Section 66. "Every indorser who indorses without qualification, warrants to all subsequent holders in due course: (1) The matters and things mentioned in subdivision one, two and three of the next preceding section; and (2) That the instrument is at the time of his indorsement valid and subsisting. And, in addition, he engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder, or to any subsequent indorser who may be compelled to pay it."
QUALIFIED INDORSEMENT.—Section 65 speaks of delivery by qualified instrument. You will remember that we have already mentioned the indorsement in the form "without recourse." This is a qualified indorsement. The kind of liability a person incurs who indorses in that way is set forth in Section 65. This is important because the layman assumes that in indorsing "without recourse" one means to incur no liability as indorser. Such is not the case. Reread section 65, which covers the indorsement without recourse. There is liability for the things mentioned therein. Then in section 66, the last paragraph, you will notice that every indorser, who indorses without qualification "engages that on due presentment, it shall be accepted or paid, or both, as the case may be, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the holder." This does not mean that the indorser will always pay, but only if the necessary steps are taken. We shall consider what these necessary steps are when we take up the subject of "protest."
CHECKS.—A check is simply a bill of exchange drawn on a bank and payable on demand. Therefore, the general principles which we have been laying down, in regard to bills of exchange and other negotiable paper, apply to checks, although, of course, the check is a more recent development in the law of commercial paper than the other two forms, namely, the promissory note and the bill of exchange. Section 186 of the Act reads: "A check must be presented for payment within a reasonable time after its issue or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay."
HOLDER OF CHECK.—It is important to remember that the holder of a check has no right against the bank. Thus, if I hold John Rockefeller's check, drawn on the Institute National Bank, and I present it to the bank and the bank refuses to pay it for no reason at all, or for a purely arbitrary reason, I cannot sue the bank. The only thing I can do is to seek to get the money on the check from Mr. Rockefeller personally. This is because the drawing of a check is not the assignment of so much money to the payee named in the check. Of course, Mr. Rockefeller might sue his bank for failure to honor his check if it refuses to pay it to me for no valid reason. One further fact is important. When a holder of a check procures it to be certified by the bank, that releases all indorsers and also the drawer. And so, if I have a check drawn by Mr. Rockefeller and indorsed by six millionaires and I take that to the bank and have them certify it and then the bank fails, I have lost everything if the bank never pays anything to a depositor. By getting it certified I release Mr. Rockefeller and all of the indorsers.
THE MEANING OF PROTEST.—Protest is often used broadly to signify any dishonor of a negotiable instrument, but, of course, properly it means presentment by a notary, and his certification that an instrument has been presented for payment and has been dishonored. Protest is only necessary in regard to foreign bills. A foreign bill is one which is drawn in one State and payable in another. For this purpose the different States of the Union are foreign to each other. A bill drawn in New York payable in Boston is as much a foreign bill for this purpose as one drawn in England payable here.
WHAT MAY BE PROTESTED.—Though protest is not necessary for any other negotiable instrument except foreign bills of exchange, including foreign checks, it is convenient frequently to protest other negotiable instruments. The law provides that protest may be made of other negotiable instruments, and the certificate of protest is evidence in such cases, as well as in the case of foreign bills of exchange, of the facts which it states, namely, that the instrument has been duly presented and notice given. Statements in a certificate of protest, however, whether of foreign bills or of other instruments, are not conclusive evidence of the facts which they state. They are some evidence, but it may be shown by other evidence that the instrument was not presented, or was not presented at the time the certificate asserts, or that the notice was not given as therein asserted.
SUGGESTIONS FOR DRAWING NEGOTIABLE PAPER.—Very few suggestions are necessary in drawing checks. We almost always use the printed form. The only thing to be careful about is to draw lines through the blank spaces so that a check written for $70 may not have something else written before the word seventy, thereby raising the amount to, say, One thousand seventy, and the figures, because they are not near the dollar sign, correspondingly raised. The promissory note is frequently drawn by the parties without any printed form. In order to be negotiable, the note must bear the words "or order," or "bearer"; otherwise, it would not be negotiable, and would pass by the law of assignability without any of the advantages accruing to negotiable paper. The draft, or bill of exchange, is the document which the average layman is the least familiar with, and before drawing one, a printed form should be secured or a book on negotiable paper be consulted.
NEGOTIABILITY.—Care should be taken in the indorsement of any negotiable paper. The indorsement in blank, that is, simply writing your name upon the paper on the back, is the one commonly used, but is a dangerous one to use, if there is any possibility of the paper being lost or stolen. For example, A has a promissory note payable to his order, and he simply writes his name across the back and mails it to a person who has agreed to accept it in payment of a bill A owes him. The letter is lost, gets into the hands of X, who opens it and takes the note. Of course, the note is no good to X. X, however, takes the note to someone and persuades that person to discount the note for him. That person does it in good faith, believing X came by the note rightfully. The discounter is therefore a holder in due course, and he would be able to collect on the note. What A should have done, when he sent the note to his friend John Brown, was to have indorsed it specially, "Pay to the order of John Brown, A." Again, a person who is collecting some money for his friend receives a check payable to his order. He wants to turn the check over to his friend, and indorses it by a special indorsement. When the friend tries to collect on the check, it is returned "no funds." The friend now may hold the person responsible who indorsed the check, because an indorser guarantees the payment of the instrument if the proper steps be taken to fix his liability. Ordinarily, of course, we wish an indorser to assume this liability, but in this particular case there was no reason why this man should have indorsed the check in that way. He could have indorsed it, and added to his signature the words "without recourse," which would have relieved him from paying the instrument if the drawer did not pay it.