*

gotiable Instruments Law. Therefore, if the plaintiff had shown a transfer of the certificate to it by the payee, although without indorsement, it would have been entitled to recover, in the absence of evidence showing a good defense as against the payee, or that would otherwise interfere with such recovery. But mere possession is insufficient to show such a transfer. * * *

We are aware that there is a direct conflict in the decisions on the question of the sufficiency of mere possession to show equitable ownership, so as to authorize a recovery against the maker by one other than the payee or special indorsee. The view is maintained in a few jurisdictions that possession is alone sufficient for that purpose, unless the presumption of ownership therefrom is rebutted by proof. It is so held in North Carolina, while conceding that the mere introduction of a note in evidence does not prove the payee's indorsement.

But the clear weight of authority and the better reasoning, in our opinion, sustains the rule that mere possession of such an instrument unindorsed is not sufficient or prima facie evidence of even the equitable title. * * * Such possession does not prove or tend to prove the transfer of a note payable to order and not shown to have been indorsed by the payee. The fact necessary to the equitable title, in such case, is a transfer by the payee or the person to whose order the instrument has been made payable. Such proof is generally at least within the power of the person seeking to recover upon the instrument, if it has been so transferred, while the other party might be wholly without knowledge or information concerning the matter. The presumption of delivery from possession is proper and reasonable where the instrument is payable to bearer; but we see no good reason for giving effect to such presumption where the instrument is payable to order and not indorsed, so as to overcome the usual and primary presumption, in such case, that the instrument remains the property of the person to whose order it is made payable.

Holding, therefore, that the proof was insufficient to entitle the plaintiff to recover, the judgment will be affirmed.

SECTION 11.-SURRENDER TO THE DRAWEE

It should be apparent that the act of the holder of a check or other bill of exchange, in surrendering the same to the drawee and receiving payment, is a transaction essentially and materially dif ferent from that of selling the instrument, and yet there is some confusion on, this matter. An instrument, when transferred to a purchaser, is still alive. An instrument surrendered to a drawee for payment is thereafter, for most purposes, a dead bill. The surrender of an instrument to the drawee is not a sale. It is quite important to note this fact, for the rights and duties of the two parties concerned are very different in these two cases. In the first place, since the surrender of a bill to the drawee is not a sale, the transfer is in no sense a negotiation of the instrument. Therefore no indorsement is necessary to entitle the holder to receive payment. A holder, even a special indorsee, is entitled to demand payment from the drawee and to refuse to indorse. If the

drawee refuses to pay unless the holder indorses, the drawee thereby breaks his contract with the drawer, and the instrument is dishonored. If the instrument is a check, and the drawee bank refuses to pay unless the special indorsee indorses, the extent of the damages which the drawer-not the holder-may recover from. the drawee may be considerable. It is a common practice for the holder, upon presenting the instrument to the drawee, to sign his name on the back of the instrument. If the holder does sign his name upon delivery of the instrument to the drawee, such act is not an indorsement. It is a mere receipt for money.

Another important effect, arising from the fact that a transfer to the drawee is not a negotiation, is that such transferor assumes no liability as an indorser to the drawee. Occasionally we find statements to the effect that the transferor to the drawee thereby assumes a liability as an indorser to the drawee, but these statements are not correct. No doubt, a transferor to the drawee could enter into a special contract, under which he might warrant to the drawee that certain things are true, for example, that the instrument was not forged; but the point made here is that no such liability rests on the transferor to the drawee, arising from the fact that at the time he received payment he signed a receipt for the money on the back of the instrument then surrendered to the drawee.

It is, of course, possible for a drawee to purchase the bill. Such a case could arise, where the drawee took a time bill of exchange before maturity. This transaction might be either a purchase or a payment of the bill. If the evidence showed an intent to purchase, the above discussion would not be applicable to the situation.

NATIONAL BANK OF COMMERCE OF LINCOLN v. FARMERS' &
MERCHANTS' BANK OF LINCOLN.

* *

(Supreme Court of Nebraska, 1910. 87 Neb. 841, 128 N. W. 522.) FAWCETT, J. * What is meant by "negotiating" an instrument? * * * Counsel answer that question by quoting section 30 of article 3 of the Negotiable Instruments Law, * as follows: "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 power to 'negotiate' a bill or note is the power to indorse and deliver it to another, so that the right of action thereon shall pass to the indorsee or holder. 'Negotiation' means the act by which a bill of exchange or promissory note is put into circulation by being passed by one of the original parties to another person." If A. gives B. a check on C. Bank, and B. presents the check at the counter of C., no negotiation is necessary or had. He simply demands and receives payment; but if B. goes to D. store and buys a bill of goods, and tenders the indorsed check in payment, he negotiates the check. The difference is clear and well defined. The presentation by defendant of the check in controversy for payment was not a "negotiation" of the check within the meaning of the statute quoted.

ute.

* *

Nor do we think that the payment by a bank of a check drawn upon it constitutes such bank a "holder" within the meaning of the stat* When a check is presented to the bank upon which it is drawn, and is paid by such bank, such payment discharges the instrument, and the bank is not thereafter, within the mean

* * *

ing of the statute, a "holder" of such check.

ANONYMOUS.

(Ohio Common Pleas, 1882. 26 Albany Law J. 61.)

The suit was by the holder against the drawer of a check. The check was payable to order, duly indorsed in blank, and transferred to the plaintiff. On presentation the bank, drawee, demanded that the holder should also indorse it. This he refused to do, and thereupon had the check protested, and brought this suit. Judge Jones holds that the bank had no right to make such requirements, although it was proved that such was the local custom, and holds that the check was properly dishonored.

JONES, J. A bank is ordinarily presumed to know the signatures of its own customers and depositors; but it will not be seriously doubted that when a check is drawn on a bank, which is a stranger to the payee and his signature, the bank is entitled to a reasonable time. in which to ascertain the genuineness of the indorsement, before paying a check payable to his order, and indeed some of the authorities seem to justify a bank or banker in calling upon the holder of such a bill or check, when it is reasonable to do so, to furnish proof that the indorsement is the genuine one of the payee; but in this case neither of these things was required or asked. There was no demand by the bank for proof of the signature, nor for a reasonable delay to satisfy itself of the genuineness of the indorsement; but there was simply an absolute refusal to pay, unless the person who presented the check would indorse it. That this refusal to pay without such indorsement is not justified by commercial law is, we think, perfectly clear; it is an attempt to limit the negotiability of such paper, and to fix terms and conditions for its payment not warranted by the law or by the drawer of the check, and to which neither he nor the holder is obliged to submit. The implicit contract of a bank with its customers is to pay their checks according to the law merchant.

SECTION 12.-OTHER FORMAL REQUISITES AND ASPECTS OF NEGOTIATION

N. I. L., Section 31. The indorsement must be written on the instrument or upon a paper attached thereto. The signature of the indorser, without additional words, is a sufficient indorsement.

N. I. L., Section 32. The indorsement must be an indorsement of the entire instrument. An indorsement, which purports to transfer to the indorsee a part only of the amount payable, or which purports to transfer the instrument to two or more indorsees severally does not operate as a negotiation of the instrument. But

where the instrument has been paid in part, it may be indorsed as to the residue.

N. I. L., Section 41. Where an instrument is payable to the order of two or more payees or indorsees who are not partners, all must indorse, unless the one indorsing has authority to indorse for the others.

N. I. L., Section 42. Where an instrument is drawn or indorsed to a person as "cashier" or other fiscal officer of a bank or corporation, it is deemed prima facie to be payable to the bank or corporation of which he is such officer, and may be negotiated by either the indorsement of the bank or corporation, or the indorsement of the officer.

N. I. L., Section 43. Where the name of a payee or indorsee is wrongly designated or misspelled, he may indorse the instrument as therein described, adding, if he thinks fit, his proper signature. N. I. L., Section 44. Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability.

N. I. L., Section 45. Except where an indorsement bears date after the maturity of the instrument, every negotiation is deemed prima facie to have been effected before the instrument was overdue.

N. I. L., Section 46. Except where the contrary appears every indorsement is presumed prima facie to have been made at place where the instrument is dated.

N. I. L., Section 47. An instrument negotiable in its origin continues to be negotiable until it has been restrictively indorsed or discharged by payment or otherwise.

N. I. L., Section 22. The indorsement or assignment of the instrument by a corporation or by an infant passes the property therein, notwithstanding that from want of capacity the corporation or infant may incur no liability thereon.

N. I. L., Section 50. Where an instrument is negotiated back to a prior party, such party may, subject to the provisions of this act, reissue and further negotiate the same. But he is not entitled to enforce payment thereof against any intervening party to whom he was personally liable.

6.

7.

Transferee from a Holder in Due Course is a Holder in Due Course.
Rights of the Reacquirer.

8. Rights of a Transferee from a Holder in Due Course of Unindorsed Paper Payable to the Order of the Transferor.

SECTION 1.-INTRODUCTION

A party in physical possession of a negotiable instrument may occupy one of two positions: (1) He may have no title to the instrument; (2) he may have possession and title to the instrument. In the first case the party in possession is not a holder. His possession may be rightful or wrongful. There are various subordinate positions which may be held by a person who has no title to the instrument but does have physical possession. So, also, in case (2), the holder of the title to the instrument may occupy one of several positions. The holder may have the title in trust for a former owner or for a third party. He may have the title accompanied by the same rights, no more, and no less, than his predecessor in title had, or he may have the title under circumstances where his rights against prior parties are superior to those possessed by former owners of the instrument. The term "holder in due course" is used to describe a holder of the title who does have rights against prior parties which may be greatly superior to those of former owners who are not holders in due course. The present chapter is devoted to the consideration of the circumstances under which a holder is to be deemed a holder in due course. The chapters following will show to what extent the rights of the holder in due course are superior to the rights of holders not in due course.

SECTION 2.-MUST BE A PURCHASER FOR VALUE Section 52 (3). A holder in due course is a holder that took it for value.

Section 25. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.

Section 191, clause 12. "Value" means valuable consideration. Section 24. Every negotiable instrument is deemed prima facie