The payee of this certificate of deposit may indorse and transfer it. The holder may collect the amount by presenting the certificate to the bank.
131. Requisites of Negotiable Instruments. Certain elements are recognized, by long usage, as being necessary to constitute an instrument a valid negotiable instrument. The instrument must contain words of negotiability, such as or bearer, or order, or words of similar meaning. The instrument must contain a specific promise to pay a certain sum of money at a definite time. The instrument must designate an ascertainable person to whom, or to whose order the money is payable. The instrument must be signed and delivered. It is not necessary that a consideration be stated in the instrument, although in a suit between the original parties, failure of consideration is a defense. For example, if A gives B his promissory note for one hundred dollars ($100.00) payable to B's order, and A received no benefit for giving the note, if B sues A thereon, A may plead that he received no consideration for the note. This would be a complete defense to A. If, however, C purchased the note from B before it was due, paying value for same, and having no notice of its being given without consideration, A could be compelled to pay it to C or his successors. It is not necessary that a negotiable instrument be dated. It is proper, however, and good business policy to date all negotiable instruments. The signature need not be at the bottom of the instrument. This, however, is the proper place for the signature.
I. O. U. $500.00
(Signed) John Jones, is not a promissory note. It is not a promise to pay at a definite time or to a definite person. It is a mere acknowledgment of indebtedness.
132. Parties to Negotiable Instruments. By usage and custom, parties to negotiable instruments are given certain well recognized names. The name of the party to whom a promissory note is made payable is always called the payee. When the payee transfers a negotiable instrument by indorsement, he is called the indorser, and the party to whom he indorses the note is called the indorsee. Indorsers and indorsees are designated as first, second, third, etc., indorsers or indorsees according to their position on the instrument.
The maker of a draft is called the drawer. The one to whom it is given is called the payee. The one on whom it is drawn is called the drawee. After acceptance, the drawee is called the acceptor. The rights and liabilities of these parties are discussed under separate sections.
133. Rights and Liabilities of a Drawee. The term, draft, is sometimes used to designate orders made by one bank on another. For example, A in Cleveland, purchased of his Cleveland bank a New York draft, or an order by the Cleveland bank on a New York bank, payable to the order of A. Technically, orders on persons are bills of exchange, but the term draft, has come to be applied both to orders of one bank on another and to orders of one person on another. In this work the term, draft is applied to both kinds of orders. A drawer is a person who makes a draft on another. It is usually payable to the order of a third person. It may be made payable to the bearer or to the order of the drawer, himself. A drawer enters into a conditional contract. By becoming a drawer, he agrees to pay the bill of exchange or draft, if the payee presents it without delay, and in case of non-payment, or non-acceptance, if notice is promptly given him of this fact. In case the draft is a foreign one, that is, made payable or to be accepted, in a different state or country from which it is drawn, it must be protested by the payee to enable him to hold the drawer. A draft is protested by being presented by a notary public, who, by formal written instrument, declares the refusal of the drawee to accept. Protest is discussed more at length under a separate section. In case these conditions are complied with, and the drawee does not accept the bill or pay the bill after acceptance, the payee may hold the drawer. After the formalities above enumerated are observed by the payee or holders of a draft, if the draft is dishonored, that is, not accepted, or paid by the drawee, the payee may sue the drawer, whose liability is similar to that of the maker of a promissory note.
134. Rights and Liabilities of Acceptor. The person to whom a draft is directed is called the drawee or acceptor. When a draft is presented to the drawee, he may accept it by writing accepted thereon, or he may accept by writing his consent in a separate instrument, such as a letter, or by sending a telegram, or he may accept orally or by his conduct. After a drawee has accepted a draft, he is bound by its terms. He must pay the amount mentioned in the draft. After acceptance, his liability is similar to that of the maker of a promissory note. Sometimes an acceptor does not accept in the exact terms of the draft. He may change the time or place of payment, or attach conditions to the bill or draft. This amounts to a refusal on his part to accept the bill, which will entitle the payee to refuse the qualified acceptance and by giving proper notice to the drawer hold the drawer by reason of non-acceptance by the drawee. If, however, the payee chooses to accept the qualified acceptance of the drawee, he may do so, but by this act he releases the drawer and all prior indorsers from liability thereon.
135. Rights and Liabilities of Maker. Maker is the term applied to the person who originally makes and signs a promissory note. By this act, he agrees to pay at maturity, to the original payee, or to whomever the note has been indorsed or properly transferred, the amount named in the note. The maker of a note is liable absolutely and unconditionally. While it is customary for the holder of a note to present it to the maker at maturity for payment, this is not necessary unless a place of payment is stipulated in the note. The holder may commence suit against the maker at maturity without presenting the note for payment. If the note contains indorsements, the note must be presented to the maker, and if payment is refused, to enable the holder to hold the indorsers liable, notice of the fact must be given the indorsers. If the note is payable at a particular place, as for example, a bank, the holder must present the note at the bank at maturity, or not be able to collect interest thereafter, if the maker proves that he had funds there sufficient to pay the note at maturity. If the maker has been damaged other than by loss of interest, by failure to present a note at a bank when made payable, he may collect damages therefor from the holder.
136. Blank Indorsement. A negotiable instrument, if payable to bearer, may be transferred by delivery. If payable to the order of the payee, it may be transferred by indorsement and delivery. By indorsement is meant the writing the name of the payee upon the back of the negotiable instrument. Indorsement may be made in various forms, depending upon the purpose for which made, and the kind of liability the indorser is willing to undertake, or the kind or degree of liability which he wishes to avoid. The most common kind of indorsement consists of the payee's writing his name only on the back of the instrument. A negotiable instrument with blank indorsement is shown in Fig. 5.