Chapter X - Notes Drafts Page 02
A note secured by a mortgage has its payment guaranteed.
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 endorsement, should not wish to guarantee payment, he writes before his name, "Without recourse to me."
This is known as a "qualified endorsement."
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.
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.
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 principal.
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 principal 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 principal 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.