being made, in order that he may know that the
holder is in a position to deliver the instrument upon
receiving payment, and that he has the proper title
to it. When the instrument has been lost or de-
stroyed, the holder can demand payment, upon
showing his willingness to give the primary party a
bond of indemnity, to provide against any loss which
might occur through the finding and presentation of
the instrument by a holder for value. One who took
an instrument from a finder for value, without knowl-
edge that he had no title, would become a bona fide
176 NEGOTIABLE INSTRUMENTS
holder. When an instrument is payable at a bank,
presentment and demand are made by having the
instrument at the bank with the knowledge of the
officers of the bank, for the purpose of collection, at
the date of maturity.
The presentation must be made to the primary
party in person, if he can be found, at the proper
place, and if he cannot be found, to any of his agents,
servants, or representatives who may be found at that
place. When it is a physical impossibility for the
holder to present the instrument at the proper time
and place, such delay will be excused upon present-
ing proper evidence of the impossibility, and also of
the fact that the holder presented it promptly after
the disability was removed.
It is also unnecessary to make presentment and
demand when any of the parties, whose liability
depends upon such presentment and demand, waive
the right to have notice of presentment and demand.
The waiver is usually made by writing words to that
effect over'the indorsement.
Three days of grace were formerly allowed in all
states on drafts and notes, and while the custom has
been discontinued in most states, in a few states grace
is still allowed. Where days of grace are allowed,
presentment and demand must be made on the third
day after the date of maturity. If this third day is
Sunday or a legal holiday, the instrument is payable
the next preceding business day. Where no days of
grace are allowed, an instrument maturing on Sun-
PRESENTMENT AND DEMAND 177
day or a legal holiday will be payable on the next
succeeding business day. Saturday is considered a
holiday in the case of instruments made payable at a
bank that is open only until noon Saturdays.
In computing the time to find the due date of an
instrument that reads a certain number of days after
date, the actual number of days must be counted,
excluding the day when it was made and including the
due date. If the time is a certain number of months
after date, the instrument will become due on the
same day, or as near that day as possible, in the
proper month. For example, a note made January
30, 1913 for one month would have been due Feb-
ruary 28, 1913. If it had been made for thirty
days, it would have been due March i, 1913.
94. Notice of Dishonor. When an instrument
is presented for payment and payment is refused,
the holder should immediately notify the indorsers
or secondary parties of such dishonor, in order that
he may hold them liable upon the instrument. If
there are two or more secondary parties, it is best to
notify them all. If the last one is notified, he should
in turn notify the other indorsers whose names ap-
pear above his. Such notice by one indorser to
another will have the same effect, as far as the holder
is concerned, as if he had personally notified each
indorser instead of only one. When the instrument
is a foreign bill of exchange, it is necessary to send a
formal notice of dishonor in the form of a notice of
protest. This notice of protest is a notice sent by a
178 NEGOTIABLE INSTRUMENTS
notary public stating that presentment has been
made, payment refused, and that the holder looks to
the indorser for payment. When notice is waived,
the formality of protest may be dispensed with. A
waiver of protest also waives the right to be notified.
It is usually held that a notice to be sent within the
proper time must be dispatched within twenty-four
hours after the dishonor has taken place, or if the
party to whom it is sent lives in the same place, it
must be sent so that it should reach him within the
twenty-four hours. If the holder does not know
the whereabouts of the secondary party, he may
mail the notice to his last known place of residence
95. Legal Rate. In every state a legal rate of in-
terest has been established, and in all cases where
interest is agreed upon but no definite rate is men-
tioned, the legal rate can be recovered. This rate can
also be collected on all debts which remain unpaid
after the date of maturity. In many states a maxi-
mum rate has also been established and any rate of
interest above this maximum rate is considered
usury. The penalty for usury varies in the different
states. In some states interest above the legal rate
is forfeited ; in others all interest is forfeited, and
in still others the interest and principal are both
CASES ON NEGOTIABLE INSTRUMENTS 179
96. CASES ON NEGOTIABLE INSTRUMENTS.
(1) Chicopee Bank v. Philadelphia Bank, 8 Wall,
641. A draft was sent to the bank in a letter, for
collection. When it was brought from the post office
to the bank, it was laid down with other papers on the
cashier's desk, and . before being taken up by the
cashier it slipped through a crack in the desk and
disappeared. The date of maturity passed and it
was proved by the party primarily liable that no
presentment and demand had been made to him.
By the terms of the instrument it was payable at
the bank. Was there a proper presentment and
(2) White v. Gushing, 88 Me. 339. This action
was brought by the indorsee of an order in the
following form :
#120.00 PlSCATAQUIS SAVINGS BANK.
Pay to JAMES LAWLER, or order,
One hundred twenty^ ^Dollars.
Charge to my account on book.
No J. N. GUSHING.
WITNESS : The bank book of the depositor must accompany
It was contended that this instrument was not an
unconditional order, and this action was brought to
determine this fact.
i8o CASES ON NEGOTIABLE INSTRUMENTS
(3) Redman v. Adams, 51 Me. 429. The draft
upon which this case was founded read as follows :
" For value received please pay to the order of F. G. and C. A.
Tilden, $40., and charge the same to whatever may be due me
for my share of the fish caught on board the schooner ' American
Star 'for the fish season of 1860."
The question was raised as to whether this in-
strument was an unconditional order.
(4) Rice v. Rice, 43 App. Div. N. Y. 458. This
action was founded upon an instrument which was
made payable at the death of a certain person and
this case was tried to determine whether the instru-
ment was payable at a definite time within the mean-
ing of the statute.
(5) Cowing v. Altman, 71 N. Y. 435. This was an'
action founded on an instrument that had no date.
The question- involved in the case was the date of
(6) Russell v. Langstaffe, 2 Doug. (Eng.) 514. A
certain person indorsed his name upon the back of
certain checks, blank as to amount, date, and time of
payment. The checks were filled in by the person
to whom the indorser gave them with amounts,
dates, and time of payment different from those
authorized, and were negotiated to Russell, a bona
fide holder. The indorser refused to pay on the
ground that the instruments had been improperly
(7) Brown v. Reed, 79 Pa. St. 370. T. H. Brown
signed an instrument in the following form :
CASES ON NEGOTIABLE INSTRUMENTS 181
NORTH EAST, April 3, 1872.
Six mos. after date I promise to pay J. B. SMITH or
order Two HUNDRED AND FIFTY DOLLARS
for value received with legal interest, without
defalcation or stay of execution.
T. H. BROWN,
bearer $50 when I sell by
worth of Hay & Harvest Grinders,
appeal, and also without
Agent for Hay & Harvest Grinders.
The instrument was torn apart at the vertical
dotted line and the left-hand portion was discounted
for J. B. Smith. Brown refused payment on the
ground that he had never signed such an instrument.
This action was brought to test the merits of the
(8) Smith v. Smith, i R. I. 398. This action was
founded on an instrument in which the amount ex-
pressed in words was Three hundred seventy-five
and ninety-four hundredths dollars. The amount
expressed in figures was $175.94. The clerk of the
bank discounting the instrument altered the figures
to make them correspond with the words, and the
defendant insisted that this alteration made the in-
(9) German American Bank v. Milkman, 3 1 N. Y.
Misc. 87. Milliman was the maker of a note which
was payable at the German American Bank. On the
date of maturity the payee called several times to
ascertain whether Milliman had made payment, but
found that he had not done so. About fifteen
minutes before closing hour, the bank was instructed
to protest the note for non-payment. Five minutes
before closing time, Milliman appeared and offered to
1 82 CASES ON NEGOTIABLE INSTRUMENTS
pay the note, but the bank refused to accept payment
without receiving the protest fees also. Milliman
refused to pay the protest fees, and this action was
brought to determine whether the bank was justified
in protesting the note.
(10) Coolidge v. Pay son, 2 Wheat. (U. S.) 66. A
letter was written by a debtor describing a draft in
terms that could not be mistaken and promising to
accept it if drawn. The draft was drawn in conform-
ity with this previous written statement of the debtor
and was given to the payee together with the letter.
Afterwards the drawee refused to honor the instru-
ment on the ground that he had not accepted it.
This action was brought to determine whether he had
the right to refuse payment on this ground.
(n) Thompsons. Sloan, 23 Wend. (N.Y.) 71. In
this case a note was made and dated at Buffalo, N. Y.
for $2500 payable, twelve months after date, at the
Commercial Bank of Buffalo, N. Y., in Canadian
money. The instrument was properly signed and
was made in favor of a designated payee. It also
contained the words of negotiability. This action
was brought to determine whether it was a negotiable
instrument or not.
(12) Shawv. Smith, 150 Mass. 166. Eugene Bridg-
man made an instrument in writing July 19, 1873,
which read as follows : " For value received, I prom-
ise to pay F. B. Bridgman's estate or order $126 on
demand with interest annually." F. B. Bridgman
died and the plaintiff in this case was appointed ad-
CASES ON NEGOTIABLE INSTRUMENTS 183
ministrator of his estate. This action was brought to
recover on the instrument as a negotiable note.
Does the instrument contain all the essentials re-
quired to make it negotiable ?
(13) Richardson v. Carpenter, 46 N. Y. 660. The
instrument upon which this action was based read as
follows : " Please pay A or order $500, for value re-
ceived, out of the proceeds of the claim against the
Peabody estate now in your hands for collection,
when the same shall have been collected by you."
For certain reasons it was contended by the defend-
ant in the case that this was not a negotiable instru-
ment. What should be the holding in this case ?
(1) Kelley v. Hemmtngway, 13 111. 604. David
Kelley made the following instrument in writing at
Castleton, April 27, 1844: " Due Henry D. Kelley
$53, when he is 21 years old, with interest." It was
proved by the plaintiff in the case that Henry D.
Kelley became of age before this action was com-
menced. The only question involved in the case is
one of negotiability.
(2) Matthews & Co. v. Mattress Co., 87 Iowa, 246.-
This action was brought on a promissory note
against the Dubuque Mattress Company and
John Kapp. The note read, "We promise to pay,"
and was signed, " Dubuque Mattress Company,
184 CASES ON NEGOTIABLE INSTRUMENTS
John Kapp, Pt." It was shown that the " Pt."
was an abbreviation used for president. Was Kapp
personally liable on this instrument ?
(3) Grange v. Reigh, 93 Wis. 552. After banking
hours on July 2Oth, Reigh wrote a check for $1211
upon the South Side Savings Bank of Milwaukee and
delivered the same to plaintiff, who also resided in
Milwaukee. The check was not presented on July
2ist, although the bank was open and would have
paid it at any time during banking hours of that day.
The bank did not open its doors July 22d, nor any
day thereafter, having become insolvent. This
action was brought to recover the amount covered
by the check from Reigh.
(4) Minot v. Russy 156 Mass. 458. Russ, on
October 29, 1891, drew a check on the Maverick
National Bank payable to plaintiff, who informed him
that the check must be certified by the bank before
it would be received. On the same day, defendant
presented it at the bank for certification. The bank
wrote on the face of it, " Maverick National Bank.
Pay only through clearing house. J. W. Work,
Cashier. A. C. J., Paying Teller." On October
3 ist, after certification was secured, the check was
delivered to the plaintiff for a valuable consideration.
The bank stopped payment Monday morning,
November 2d, before the plaintiff had had reason-
able opportunity to present the check. This action
was brought to recover the amount of the check from
the defendant upon the failure of the bank to pay.
CASES ON NEGOTIABLE INSTRUMENTS 185
(5) Head v. Hornblower, 156 Mass. 458. This
case was decided by the same court and at the same
time as the preceding case of Minot v. Russ. On
Saturday, October 31, 1891, the defendant drew a
check on the Maverick National Bank, payable to
plaintiff, and delivered it. As the check was re-
ceived too late to be deposited by the plaintiff for
collection in time to go through the clearing house
that day, the plaintiff secured certification of the
check by the bank in the following form : " Mav-
erick National Bank. Certified. Pay only through
clearing house. C. C. Domett. A., Cashier/' As
was said in the preceding case, the Maverick Bank
did not open its doors November zd. When this
check reached it through the clearing house, it
was dishonored, owing to the insolvency of the
(6) Barnes v. Faughan,6 R. I. 259. The defend-
ant was the indorser of a note which was made by
Northrup and in which no definite place of payment
was named. The plaintiff left the note at the Mt.
Vernon Bank in Foster for collection. When the
note came due, the only demand that was made upon
the maker, Northrup, was in the form of the usual
printed bank notice, which was mailed to Northrup
by the cashier and directed to Providence, where
Northrup was known to have been living in the early
part of the month in which the note came due. It
was shown that he did not live at Providence at the
date of maturity of the note and that the notice did
1 86 CASES ON NEGOTIABLE INSTRUMENTS
not reach him. This action was brought to hold
Vaughan liable as indorser upon the note.
(7) Farnsworth v. Allen, 4 Gray (Mass.) 453.
The holder of a certain negotiable instrument did not
know the place of residence of the maker and gave
the instrument to a notary for collection. The
notary, after making due inquiry, ascertained the
maker's place of residence and arrived there at nine
in the evening. The maker and his family had re-
tired for the night, but he answered the bell, and upon
the note being presented, refused payment. This
action was brought to recover the amount of the in-
strument from the indorser who contends that there
was no proper presentment.
(8) Simpson v. Turney, 5 Humph. (Tenn.) 419. A
certain bank was the holder of a promissory note
payable at said bank, made by James H. Jenkins
and Anthony Debrell, and indorsed as follows : " A.
Debrell, S. Turney, John W. Simpson." Turney
lived within one mile of the bank. The note
matured on February 1st and was protested on that
day. On February 3d notice was sent to Turney
from the bank. Simpson, the next indorser after
Turney, had been notified of the failure of the maker
to pay the note but gave no notice to Turney, the
prior indorser. Simpson, after paying the note,
brought this action against Turney to recover the
(9) Smith v. Poillon, 87 N. Y. 590. In this case a
holder notified a third indorser on an instrument and
CASES ON NEGOTIABLE INSTRUMENTS 187
inclosed with it notices for the second and first in-
dorsers. The third indorser sent the notice to the
second and inclosed a notice for the first. The
second indorser received his notice on the 6th and
mailed the notice to the first indorser on the 7th in
time to go on the mail leaving at 1.30 P.M. It was
shown that there was an earlier mail leaving at 9.30
A.M., and the defendant who was the first indorser
contended that the notice should have been sent
by that mail.
(10) DeWitt v. Perkins, 22Wis. 473. The plaintiff,
DeWitt, was acquainted with Perkins, the defendant,
and knew that he was a responsible party. DeWitt
purchased, shortly before maturity, a promissory
note made by Perkins for $300, and paid $5 for it.
On the trial it appeared that the note was void for
want of consideration as between the original parties.
DeWitt claimed he was a bona fide holder for value,
and as such, was entitled to recover on the note.
(n) O'Callaghanv. Sawyer, 5 Johns (N. Y.), 118.-
The plaintiff in this action was the indorsee of a
note made by defendant. Defendant offered to
prove a counterclaim as his defense and proved that,
at the time of the transfer of the note to the plaintiff,
it was long overdue.
(12) Chapman v. Rose, 56 N. Y. 137. Rose entered
into a contract with a person by the name of Miller
to act as agent for the sale of a hay fork, and a con-
tract was signed by both. Rose also signed an order
for one hay fork. Miller then presented another
1 88 CASES ON NEGOTIABLE INSTRUMENTS
paper to Rose, saying that it was a duplicate of the
order. Rose signed it without reading it or examin-
ing it. It later appeared that the second paper
signed by Rose was a promissory note instead of a
duplicate of his order. The plaintiff in this case
purchased the note for value before maturity and in
good faith, and now seeks to recover on it.
(13) Draperv. Wood, 112 Mass. 315. A promis-
sory note was made by George A. Wood and H. S.
Higgins and read, " For value received I promise to
pay L. L. Draper or order $1000 on demand, with
interest/' Higgins refused to pay the instrument on
the ground that Wood, without Higgins's knowledge,
changed " I " to " We " and added the words, "at
12%." It was proven that Wood made the changes
in good faith but without consulting Higgins.
Draper brings this action as payee of the instrument.
INDEMNITY CONTRACTS FIRE INSURANCE
98. PARTIES AND THE CONTRACT.
99. INSURABLE INTEREST.
100. APPLICATION FOR INSURANCE.
97. Definition and Explanation. Fire insurance
is a contract of indemnity against damage to prop-
erty by fire. The risk involved in the ownership
of buildings is so great under modern conditions, that
individual owners do not care to assume the risk
alone. Insurance companies have been organized
for the purpose of carrying a part of the risk for a
stipulated sum called the premium. There are two
kinds of companies called mutual and stock. In the
mutual company all of the persons whose property
is insured contribute a pro rata amount to pay the
losses that are sustained by any of them, and the
expenses of conducting the business. Each person
carrying insurance has a right to vote for officers in a
A stock insurance company is one that is organized
by individuals to conduct the business of insurance
190 INDEMNITY CONTRACTS
for their joint profit on the same general plan as any
other business. A definite premium is charged those
who insure, and whatever is left, after the losses and
expenses are paid, is distributed among the stock-
holders of the company in the form of dividends.
98. Parties and the Contract. - The company
that issues the insurance policy is called the insurer
and the person whose interest is being protected by
the insurance is called the insured.
The contract between the insured and the insurer
is known as a policy when it is reduced to writing.
Except in states where by statute the contract is
required to be in writing, it may be oral. It is not
necessary that the policy be actually written and
delivered, so long, as the agreement has been entered
into and, when required, has been evidenced by some
memorandum. For example, A goes to B, an in-
surance agent, and makes an agreement with him
for an insurance policy on his house. All of the essen-
tial conditions are agreed upon and the premium
stated, whereupon B, upon receipt of the premium
from A, hands him a temporary receipt, and all that
remains to be done is to prepare and deliver the
policy. The insurance is in force from that time,
and, if the building should burn before the company
has forwarded the policy, the insured can collect
the amount lost, or such a part of it as is covered
by the insurance agreement. In order to secure
uniformity, a standard policy has been adopted in a
great many of the states. It often happens that
FIRE INSURANCE 191
several companies carry insurance on the same
property, and as will be seen later, they share the
loss, in case of its destruction, in proportion to the
amounts of their policies. Since this is done, it is
very desirable that all policies be alike in their prin-
99. Insurable Interest. No person may take out
insurance who has not an insurable interest in the
property to be insured. Any person who sustains
such a relation toward property that its destruction
would entail a financial loss is said to have an in-
surable interest. If persons who have no insurable
interest in the property were allowed to insure it, a
premium would be put on the destruction of the
property, and mere speculation would be encouraged.
This would not only tend to interfere with the rights
of individual owners, but would also tend to en-
danger the property of the entire community.
Several people may have an insurable interest in
the same property. For example, A owns a house
and rents it to B. C has a mortgage on the house.
In case the house is destroyed by fire, A, B, and C
would all lose. This gives each an insurable in-
terest which may be protected by insurance. In
case the house were destroyed and A only had an
insurance policy upon the house, he only would be
entitled to recover on that policy. The lessee and
mortgagee should protect their interest by separate
policies, but in the case of mortgaged property the
policy usually states that the insurance shall be
192 INDEMNITY CONTRACTS
payable to the mortgagee as his interest may
100. Application for Insurance. When an ap-
plication is made for insurance, a description of the
property is given, including location, materials of
which it is built, use that is made of it, ownership,
etc. When these statements regarding the prop-
erty are made separately from the contract of in-
surance, they are known as representations and need
be only approximately true. If, however, they are
made in a formal application which is incorporated
into and made a part of the policy, they become war-
ranties, and must be literally true. If any warranty
is untrue, the policy will be avoided. For example,
A is insuring his warehouse. In the conversation
between himself and B, he is asked, " How far from
the warehouse is the nearest railroad track ? " He
replies, " Fifty feet." If, after the policy has been
issued, it is found by measurement that the track is
forty feet from the warehouse instead of fifty feet,
this inaccuracy will have no effect upon the policy.
If, however, the statement that the building was fifty
feet from the track had been made in the formal
application for insurance in reliance upon which the
policy had been issued, and the application had been
made a part of the policy, a slight inaccuracy of
even one foot would be sufficient to avoid the policy.
FIRE INSURANCE 193
FIRE INSURANCE CONTINUED
101. IMPORTANT CLAUSES.
103. PROOF OF Loss.
loi. Important Clauses. The standard insurance
policy insures against loss by fire. This includes
damage done by water used in an attempt to extin-
guish fire, and also loss which occurs through the
stealing of property after it has been removed from
the building, providing the owner had used due care
in protecting it. For example, the furniture is re-