discountable at the Federal Reserve Bank. The bank finds in its possession double-name instead of single-name paper. REFERENCES Brewster, Stanley F. Legal Aspects of Credit, pp. 403-443. New York, Ronald Press Co., 1923. Dewey, Davis R. and Shugrue, Martin J. Banking and Credit, Chaps. III, IV. New York, Ronald Press Co., 1922. Hagerty, James E. Mercantile Credit, pp. 19-52. Mathewson, Park. Acceptances, Trade and Bankers, Chaps. I-XXVI. New York, D. Appleton & Co., 1921. Moulton, Harold G. The Financial Organization of Society, pp. 150 184. National Association of Credit Men. Credit Man's Diary, Section on Credit Terms. New York, N. A. Norton, Charles E. Handbook of the Law of Bills and Notes. St. Paul, West Publishing Co., 1914. Appendix containing the negotiable instruments law by W. Underhill Moore and Harold M. Wilkie. Ward, Wilbert. American Commercial Credits, Chaps. I-XVIII. New York, Ronald Press Co., 1922. CHAPTER VI LEGAL ASPECTS OF CREDIT INSTRUMENTS Negotiability. Legal points arising out of the use of credit instruments concern chiefly negotiability and subsidiary documents of title. The negotiation of a credit instrument refers to its legal transfer from one person to another, together with all rights of the original holder. If the debtor manifests his intention of paying either the creditor or any one else to whom the creditor may transfer it, the instrument is negotiable; if the instrument is payable to the order of the creditor alone it is non-negotiable. Some instruments of credit are strictly negotiable, some have the attribute of negotiability in a limited degree, and some are non-negotiable. Article II, Paragraph 20, of the Negotiable Instruments Law defines negotiability as follows: An instrument to be negotiable must conform to the following requirements: 1. It must be in writing and signed by the maker or drawer; 2. Must contain an unconditional promise or order to pay a sum certain in money; 3. Must be payable on demand, or at a fixed or determinable future time; 4. Must be payable to order or to bearer; and 5. Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty. The intention of the maker to create negotiable paper is thus clearly indicated, the promise to pay is absolute and the manner of payment is certain. Under these negotiable instruments, we have checks, drafts, promissory notes, acceptances, judgment notes and postoffice and express money orders. The five essentials above named must be present, it is true, in an instrument of this kind but in actual business transactions, these standards are frequently not met. There are, therefore, certain recognized rules which are applicable. These are set forth in Article II, Paragraph 36, of the Negotiable Instruments Law, which reads as follows: Where the language of the instrument is ambiguous, or there are omissions therein, the following rules of construction apply: 1. Where the sum payable is expressed in words and also in figures and there is a discrepancy between the two, the sum denoted by the words is the sum payable; but if the words are ambiguous or uncertain, reference may be had to the figures to fix the amount; 2. Where the instrument provides for the payment of interest, without specifying the date from which interest is to run, the interest runs from the date of the instrument, and if the instrument is undated, from the issue thereof; 3. Where the instrument is not dated, it will be considered to be dated as of the time it was issued; 4. Where there is a conflict between the written and printed provisions of the instrument, the written provisions prevail; 5. Where the instrument is so ambiguous that there is doubt whether it is a bill or note, the holder may treat it as either at his election; 6. Where a signature is so placed upon the instrument that it is not clear in what capacity the person making the same intended to sign he is to be deemed an indorser; 7. Where an instrument containing the words "I promise to pay" is signed by two or more persons, they are deemed to be jointly and severally liable thereon. There may be certain defects in negotiable instruments which are non-essential, and do not affect the validity or negotiable character of the instrument. Article II, Paragraph 25, of the Negotiable Instruments Law, reads as follows: The validity and negotiable character of an instrument are not affected by the fact that: 1. It is not dated; or 54 2. Does not specify the value given, or that any value has been given therefor; or 3. Does not specify the place where it is drawn or the place where it is payable; or 4. Bears a seal; or 5. Designates a particular kind of current money in which payment is to be made. But nothing in this section shall alter or repeal any statute requiring in certain cases the nature of the consideration to be stated in the instrument. The Negotiable Instruments Law, from which the foregoing quotations have been made, has been adopted by every state, as well as Alaska, District of Columbia, Hawaii, and the Philippine Islands. The statute as enacted in different states varies in some minor details but the principal provisions are, with few exceptions, practically identical in all of the states. Notwithstanding the rules enumerated in practice it is well, where irregularities exist, to notify the maker, and have him request the drawee to honor the instrument regardless of the defect. This may often avoid delay in payment, or possible loss of the amount involved where failure of the maker in the meantime occurs. One requisite to a negotiable instrument upon which emphasis should be put is the "consideration" necessary. "Any consideration sufficient to support a simple contract" may be the consideration for a negotiable instrument. A simple promise for which there has been no consideration is unenforceable in law. A consideration is an act or forbearance, or the promise of it, done or given by one party in return for the act or promise of another. Although a consideration is necessary for a negotiable instrument, the plaintiff in an action on a bill or note does not need to prove that he gave one. Absence of consideration is a "matter of defense" which the defendant must prove in order to defeat the action. "Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value," as stated in Section 24 of the Negotiable Instruments Law. Limited Negotiability. The distinguishing feature between the class of instruments just considered and those of limited or restricted negotiability lies in the fact that the former are subject to recovery by a holder in due course at face value without set-off, while the latter might be better classed as merely transferable instruments, and subject to set-off under certain conditions. In this class are included bonds, mortgages, letters of credit, and those instruments more properly known as documents of title such as bills of lading and warehouse receipts. In spite of the fact that stocks are not technically credit instruments but rather evidences of ownership, the relationship to the credit risk is so close that the discussion would be incomplete without reference to some of the legal points involved in this instrument of limited negotiability. As certificates of stock are issued in many different forms, it is always important to carefully read the conditions whenever transactions involve the handling of certificates of stock. When stock has been subscribed but not paid in, creditors in case of insolvency, can compel payment. Beyond this liability, stockholders in most states have no liability to creditors of the corporation. Bonds are transferable by endorsement and delivery, and in most states are negotiable. The same rule holds in the case of mortgages, except that negotiability is not so common. The laws as to mortgages on real estate and mortgages on other property, known as chattel mortgages are so at variance in the different states that nothing short of a consultation of the law should suffice where such an instrument appears in |