space the figures "one hundred seventy-five dollars"; he then negotiated the check to John Winslow who paid him $160 in good faith. When the note became due, Wins-low demanded payment of $175. Schouler refused to pay anything and suit was brought for $175. Can Winslow recover?

Ruling Court Case. Harvey Vs. Smith, Volume 55 Illinois Reports, Page 224

Smith purchased from one Sampson a number of grinding mills. He gave to Sampson Ms promissory note for the amount. The note was written in ink, but, at the bottom of the paper, the following was written in pencil:

"This note is not to be paid until fourteen mills are sold by Smith."

Sampson erased this condition, and transferred the note to Harvey, who presented it for payment. Since he had not sold fourteen mills, Smith refused to pay the note. Suit was brought upon it and Smith contended that he could not be held until he had sold fourteen machines.

Decision: A note must be in writing of some kind, whether by pencil or in ink. But the courts are strict concerning a note signed in pencil, because it is regarded as evidence of negligence. In this case, the court was of the opinion that a note written in ink, containing a mutual condition made by pencil, was gross negligence and permitted Harvey to recover on the note as altered.

Mr. Justice Bruse said: "If a person signs a note written in ink, but containing a material condition, qualifying his liability, written only in pencil, he is guilty of gross carelessness, and if the writing in pencil is erased so as to leave no trace behind, or any indication of alteration, as it easily may be, we are of opinion an innocent holder, taking the note before maturity for a valuable consideration, will take it, discharged of any defense arising from the erased portion of the note or from the fact of alteration." Judgment was given for Harvey.

Ruling Law. Story Case Answer

In considering the formal requisites of a negotiable instrument, the reader should keep constantly in mind the principle heretofore stated that a negotiable instrument is a substitute for money; for this reason, a negotiable instrument should always be as simple and as certain as possible.

The first and most obvious formal requisite of a negotiable instrument is that the obligation should be in writing. A simple contract right need not be in writing; it is not designed to pass as money, and any one accepting an assignment of it knows that he assumes a risk. But since a negotiable instrument is designed to pass as money, it is highly necessary that it be evidenced by some writing. It is not required by law that it shall be in ink, but it is safe and certain only when written in this way. In the Court Case of Harvey vs. Smith, the court held that it was negligence on the part of the maker of the note to write a part in ink and a part in pencil. In the Story Case, those states adopting the Negotiable Instruments Law will hold Schouler for $75, the original amount of the note. Those states in which the old Law Merchant exists will hold Schouler for $175, on the ground that his carelessness in making the note contributed to the alteration.