This section is from the book "The Law Of Real Property and Other Interests In Land", by Herbert Thorn Dike Tiffany. Also available from Amazon: A Treatise on the Modern Law of Real Property and Other Interests in Land .
-In case of a negotiable instrument. A negotiable note is, in respect to the effect of a payment thereon to one who has previously transferred it to another, as it is in other respects, governed by a rule entirely different from that which more usually controls in the case of a non negotiable chose in action.7
Lanning L. & T. Co. v. Gordon, 113 Iowa, 481, 85 N. W. 816; Mutual Life Ins. Co. v. Hall, 20 Ky. L. Rep. 1880, 50 S. W. 254 (semble); Burhans v. Hutcheson, 25 Kan. 625, 37 Am. Rep. 274; Mitchell v. Burnham, 44 Me. 286; Castle v. Castle, 78 Mich. 298, 44 N. W. 378; Brooke v. Struthers, 110 Mich. 562, 35 L. R. A. 536. 68 N. W. 272; Breck v. Meeker, 68 Neh. 99, 93 N. W. 993; Van Keuren v. Corkins, 66 N. Y. 77; Horstman v. Gerker, 49 Pa. St. 282, 88 Am. Dec. 501; Foster v. Carson, 159 Pa. St. 477, 39 Am. St. Rep. 696, 28 Atl. 356; Barry v. Stover, 20 S. D. 459, 129 Am. St. Rep. 941, 107 N. W. 672.
4. Clinton Loan Ass'n. v. Mer-ritt, 112 N. C. 243, 17 S. E. 296; Assets Realization Co. v. Clark, 205 N. Y. 105, 41 L. R. A. (N. S.) 462, 98 N. E. 457; In Mead v. Leavitt, 59 N. H. 476; Wiliams v.
Paysinger, 15 S. Car. 171, in which the mortgagor was regarded as under an obligation to require the production of the notes, it does not appear whether they were or were not negotiable.
5. Post, this subsection, notes 8, 9.
6. Johnson v. Allen, 22 Fla. 224, 1 Am. St. Rep. 180; Shields v. Taylor, 25 Miss. 13; Hart v. Freeman, 42 Ala. 567. That there is no obligation on the mortgagor, making a payment on the non negotiable bond or note secured by mortgage, to demand the production of the bond or note, see Vann v. Marbury, 100 Ala. 438, 23 L. R. A. 325, 46 Am. St. Rep. 70, 14 So. 273.
7. The distinction above stated, as between negotiable notes on the one hand and non negotiable notes or bonds on the other, is sequent holder thereof to notify the mortgage debtor of the transfer to him,16 except in such states as refuse to recognize an obligation, in the case of such a note so secured, to make payment only to the holder of the note17
The holder of a negotiable note is the person entitled to receive payment thereof, and the debtor is, prima facie, protected in making paymenl only if he makes it to the holder.8 This rule has been applied in a number of cases involving negotiable notes given for debts secured by mortgage, and it has ordinarily been held that the person making a paymenl on such a noto to a former holder thereof cannot assert the paymenl as against a subsequent bona fide holder thereof if he failed, when making the payment, to call upon the former to produce the note.9 But a mere delivery, without endorsement, by the payee to another of the possession of the note, even though with the purpose of transferring the title, does not make such other a "holder" of the note, within the meaning of the law of negotiable instruments,10 and consequently he cannot assert the invalidity of a payment made to the payee without notice of the transfer.11
In two states, that a negotiable note is secured by mortgage is regarded as relieving the mortgagor from the obligation ordinarily required in the case of a in effect prescribed by statute in a number of states. See e. g., Downing v. Gibson, 53 Iowa, 517, 5 N. W. 699; Cornish v. Woolver-ton, 32 Mont. 456, 108 Am. St. Rep. 598, 81 Pac. 4; Fritz v. Simpson, 34 N. J. Eq. 436; Barry v. Stover, 20 S. D. 459, 129 Am. St. Rep. 941, 107 N. W. 672.
8. Norton, Bills & Notes (3d Ed.) 12; 2 Daniels, Negot. Inst. Sec. 1230.
9. Scott v. Taylor, 63 Fla. 612, 58 So. 30; Baumgartner v. Peterson, 93 Iowa, 572, 62 N. W. 27; Bur-hans v. Hutcheson, 25 Kan. 625, 37 Am. Rep. 274; Hoffacker v. Manufacturer's Nat. Bank (Md.), 23 Atl. 579; Biggerstaff v. Mar-ston, 161 Mass. 101, 36 N. E. 785;
Murphy v. Barnard, 162 Mass. 72, 44 Am. St. Rep. 340, 38 N. E. 29; Williams v. Keyes, 90 Mich. 290, 30 Am. St. Rep. 438, 51 N. W. 520; Wilson v. Campell, 110 Mich. 580, 35 L. R. A. 544, 68 N. W. 278; Joerdens v. Schrimpf, 77 Mo. 383; Dodge v. Birkenfild, 20 Mont. 115, 49 Pac. 590; Snell v. Margritz, 64 Neb. 6, 91 N. W. 274; Hayden v. Speakman, 20 N. M. 513, 150 Pac. 292; Bautz v. Adams, 131 Wis. 152, 120 Am. St. Rep. 1030, 111 N. W. 69; Windle v. Bone-brake, 23 Fed. 165.
10. Norton Bills & Notes (3rd Ed.) 26; 2 Daniel, Negot. Inst. Sec. 1230a.
11. Fox v. Cipra, 5 Kan. App. 312, 48 Pac. 452; McKinley-Lannnegotiable note, of making payment only to the holder of the note, the payment being apparently regarded as being not on account of the note but on account of the mortgage.12
-Diligence necessary. Accepting the law as stated in the previous paragraphs, the assignee of a non negotiable note or bond representing a debt secured by mortgage, or, as it might be otherwise, though less accurately, expressed, the assignee of a mortgage not securing a negotiable note, should protect himself against a subsequent payment to his assignor, by immediately notifying the mortgage debtor of the assignment.13 In a number of states such notification can be effected by the mere record of the assignment,14 and this appears to be the only mode in which the assignee can effectually protect himself as against a payment to his assignor by a subsequent transferee of the mortgaged land, conceding that a payment made by such transferee in ignorance of the assignment would be effective as against the assignee.15 In the case, on the other hand, of a negotiable note secured by mortgage, still retaining its negotiability, it is not necessary for a subing Loan & Trust Co. v. Gordon, 113 Iowa, 481, 85 N. W. 816; Vann v. Marbury, 100 Ala. 438, 23 L. R. A. 325, 46 Am. St. Rep. 70, 14 So. 273. But see remarks in Hayden v. Speakman, 20 N. M. 513, 150 Pac. 292.
12. Napieralski v. Simon, 198 111. 384, 64 N. B. 1042; Johnson v. Carpenter, 7 Minn. 176; Olson v. Northwestern Guaranty Loan Co., 65 Minn. 475, 68 N. W. 100; But see Keohane v. Smith, 97 111. 156; Blumenthal v. Jassoy, 29 Minn. 177, 12 N. W. 517.