The government class book / Designed for the instruction of youth in the principles of constitutional government and the rights and duties of citizens.

by Andrew W. Young

Chapter LX.

Promissory Notes.

§1. A promissory note is a written promise to pay a specified sum at a certain time, to a person named, or to his order, or to the bearer. A common form of a note is the following:

$100. Albany, June 9, 1859.

Three months after date, I promise to pay to James Smith, or bearer, one hundred dollars, value received.

John Brown.

§2. A note thus payable to Smith or bearer, or to him or his order, is called negotiable, because it may be sold or transferred to any other person, who has the same power to sue for and collect the money, as Smith, the original promisee. If it were made payable to Smith or order, he must indorse it by writing his name on the back of it, before it would pass as a negotiable note. The indorsement is considered as the order of Smith to the maker to pay it to any other person. But, though not negotiable, it might be transferred; but the holder must sue in the name of Smith, and Brown might offset any demands which he has against Smith.

§3. An indorsement, made by writing the name only on the back of a note, is called a blank indorsement. A full indorsement is one which points out the person to whom the note is to be paid. A blank indorsement may be filled up at any time by the holder. For example: A note is payable to "John Jay or order," or to "the order of John Jay," who indorses it in blank which makes it payable to any other holder. Now if any holder or indorsee wishes it paid to any particular person, he fills up the blank by writing a request to that effect above the name of the indorser, thus: "Pay to George Bruce," or "Pay to George Bruce or order;" who, again, may by indorsement order it paid to some particular person. Or, if he should indorse it in blank, or order it paid "to the bearer," it would again pass, as at first, by mere delivery.

§4. In common business transactions in the country, notes intended to be negotiable are usually made payable to bearer, as in the form given. (§1.) The young reader, or other person inexperienced in business, may not know why they are not always so written. The making of a note payable to order protects the holder or owner in case the note should be lost. Take, for example, the note supposed in the preceding section, indorsed in blank. Suppose the owner resides in Buffalo, and the maker in Detroit. The owner writes over the name of John Jay, "Pay to George Bruce," also residing in Detroit, to whom it is sent by mail, to be by him presented to the maker for payment. And should the note by accident or fraud fall into the hands of another, it being payable to Bruce only, or to his order, the parties are protected from loss.

§5. As a contract is not binding without a valuable consideration, (Chap. LIV, §6,) the words "value received" are inserted in notes, as evidence of such consideration. But where there is no statute requiring the insertion of these words, a note is good without them. Whether they are inserted or not, the note is presumed to have been given for a valuable consideration; and the maker, to avoid his obligation to pay it, must make it appear that no value was received.

§6. A note made by two or more persons may be joint or joint or several. When it is written, "We promise to pay," it is only a joint note, and all must be sued together. If written, "We jointly and severally promise to pay," they may be sued either jointly or separately. Also if written "I promise to pay," it is treated as a joint and several note. A note written, "We promise," and signed, A. B., principal, and C. D., security, is the joint note of both; and if written, "I promise," and signed in the same manner, it is the joint and several note of both.

§7. Any person having in possession a negotiable note, though a mere agent, is deemed the true owner, and may sue it in his own name, without showing title. The bona fide holder can recover upon the paper, though it came to him from a person who had stolen or robbed it from the true owner; provided he took it innocently in the course of trade for a valuable consideration before it was due, and with due caution. But if suspicion is cast upon the title of the holder, by showing that the instrument has got into circulation by force or fraud, then the holder must show the consideration he gave for it.

§8. Ordinarily, a person can not convey to another a valid title to property which is not lawfully his own; and hence the purchaser of stolen goods must give them up to the lawful owner. The exception to this rule, in the case of promissory notes, seems to be founded in reason and good policy. The use of negotiable paper in commercial transactions is of great public convenience; and it is proper that, for the sake of trade, protection should be given to the holder of such paper who receives it fairly in the way of business, though it has been paid, if he received it before it fell due.

§9. But it is equally material for the interests of trade, that the owner should have due protection. Hence if a person takes a note from a stranger without inquiring how he came by it; or does not take it in the usual course of business, or for some responsibility incurred on the credit of the note, he takes it at his peril. But the owner, in order to place his right to relief beyond question, ought to use diligence in apprising the public of the loss of the note.

§10. A person buying a note after it has become due, takes it at his peril. Although the holder may sue it in his own name, the maker may offset any demands which he had against the promisee before it was transferred, as in the case of notes not negotiable. (§2.) But when notes in which no day of payment is expressed comes under this rule, is a question to be determined by circumstances. In New Jersey and Pennsylvania, the words "without defalcation or discount," or words to that effect, must be inserted in notes, or they may be met by offsets as notes that are bought after due.

§11. A note made payable in some commodity is not negotiable. If it is not paid according to the conditions therein expressed, the maker becomes liable to pay in cash. But in either case, if it passes to a third person, he can sue it only in the name of the promisee or payee; and it may be met by offsets as other notes not negotiable, (§2,) and notes bought after due. (§10.)

§12. Notes payable on demand, or in which no time of payment is mentioned, are due immediately, and no demand of payment is necessary. But a note payable at sight, or at a specified time after sight, must be presented for payment before it can be sued. If the words "with interest" are omitted, interest commences at the time the note becomes due. If payable on demand, it will draw interest from the time when payment is demanded.

§13. After the day on which a note is made payable, the maker has three days in which to make payment, which are called days of grace. Hence, a note payable on the first day of the month is not due and suable until the fourth. If, however, the last day of grace falls on Sunday, or the fourth of July, or any other day recognized by law as a holiday, or day of public rest, the last day of grace would be a day earlier. If the fourth of July or any other holiday should come on Saturday, the note would be due on Friday. Or if such day should fall on Monday, the last day of grace would be Saturday.

§14. To hold the indorser of a note responsible, payment must be demanded of the maker on the last day of grace. As to the time of day when the demand should be made, it is considered that the maker is entitled to the latest convenient time within the customary business hours of the place where the note is presented.

§15. If payment has been demanded and refused, notice thereof must be given to the indorser; and one entire day is allowed the holder to give the notice. If the demand is made on Saturday, it is sufficient to give notice on Monday. If the indorser resides in the same town, he may be notified personally by the holder, or by a messenger sent to his dwelling-house, where notice may be given personally, or left in a way likely to bring it to his knowledge. If the parties reside in different towns, notice may be sent by mail; in which case, the notice must be put into the post-office, as early as the next day after the last day of grace, so as to be forwarded as soon as possible thereafter: or notice may be sent by a private conveyance or a special messenger.

§16. If, in consequence of the removal of the maker before the note becomes due, or from any other cause, his residence is unknown, the holder must make endeavors to find it, and make the demand there; though, if he has removed out of the state, it is sufficient to present the note at his former place of residence. If the maker has absconded, that will, as a general rule, excuse the demand.

§17. Notes, on being transferred, are guarantied by indorsement. If a person simply writes his name on the back, he is liable as indorser only. If he guarantees "the payment of the note," he is generally considered liable as an original promisor. If he guaranties the note "good," or "collectable," the maker, and the indorsers also, if any, must be sued, before the guarantor is liable. Strict notice to a guarantor is not required to bind him, as in the case of an indorser. But to hold him liable in case immediate notice is not given, or the note is not immediately sued, it must be shown that he has not suffered injury from want of notice, or that the note was not collectable of the maker or indorsers when due. But the kind of liability incurred, whether that of indorser, original promisor, or surety, by indorsing a note or guarantying payment, is not the same in all the states. There are sundry other points in the law relating to promissory notes, on which the statutes and judicial decisions are not uniform in all the states.