The person to whom a check, note, or draft is made payable is called the "payee." If the payee wishes to make the check (note or draft) good in the hands of some one else, he writes his name across the back of the check, in accordance with the wording as filled in upon the face. This is called "indorsing." For instance, a check made payable to John J. Smith upon the face, should be signed by him across the back, "John J. Smith," not " John Smith." If it is an error and his name should really be John Smith without the middle letter " J," and it is not convenient to get a new check issued in correct form, he may sign his correct name also under "John J. Smith," thus signing both, although, of course, this latter method may not be asked for by the party about to receive the check. He should demand this, for, when he in turn indorses it, he guarantees all previous indorsements and, in case the check proves worthless and recourse is taken against John Smith, it may simplify matters that Smith be given no opportunity to set up the defence that it was not his legal signature. Again, if a check should be drawn to Mrs. John Smith she should indorse it that way, and then under it her legal name, Susan Smith.
If a check is presented for payment and there is no money on deposit to meet the same, the check having passed through the hands of several different people, each in turn indorsing it. the last holder, who presents it to the bank for payment, may fall back upon any previous indorser he sees fit. It is not necessary for him to take legal action against the last signer, and so on back in reverse order of the indorsements. In indorsing a check remember that unless the indorser adds the words "without recourse" he may be held liable for the amount of the check. This, as set forth under "Without Recourse," does not imply that the condition may be generally made use of. (See that subject, as well as "Check.")
All that is said above in regard to a "check" applies with equal force to notes, and all such papers that pass by " indorsement."
When one or more persons "indorse " a note, thus becoming liable for its payment, in the case of failure on the part of the "maker" to meet it, they assume liability for the note only as originally made and no holder can recover from the " in-dorsers," provided the former allows any change in the note's original terms. For instance, suppose a note falls due and the holder renews it; that is extends the time of payment without permission of the indorser; by this act the latter would be relieved of all liability. A holder of a note with indorsements must present it for payment upon the day of its maturity, for failure so to do relieves the indorsers of all liability. Although the holder of a note may have received collaterals from the maker, he is under no obligation to proceed on the collateral before suing the indorser.
In "indorsing" a check, hold it face upwards, and observe the left-hand end as it then lies; turn it over and make the "indorsement" on the back across that end. This is not obligatory, but makes it much more convenient for the handling by bank clerks, and others.
In indorsing a check, note, etc., making it payable to John Smith, for instance, use the wording: "Pay to the order of John Smith." This will enable John Smith to again " indorse " it and pass it on from hand to hand, that is, make it negotiable.
Occasion sometimes arises when one person wishes to deposit a check to the credit of another, the check being payable to the latter, but it not being convenient to get his indorsement. To illustrate: A banking house - James Crow & Co. - may wish to pay Paul Jones $1,000 on account of collections made, or for other reasons. Instead of sending the check to Paul Jones, they may have received instructions to deposit it in his bank to his credit. The following is a complete wording that banks may require: "Pay to the order of
---------Bank, for the credit of Paul Jones, by James Crow & Co., Attorney." In practice, however, banks usually take checks with the simple indorsement, "Paul Jones, by James Crow & Co.," or simply "Deposited for the credit of Paul Jones," but the first is technically correct; and, in such a case, the bank does not require that James Crow & Co. shall hold the actual power of attorney for indorsement, but they accept them as attorneys for the occasion without any evidence of authority, but this is done at the risk of the bank.
On any checks issued by the United States Treasury at Washington, the last indorsement, that is, the indorsement of the one presenting for collection, must be in hand-writing, as a stamped indorsement, such as is frequently used, is not then permissible.
An indorsement in law is considered a written contract, the terms of which, though commonly omitted for the sake of convenience, are, nevertheless, definite and fixed; none the less understood because not expressed in words. Although this is almost a universal rule, there are a few States which regard the signature of an indorser simply as evidence of his having entered into a contract, and will accept testimony as to any verbal agreements which may modify the implied contract.1