the name of the payee on the check. This is not an indorsement of transfer. It is made by the maker of the check as a means of identification.

his conditional liability to the bill which accrues to the benefit of

all subsequent holders unless he makes use of a qualified indorsement. In case of a refusal to pay on the part of the one absolutely liable, as the maker of a note, the holder may proceed against any prior indorser. So far as an innocent holder is concerned the indorsers stand in the order in which their names appear on the instrument. As between two mediate parties who are indorsers the one that appears to be second may in fact be first and it may be shown as between themselves.

208. The Indorser's Contract. The indorser's contract includes provisions from both the law merchant and the common law. The law merchant liability resulting from an indorsement is conditional. The common law liabilities are absolute.

First, when one indorses an instrument two results are effected -a transfer of title in the instrument, and the assuming of conditional liability. In substance the indorser in writing his signature says, "here is the evidence of my title to this instrument," and the law merchant says for him, "I will pay if the maker does not."

Second, the common law says for him that the instrument is what it purports to be; that he has a lawful title to it; that it is genuine, and that the parties to the contract are competent.

The one who transfers an instrument payable to the bearer, or indorsed in blank, without indorsement assumes only the common law liability and that extends but to his own transferee, likewise.

The one who uses an indorsement "without recourse" assumes the common law liability.

The method of changing the conditional liability of the indorser to absolute liability is discussed under demand and notice.

What is an indorsement? What does it accomplish? Name the different kinds of indorsements. What ones are in general use? What is a blank indorsement? What risk is assumed in holding or mailing paper with such an indorsement?

What is a full indorsement? What may be done where blank indorsements appear? What is a restrictive indorsement? When used? What

is a qualified indorsement? When used? If liability is evaded by its use why not use it always? What is a conditional indorsement? Explain its use? What is a waiver indorsement? Its object? What is a guarantee indorsement? Its object? What is an O. K. indorsement? How

used?

To whom is an indorser liable? Discuss the law merchant and the common law liability of the indorser.

Why should an indorsement always be demanded when one receives negotiable paper?

210. DECISIONS BY THE COURTS

1. In A v. B, 1 N. Y. 213, the acceptor paid a draft as an accommodation to the drawers, who failed and did not reimburse him. He then discovered that one of the firm of drawers had forged the indorsement of the payee, who had no interest in or knowledge of the draft. The acceptor then sued the collecting bank for the return of the money as warrantor of all previous indorsements. He failed, since a payee cannot always demand genuine indorsements on his paper, if such signature could not benefit him.

2. A note, payable in New York, was made and placed in circulation in Indiana, where the maker of the first indorsement lived. It was held that the contract of indorsement in such case is governed by the law of the place where made, and not by that of the place where the note is payable, 15 Ind. 33; 81 Ky. 636; 77 N. Y. 573; and other cases.

3. A note bore two indorsements. When it fell due, one of the indorsers tendered two months' interest in advance to the payee and it was accepted. It was held that the acceptance of interest by the payee was an extension of the time of payment and the other indorser was thereby released. 102 Wis. 41. An extension of time, either actual, or constructive, if made without the consent of indorsers releases them.

4. A note was indorsed as follows: “Pay to the order of..

Mary W. Gaylord."

The payee sent the note to her son to be sold for her account. The son pledged it to a bank as a security for a loan. It was held that indorsement in the above form was notice to the world that Mary W. Gaylord had not yet parted with title to the note, and that the bank acquired no title or interest even though it took it in good faith believing it belonged to the son. 74 N. W. Rep. 215. The indorsement must show, directly or by implication, to whom title is transferred.

CHAPTER XXVI.

CONDITIONS OF TRANSFER

211. INTRODUCTION

1.

Transfer in Good Faith

2. Transfer in Usual Course of Business

3. Transfer for Value

4. Transfer Before Maturity

212. STOPPING PAYMENT

213. QUESTIONS

214. DECISIONS BY THE COURTS

211. Introduction. Negotiable paper since its inception has afforded safe and ample means for the purpose of transferring values between traders. The indorsement is the usual means of showing the intention of the indorser to transfer title to the indorsee. The law merchant recognizes certain welldefined conditions as precedent to the transfer of title to another. If these conditions have been complied with, the indorsee gets a complete title. It frequently occurs that the purchaser has a better title than the seller. All conditions affecting the standing of the instrument, when interpreted as between the original parties, cease when a proper transfer has been made. Negotiable paper is "a courier without baggage." The conditions of the transfer are as follows: (1) Transfer in good faith without notice; (2) Transfer in the usual course of business; (3) Transfer for value; and (4) Transfer before maturity.

1. Transfer in Good Faith. In order to transfer a perfect title the utmost good faith must exist between the parties. The purchaser must have no notice, either actual or constructive, of any irregularity or lack of consideration existing between the original parties. If the note was lacking in consideration between

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the original parties, the purchaser would take the paper subject to these conditions if he had notice. If the note was one of a series, so indicated, a purchaser of one of the notes not yet due would not be a purchaser in good faith if he knew that one of the series was due and not paid. Likewise, the purchaser of a note on which an interest payment is due and unpaid would not receive full protection. Such paper is subject to defenses.

If notice is had subsequent to acquiring title, it will not affect the holder's rights. After a transfer has been made bona fide and title is fully acquired, all defects are cured and a subsequent transferee acquires full title, notwithstanding he has notice.

Statutory enactment has provided that notice of the character of the consideration of a negotiable instrument may be conveyed to the purchaser as follows: "given for a patent right," or "given for a speculative purpose." This may be written or printed across the face of the instrument and all who acquire it take it subject to such defenses as may exist.

2. Transfer in Usual Course of Business. The second element of transfer is that the transfer must be effected in the usual course of business. A purchaser for value is usually considered to be one who acquires title in the usual course of business. The term "usual course of business" means "according to the usages and customs of commercial transactions." A title acquired by legal process is not so acquired. It is subject to equities existing against the holder from whom the title was taken.

3. Transfer for Value. This expression means the taking of title for a valuable consideration. The term "valuable consideration" comes from the common law, and in the law merchant is subject to the same tests as at common law. The holder of paper as collateral security is a holder for value to the extent of his lien so as to enable him to defeat equities existing between the original parties. An eminent jurist lays down the doctrine that receiving collateral in payment, or as security for a pre-existing debt, is receiving it for a valuable consideration. "Thus it may pass, not only as a security for new purchases and advances made. upon the transfer thereof, but also in payment of, and as