The usual way of securing the payment of a note given in business is to have it endorsed with a good name across the back, as in endorsing a check.
By writing your name across the back of another man"s note you announce to all the holders of that note that you know the maker and that if he does not pay it you will.
In most states the indorser of a note cannot be held responsible for payment, unless the holder notifies him, within twenty-four hours after the note comes due, that the maker cannot or will not pay.
If an indorsed note changes hands, each indorser is responsible to all endorsers who follow him and also to the last holder of the note.
If an indorser, that is, one into whose hands the note has come after the first endors.e.m.e.nt, should not wish to guarantee payment, he writes before his name, "Without recourse to me."
This is known as a "qualified endors.e.m.e.nt."
A NEGOTIABLE NOTE
Most notes are negotiable; that is because they may be sold, like any other personal property, or the ownership may be transferred from one person to another.
No note is negotiable that does not bear on its face, the words, "Pay to bearer," or "Pay to the order of," followed by the payee"s name.
JOINT NOTES
When two persons sign a note they become jointly and individually responsible for its payment.
Such persons are known as "joint makers."
If one signs his name on the back of a note before it has been handed to the payee, he makes himself not only an endorser, but a joint maker.
If the maker of such a note refuses to pay on the expiration of time stated, he is liable for the amount without any notification.
DISCOUNTING NOTES
If a business man borrows from a bank on his note, he must pay for the privilege.
Interest is a sum paid for the use of money.
Interest is reckoned as a certain percentage yearly on the princ.i.p.al.
Interest on interest is called "compound interest" and is unused in ordinary business transactions.
Instead of collecting interest when the amount borrowed on a note is due, or deducting it from the princ.i.p.al in advance, it discounts the note at the rate agreed on and pays the rest.
This is called bank discount and its rate is variable, depending on the abundance or scarcity of money.
Money is a marketable article, and the price, like that of wheat or cotton, is governed by supply and demand.
INTEREST ON NOTES
A note may be made payable "with interest," or not, as the parties concerned may agree.
If nothing is said about interest in the note, no interest can be collected.
Again a note may go into details and specify that "the interest shall be ten per cent, payable semi-annually," provided always that the rate shall not be higher than the legal interest of the state.
Excessive interest is known as "usury." It invalidates all the interest, and in some places the princ.i.p.al is forfeited.
When the holder of an interest note receives interest payment he must record the date and sum on the back of the note.
PROTESTS
If a note comes due on Sunday or on a legal holiday, payment must be made on the following day.
Holidays are appointed by the separate states.
The United States recognizes no day as a holiday, except Sunday, and that is acknowledged through custom.
It is customary for banks to notify makers of notes held by them a few days before time set for payment; but this is not required by law.
If a note lies unpaid in bank the day set for payment, as soon as the office closes for regular business the note is protested.
The protest is made before a notary public; he is usually an employee of the bank.
In the protest formal objection is made against the breaking of the promise, and demanding that the matter be set right by the maker, or on his failure, by the indorser.
The indorser, who has to pay, has a claim for the amount on the maker of the note, as he would have for money loaned or goods sold, and he can sue to collect.
A note that is not paid within a fixed time is said to be "outlawed."
Remember the indorser of a note must be notified within twenty- four hours of the failure of the drawer to make good.
NOTICES
The object in protesting a note is to fix the liability on the endorser.
If there be more than one endorser notice of protest must be sent to all at the same time.
It is better, where possible, to serve the notices on the indorsers in person.
The payee must also be notified.
ACCOMMODATIONS
There is a form of note sometimes used in business which is given without any consideration on the part of the maker. This is known as an "accommodation note."
The maker of such a note does not expect to pay it, nor does the man in whose favor it is drawn expect to do so.
An accommodation note is an instrument by the sale of which, or through a bank, money may be raised for immediate use.
The maker in this case is a friend who loans his name.
As there was no value received such a note could not be collected by the payee.