the concern is that of Albert A. Reed, who purchased the note for the plaintiff. He testifies that he purchased it with 59 others from Mr. Doty, and that Doty is sole proprietor of the "Wonder Stock Powder Company." It is not shown whether the Wonder Stock Powder Company is a corporation of which Doty owns all the stock, or whether it is a trade-name used by Doty in his individual business. * * * The purchase and delivery of the note transferred the title to plaintiff, but there being, so far as the evidence shows, no indorsement by the payee, the transfer could not vest plaintiff with the privileges of a holder in due course, and the note was subject to the same defenses as might be set up against the original payee. Judgment affirmed. SECTION 6.-NEGOTIATION BY BLANK INDORSEMENT N. I. L., Section 34. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery. The blank indorsement consists simply in the signature of the holder accompanied by delivery. Thereafter the instrument may be negotiated by delivery without indorsement. It is quite common for the holder, who transfers an instrument which is in such form that it may be negotiated by delivery, to indorse the same. When this is done, it is not for the purpose of enabling the transferor to obtain title to the instrument, but is done for purposes quite different. The indorsement imposes upon the indorser a liability to pay the instrument to the holder in the event that the party primarily liable thereon fails to pay at maturity. If the holder did not indorse, his liability as a transferor by delivery would extend no further than a warranty that the instrument was genuine, that he had title to it, that all prior parties had capacity to contract, and that he had no knowledge of any fact which would impair the validity of the instrument or render it valueless, and such liability would extend no further than his immediate indorsee. The effect of the indorsement would be to impose upon the indorser a liability to pay if the instrument were not paid at maturity, provided there was a due presentment and due notice of dishonor given. The liability of indorsers is discussed in detail in a later chapter. The point is merely adverted to here to show that, while an indorsement is not necessary for the transfer of title to a hegotiable instrument, which is either payable to bearer on its face or became payable to bearer through a blank indorsement, oftentimes an indorsement will be necessary in order to induce the transferee to take the paper. It should be realized that, if a person has in his possession an instrument in form transferable by delivery, there is always some risk that he may lose title thereto through loss or theft of the instrument. The innocent purchaser from a thief or finder of bearer paper obtains title. This is not so where the innocent purchaser took the instrument under the forged indorsement of a special indorsee of paper on its face payable to order. In order to guard. against the loss of title through the loss or theft of the instrument. while in form negotiable by delivery, and for other purposes, the law allows the holder to convert the blank indorsement into a special indorsement by writing his name above the blank indorsement following the words "Pay to." This is accomplished by sec-tion 35: The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement. We have one special problem relating to special and blank indorsements which is of considerable importance. Suppose an instrument bears both a special indorsement and a blank indorsement, which indorsement controls? If an instrument is made payable to bearer on its face, and some holder negotiates by special indorsement, does the special indorsement control? We have already noted that the effect of a blank indorsement is to convert the paper into bearer paper. Suppose a blank indorsement is followed by a special indorsement; does the special indorsement have the effect of reconverting the instrument to order paper, so that the indorsement of the special indorsee is necessary to the further negotiation of the instrument? In short, we have two questions: (1) Does a special indorsement control a prior indorsement in blank? (2) Does a special indorsement control the method of negotiation of an instrument which on its face is payable to bearer? Unfortunately the Negotiable Instruments Law is not clear on these questions. Before the act a subsequent special indorsement did not control paper which was bearer paper on its face, nor did it control a prior blank indorsement. If it were once bearer paper, it was always thereafter bearer paper. Under the act, the law probably is that an instrument which is payable to bearer on its face cannot be controlled by a subsequent special indorsement, but that an instrument which on its face is payable to the order of a named payee, and became payable to bearer through a blank indorsement, is controlled by a subsequent special indorsement. The sections of the act involved are as follows: Section 9 (5). The instrument is payable to bearer when the only or last indorsement is an indorsement in blank. This section, standing alone, would clearly change the commonlaw rule, and the last indorsement in all cases would control. If the instrument were payable to bearer on its face, a special indorsement would prevent further negotiation by delivery merely. Also if the instrument became payable to bearer for the first time by a blank indorsement, a subsequent special indorsement would control, and the instrument could be further negotiated only by the indorsement of the special indorsee. But there are two other sections of the act involved which affect the result: Section 48. The holder may at any time strike out any indorsement which is not necessary to his title. The indorser whose indorsement is struck out, and all indorsers subsequent to him, are thereby relieved from liability on the instrument. If this section means that the transferee by delivery only, from a special indorsee, may strike out the special indorsement and rely upon any prior blank indorsement, then the subsequent special indorsement will not control. This interpretation is not reasonable, however, because the only kind of indorsement which may be stricken out is that kind of indorsement which is not necessary to the holder's title. The very question we are trying to solve is: What indorsements are necessary to one's title? Section 48, therefore, does not aid us in answering the questions raised above. Section 40 has a more direct bearing on these problems. This section provides: Where an instrument, payable to bearer, is indorsed specially, it may nevertheless be further negotiated by delivery; but the person indorsing specially is liable as indorser to only such holders as make title through his indorsement. We are interested here only in the first clause. This states that an instrument if payable to bearer is indorsed specially, it may nevertheless be further negotiated by delivery. This states a rule just the opposite from that laid down in section 9 (5). Under section 9 (5) the last indorsement controls. If this is a special indorsement, it would control a prior blank indorsement. Under section 40 the subsequent special indorsement does not control a prior blank indorsement, nor does it control the manner of negotiating an instrument payable to bearer on its face. If one section is not to be regarded as completely neutralizing the effect of the other, the most reasonable way out of the difficulty is to divide all negotiable instruments into two classes: (1) Those which on their face are payable to the order of a named payee; and (2) those which on their face are payable, either to bearer, or to a named payee or bearer. Then let section 9 (5) apply only to instruments in the first class, and regard section 40 as applicable only to instruments in the second class. The courts have not yet passed upon this question, but, if this be the correct solution, our conclusions are: (1) That an instrument payable to bearer on its face will always be payable to bearer. A subsequent special indorsement will not control. (2) That an instrument payable on its face to the order of a named payee, if subsequently it becomes payable to bearer by virtue of a blank indorsement, a subsequent special indorsement will control the prior indorsement in blank, and the instrument may be further negotiated only by the indorsement of the special indorsee. DAVIS v. FIRST NAT. BANK OF BLAKELY. (Supreme Court of Alabama, 1915. 192 Ala. 8, 68 South. 261.) ANDERSON, C. J. The note sued upon was executed by B. F. W. Davis and was made payable to himself or order and was indorsed by said Davis in blank before it fell into the hands of the plaintiff. Therefore, as the last, and in fact only, indorsement was in blank, the note was, when acquired by the plaintiff, payable to bearer. * This being the case, it was negotiated to the plaintiff and its predecessor by a delivery thereof. * The trial court did not err in holding that plaintiff was the legal holder of the note and could maintain a suit upon same, although not indorsed by the party from whom it purchased same. * * The judgment of the circuit court is affirmed. * * SECTION 7.-NEGOTIATION BY RESTRICTIVE INDORSEMENT N. I. L., Section 36. An indorsement is restrictive, which either (1) prohibits the further negotiation of the instrument; or (2) constitutes the indorsee the agent of the indorser; or (3) vests the title in the indorsee in trust for or to the use of some other person. But the mere absence of words implying power to negotiate does not make an indorsement restrictive. Section 37. A restrictive indorsement confers upon the indorsee the right (1) to receive payment of the instrument; (2) to bring any action thereon that the indorser could bring; (3) to transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so. But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement. An owner of a negotiable instrument may sometimes desire to part with its possession and to vest in the transferee certain special rights, but reserving to himself the real beneficial ownership. If a special or blank indorsement were employed in such case, the indorser incurs the risk that the instrument may get into the hands of a purchaser who has no knowledge of the special purpose for which the transfer was made. Since the holder under a blank indorsement, or the special indorsee under a special indorsement, has it within his power to negotiate to a third party free from the restrictions imposed by the owner, the only method by which a negotiation for a special purpose may safely be made is to provide expressly on the instrument the special purposes for which the transfer is made. Such an indorsement is a restrictive indorseThere are no particular words which must be used in order to manifest the intention to part with but a limited right, but any words will be sufficient if they unequivocally indicate that a special interest only was transferred. The most distinctive feature of the most common form of a restrictive indorsement is that it conB.& B.BUS.LAW-47 sists in language which manifests the intention of the owner to retain the beneficial interest in the instrument, and to transfer to the restrictive indorsee the power to collect and to sue upon the instrument. Such an indorsee becomes thereby a trustee of a chose in action, and an agent for the owner. His rights and liabilities are then determined by the law of trusts and agency. The question with which the following case is concerned is: What words accompanying the signature of the holder will operate as a restrictive indorsement? NATIONAL BANK OF COMMERCE v. BOSSEMEYER et al. (Supreme Court of Nebraska, 1917. 101 Neb. 96, 162 N. W. 503, Action by the National Bank of Commerce against Ernest Bossemeyer and Frank Bossemeyer, doing business under the firm name and style of Bossemeyer Bros. Judgment for defendants, and plaintiff appeals. LETTON, J. On January 3, 1911, defendants, who are grain dealers. at Superior, Neb., drew a sight draft upon a firm in New Mexico for $729, and attached a bill of lading for a car of grain consigned to the order of the drawer. They deposited the draft in the First National Bank of Superior (hereinafter termed "the Superior bank"), which gave them credit for the amount upon their checking account. This was done in accordance with a custom whereby defendants deposited such drafts with bills of lading attached and were given credit, with the understanding that if the draft was not paid it should be protested, and its amount, with protest fees, should be charged back; that if interest was charged to the bank by the correspondent the interest should be charged to the account of drawer. Before the draft was deposited, by mutual agreement the custom was changed and such dishonored drafts were not charged back, but defendants, upon being notified of their return, would give a check to the bank to cover the amount of the draft and protest fees. This was the custom in Superior between banks and grain dealers generally. The Superior bank sent the draft and bill of lading to plaintiff, its correspondent bank in Lincoln, which credited it with the amount and forwarded the draft and bill of lading to New Mexico through its regular correspondents. The draft bore upon its face the following: "Protest and return immediately, with all papers attached, if not paid upon presentation." The indorsement by the Superior bank is as follows: "Pay any bank or banker. All previous indorsements guaranteed." Before the draft reached New Mexico the Superior bank had suspended payments and been taken in charge by the Comptroller of the Currency. Defendants notified the drawee not to pay the draft, caused the car to be delivered, and collected the amount due from him. The draft was protested and returned to plaintiff. The action was brought against the drawers by plaintiff as a holder for value, as defined in section 5344, Rev. St. 1913. Five similar transactions are alleged as causes of action in the petition. Several defenses are set up: (1) That the drafts were deposited with the Superior bank for collection only, to the knowledge of plaintiff, and were received by plaintiff from that bank for collection. (2) |