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its terms it notifies all transferees of the rights of the restrictive indorser.

§ 96. Indorsement in trust for third person. An example of this third variety of restrictive indorsement is: “Pay to X in trust for C. (Sgd.) A;' or“Pay to the order of Mrs. Mary Hook, 35 King St., for the benefit of her son, Charlie. (Sgd.) J. P. Haskins” (39). Such an indorsement has the same effect as one in trust for the indorser himself, and is restrictive in the sense already pointed out in the last subsection, i. e., its form is notice to all purchasers of the rights of the beneficiary. But it does not prevent the further negotiation of the instrument. Taking one of the examples above, Mrs. Hook, the indorsee, has the right to transfer the instrument, but the purchaser from her is bound to ascertain at his peril whether or not she is carrying out her trust in doing so. If in fact the transfer is a breach of her trust, her son could reclaim the instrument or its proceeds from the transferee (40). There is, however, one difference between an indorsement which transfers the instrument to the indorsee for the benefit of the indorser himself, and one constituting him holder of the instrument for a third person. If the indorsement were “Pay to X for collection for my account, (Sgd.) A,” or “Pay to X as trustee (or agent) for me, (Sgd.) A," it would be futile to allow the indorser X to sue A, as indorser of the instrument, for any money which X might recover, he would hold for A. So the N. I. L. provides that in such cases X can “bring any action thereon

(39) Hook v. Pratt, 78 N. Y. 371.
(40) Third Nat. Bank v. Lange, 51 Md. 138.

the indorser could bring” (41). A, the indorser, could not sue himself. But where the indorsement is in trust for a third person, as in the case of the indorsement to Mrs. Hook in trust for her son, Mrs. Hook may bring an action against the restrictive indorser Haskins, holding the proceeds when recovered, not for him, but for the son (42).

§ 97. Qualified indorsement. The effect of a blank or special indorsement is not only to transfer the instrument to the indorsee, but also to put him under a conditional obligation to pay the instrument, if the maker or acceptor does not. If the holder of a bill or note wishes to transfer it, without assuming this obligation, he may accomplish his object by a qualified indorsement. An example of such an indorsement by H. L. Smith is: “Without recourse to me, (Sgd.) H. L. Smith;" or simply “Without recourse, (Sgd.) H. L. Smith;' or even “Not holden (Sgd.) H. L. Smith.” Any other words of the same import are sufficient to qualify the indorsement, and it makes no difference whether they precede or follow the indorser's signature. The only effect of such an indorsement is to prevent the conditional obligation of the indorser to pay

if the maker does not from arising. It does not restrict the further negotiation of the instrument; nor is the indorser's unwillingness to assume that obligation such a circumstance of suspicion that the indorsee is charged with notice, if the indorser had been guilty of fraud or such other misconduct in acquiring the instrument that the courts would not allow him to enforce it (43). The N. I. L. says:

(41) Sec. 37.
(42) Hook v. Pratt, note 39, above.
(43) Epler v. Funk, 8 Barr, 468 (Pa.).

Sec. 38. A qualified indorsement constitutes the indorser a mere assignor of the title to the instrument. It may be made by adding to the indorser's signature the words "without recourse, or any words of similar import. Such an indorsement does not impair the negotiable character of the instrument.

$ 98. Conditional indorsements. Such indorsements are pure anomalies in the case of negotiable instruments. “Pay to X upon condition that he neither smokes nor drinks during 1910," is an example. The effect before the N. I. L. of such an indorsement is illustrated by the case of Robertson v. Kensington (44). R. Robertson was the payee of a bill accepted by Kensington & Co., bankers. He indorsed it as follows:

Pay the within sum to Messrs. Clerk & Ross, or order, upon my name appearing in the Gazette as ensign in any regiment of the line, between the 1st and 64th, if within two months from this date. R. Robertson."

The bill was indorsed in blank by Clerk & Ross and ultimately was transferred to the Bank of England, to which it was paid by the acceptors at maturity. The condition of the indorsement, however, had not been fulfilled; Robertson's name had not appeared in the “Gazette.” Robertson thereupon sued the acceptors and they were compelled to pay the bill a second time. In other words, under this decision, the maker or acceptor must determine at his peril whether or not the condition has been fulfilled. The

(44) 4 Taunton, 30.

rule of this case has been changed by the N. I. L. which provides:

“Where an indorsement is conditional, a party required to pay the instrument may disregard the condition, and make payment to the indorsee or his transferee, whether the condition has been fulfilled or not. But any person to whom an instrument so indorsed is negotiated, will hold the same, or the proceeds thereof, subject to the rights of the person indorsing conditionally” (45).

In other words, although the acceptor or maker is protected by a payment of the instrument, even if the condition has not been fulfilled, the conditional indorsee and his transferees, if the condition has not happened, hold the instrument or its proceeds, as in the case of a restrictive indorsement, for the indorser. For example, under the N. I. L., Robertson's rights would have been against the Bank of England and not Kensington & Co.

$ 99. Delivery without indorsement. If the payee or holder of an instrument payable to order delivers it without indorsement, title does not pass and the person taking the instrument does not become its owner. The rights which he does obtain by the transfer depend upon the nature of the transaction. If the delivery was involuntary, as in the case of theft, the mere possession of the unindorsed instrument gives the possessor no rights upon

it. If the delivery was voluntary, but without intention to transfer the bill or note, as in the case of a deposit with a friend for safe keeping, the transferee obtains no

(45) Sec. 39.

rights on the bill or note. If, however, the delivery was by way of gift or sale, and the holder intended to transfer the instrument to the donee or purchaser, the transferee, while not acquiring title to the instrument and the right to sue upon it as such, obtains a right of which the holder cannot deprive him, to collect the instrument, and, if necessary, to sue upon it in the right of his transferor (46). Since he has not become the owner by the transfer, and is entitled to enforce his transferor's rights only, defences which were available against the transferor are good against him also. Thus, if A sold B worthless property, taking B's note payable to A's order for $1,000 in payment, and A sold and delivered the note to C without indorsement, B's defence would be available against C, as well as A. The fact that C innocently paid value for the note makes no difference, because C has obtained nothing more than a right to enforce A's rights. Of course, had the note been indorsed to C, he could have recovered on the note.

In addition to the right to collect the instrument, a transferee who has paid value is entitled to have the indorsement of his transferor. Such an indorsement, when made, transfers the instrument at the time it is made, and subjects the transferor to the ordinary liability of the indorser. The N. I. L. does not refer to any of the various kinds of transferees without indorsement, except the transferee who has paid value. His rights it defines as follows:

Sec. 49. Where the holder of an instrument payable to his order transfers it for value without indorsing it, the

(46) Grover v. Grover, 24 Pick. 261 (Mass.).

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