77

FORMS OF INDORSEMENT

I. Blank Indorsement. Name of payee only as:

R. J. Brown.

Pay to the order of R. Roe

2. Indorsement in full. or, Pay to R. Roe or order.

191. Which indorsement is safer for the indorsee, the blank or the special?

The special indorsement is safer, for should he lose the instrument he can stop payment on it by notifying the payer not to pay. The indorsee's indorsement is necessary before any one can acquire a valid title to the instrument. If he should lose the instrument indorsed in blank, it may get into the hands of an innocent holder who would have a valid title and could collect it.

192. Does the omission of words of negotiability in an indorsement destroy the negotiability of the instrument?

Where the instrument contains words of negotiability the omission of such words from the indorsement will not destroy the negotiability of the instrument. The following indorsement: "Pay to B," leaves the instrument negotiable.

193. What is the effect of the qualified indorsement?

By this indorsement the indorser assigns his title to the instrument. He assumes the liability of one who transfers paper by delivery only. See No. 96..

194. What is the effect of the words "without recourse" on the indorser?

When the indorser uses these words he does not warrant payment and cannot be held liable should the paper be dishonored by non-payment.

195. When is an indorsement restrictive and what rights does a restrictive indorsement confer upon the indorsee?

Indorsement is restrictive when it prohibits the further negotiation of the paper, or makes the indorsee the agent of the indorser, or vests the title in the indorsee for the use of some other person. See forms.

The indorsee has the right to receive payment; he succeeds to the rights of the indorser to bring any action and when the indorsement authorizes him to do so he can transfer the instrument, but the subsequent indorsees acquire no better title than the first indorsee had.

196. What is the effect of an indorsement for collection? By this indorsement the indorser does not pass the title of the paper to the indorsee, but simply constitutes him his

agent and gives him the power to present the paper and to receive payment.

197. What is the use of the indorsement for deposit?

The general rule is that in an indorsement of this kind the title is retained by the indorser. This form of indorsement is used when a deposit is sent by a clerk or messenger. The bank will refuse to cash paper so indorsed and in this way the depositor is protected against the dishonesty of the messenger.

198. What is an indorsement with waiver?

An indorsement with waiver implies the surrender by the indorser of his rights to notice of protest of the paper upon which such indorsement is made.

199. What is the effect of the conditional indorsement on the one who has to pay the instrument?

He may disregard the conditions and pay the instrument to the holder whether the conditions have been fulfilled or not.

200. What is the effect of the conditional indorsement on the one to whom such instrument is 'transferred?

His title is subject to the conditions contained in the indorsement.

201. An instrument, payable to bearer or indorsed in blank by the payee is subsequently indorsed in full. How may it be transferred?

It can still be transferred by delivery, but the indorser in full will be liable to only such holders as acquire title through his indorsement.

202. When an instrument is payable to two or more payees or indorsees who are not partners, how can it be transferred?

All must indorse the instrument before delivering it, unless one has authority to indorse for the others.

203. Where an instrument is indorsed to the cashier cr other officer of a bank or corporation, how may it be negotiated?

It may be indorsed by the bank or corporation or it may be indorsed by the officer.

204. Where the name of the payee or indorser is misspelled or some other mistake made in his name, how should the instrument be indorsed?

He may indorse the instrument using the name as it appears on the face and then, if he wish, add his proper signature.

205. Is it necessary to date the indorsement?

It is not necessary and every indorsement is deemed to have been made before maturity unless it bears a date after the maturity of the instrument. The indorsement is presumed to have been made at the place where the instrument is dated, unless some other place is given.

206. Does a negotiable instrument lose its negotiable character if not paid at maturity?

An instrument does not lose its negotiable character by being dishonored, but the one who takes overdue paper takes it at his own risk. His claim is subject to defenses that may exist against it.

207. When it is not clear in what capacity a person intended to sign an instrument, what is presumed?

He is to be considered an indorser.

208. Will an indorsement transfer only part of an instrument?

The indorsement to operate as a negotiation of the instrument must be of the entire instrument. But where an instrument has been paid in part, it may be indorsed so as to transfer the title to the remainder of it.

209. An instrument is dishonored and the indorser is duly notified of such dishonor. Will he be liable to one to whom such dishonored instrument is transferred?

Yes, he will be liable to such subsequent holder.

210. What damages can the holder of an instrument recover in case of its dishonor?

In case of a note or inland bill, he can recover the amount of the note or bill, legal interest, and notarial expenses. In case of a foreign bill he can recover the amount of the bill, interest, protest fees and re-exchange.

Rights of Bona Fide Holders.

211. Who is a holder of paper?

The person who has legal possession of the paper is deemed to be the holder of the same.

212. What constitutes the holder, a holder in due course (bona fide)?

The holder must receive the påper under the following conditions:

I. The negotiable instrument must be complete and regular on its face.

2. He must receive it in good faith and for value, before maturity and in the regular course of business.

3. He must know of no defect in the instrument or defense existing against it.

213. What is the chief advantage of being a holder in due course?

The person who ranks as a bona fide holder has a good title to the instrument and can collect it, although the person from whom he received it may have had a defective title. The title of the holder in due course (bona fide) is not subject to defenses that may exist.

214. Must the holder pay the face value of the instrument?

No, he need not pay the face value, but he must give a valuable consideration for it.

215. If a bona fide holder should receive notice of some defect in the instrument before he has paid the full amount, what is the effect?

His claim will be good as a holder in due course only for the amount he has paid.

216. Is fraud a defense against the holder in due course? When an instrument was obtained by the original payee through fraud and negotiated to a holder in due course, such holder will generally not be affected by the fraud. The circumstances may have some effect upon the decision of the particular case.

217. In case the one primarily liable on an instrument proves that it was obtained from him by fraud or duress, what must the holder do?