This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
The holder is charged with notice of everything that appears from the contents of the instrument,1 or on its face.2 A provision that on default in payment of one note, all shall become due, operates as notice, and one who knows of such default can not take as before maturity.3
If an agent pays personal debts with a check of his principals;4 or if an agent, who purports to borrow money on a negotiable instrument for the benefit of the maker thereof, consents to have a substantial part of such loan applied to the payment of his personal debt to the transferee; 5 or a partner discounts a note given by the firm and has the proceeds deposited to his individual account;6 or if a partner transfers a negotiable instrument belonging to the partnership, in payment of his personal debt to the holder;7 or if a note appears on its face to have been issued by an unauthorized agent;8 or if the holder acquires a negotiable instrument from an agent of limited authority, with knowledge of such limitations;9 or if the holder acquires an instrument from one who holds as guardian and places the proceeds thereof to the personal account of the guardian,10 one who takes with knowledge of such facts is bound at his peril to ascertain the authority of the agent or partner to make such use of the funds.
13 Elmo State Bank v. HiIdebrand, - Kan. - , 177 Pac. 6.
14 Whitney v. Day, 86 Or. 268, 168 Pac. 295.
1 Arkansas. Hooten v. State, 119 Ark. 334, 178 S. W. 310; Wimberly v. Scoggin, 128 Ark. 67, 193 S. W. 264; Schaap v. State National Bank, - Ark. - , 208 S. W. 309.
Georgia. Luden v. Enterprise Lumber Co., 146 Ga. 284, 91 S. E. 102.
Kentucky. Taylor v. Harris Administrator, 164 Ky. 664, 176 S. W. 168; Citizens' State Bank v. Johnson County, 182 Ky. 531, 207 S. W. 8.
Massachusetts. Quincy Mutual Fire Insurance Co. v. International Trust Co. 217 Mass. 370, L. R. A. 1915B, 725, 104 N. E. 845.
Nebraska. Marshall v. Kirschbraun, 100 Neb. 876, 161 N. W. 577.
Oklahoma. Keisel v. Baldock, 55 Okla. 487, L. R. A. 1916D, 632, 154 Pac. 1194.
Oregon. McLeod v. Despain, 49 Or. 536, 19 L. R. A. (N.S.) 276, 90 Pac. 492.
Tennessee. Ford v. Brown, 114 Tenn. 467, 1 L. R. A. (N.S.) 188, 88 S. W. 1036.
Washington. National City Bank v. Shelton Electric Co., 96 Wash. 74, 164 Pac. 933.
Wyoming. Acme Coal Co. v. North-rup National Bank, 23 Wyom. 66, L. R. A. 1915D, 1084, 146 Pac. 593.
If a note and a contract so refer to each other that the note is a part of the contract and the contract, which is recorded, shows on its face that it is usurious, the holder of the note is charged with notice of the terms of the contract.. Wimberly v. Scoggin, 128 Ark. 67, 193 S. W. 264.
2 Hooten v. State, 119 Ark. 334, 178 S. W. 310.
3 Marion National Bank v. Harden, - W. Va. - , 97 S. E. 600.
4 Lamson v. Beard, 94 Fed. 30, 45 L. R. A. 822; Gerard v. McCormick, 130 N. Y. 261, 14 L. R. A. 234, 29 N. E. 115.
That a note of a principal is payable to the agent executing it,11 or to a former president of such corporation,12 or that a note of a partnership is payable to a member of the firm,13is said not to be notice of any irregularity in the execution.
That an instrument purports on its face to be executed by the officer of a corporation,14 or to be accepted l5 or indorsedl6 by a public officer, is notice to subsequent holders sufficient to put them on inquiry as to the powers of such officers.
Whether the addition of "trustee" or some word of similar import to the name of the payee is notice to those claiming under him by indorsement is a question on which there has been a division of authority. The weight of authority holds that the addition of "trustee"17 or "guardian,"18 or "attorney," 19 is notice to subsequent holders that other persons have equities in such instruments. The addition of the word "trustee" is notice of the rights of beneficiaries, but otherwise it does not prevent the contract from being negotiable.20 If the trustee has power to transfer a negotiable instrument and to collect the proceeds thereof, one who acquires such instrument from him may be a bona fide holder.21
5 Johnson v. Harrison, 177 Ind. 240, 39 L. R. A. (N.S.) 1207, 07 N. E. 930.
6 Brown v. Pettit, 178 Pa. St. 17, 56 Am. St. Rep. 742, 34 L. R. A. 723, 35 Atl. 865.
Contra, Bank v. Lowry, 81 W. Va. 578, 94 S. E. 985.
7Redfield v. Wells, 31 Ida. 415, 173 Pac. 640; Nichols v. Thomas, 51 Okla. 212, L. R. A. 1916B, 908, 151 Pac. 847.
So under the Negotiable Instruments Law. Redfield v. Wells, 31 Ida. 415, 173 Pac. 640.
8 Chemical National Bank v. Wagner, 93 Ky. 525, 40 Am. St. Rep. 206, 20 S. W. 535. (Payable to himself.)
See also, Schaap v. State National Bank, - Ark. - , 208 S. W. 309.
9 Cheney v. Taber, 221 Mass. 332, 108 N. E. 1072.
10 Taylor v. Harris' Administrator, 164 Ky. 654, 176 S. W. 168.
11 Africa v. Tribune Co., 82 Minn. 283, 83 Am. St. Rep. 424, 84 N. W. 1019; Cheever v. R R., 150 N. Y. 59, 55 Am. St. Rep. 646, 34 L. R. A. 69, 44 N. E. 701.
12Jones v. Stoddart, 8 Ida. 210, 67 Pac. 650.
13 Second National Bank v. Weston, 161 N. Y. 520, 76 Am. St. Rep. 283, 55 N. E. 1080.
14 Chemical National Bank v. Wagner, 93 Ky. 525, 40 Am. St. Rep. 206, 20 S. W. 535.
15 The Floyd Acceptances, 74 U. S. (7 Wall.) 666, 19 L. ed. 169. 16 People v. Bank, 75 N. Y. 547.
In other jurisdictions the addition of "agent,"22 or " sheriff,"23 has been held not to amount to notice.
One who accepts an instrument executed or indorsed by a corporation through one of its officers, in payment of the individual debt of such officer, can not be a bona fide holder.24 If the note is payable to the officer by whom it is executed, the holder is charged with notice of such apparent want of power or abuse of power.25 If the note is payable to a third person and indorsed over by the payee, the holder is not charged with notice of want of power or abuse of power by reason of the form of the instrument,26 even if such payee is a corporation which bears the name of such officer, if he has no interest therein at the time.27 Where a note shows that a bank indorsed it out of the chain of title and before delivery, the holder is bound to inquire whether such indorsement is not ultra vires.28 Memoranda on an instrument showing that it had been refused discount at the bank at which it was payable,29 or that it is "to be held as collateral," 30 or that it is "to be applied" to payment of a certain debt, "if found correct,"31 operate as notice. But a memorandum "C. I. P." on the face of a note is not notice that it was given for a patent right so as to be subject to defenses.32
17 Third National Bank v. Lange, 51 Md. 138. 34 Am. Rep. 304; Shaw v. Spencer,. 100 Mass. 382, 1 Am. Rep. 115 (a stock certificate); McLeod v. Despain, 49 Or. 536, 19 L. R. A. (N.S.) 276, 90 Pac. 492; Ford v. Brown, 114 Tenn. 467, 1 L. R. A. (N.S.) 188, 88 S. W. 1036.
18 Strong v. Strauss, 40 O. S. 87.
19 Hazeltine v. Keenan, 54 W. Va. 600, 102 Am. St. Rep. 953, 46 S. E. 609.
20 Tradesmen's National Bank v. Looney, 99 Tenn. 278, 63 Am. St. Rep. 830, 38 L. R. A. 837, 42 S. W. 149; Dollar Savings & Trust Co. v. Crawford,
69 W. Va. 109, 33 L. R. A. (N.S.) 587,
70 S. E. 1089.
21 Dollar Savings & Trust Co. v. Crawford, 69 W. Va. 109, 33 L. R. A. (N.S.) 587, 70 S. E. 1089.
22 Yates v. Spofford, 7 Ida. 737, 97 Am. St. Rep. 267, 65 Pac. 501.
23 Fletcher v. Schaumburg, 41 Mo. 501 (on the ground that "sheriff" was merely a descriptio personae).
24 Colorado. DeBaca v. Higgins, 58 Colo. 75, L. R. A. 1915B, 1091, 143 Pac. 832.
Georgia. Luden v. Enterprise Lumber Co., 146 Ga. 284, 91 S. E. 102.
Oklahoma. Jenkins v. Planters' and Mechanics' Bank, 34 Okla. 607, 126 Pac. 757.
Rhode Island. Cook v. American Tubing & Webbing Co., 28 R. I. 41, 9 L. R. A. (NJS.) 193, 65 Atl. 641.
See on this question, Quincy Mutual Fire Insurance Co. v. International Trust Co., 217 Mass. 370, L. R. A 1915B, 725, 104 N. E. 845.
25 Luden v. Enterprise Lumber Co., 146 Ga. 284, L. R. A. 1917C, 485, 91 S. E. 102.
26 Burnham Loan & Investment Co. v. Sethman, - Colo. - , L. R. A. 1918F, 1158, 171 Pac. 884; National City Bank v. Shelton Electric Co., 96 Wash. 74; 164 Pac. 933.
The fact that alterations are apparent on the face of the instrument is notice, although the original terms of the instrument may not be apparent.33 An indorsement of part payments upon an instrument, which appears to have been made when the instrument was issued, is not notice of defects.34 If the holder causes indorsements of part payments to be made upon an instrument before he takes it, and such payments were in fact never made, the holder is not a holder in due course.35 The fact that the instrument bears a lower rate than the customary rate is not notice.36
If the statute requires the note to be stamped and the note shows on its face that it is not stamped, the purchaser can not be a bona fide holder.37