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(191 N. C. 797, 133 S. E. 196.)

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"Demand, notice, and protest waived; payment guaranteed by the undersigned.

"Tomlinson Guano Company,

"N. L. Finch, Partner. "Pay to the order of: Tomlinson Guano Company, for collection and return of proceeds to Powhatan Chemical Co., Richmond, Va.

[This latter indorsement was stricken out, lines drawn through after it was recalled in February, 1922.1

"Cr. 11/22/21 by cash-$150.00."

The note is negotiable in form. Defendants contend that the note was not negotiated in accordance with the law merchant or the Negotiable Instruments Law. The language on the note being "demand, notice, and protest waived; payment guaranteed by the undersigned," the plaintiff contends it is an indorsement with an enlarged liability. The defendants contend the language only showed a guaranty and nothing more, and does not constitute commercial negotiation in due course.

If the language makes plaintiff a holder in due course, it takes same free from equities and defenses which the maker has against the payee. The cases of Gillam v. Walker, 189 N. C. 189, 126 S. E. 424, and Dillard v. Farmers Mercantile Co.

190 N. C. 225, 129 S. E. 598, cite Consol. Stat. 3044, on a different aspect.

We can find no decision bearing on the question in this state. We must look elsewhere. The language, "payment guaranteed by the undersigned," would indicate, as contended by defendants with much force, only a guaranty and not a commercial negotiation in due course. It is contended that especially is this true from the fact that the guarantor had cotton in its possession of defendants to sell, pledged to pay this note, which would further indicate that it would not, by the language, intend to make the note such a one, in due course, as to cut off the right of defendants to have the cotton, as agreed upon, applied on the note when sold according to the terms. This position is borne out to a great extent by Mr. Justice Strong in Central Trust Co. v. First Nat. Bank (Oct. term, 1879) 101 U. S. 68, 25 L. ed. 876. The gist of this opinion is: "The defenses of the maker of a promissory note can be cut off only by the payee's indorsement of it before maturity. A guaranty written upon it by the payee is not such an indorsement."

The learned justice says, at page 70: "That a guaranty is not a negotiation of a bill or note as understood by the law merchant, is certain."

We have given this case thorough consideration, appreciating the hardship on defendants but, under our Negotiable Instruments Law and the great weight of authorities, we must hold that the writing on the negotiable note is an indorsement in due course, so far as to transfer to and vest title in the plaintiffs, and the guaranty is "an indorsement with an enlarged liability," negotiable papers being so important to the life of trade that the decision of Mr. Justice Strong has not been to any extent followed, and numerous states of the nation have, to a great extent, passed uniform Negotiable Instruments Laws. In this state, Consol. Stat. chap. 58 (1889)

"Negotiable Instruments," § 3014, is as follows: "An indorsement may be either in blank or special, and it may also be either restrictive or qualified or conditional."

Consol. Stat. 3017: "An indorsement is restrictive which either (1) prohibits the further negotiation of the instrument; or (2) constitutes the indorsee the agent of the indorser; or (3) vests the title in the indorsee in trust for, or to the use of, some other person. But the mere absence of words implying power to negotiate does not make an indorsement restrictive."

Consol. Stat. 3018: Effect of restrictive indorsement; rights of indorsee.

Consol. Stat. 3019:

dorsement.

Qualified in

Consol. Stat. 3020: Conditional indorsement.

Consol. Stat. 3044: "A person placing his signature upon an instrument otherwise than as maker, drawer or acceptor is deemed to be an indorser, unless he clearly indicates by appropriate words his intention to be bound in some other capacity."

The language of these sections indicates that to make an indorsement, as in the present case, restrictive, some language must indicate it or the consequence is that the indorsement is with an enlarged liability. The weight of authorities, whether under Negotiable Instruments Laws or by the law merchant, take this view.

The case of Ireland v. Floyd, 42 Okla. 609, L.R.A.1915C, 661, 142 Pac. 401, which followed the case in United States Supreme Court, was overruled in Mangold & G. Bank v. Utterback, 54 Okla. 655, L.R.A. 1917B, 368, 160 Pac. 713. Mathews, J., for a unanimous court, in overruling the Ireland Case, not only puts it on the better reasoning and greater weight of authority but also on Oklahoma statute (Laws 1910, § 4113), which is the exact language of Consol. Stat. 3044, supra. The court says, at page 661 (160 Pac. 715): "It will be ob

served from § 4113 that the tendency of the law, when the status of a party who places his name upon the back of a negotiable instrument is under consideration, is to resolve all doubtful cases towards holding the same to be a commercial indorsement in due course. This rule is founded upon commercial necessity. The unshackled circulation of negotiable notes is a matter of great importance. The different forms of commercial instruments take the place of money. To require each assignee, before accepting them, to inquire into and investigate every circumstance bearing upon the original execution and to take cognizance of all the equities between the original parties, would utterly destroy their commercial value and seriously impede business transactions." This decision was rendered January 11, 1916.

In Douglass v. Brown, 56 Okla. 6, 155 Pac. 887, rendered February 29, 1916, the facts were as in Mangold & G. Bank v. Utterback, supra. The transfer and execution of the note, it will be noted, took place prior to the taking effect of the Negotiable Instruments Act (1910). The unanimous court held the note was subject to equities and defenses and cites the Ireland Case.

In First Nat. Bank v. Cummings, 69 Okla. 216, L.R.A.1918D, 1099, 171 Pac. 862, decided March 26, 1918, the principle in the Mangold & G. Bank Case, supra, was affirmed, and Ireland v. Floyd, supra, overruled, the court going back to McNary v. Farmers' Nat. Bank, 33 Okla. 1, 41 L.R.A. (N.S.) 1009, 124 Pac. 286, Ann. Cas. 1914B, 248, rendered May 14, 1912, which held the writing constituted an indorsement with an enlarged liability.

In Delk v. City Nat. Bank, 85 Okla. 238, 205 Pac. 753, First Nat. Bank v. Cummings is approved, and it is stated that the Ireland Case, supra, was overruled by First Nat. Bank v. Cummings. After various and sundry changes, Oklahoma held that the indorsement is an enlarged liability. Lumpkin, J., in a well

(191 N. C. 797, 133 S. E. 196.)

thought-out opinion, with numerous authorities, in Hendrix v. Bauhard Bros. 138 Ga. 473, 43 L.R.A. (N.S.) 1028, 75 S. E. 588, Ann. Cas. 1913D, 688, held: "Where the payees in a promissory note payable to order wrote on the back of it the words, 'For value received, we hereby warrant the makers of this note financially good on execution,' and signed their names after such entry and negotiated and delivered the note for value, such indorsement was sufficient to transfer title to the note; and if made before maturity to a bona fide purchaser for value, without notice of any defense, he would be protected from any defenses which the maker might have, except those expressly allowed by statute."

Lowry Nat. Bank v. Maddox (1908) 4 Ga. App. 329, 61 S. E. 296, an early decision, is not wholly in accord with the Hendrix Case. Reliance in that case is placed upon Central Trust Co. v. First Nat. Bank, supra. This case is disapproved in the Hendrix Case.

The Massachusetts cases seem to be in conflict on the question.

"The fact that an indorsement includes a guaranty or is in form a guaranty does not prevent the passing of title; such a writing, according to the weight of authority, amounts to an indorsement which transfers title to the note." 21 A.L.R. 1375; digesting the cases, Ann. Cas. 1913D, 688, 36 L.R.A. 232.

1 Joyce, Com. Papers, 2d ed. § 666, says: "The determination of the question whether equities and defenses between original parties are available against a bona fide holder in case of contract of guaranty must rest largely upon the construction placed upon that contract in the different jurisdictions, and where it is determined that a payee or holder, who writes above his indorsement of negotiable paper a guaranty of payment, stands in the position of an indorser with an enlarged liability, such a transfer constitutes an indorsement of the paper."

Brannan, Neg. Inst. Law, Anno. 14th ed. 1926, § 38, p. 323, says:

"Where the payee of a negotiable note indorses it, 'I hereby guarantee the payment of the within note and waive demand and notice of protest,' he is liable not as a mere guarantor, but as an indorser with an enlarged liability. The N. I. L. (Negotiable Instruments Law) was not cited on this point. First Nat. Bank v. Baldwin, 100 Neb. 25, 158 N. W. 371. See other cases under §§ 21, 34, 63."

The decisions years ago on this important question were chaotic. In more recent years, and especially since the passage among the states over the nation of the Negotiable Instruments Laws to make the laws more uniform, the decisions are more in accord, and the great wealth hold that the indorsement, as in the present case, "Demand, notice, and protest waived; payment guaranteed by the undersigned," is an indorsement with an enlarged liability. bility. The language makes the holder one in due course, and the instrument is taken free from equities and defenses which the maker has against the payee. The great importance in commerce and trade has forced uniform legislation in regard to negotiable instruments, and the courts have now, with few exceptions, held that the holder, under the facts in the present, is one in due course with enlarged liability. The Illinois act adds: "And the addition of words of assignment or guaranty shall not negative the additional effect of the signature as an indorsement unless otherwise expressly stated." Cahill's Rev. Stat. (Ill.) 1925, chap. 98 51; Chance v. Hudson, 233 Ill. App. 542.

Dunham v. Peterson, 5 N. D. 414, 36 L.R.A. 232, 57 Am. St. Rep. 556, 67 N. W. 293, holds that, when the payee of a negotiable promissory note transfers it by indorsing thereon a guaranty of payment, the purchaser is an indorsee, within the rule protecting an innocent purchaser of such paper for value, and before maturity, against defenses good between the original parties. Full authorities are cited in the opinion. The indorsement is an enlarged

liability. This is now held to be so by the great weight of authorities, both by the law merchant and the Negotiable Instruments Laws. The indorsements in some cases are, "I hereby guarantee the payment of the within note," and others are as in the present case, with the addition, "demand, notice, and protest waived; payment guaranteed by the undersigned." Myrick v. Hasey (1847) 27 Me. 9, 46 Am. Dec. 588; Robinson v. Lair (1870) 31 Iowa, 9; Kellogg v. Douglas County Bank (1897) 58 Kan. 43, 62 Am. St. Rep. 596, 48 Pac. 587; Helmer v. Commercial Bank (1890) 28 Neb. 474, 44 N. W. 482; Bank of Woodstock v. Kent, 15 N. H. 579; National Exch. Bank v. McElfish Clay Mfg. Co. 48 W. Va. 406, 37 S. E. 541; First Nat. Bank v. Shaw (1909) 157 Mich. 192, 133 Am. St. Rep. 342, 121 N. W.

809; Elgin City Bkg. Co. v. Zelch (1894) 57 Minn. 487, 59 N. W. 544; Mullen v. Jones, 102 Minn. 72, 112 N. W. 1048. The states that now hold that the indorsement passes title free from defenses, are Georgia, Iowa, Maine, Michigan, Minnesota, Nebraska, North Dakota, Oklahoma, Oregon, and many oth

ers.

The reason of the conflict and chaos we think perhaps the question by the law merchant made the matter doubtful although the weight of authorities does not so indicate; but, under our Negotia- Bills and notesble Instruments Act, guaranty as indorsement. we think it clear that the indorsement carried the title and the holder was one in due course with an enlarged liability. For the reasons given, there is no

error.

ANNOTATION.

Indorsement of bill or note in form of guaranty of payment. [Bills and Notes, §§ 126, 199.]

The earlier cases on this question are discussed in the annotation in 21 A.L.R. p. 1375, supplemented in 33 A.L.R. p. 97.

As stated in the earlier annotation, the fact that an indorsement includes the guaranty, or is in form a guaranty, does not prevent the passing of title; such a writing, according to the weight of authority, amounts to an indorsement which transfers title to the instrument. The rule thus stated has been followed in National Bank v. Price (1923) 65 Utah, 57, 234 Pac. 231. The indorsement in this case was in the following form: "For value received Pioneer Sugar Co. guarantees the payment of the within note, waiving protest demand and notice of nonpayment," and this was held to constitute an indorsement with an enlarged liability.

The indorsement of a note in the following form: "For value received

we guarantee the payment of the within note at maturity," was held to be an assignment of the note sufficient to transfer the legal title, so that the transaction was brought within the rule that, where there has been an assignment of a note secured by a chattel mortgage, the mortgage is void unless the note shows on its face that it is secured by a chattel mortgage. Chance v. Hudson (1924) 233 Ill. App. 542.

It is also generally held, as shown in the annotation in 21 A.L.R. 1379, that a guaranty on the back of a negotiable instrument, followed by the signature of a payee or other holder made in the course of the transfer of the note, is an indorsement, so that the transferee, who is otherwise a holder in due course, takes as an indorsee, and therefore free from defenses good as against prior parties. This rule was followed in National Bank v. Price (Utah) supra. W. A. E.

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Contracts, § 56 landlord's waiver of rent-consideration.

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There is no rule of law which prevents a lessor of real property from waiving the payments of rent by a tenant, in consideration of valuable lasting improvements previously made by the tenant upon the leased premises.

[See annotation on this question beginning on page 1518.]

Headnote by HARVEY, J.

APPEAL by plaintiff from a judgment of the District Court for Cherokee County (Boss, J.) in favor of defendant in an action for rent. Affirmed. The facts are stated in the opinion of the court.

Messrs. Charles Stephens and Frank E. Dresia for appellant.

Messrs. Al. F. Williams, Don H. Elleman, George J. Grayston, and Charles M. Grayston, for appellee:

If defendant had the right to remove from the house in question and free itself from any existing obligation to pay rent, it had a right to act upon the agreement of plaintiff to waive the rent; and, if it occupied the house under an agreement that it was not to pay rent, plaintiff cannot recover, either on the original agreement abrogated by the waiver agreement, or upon any implied agreement to pay reasonable rent.

Thomas Hinds Lodge v. Presbyterian Church, 103 Miss. 130, 60 So. 66; Hancock v. Central Shoe & Clothing Co. 53 Colo. 190, 125 Pac. 123; 35 C. J. 1122.

the use of this 4-acre tract and the improvements thereon as a residence for its mine superintendent in order for him to live near the mine and more advantageously conduct the work, but the premises needed substantial repairs to make it suitable for that purpose. An agreement was made between plaintiff and a representative of defendant, by which defendant was to repair the premises, at a cost of about $1,000, and have the use of it rent free for a year, and thereafter to pay rent at the rate of $40 per month. This was perhaps in June, 1918. Defendant repaired the premises and made improvements thereon at a cost of more than $3,000, its foreman occupied the premises, the mines were worked industriously,

Harvey, J., delivered the opinion and plaintiff received large royalties

of the court:

This is an action for rent. It was tried to the court. Judgment was rendered for defendant, and plaintiff has appealed.

Plaintiff owned 40 acres of land, upon which he executed a mining lease, which was assigned by the lessee to defendant, who operated a mine upon the land. On this was a 4-acre tract upon which was situated a house, barn, and other farm. improvements. Defendant desired.

therefrom. Plaintiff said nothing about rent on the 4-acre tract until July 13, 1920, when he wrote defendant as follows: "In my correspondence with your companyrent became due July 1st, 1919-(I have at various times extended the time on the residence to July 1st, 1920), this makes a two-year period of free rent instead of one-Since July 1st, 1920-and on the first of each month thereafter you will make a charge against your compa

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