He also warrants that on presentment when due it will be accepted or paid or both according to its tenor, and that if it be dishonored and the necessary protest and notice be given, he will pay the amount thereof to the holder or to any subsequent indorser who may have to pay it.

§ 169. Blank or Special Indorsement

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

$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. An indorsement in blank specifies no indorsee, and an instrument so indorsed is payable to bearer, and may be negotiated by delivery.

$35. The holder may convert a blank indorsement into a special indorsement by writing over the signature of the indorser in blank any contract consistent with the character of the indorsement.

§ 170. Restrictive Indorsement

$36. An indorsement is restrictive, which either:

I.

Prohibits the further negotiation of the instrument; or 2. Constitutes the indorsee the agent of the indorser; or 3. Vests the title in the indorsee in trust for or to the use of some other person.

But the mere absence of words implying power to negotiate does not make an indorsement restrictive.

§ 37.-A restrictive indorsement confers upon the indorsee the right:

1. To receive payment of the instrument;

2.

bring;

To bring any action thereon that the indorser could

3. To transfer his rights as such indorsee, where the form of the indorsement authorizes him to do so.

But all subsequent indorsees acquire only the title of the first indorsee under the restrictive indorsement.

$171. Qualified Indorsement

§ 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 instru

ment.

§ 172. Conditional Indorsement

The payee is not concerned about a conditional indorsement. Such an indorsement affects the rights of only those who take the instrument after the indorsement. A conditional indorsement imposes some condition on payment, as "Pay to Henry Alford upon delivery of motor truck, on March 1, 1920. Mark Anderson."

In such a case, the payee may take no notice of the condition and may pay any lawful holder of the note whether the condition has been fulfilled or not. But any holder of such a note would hold it, or any amount paid him upon it, subject to the rights of the conditional indorser.

$173. Effect of Indorsement

An instrument payable to bearer may be indorsed specially to some particular person and after that may again be passed on by delivery.

§ 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.

§ 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.

§ 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 think fit, his proper signature.

§ 44.-Where any person is under obligation to indorse in a representative capacity, he may indorse in such terms as to negative personal liability.

$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.

§ 46.-Except where the contrary appears every indorsement is presumed prima facie to have been made at the place where the instrument is dated.

REVIEW QUESTIONS

1. What is the difference between assigning a simple contract, and negotiating a note or other commercial paper? What is the form?

2.

What is a contract of indorsement? What obligation is assumed by the indorser?

3. If an instrument payable to bearer is indorsed specially to some particular person and after that is passed on by delivery, can the holder by delivery collect from the special indorser or the special indorsee?

4. Give pro forma illustrations of the following indorsements of promissory notes and show the purpose and effect of each indorsement: (a) in full, (b) conditional, (c) restrictive, (d) qualified.

5. What is the procedure where the name of a payee or indorsee has been misspelled or his initials are not given correctly?

CHAPTER XXIX

RIGHTS OF HOLDER

§ 174. Holder in Due Course

The Uniform Negotiable Instruments Law uses the phrase "a holder in due course" to express the idea of an innocent holder for value, that is, one who has taken the instrument without knowledge of anything unusual in connection with it and who has given a valuable consideration for his title. Such a holder of a negotiable instrument may sue on it in his own name.

§ 52.-A holder in due course is a holder who has taken the instrument under the following conditions:

I. That it is complete and regular upon its face;

2. That he became the holder of it before it was overdue, and without notice that it had been previously dishonored, if such were the fact;

3. That he took it in good faith and for value;

4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

$53. Where an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course.

54. Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore paid by him.

$175. Defects of Title

§ 55. The title of a person who negotiates an instrument is defective within the meaning of this act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

§ 56. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.

$176. The Rights of a Holder in Due Course

A holder in due course of a negotiable instrument is in a strong position. He has a good claim against any of the prior parties to the instrument regardless of any claim they may have for fraud, duress, lack of consideration, and, with a few exceptions, illegality. Of course, if the holder knew of any of these defects before taking the instrument, he would not be a holder in due course. If he occupies the position of holder in due course, he may take any negotiable instrument without inquiry and without any fear that in the event of having to bring suit he may meet with any of the defenses named.

$57.-A holder in due course holds the instrument free from any defect of title of prior parties and free from defenses available to prior parties among themselves, and may enforce payment of the instrument for the full amount thereof against all parties liable thereon.

$177. Effect of Irregular Transfer

If a holder of negotiable paper not "a holder in due course" brings suit to collect, he must face all the defenses