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CHAPTER XXIV

PROMISSORY NOTES

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334. Reasons for Promissory Notes. When money is borrowed a promissory note is usually given as evidence of indebtedness. Every business man should know the essential elements of promissory notes and of the various kinds of indorsements of such notes.

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335. The essential elements of a promissory note are:(a) It must specify the sum to be paid.

A written promise to pay enough to defray the expenses of a trip to Europe may be a valid contract, but it would not be a promissory note.

(b) The note must designate the payee.

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That is, it must read "pay to bearer or "pay to

George F. Powers" (some definite person). It is not sufficient to write "I promise to pay $500.00."

(c) The note must be signed by the maker.

It is not necessary to insert the place of payment, though this may be convenient. If no place of payment is inserted, the note must be presented for payment to the maker personally or at his usual place of business.

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336. Payee. The person to whom the note is payable is the payee. In the notes on this page George F. Powers is the payee.

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337. Maker. The person who promises to make the payment is the maker of the note, as Hammond in the notes below.

338. The Date of Maturity is the day on which a note is due.

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339. Non-negotiable Note.-The note above is payable to George F. Powers and to no other person. Hence it cannot be transferred to a third person. Such a note is said to be non-negotiable.

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340. Negotiable Note. The second note above is payable to the order of George F. Powers, which means that Mr. Powers may order Hammond to pay the note to a third person. That is, the note may be sold. Such a note is called a negotiable note.

341. Demand Note. The second note on page 246 is payable on demand. That is, payment may be demanded at any time and the maker holds himself ready to pay as soon as the demand is made.

342. Note with Interest. The second note reads "with interest" which means that the legal rate is to be paid. Thus, in Illinois the rate on this note would be 5%. (See page 236.)

343. Note without Interest. The first note on page 246 bears no interest until due. If it is not paid when due, it bears interest at the legal rate from the date of maturity.

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344. Indorsing a Note. In order to sell the negotiable note George F. Powers must indorse it. This he does by signing his name on the back of the note.

345. Different Kinds of Indorsements.
in several different ways.
Indorsement in blank
George F. Powers

Pay to Arthur Ford, or
order
George F. Powers
Restricted Indorsement
Pay to Arthur Ford
George F. Powers

A note may

be indorsed

A note indorsed in blank is payable to bearer and may be sold to any person.

The second indorsement makes the note negotiable, but Arthur Ford must indorse the note if he is to transfer it.

A restricted indorsement makes the note non-negotiable. That is, Arthur Ford cannot transfer the note so indorsed to another person.

If the maker fails to pay the note when due, each of the indorsements described above makes the indorser liable for payment of the note. If a note is not paid at maturity, the holder should protest it. That is, he should send a legal notice to the maker of the note and to all the indorsers that it has not been paid. If this is not done. promptly, the indorsers escape liability on the note.

Indorsement without

Recourse Without Recourse George F. Powers

If George F. Powers wishes to transfer the note without rendering himself liable, he indorses it without recourse.

346. Difference between a Promissory Note and an Ordinary Debt. A promissory note differs from an ordinary indebtedness on account in that it may be sold and collected independently of any indebtedness which the payee of the note may owe to the maker of the note. In general commercial usage a man who fails to pay a note when it is due is a self-declared bankrupt, while failure to pay an ordinary account when due is only prima facie evidence of delinquency and may be explained away by disputing the debt itself, or by offering evidence that there are items which should be used as offsets of the debt. A promissory note can be disputed only by declaring that the note is a forgery, or that it was obtained by fraud. The law in regard to promissory notes should be studied in courses on commercial law.

WRITTEN EXERCISES

1. Make a note payable in a definite time and carrying a specified rate of interest.

2. Make a note not bearing interest and payable to any one who may present it for payment.

3. Indorse a note in blank.

4. Indorse a note "without recourse" and explain the difference between this indorsement and the usual indorsement.

5. What is a non-negotiable note? May a negotiable note be indorsed so as to make it non-negotiable? How?

6. A note made by Chas. E. Hammond in favor of George F. Powers is indorsed as follows.

George F. Powers

Pay to Henry Ward

or order

Carl Woods

Without Recourse
Henry Ward

This indorsement show that Mr. Powers transferred the note to Carl Woods, Carl Woods to Henry Ward, and Henry Ward to some other person. Explain fully the liability which each indorser assumes.

CHAPTER XXV

BANKS AND BANK DISCOUNT

347. Functions of a Bank. Banks are institutions whose business it is to receive money, to pay it out again when demanded, and to make loans.

Nowadays people seldom keep large sums of money on hand. It is deposited in banks and drawn out as needed.

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To open an account in a bank a

To make a deposit a "deposit slip" is made out showing the amount deposited in checks, in bills, in currency, and in coin. The deposit slip also has written on it the name of the depositor.

When the account is first opened the depositor signs his name on a card which is deposited in the bank and kept to compare with the signatures on his checks which will come in later.

A bank usually requires references when opening an account with a stranger, since an irresponsible or dishonest depositor may be harmful to the bank.

EXERCISES

Make out deposit slips in your own name for the following deposits: 1. Check, $74.80; check, $107.60; check, $31.50; currency, $65; silver, $17.25.

2. Check, $75; check, $93.40; check, 140.26; gold, $20, $25, $10; silver, $20.25.

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