The plaintiff, while denying that any person except himself had any interest whatever in the notes, contends that the case is controlled by the principle that an action upon a note may be maintained by one who holds the legal title, although without beneficial interest, and that, as he had possession of the notes, and they were assigned to him by the payee, he was entitled to enforce their payment, whatever claim third person might have had against him with reference to them. The defendant claims that the principle invoked does not apply to the facts of the case. * * *

any

The question presented, therefore, is this: Assuming that Mrs. Thomas' statements are true, and that Greene, after promising that he would get the notes from Stearns and give them to her, procured Stearns to assign them to himself, and then wrongfully kept them, having obtained them from Stearns in lieu of the payment of rent which was owing for the use of land belonging to Mrs. Thomas, but which had been made payable to Greene in order to secure him against a liability from which he had now been released, do these facts constitute a defense in an action brought against the maker of the notes by Greene, not only without the consent, but against the objection, of Mrs. Thomas?

In jurisdictions where, as in Kansas, * the holder of the naked legal title to a promissory note may sue upon it, even although he may be under obligation to account to some third person for the entire proceeds, it is often said that in such an action the defendant cannot challenge the plaintiff's right to maintain it, except by a showing of bad faith in the transaction. Dyer v. Sebrell, 135 Cal. 597, 67 Pac. 1036, and cases cited; City Bank of New Haven v. Perkins, 29 N. Y. 554, 86 Am. Dec. 332. But in the decisions there is a somewhat singular lack of explanation or illustration as to just what might be considered bad faith, in this connection. Doubtless the phrase is sometimes used with reference to a merely colorable transfer of title by the real owner to a stranger, had for the purpose of embarrassing the maker of the note in his defense. * * * In 2 Daniel on Negotiable Instruments, 1191, it is said: "If it were shown that the plaintiff, upon suing upon a note payable to bearer or indorsed in blank, has no interest in it, and, in addition, that he is suing against the will of the party beneficially interested, he could not recover, as his conduct would be in bad faith." In support of this statement the author cites Towne v. Wason, 128 Mass. 517, the syllabus to which reads: "It is a good defense to a promissory note that the plaintiff, although in the possession of the note, has no interest in it, and is prosecuting the action, not for the benefit of the person beneficially interested, but against his objection." But in that case the defense made was that the plaintiff had wrongfully, and without the consent of the owner, obtained possession of the note sued on, which was indorsed in blank; that he had no title to it, and never had had any; and that he was not authorized to sue in behalf of the owner-in effect, that he had stolen the note. And the ground of the decision was that under the facts stated the plaintiff had no authority to receive. payment of the note, and a payment to him would not have released the maker. And this suggests what we conceive to be the true rule, of general, if not universal, application-that, so far as affects the question of the right of the plaintiff to maintain the action, the only inquiry open to the defendant is whether the plaintiff has such title to the

note that a payment made to him would be a complete protection to defendant from any further liability. * * *

Applying the test suggested to the present case, the question is: Would McAuley have been completely protected in making payment of the notes to Greene? True, according to the contentions of defendant, when Greene settled with Mrs. Thomas, he agreed to procure the notes from Stearns and turn them over to her, and nothing was said as to his taking an assignment to himself rather than to Mrs. Thomas. Yet the case is not the same, for instance, as if an agent, commissioned to buy negotiable paper for his principal, had wrongfully taken title in his own name. For here it required no authority from Mrs. Thomas, to be given at the time of the settlement, for Greene to collect the rent from Stearns, or for Stearns to pay Greene. Stearns, having originally contracted to pay Greene, and not having contracted to pay any one else, might have paid him in cash or by any other method satisfactory to Greene. In fact, he settled his debt by assigning the McAuley notes to Greene-the person to whom, so far as he knew or had occasion to inquire, he was indebted. The fact that the notes here sued upon were given by McAuley to Stearns for the rent of Mrs. Thomas' land is merely incidental, and has no bearing upon the decision of the controversy. They might be regarded as having been given for any other consideration without affecting the rights of the parties. Greene obtained them in exchange for, or in satisfaction of, a claim of which Mrs. Thomas was the beneficial owner, having been enabled to do so by her voluntarily allowing such claim to be made payable to him. She never acquired possession of, or legal title to, these notes. The effect of the transaction, from her standpoint, was merely to charge Greene as trustee for her benefit with respect to them. The situation presented is closely analogous to that which would have arisen if Mrs. Thomas had assigned and delivered notes originally payable to herself to Greene as collateral security, and he had retained them, after the full satisfaction of the principal obligation, to secure which they had been transferred to him. * * *

The peculiar feature of the present case is that the equitable owner objects to the holder of the notes exercising further control over them, and his possession as to her is wrongful. Of course, the holder of a note unlawfully acquired has no authority to receive payment, or to sue upon it, even although it should bear a genuine indorsement to himself. This might happen, for example, if one holding a note made payable to himself were to sell and deliver it without further assignment, and were then to regain its possession by theft. In such a case he would have neither legal ownership nor rightful possession. A payment made to him would afford no protection, and a showing of the facts would constitute a good defense to an action brought by him. But where one has rightfully obtained possession of a note, and the legal title is actually vested in him, although he may be under an obligation to transfer it to another, so long as these conditions exist, and no effective measures are taken by the equitable owner to enforce his rights, the payee is justified in dealing with the holder, and a payment made to him is a bar to any further demand. This would apply where the pledgee of paper deposited with him as collateral security retains it after the satisfaction of the debt secured, and it applies here. McAuley would have been completely protected by a payment to Greene, who therefore had capacity to maintain the action.

Just how, in such cases, the interests of other claimants than the holder of the paper involved may be safeguarded, is not a matter for present determination. It has been held that, where an action is brought by the holder of the legal title to a note, any one beneficially interested in the proceeds may intervene for his own protection. * * * But we are not required to decide whether Mrs. Thomas might have intervened in the present case. There was no necessity for settling in this proceeding any dispute between her and the plaintiff, for their rights with respect to each other remain unaffected by its . result.

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The plaintiff was equally entitled to recover the full amount due upon the notes, whether he owned them absolutely, or was required to account for their proceeds as a trustee.

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The judgment will be reversed, and the cause remanded, with directions to enter judgment for the plaintiff as prayed for in his petition.

SECTION 4.-WHAT CONSTITUTES A NEGOTIATION

We are interested here in noting the various methods of negotiating an instrument. Looking at the subject of negotiation from the standpoint of the holder, the question is as to the power which the holder possesses in this regard. He may part with his entire. interest or he may part with but a portion of his interest. The holder may part with his complete interest in more than one way, and thereby produce different legal effects as regards the rights of subsequent parties. We shall, therefore, be required to look at the transactions both from the standpoint of the party negotiating and the party to whom it is negotiated.

Section 30. An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery; if payable to order it is negotiated by the indorsement of the holder completed by delivery.

Section 191, clause 6. "Delivery" means transfer of possession, actual or constructive, from one person to another.

Section 191, clause 10. "Issue" means the first delivery of the instrument complete in form, to a person who takes it as a holder. Section 191, clause 8. "Indorsement" means an indorsement completed by delivery.

Section 33. An indorsement may be either special or in blank; and it may be either restrictive or qualified, or conditional.

FARNSWORTH v. BURDICK et al.

(Supreme Court of Kansas, 1915. 94 Kan. 749, 147 Pac. 863.) MARSHALL, J. This is an action to recover on a promissory note. Judgment was rendered in favor of the plaintiff. The defendants appeal.

The defendants, Wm. S. Burdick and A. M. Ewing, in consideration for a tract of land in Mercer county, Mo., gave a stock of goods in

Iola, Kan., a negotiable promissory note for the sum of $500, signed by all the defendants, and assumed an incumbrance on the land for the sum of $890. The trade was made with, and the note given to, J. A. Wheeler, who negotiated the note to the plaintiff by writing on the back thereof, "I here by assine this note over to E. H. Farnsworth this the Nov. 1st, 1910," signed it, and delivered it to the plaintiff. The plaintiff became the holder of the note before it was due, without any notice that it had been previously dishonored. He took it in good faith, and for value. At the time it was negotiated to him, he had no notice of any infirmity in the note or defect in the title of J. A. Wheeler. The note is complete and regular on its face. The defense is failure of consideration for the note. Is this defense good?

Prior to the passage of the Negotiable Instruments Law, * this court, in Hatch v. Barrett, 34 Kan. 223, 8 Pac. 129, said: “A writing upon the back of a promissory note, transferred before maturity, in these words: •* * * I, James C. Rogers, do hereby assign the within note to Charles B. Hatch, of Osage county, Kansas. Said assignment is made without recourse on me, either in law or equity. J. C. Rogers. Signed in the presence of H. F. Raymond, clerk county court, Washington county, Arkansas'-is not an indorsement in a commercial sense, and will not cut off the defenses of the maker." This principle was followed in * * * Briggs v. Latham, 36 Kan. 255, 13 Pac. 393, 59 Am. Rep. 546. At the time these decisions were rendered, the weight of authority in this country was that such a writing on the back of a note was an indorsement, which cut off the equities and defenses of the maker, available against the payee.

The Negotiable Instruments Law reduces to a certainty many things that prior to that date were in confusion. This law contains several definitions. One is that "'delivery' means transfer of possession, actual or constructive, from one person to another." Another is, "holder' means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof." Still another is, "'indorsement' means an indorsement completed by delivery."

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Section 30 reads in part: "An instrument is negotiated when it is transferred from one person to another in such manner as to constitute the transferee the holder thereof."

The note sued on was negotiated within the meaning of this section. It was transferred from Wheeler to Farnsworth, and he became the holder thereof. * * *

The indorsement in this case is special, in that it specifies the person to whom the note is made payable. It is absolute and unrestrictive. It is not a qualified indorsement, unless the use of the word "assign" makes it a qualified indorsement. It is not a conditional indorsement.

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Section 63 reads: "A person placing his signature upon an instrument otherwise than as maker, drawer or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity.'

When Wheeler placed his name on this note, he did not do it as maker, drawer, or acceptor, and is therefore deemed to be an indorser, unless the word "assign," used by him, indicates "his intention to be bound in some other capacity." The authorities seem to be in utter and hopeless confusion concerning the effect of the transfer of a negotiable instrument by words like those used here. This confusion

existed prior to the passage of the uniform Negotiable Instruments Law, and still exists. The weight of authority was, and is, that this is a commercial indorsement. We are of the opinion that the "assignment" of this note is an indorsement thereof, under the Negotiable Instruments Law; that Farnsworth is a holder in due course; and that the makers of the note cannot set up the defenses against the note that could have been set up against it in the hands of Wheeler. This disposes of the case, and compels an affirmance of the judgment.

SECTION 5.-NEGOTIATION BY SPECIAL INDORSEMENT Negotiable Instruments Law, Section 34. A special indorsement specifies the person to whom or to whose order, the instrument is to be payable; and the indorsement of such indorsee is necessary to the further negotiation of the instrument.

To illustrate: If M. executes and delivers his note payable to P. or order, and P. indorses: "Pay A. [Signed] P."-and delivers to A., the indorsement is special. The indorsement, "Pay A." has the same effect as though it read, "Pay A. or order." As expressly provided in section 34, the indorsement of A. is necessary to the further negotiation of the bill. The instrument cannot be negotiated by mere delivery. If A.'s indorsement is placed on the instrument without his authority and the instrument transferred to an innocent party, such person would acquire no interest in the instrument against the special indorsee or any party prior to him. One cannot gain title to an instrument through a forged indorsement as expressly provided in section 23 as follows:

Where a signature is forged or made without authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right, is precluded from setting up the forgery or want of authority.

FIRST NAT. BANK OF SHENANDOAH, IOWA, v. KELGORD. (Supreme Court of Nebraska, 1912. 91 Neb. 178, 135 N. W. 548.) LETTON, J. This is an action upon a promissory note made by the defendant payable to the order of "Wonder Stock Powder Company." The petitioner alleges that one James J. Doty is the owner and proprietor of "Wonder Stock Powder Company," and that the plaintiff before maturity and in the usual course of business purchased the note for a valuable consideration. * * The cause was tried to a jury which returned a verdict for the defendant.

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The note in question is made payable to "Wonder Stock Powder Company." It is indorsed in blank, "James J. Doty, Prop." This indorsement is clearly insufficient under section 30 of the negotiable instruments act * to constitute the plaintiff a holder in due course of business. The only evidence as to the relation of Doty to

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