that can be brought up in a suit between the original parties. There may have been fraud as between the original parties or other cause why the note should not be paid. If it has come into the hands of an innocent holder, he can collect notwithstanding, but if the holder did not take the instrument in due course, any of the defenses existing between the original parties may be used against him.

§ 97.—In the hands of any holder other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect of all parties prior to the latter.

If negotiable instruments payable to bearer are lost, the finder does not have good title, but if he manages to transfer them to an innocent holder for value, such holder has a good title. This rule does not apply to certificates of stock or other instruments that are only quasi-negotiable.

REVIEW QUESTIONS

1. What is a "holder in due course"? If a person takes an undated note, is he a holder in due course? If a note is overdue, will an indorsee be a holder in due course? If the indorsee pays only half the face of the note, will he be a holder in due course?

2. Distinguish the position of a bona fide holder of a negotiable instrument and an assignee of an assignable obligation in the event of their suing for their respective claims.

3. An indorsee who has notice of illegality of note indorses it to a bona fide holder for value, and takes up the note at maturity. Is he entitled to sue maker?

4. If A lost bearer bonds and certificates of stock indorsed in blank, and C took them from the finder in good faith, paying value, what interest would C have?

CHAPTER XXX

LIABILITY OF PARTIES

$178. Liability of Maker

The maker of a promissory note engages to pay the note he issues according to its tenor and effect, and he is primarily liable. Should it be paid by one of the indorsers, the maker will later have to reimburse him for what he has paid. The maker is liable even if the note is not presented to him when due. He remains liable upon it until it is outlawed by the Statute of Limitations. He is not liable on a forged instrument or on an incomplete instrument lost or stolen and filled out by the finder or thief.

§ 34-Where an incomplete instrument has not been delivered it will not, if completed and negotiated without authority, be a valid contract in the hands of any holder, as against any person whose signature was placed thereon before delivery.

§ 42.-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, and 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.

§ 179. Liability of Indorser

When any person other than maker, drawer, or acceptor places his signature upon an instrument he is deemed to be an indorser.

§ 64. Where a person, not otherwise a party to an instrument, places thereon his signature in blank before delivery, he is liable as indorser in accordance with the following rules:

I. If the instrument is payable to the order of a third person, he is liable to the payee and to all subsequent parties.

2. If the instrument is payable to the order of the maker or drawer, or is payable to bearer, he is liable to all parties subsequent to the maker or drawer.

3. If he signs for the accommodation of the payee he is liable to all parties subsequent to the payee.

§ 65.-Every person negotiating an instrument by delivery or by a qualified indorsement, warrants:

1. That the instrument is genuine and in all respects what it purports to be;

2.

That he has a good title to it;

3. That all prior parties had capacity to contract;

4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless.

§ 67.-Where a person places his indorsement on an instrument negotiable by delivery he incurs all the liabilities of an indorser.

The contract of the indorser, like that of the drawer, is a conditional promise to pay. The conditions are that the prior parties fail to pay and that due notice of their failure be given.

The amount of the indorser's liability is the face of the instrument, and in addition, interest and notary's protest fees.

Indorsers are liable in the order in which they indorse, but evidence may be admitted to show that they have agreed otherwise as between or among themselves.

§ 180. Discharge of Indorser

If the holder and maker agree to an extension of the time of payment, it will discharge any indorsers of the instru

ment. Mere delay in bringing suit does not have this effect.

As set forth in subsequent chapters, failure to present the note for payment on the due date will discharge the indorsers, and if the note is presented for payment and not paid, the indorsers must be duly notified if they are to be held.

§ 181. Liability of Guarantor

If instead of the usual indorsement or indorsement in blank, a guaranty is made, as, "For value received, I hereby guarantee payment of within note, Warren Colwell," the effect is that the guarantor waives the usual presentment and notice of non-payment.

Some courts hold that this contract of guaranty is not strictly negotiable and will not pass to any but the next holder. The usual form of indorsement is in most cases preferable. A guarantor of collection instead of payment is liable only if the maker is sued promptly and then cannot by legal means be made to pay.

§ 182. Liability of Accommodation Signer

Accommodation paper is distinguished from business paper by lack of consideration. Thus a man may give his note to a friend, in order that the latter may discount it and so secure funds to meet a temporary emergency. In the same way he may write his acceptance upon a draft (see § 205), or indorse a note made by a friend in need of funds. The distinction is often made between real instruments and accommodation paper that the former represent past and the latter future transactions. In the first case, a man gives a note for goods received; in the second, he indorses a note in order that its maker may receive goods.

Since the one who is accommodated is not a holder for value, he cannot sue upon accommodation paper. But anyone who for accommodation signs his name to any negotiable

instrument as maker, drawer, acceptor, or indorser, is liable to any holder for value. The accommodation signer is liable even though the holder knows that he signed for accommodation and that he received no value. But an accommodation signer is never liable to the party accommodated.

REVIEW QUESTIONS

I. Give the liability, to holder in due course, of the maker and of the indorser of a promissory note.

2. What is the effect of indorsement of a negotiable instrument in this form, "Henry Baldwin, without recourse"?

3. How far is an indorser liable when the maker becomes insolvent and settles with his creditors for 50 cents on the dollar?

4. What action of the holder will discharge an indorser? What steps must be taken to hold indorsers?

5. A deposits grain at an elevator and takes a negotiable receipt which he sells to B. Then A gets the grain by misrepresentation from the warehouseman and sells to C. Would B have any claim on C? What rights would B have?

6. How does a guarantor of negotiable paper differ from an indorser?

7. The holder of a demand note agreed that he would not transfer the note or put it in the bank for collection, but would hold it till such time as he wanted the money, and would then make demand for it. Upon this the defendant, at the maker's request, indorsed the note. The plaintiff forbore suit for over two years. Is the indorser liable? State the legal principle involved.

8. Directors of a company indorse its note to enable it to make a loan. The note is paid by the first indorser. What claim for indemnity has he against the subsequent indorsers?

9. A signs what he thinks is a subscription blank for a set of books, in reality the paper is a cleverly contriɣed promissory note. This note is negotiated. It passes into the hands of a purchaser for value. In your state can this holder force the maker to pay the note?