in possession; and the mortgagee has a lien, or security for his
advance of money or whatever it may be. The mortgagor may sell his
land at any time subject to the mortgage, in other words he cannot by
any sale impair the mortgagee's security. On the other hand, the
mortgagee can transfer, sell or assign his mortgage to another, and
this is often done.
Both parties may insure the premises though the mortgagee cannot
exceed his debt. If they are destroyed by fire, the mortgagor cannot
claim to have the insurance applied in liquidation of the mortgage
debt. The mortgagee, therefore, can first collect the insurance money
and then proceed to collect the debt that is due to him from the
mortgagor. If the sums collected from the two sources exceed the
amount advanced to the mortgagor that is only the mortgagee's affair.
But if he insures the property at the mortgagor's request or at his
expense, then the mortgagor would have the benefit of the insurance.
Frequently several mortgages are made of the same property. The one
that is the first recorded has the first lien, the one recorded next
the second lien, and so on. And if the property is subsequently sold
to pay the mortgage, the first mortgagee has the first claim to the
money received, the second mortgagee next and so on. If there is not
enough to pay all, the last mortgagee is the first to be cut off, or
to receive less than the full amount due to him.
If a testator devises mortgaged land, is the devisee or person who
receives the land also entitled to the money due from the mortgagor?
Generally, but not everywhere. A bequest of money securities includes
a note secured by mortgage. The mortgagor's interest in the land on
his death, if leaving no will directing who shall take it, goes to his
heirs, and not to his executor or administrator like other personal
property. Of course, if there were no other property that could be
used to pay his debts, if he had any, it could be claimed and taken by
his creditors for that purpose.
The mortgage usually states a time for paying the debt, and if the
terms are not observed, the mortgagee may proceed to take the
property. This he cannot do in an arbitrary way, except in the case of
mortgages in which the mortgagee is entrusted with power to sell the
property and apply the money in payment of the debt. In other cases
the mortgagee must apply to the court to fix a time for the sale of
the property, if the mortgagor fails to make payment. The courts
usually give the mortgagor a period of several weeks or months to pay,
and if payment is not made at the end of this period, the land is sold
by an officer of the court, who conveys the title to the new
purchaser, and if there is any surplus left after satisfying the
mortgage, this is returned to the mortgagor. If there is a deficit, he
is still liable therefor. Any person who is interested in a mortgaged
estate has the right to redeem it; heirs, devisees, creditors. On the
death of a mortgagor his heirs may call his executor or administrator
to pay the mortgage out of the personal estate if there is any, and
not from the sale of real estate, because it was given, so the law
presumes, for the benefit of the personal estate belonging to the
mortgagor. Or, if the land has been given to a devisee, he can require
the executor or administrator to pay the mortgage. Again, if two
persons are jointly liable for the debt, and one of them pays it, he
may call on the other to contribute his portion. See _Chattel
Mortgage_.
=Negotiable Paper.=--By negotiable paper is meant paper that can be
sold and transferred. The law on this subject is now regulated by a
statute that is nearly uniform in almost all the states of the Union.
The courts are constantly applying it, and in doing so are putting
their meaning or interpretation on the words of the statute. Thus far
they have looked with quite similar eyes, and no serious differences
have arisen.
The statute declares that a promissory note must be in writing and
signed by the maker or drawer; that it must contain an unconditional
promise or order to pay a certain sum of money on demand, or at a
fixed future time to order or to bearer. And if the note is addressed
to a drawee he must be named or indicated with reasonable certainty. A
note may be written payable with interest or by stated installments,
or with exchange, or with costs of collection, or an attorney's fee in
case payment shall not be made at maturity.
An unqualified order or promise to pay is unconditional within the
meaning of the law even though it indicates a particular fund from
which it is to be paid, or a statement of the transaction on which the
note is based. Thus the indorsement of the words "per contract" on the
back of a note written at the time of its execution does not affect
its negotiability.
A note payable at a fixed future time may be at a fixed period after
date or sight, or on or before a fixed future time specified therein,
or on or at a fixed period after the occurrence of a specified event
which is certain to happen, though the time of happening be uncertain.
A note that is payable on a contingency is not negotiable, and the
happening of the event does not cure the defect. Likewise a note which
contains an order or promise to do any act in addition to the payment
of money is not negotiable. To this rule, though, are some exceptions.
Thus a note may be negotiable that authorizes the sale of collateral
securities that have been delivered to the holder if the note is not
paid at maturity. But a note stating that the title to property for
which it is given shall remain in the payee, and that he shall have
the right to declare the money due and take possession of the property
whenever he may deem himself insecure "even before the maturity of the
note," is not negotiable.
Again, the validity and negotiable character of a note is not affected
by the fact that it is not dated, or does not specify the value given
or the place where it is drawn, or the place where it is payable, or
bears a seal, or designates a particular kind of current money in
which payment is to be made. Furthermore, a note is payable on demand
when it is thus stated, or is payable at sight or on presentation.
Also an overdue note accepted or indorsed is regarded as payable on
demand, so far as the maker is concerned.
A note may be drawn payable to the order of a specified person, or to
him or his order, or it may be drawn payable to the order of a payee
who is not the maker, drawer or drawee, or it may be drawn payable to
the order of the drawer or maker, or to the drawee, or to two or more
payees jointly, or to one or some of several payees, or to the holder
of an office for the time being.
Again, a note is payable to the bearer when it is thus expressed, or
to a person named therein or bearer, or when it is payable to the
order of a fictitious or non-existing person, and the fact is known to
the person making it so payable, or when the name of the payee does
not purport to be the name of any person, or when the only or last
indorsement is an indorsement in blank. On one occasion funds were
deposited in a bank in the name of a federal disbursing agent under
treasury regulations that "any check drawn by a disbursing office upon
moneys thus deposited must be in favor of the party by name to whom
payment is to be made and payable to order." The disbursing officer
fraudulently drew checks payable to fictitious payees and cashed them
under forged indorsements of the fictitious payees' name. The court
held that the checks were not payable to bearer and that the bank was
not protected in paying them.
A note is not invalid for the reason only that it is ante dated or
post dated, provided this is not done for an illegal or fraudulent
purpose. The person to whom it is delivered acquires the title from
the date of delivery. If a note expressed to be payable at a fixed
period after the date is issued undated, or the acceptance of such a
note is ante dated, the holder may insert the true date of issue or
acceptance. Nor does the insertion of the wrong date avoid the note in
the hands of a regular subsequent holder. More generally, when a note
is wanting in any particular material, the holder or possessor has the
authority to complete it by filling up the blanks. This authority
extends to every incomplete feature of the note and may be used for
inserting the date, amount, name of the payee, and time and place of
payment. When authority is conferred on another to fill blanks it must
be strictly followed. If a note is drawn payable with interest at the
rate of __ per cent, it draws interest at the legal rate, although the
blank is not filled. The presumption that a note was completed before
it was signed and not afterwards does not arise in a note written in
several inks and by different hands. And the purchaser of a note with
an unfilled blank is put on inquiry respecting the authority of a
person entrusted with an incomplete note. Thus A signed blank forms of
notes and left them with his attorney, but with no authority to
complete and issue them until instructed. The attorney filled them up
without further instructions and issued them to a person who knew they
had been signed, that the attorney had a power of attorney to act for
A, but did not attempt to read or otherwise ascertain its terms. A was
not prevented from denying the validity of the notes. In another case
a person who signed a number of notes in blank as to date, payee and
amount, and left them in his desk in his office, whence they were
stolen, filled in and indorsed to B for value before maturity and
without notice of any defects, was nevertheless not liable on them.
When therefore an incomplete instrument has not been delivered it
cannot be completed and negotiated without authority, and if it is, it
is not a valid contract in the hands of any holder as against the
person whose signature was placed thereon before delivery.
Every contract on a negotiable note is incomplete and revocable until
its delivery. As between the immediate parties, and also a remote
party other than a holder in due course, the delivery, in order to be
effectual, must be made either by the authority of the party making,
drawing, accepting or indorsing as the case may be. The delivery may
be shown to have been conditional, or for a special purpose only, and
not for the purpose of transferring the property of the note. But
where the note is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him is conclusively presumed.
When the language of a note is ambiguous the following rules of
construction are applied: (a) if there is a discrepancy between the
words and figures in expressing the amount, the words control, if the
words are ambiguous or uncertain, reference may be had to the figures
to fix the amount; (b) if the note provides for paying interest
without specifying the date from which it is to run, the interest runs
from the date of the note, if this is undated, from the issue of it;
(c) if not dated a note will be considered as dated from the time of
issue; (d) if there is a conflict between the written and printed
provisions, the former will prevail; (e) if it is doubtful whether the
instrument is a bill or note, the holder may elect which it shall be;
(f) it is not clear in what capacity the person making the note
intended to sign he is to be deemed an indorser; (g) when a note
containing the words "I promise to pay" is signed by two or more
persons, they are deemed to be jointly and severally liable thereon.
The signature of any party may be made by a duly authorized agent. No
particular form of appointment is necessary for this purpose, and the
authority of the agent may be established as in other cases of agency.
If, however, one signs as agent without disclosing his principal, he
is personally liable. Thus, a husband signed a note in his own name
without adding more. As he had disclosed no principal, he was
personally bound, and his wife, for whom he claimed to have signed the
note, was not liable. The maker of a note added to his signature,
"Pastor of St. Frances' church." This was regarded as his personal
note, all besides his name were words merely of description. A person
signed a note thus: "Estate of William R. Clark by William R. Clark,
Jr., Trustee." As he was not authorized to borrow on behalf of the
trust and give a note as trustee, he was individually liable
notwithstanding the form of the note.
Where the signature is forged or made without the authority of the
person whose signature it purports to be it is wholly inoperative.
Thus A cashed a number of drafts and checks payable to B's order on a
forged indorsement of B's name by B's bookkeeper, who appropriated the
money to his own use. Nevertheless, B recovered the amount of the
drafts and checks from A, nor was his negligence in not examining the
bookkeeper's books or accounts a good defense. In another case before
a note was delivered to and accepted by the payee, A, whose name
appeared on the back, was shown the note who said, "Everything is all
right." Afterward he resisted payment on the ground of forgery. As the
payee was induced to take the note on A's statement of its
genuineness, he could not escape payment.
Every negotiable note is deemed to have been issued for a valuable
consideration, and every person, whose signature appears thereon, to
have become a party for the value. An accommodation party is one who
has signed the note as maker, drawee, acceptor or indorser without
receiving value therefor, and for the purpose of lending his name to
some other person. Such a person is liable on the note to a holder for
value, though the latter knew he was only an accommodation party.
What is meant by negotiating a note? By transferring it in a way
whereby the transferee becomes the holder or owner. If payable to
bearer it is negotiated by delivery; if payable to order it is
negotiated by indorsement and delivery. An indorsement may be either
special or in blank; and it may also be either restrictive, or
qualified, or conditional. A special indorsement specifies the person
to whom, or to whose order the note is payable. An indorsement in
blank specifies no indorsee, and a note thus indorsed is payable to
bearer and may be negotiated by delivery. The holder may convert a
blank indorsement into a special one by writing over the signature of
the indorser in blank any contract consistent with the character of
the indorsement. By a qualified indorsement the indorser becomes a
mere assignor of the note, and is made so by adding to his signature
the words "without recourse," or others of similar import. Such an
indorsement does not impair the negotiable character of the note. When
a note is payable to the order of two or more payees or indorsers who
are not partners, all must indorse unless the one indorsing has
authority to indorse for the others. Again, where a note is drawn or
indorsed to a person as cashier or other fiscal officer of a bank or
corporation of which he is the officer, it may be negotiated by either
the indorsement of the bank or corporation or by the indorsement of
the officer. And where the name of a payee or indorser is wrongly
designated or misspelled he may indorse the note as therein described,
adding, if he thinks fit, his proper signature. The holder may at any
time strike out any indorsement which is not necessary to the title.
When this is done, he and all subsequent indorsers are thereby
relieved from liability on the note.
The holder of a negotiable note may sue thereon in his own name; and
payment to him in due course discharges it. Who is a holder in due
course? One who holds a note on the following conditions: (a) that it
is complete and regular on its face; (b) that he became the holder
before it was overdue and without notice that it had been dishonored;
(c) that he took it in good faith and for value; (d) that at the time
of its negotiation to him he had no notice of any infirmity in the
note or defect in the title of the person negotiating it. A note
therefore, providing that any delinquency in the payment of interest
"shall cause the whole note to immediately become due and collectable"
is made overdue by the maker's failure to pay the interest when due,
and a subsequent taker cannot be a holder in due course.
To constitute notice of an infirmity in a note or defect in the title
of the person negotiating it, the person to whom it is negotiated must
have had such actual knowledge of the infirmity or defect that his
action in taking the note amounted to bad faith, but merely suspicious
circumstances are not enough to put a prudent man on inquiry.
On the other hand if the purchaser does suspect and fails to
investigate, lest a defense be disclosed to the maker of the note, he
is not a purchaser in good faith. The maker of a note engages that he
will pay it according to its terms and admits the signature of the
payee and his capacity to indorse, and engages that on due
presentation the draft will be accepted or paid or both, according to
its terms, and that if it is dishonored, and the needful proceedings
in consequence are taken, he will pay the amount. A person placing his
signature on a note otherwise than as maker, drawer or acceptor is
deemed to be an indorser unless he clearly indicates his intention to
be bound in some other way. The Negotiable Instruments Act fixes the
liability of a person who is not a party to a note, and who indorses
it before delivery. The law was in great confusion before this act
established a definite rule. Such a person is now liable as indorser
in accordance with the following rules: (a) if the note is payable to
the order of a third person, he is liable to the payee and to all
subsequent parties; (b) if payable to the order of the maker or
drawer, or if payable to bearer he is liable to all parties subsequent
to the maker or drawer; (c) if he signs for the accommodation of the
payee he is liable to all parties subsequent to the payee.
Presentment for payment is not necessary in order to charge the person
primarily liable on a note, but if it is payable at a mentioned place
and he is able and willing to pay it there at maturity, such action is
equivalent to a tender of payment on his part. Presentment for
payment, of course, is needful to charge the drawee and indorsers.
When the note is not payable on demand, presentment must be made on
the day it falls due. When it is payable on demand, presentment must
be made within a reasonable time after its issue. This rule does not
apply to all bills of exchange. Thus unreasonable delay in presenting
a check will discharge the indorser whether such delay is a cause of
loss to him or not. Likewise a certificate of deposit payable on
demand must be presented for payment within a reasonable time after
its issue in order to hold the indorser. "The usage of trade or
business includes the usage of banks relating to presentment of checks
for payment. It is sufficient diligence to charge an indorser if a
check on the bank in another place is forwarded through various banks
for collection in accordance with the regular usage of the business,
although presentment might have been more promptly made if a more
direct course had been taken." Presentment for payment must be made by
the holder or by some person authorized by him to receive payment, at
a reasonable hour on a business day and at a defined place, and to the
person primarily liable thereon. And if he is absent or inaccessible
then to any person who is at the place where presentment is made. If a
note is payable at a bank the payor has until the close of banking
hours to pay it, and if, before the close of the bank day, he deposits
money enough to pay it a demand earlier in the day is premature. Delay
for presenting a note for payment is excused where the delay is caused
by circumstances beyond the holder's control, and he is in no way
negligent. Nor need presentment for payment be made when after using
reasonable diligence it cannot be made, or where the drawee of a bill
is a fictitious person, and lastly where presentment, express or
implied, has been waived.
Every negotiable note is payable at the time fixed therein. When the
day of maturity falls on Sunday or a holiday, the note is payable on
the next succeeding business day. Notes falling due on Saturday are to
be presented for payment on the next succeeding business day, except
that notes payable on demand may, at the option of the holder, be
presented for payment before twelve o'clock noon on Saturday when that
entire day is not a holiday.
When the note is payable at a fixed period after the date, after
sight, or after the happening of a specified event, the time of
payment is determined by excluding the day from which the time is to
begin to run, and includes the date of payment. And where a note is
made payable at a bank it is equivalent to an order to the bank to pay
it for the account of the principal debtor thereon. In accordance with
the notation on the margin of a note the holder sent it for collection
to a bank which held, as a special deposit, the maker's money. The
cashier at maturity notified the maker who directed the cashier to pay
the note. The cashier said "All right, your note is paid." The note
was regarded as paid.
When a negotiable note has been dishonored by non-acceptance or
non-payment, notice of dishonor must be given to the drawer and to
each indorser, and any drawer or indorser to whom such notice is not
given is discharged. A written notice need not be signed and an
insufficient notice may be supplemented by verbal communication. Nor
does misdescription of the note vitiate the notice unless the party to
whom the notice is given is in fact misled thereby. The notice may be
in writing or merely oral, and may be given in any terms which
sufficiently identify the note and indicate that it has been
dishonored by non-acceptance or non-payment. It may be delivered
personally or through the mails. Where the parties to be notified are
partners, notice to any one of them is notice to all even though there
has been a dissolution. But notice to joint parties who are not
partners must be given to each of them, unless one of them has
authority to receive the notice for the others.
When the person giving, and the person who is to receive notice reside
in the same place, it must be given within the following times: (a) if
given at the place of business of the person who is to receive notice
this must be done before the close of the business hours on the day;
(b) if given at his residence it must be given before the usual hours
of rest on the day following; (c) if sent by mail it must be deposited
in the post office in time to reach him in usual course on the day
following. If the parties reside in different places the notice must
be sent within the following times: (a) if sent by mail it must be
deposited in the post office in time to go by mail the day following
the day of dishonor, or if there be no mail at a convenient hour on
that day by the next mail thereafter; (b) if given otherwise than
through the post office then within the time notice would have been
received in due course of mail if it had been deposited in the post
office had it been deposited in the post office as above described.
If a party had added an address to his signature the notice must be
sent to that address, if he has not, then the notice must be sent as
follows: (a) either to the post office nearest to his place of
residence or to the post office where he is accustomed to receive his
letters, or if he lives in one place and has his place of business in
another, notice may be sent to either place, or if sojourning in
another place, the notice may be sent there. In any event if he
receives the notice within the time specified, it will satisfy the
law.
Of course notice may be waived; sometimes, also, it is quite
impossible to give notice; whenever this happens the law does not
require notice to be given.