Law of Defenses in Actions on Commercial Paper Volume 1; including the Defenses at Common Law and under the Negotiable Instruments Acts

This historic book may have numerous typos and missing text. Purchasers can download a free scanned copy of the original book (without typos) from the publisher. Not indexed. Not illustrated. 1907 Excerpt: ...originating in the contract, might be set up by the maker. Not only is this true where the purpose is to invest the holder with the absolute unqualified title to the paper, but it is likewise true where it is intended only to pledge it as collateral to another liability. In either case the negotiability of the paper is the very essence of the holder's claim to protection against equities. The code, § 2138, declares that promissory notes and other evidences of indebtedness may be delivered in pledge; and § 2139 declares the receiver in pledge of promissory notes is such a bona fide holder as will protect him under the same circumstances as a purchaser, from equities between the parties. Section 2788 declares that the holder of a note as collateral security for a debt stands upon the same footing as a purchaser. He is thus placed upon the same plane as a purchaser. The right of a purchaser for value is to be protected against equities only when, by indorsement, the paper is rendered negotiable, and he is invested with the legal title. So with a pledgee. So with the person who holds the paper as collateral security;--they all stand upon the same footing. In each case indorsement is the condition of absolution. It is true that notes of the character now under consideration may be pledged as collateral security by manual tradition only, but for such delivery to be effective as against pre-existing equities it must be accompanied with the legal requisites to transmission of title. The pledgee must be a holder, a bona fide holder in due course of trade; and a regular indorsement by the payee is necessary to constitute him such. Our attention is directed to the case of Smith et al. v. Jennings, reported in 74 Georgia Reports, page 551, as bearing upon and...