CHAPTER XXVII.

GENERAL AND SPECIAL LIABILITIES.*

§ 270. Endorsements.

A party placing his signature on a negotiable instrument for the purpose of transferring the ownership of such instrument or for the purpose of guaranteeing its genuineness or payment, is termed an endorser and his signature an endorsement. Any person placing his signature upon a negotiable instrument except as maker, drawer or acceptor is deemed to be an endorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity. (§§ 36, 113.)

An endorsement is usually but not necessarily placed upon the back of the instrument. It must, however, either be written on the instrument itself or on a paper attached thereto (§ 61) which is then termed an "allonge." An endorsement of a negotiable instrument must be for the entire amount due or to become due, and any endorsement transferring part of the amount does not transfer the title to the instrument. (§ 62.)

An endorsement may be special or blank (§ 63), in the first case specifying the person to whom, or to the order of whom, the instrument is to be paid; in the second case consisting merely of the name of the endorsing party. An instrument endorsed in blank is payable to bearer and is negotiated by delivery. (§ 64.) If an endorsement payable to bearer or endorsed in blank is by some later holder endorsed specially,

* Sectional references in text are to the Negotiable Instruments Law as enacted in the State of New York.

it may still be transferred by delivery under the original blank endorsement, and the person endorsing specially is liable as endorser only to the person or persons holding directly under his endorsement. (§ 70.) The holder may change a blank endorsement to a special endorsement by writing over the signature any endorsement he wishes, provided he does not change the undertakings of the instrument or the rights and responsibilities of the endorser by so doing. (§ 65.)

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An endorsement which prohibits further negotiation as Pay to John Wilson only" or which constitutes the endorsee an agent of the endorser, as "For Collection," or vests the title in a trustee, as "Pay James Brown for account of Helen Wilson," is termed a restrictive endorsement, but the absence of words implying power to negotiate does not make an endorsement restrictive. (§ 66.) For instance, an endorsement "Pay to John Harrison" does not restrict the further transfer of the instrument by endorsement and delivery.1 A restrictive endorsement confers upon the endorsee the right to receive payment of the instrument, to bring any action thereon that the endorser could bring and to transfer these rights where the form of endorsement permits him so to do, but all subsequent endorsees acquire only the title of the restricted endorsee. ($ 67.)

An endorsement may also be qualified, as by adding "without recourse," or other words of similar import, to the endorsee's signature and such endorsement does not impair the negotiability of the instrument (§ 68), merely limiting the particular endorsee's liability.

An instrument drawn or endorsed to a person as treasurer or as some other fiscal officer of a corporation, is deemed prima facie to be payable to his corporation and may be transferred either by the endorsement of the officer or of his corporation.2 (§ 72.) An endorsement in a representative capacity does not

1 Leavitt v. Putnam, 3 N. Y. 494 (1850).

2 First Nat. Bk. v. Hall, 44 N. Y. 395 (1871); Farmers', etc. Bank v. Troy City Bank, Mich. 457 (1844).

involve personal liability if made in proper form. (§ 74.)

If the name of an endorsee is wrongly designated or misspelled, he may endorse the instrument correspondingly, adding, if he sees fit, his own proper signature. (§ 73.) If an instrument is payable to two or more payees, not partners, all must endorse unless one or more have authority to endorse for all. (§ 71.)

The time of an endorsement, unless it is otherwise dated, is deemed prima facie to be before the maturity of the instrument (§ 75) and the place, unless the contrary appears, is presumed to be that of the place where instrument is dated. (§ 76.)

The holder may at any time strike out any endorsement not necessary to his title and such endorser and all endorsers subsequent to him are relieved from liability on the instrument. (§ 78.)

If the holder of an instrument payable to himself or to his order transfers it but neglects to endorse the instrument, the transferee takes only such title as the transferrer had therein. Any defenses that might have been made against the instrument in the hands of the payee may also be made against the instrument in the hands of the transferee. This transferee, however, may require the transferrer to affix his endorsement but this is only effective from the time it is affixed and not, as to outside equities, on the date of delivery. (§ 79.) This distinction is important as such an instrument transferred before but not endorsed until after maturity would only vest in the holder the rights of a transferee after maturity.1

An instrument may be endorsed conditionally but a party required to pay the instrument may safely do so and will be discharged whether the condition has been fulfilled or not. ($ 69.) "But any person to whom an instrument so endorsed (§

3 Contra, Schmittler v. Simon, 101 N. Y. 554 (1886).

Simpson v. Hall, 47 Conn. 417 (1879); Goshen Nat. Bank v. Bingham, 118 N. Y. 349 (1890); Beard v. Dedolph, 29 Wis. 136 (1871).

is negotiated, will hold the same, or the proceeds thereof, subject to the rights of the party endorsing conditionally." (Id.)

§ 271. Defective Title.

The title of a person negotiating an instrument is defective when he obtained the instrument, or any signature thereto, by fraud, duress, force and fear, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith or fraudulently. (§ 94.)

§ 272. Forgeries.

As defined by the New York Penal Code (§ 520), a forgery consists in "either falsely making, counterfeiting, altering, erasing or mutilating a genuine negotiable instrument in whole or in part or the false making or counterfeiting of the signature of the party thereto with intent to defraud." The intent to defraud must be present and there must be an utterance or delivery of the forged instrument."

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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 or to give a discharge therefor or to enforce payment 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." ($42.) This is also true under the common law.

The only exception to the general rule that forged paper is void is, as set forth in the Negotiable Instruments Law, where the person sought to be charged is precluded from setting up the forgery as a defense. This would be the case if the party were in collusion with the forgers or had made such

People v. D'Argencour, 32 Hun 178; Aff'd, 95 N. Y. 624 (1884); Phelp v. People, 72 N. Y. 371 (1878).

Daniel Neg. Insts., § 1350.

statements or had acted in such a way as to have induced other parties to act to their detriment upon the belief that the forged signature was genuine.7

When a forged instrument is not detected until after it has passed into innocent hands or payment has been made thereon, the party receiving the instrument or paying it may recover from the party from whom the instrument was received. This rule does not hold, however, where the drawee pays a bill on which the signature of the drawer is forged, as the drawee is supposed to know his correspondent's signature and if he pays money upon the false signature, he himself must bear the loss.9

§ 273. Material Alterations.

A material alteration of a negotiable instrument is any one which changes, (1) the date of the instrument;10 (2) the sum payable either for principal or interest;11 (3) the time or place of payment;12 (4) the number or the relations of the parties;13 (5) the medium or currency in which payment is to be made:14 or (6) which adds a place of payment when no place of payment is specified 15 or which makes any other change or addition altering the effect of the instrument in any respect.16 (§ 206.)

7 Wellington v. Jackson, 121 Mass. 157 (1876); Workman v. Wright, 33 O. St. 405 (1878); contra, Shisler v. Vandike, 92 Pa. St. 449.

8 Frank v. Lanier, 91 N. Y. 112 (1883); U. S. v. Nat. Park Bk., 6 Fed. Rep. 852 (1881).

Goddard v. Merchants' Bk., 4 N. Y. 147 (1850); White v. Con. Nat. Bank, 64 N. Y. 316 (1876).

10 Nat. Ulster Co. Bk. v. Madden, 114 N. Y. 280 (1889); Newman v. King, 54 O. St. 273 (1896).

11 Hewins v. Cargill, 67 Maine 554 (1877); Gettysburg Nat. Bk. v. Chisolm, 169 Pa. St. 564 (1895).

12 Miller v. Gilleand, 19 Pa. St. 119 (1852).

13 Hoffman v. Planters' Nat. Bk., 39 S. E. Rep. 134 (1901).

14 Anglo v. Ins. Co., 92 U. S. 330 (1875).

15 Whitesides v. Northern Bk., 10 Bush 501 (1874).

16 Weyerhauser v. Dun, 100 N. Y. 150 (1885).