I have noted repeatedly in prior posts that those who find something sinister in blank indorsement of the promissory note fail to appreciate the ancient antecedents of this practice and its centuries long practice in commercial law.
I thought that facts and holdings from some of the older major cases involving blank indorsement might reinforce this point. Accordingly, I have summarized below several U.S. Supreme Court rulings more than a century old in which blank indorsement is discussed.
The oldest of these cases is the case Harris v. Johnston, decided in 1806. The facts in the case are summarized in this way within the decision:
"That the defendant offered in evidence a bill of parcels of the same goods, rendered by and in the handwriting of the plaintiff, Johnston, amounting to 644l. 16s. Virginia currency, containing a particular account of rum and sugar, beginning with these words: "Mr. Theophilus Harris, bought of Dunlap & Johnston," at the foot of which bill was the following receipt, signed by the plaintiff: "Received, Messers. Clingman and Magaw's note for the above sum, payable to the order of John Towers, or order, indorsed by John Towers and Theophilus Harris, payable the 2d April, 1798, when paid, received in full;" which bill was rendered to the defendant by the plaintiff, at the time of the sale and delivery.
The defendant further offered evidence to prove, that the note in that receipt mentioned, was delivered to the defendant with the blank indorsement of Towers, and by the defendant indorsed in blank to the plaintiff, at the time of the sale and delivery of the goods, and by the plaintiff afterwards indorsed to one John Dunlap, who, on the 19th of April, 1798, brought suit thereon against the present defendant, Harris, in the court of Hustings, in the town of Alexandria, upon his indorsement, striking out the name of the plaintiff, Johnston, and filling up the defendant, Harris's, indorsement with a direct assignment from Harris to Dunlap. That upon that suit judgment was rendered, by the court of Hustings, for Dunlap against Harris, from which judgment he appealed to the Dumfries district court, where the judgment of the court of Hustings was reversed, n1 and Dunlap appealed from the judgment of the district court, to the court of appeals, where the judgment of the district court was affirmed.
It was understood and admitted by the counsel on both sides, that the judgment was reversed because the court was of opinion, that, in Virginia, the holder of an indorsed promissory note, payable to order, cannot strike out an intermediate blank indorsement, and fill up the blank indorsement of a remote indorsor, with an order to pay the money to himself; and that the holder cannot maintain an action against any of the parties to the note, but his own immediate indorsor, or the maker of the note."
This portion of the decision comes from the statement of the case. Since my point is in illustrating the ancient nature of blank indorsements, I have omitted the decision written by Chief Justice John MARSHALL, though the full text can be found at the LexisOne web site. The citation is:
Harris v. Johnston, 7 U.S. 311; 2 L. Ed. 450; 1806 U.S. LEXIS 338; 3 Cranch 311 (U.S. 1806).
An even more ancient case Ludlow v. Bingham, decided in 1799, only a decade after our nation came into being, by the High Court of Errors and Appeals of Pennsylvania (then the highest court of that state) and reported in volume four of the United States Reports both mentions indorsement in blank and also explains the importance of place of delivery of an instrument:
"It appears, then, that, although the note was signed in Philadelphia, it was not delivered in Pennsylvania; but that the delivery was made by the order, or direction, of Henry Knox, the payee, to William Duer in the city of New-York, in pursuance of a contract, and for a valuable consideration. It is certain, that the bare signing of a note will not give it efficacy. It may be signed with a view to deliver it to the payee, on his complying with some previous stipulation; so that in case of a refusal, it would become useless, and might be cancelled by the drawer. A note is not, therefore, obligatory and valid, until it has been actually delivered to the party, for whose use it is drawn; and as it receives its life, existence, and negotiable character, at the place where it is so delivered, the law of that place must regulate all its subsequent operations. Hence, we consider the present note, as having taken effect in New-York, as being liable to the lex loci of that state (whether depending on positive statutes, or the adoption of the general commercial law) and as exempt from the provisions of our act of assembly, by which an indorsee is liable to all the equity, that the drawer could enforce against the payee.
The note having been thus paid, or delivered, in New-York, was deemed by the law of that state to be as negotiable as a foreign bill of exchange; and it is the nature of a bill of exchange, when indorsed in blank, to pass from hand to hand, by mere delivery, like bank notes payable to bearer. . . ."
It is noteworthy that if you sign a note in one state and then deliver it to the payee in another, the law of the place of delivery usually controls, rather than the place of execution. The same is usually true as to the negotiation of the note. Since negotiation requires indorsement and delivery and is completed by delivery, it is the delivery which completes the negotiation and the law of the place of delivery usually controls the validity of a negotiation.
Although this is actually a state court decision, its inclusion in the United States Reporter, where U.S. Supreme Court cases are reported has caused this case to be included amongst the FREE U.S. Supreme Court cases readily available through LexisOne. The citation is:
Ludlow v. Bingham, HIGH COURT OF ERRORS AND APPEALS OF PENNSYLVANIA Reported in Volume Four of the United States Reports, 4 U.S. 47; 1 L. Ed. 736; 1799 U.S. LEXIS 278; 4 Dall. 47 (Pa. 1799).
We see such a mention again in a U.S. Supreme Court case seven decades after Harris in Swift v. Smith:
On the eighteenth day of April, 1871, Jackson borrowed from David Smith, the complainant's intestate, the sum of $31,500, giving his promissory note therefor, and to secure the payment of his note he indorsed and delivered to Smith the Williams note for $30,000 as a collateral. This was nearly a year and a half before its maturity. At the time when the note was thus indorsed to Smith there were entries upon its back of payments of interest upon it [*5] up to May 17, 1871. These entries purported to be acknowledgments of "S. M. Waite by O. Jackson." There was also a regular chain of indorsements by Charles C. Waite, the payee, to Silas M. Waite or order; by Silas M. Waite to Obadiah Jackson or order, followed by an indorsement by Obadiah Jackson in blank. There was also on the margin of the note the following: "This note secured by trust-deed of even date herewith, duly stamped."
It should be noted that there were MANY intervening U.S. Supreme Court cases also mentioning indorsement in blank between 1806 and Swift v. Smith. And there have been many more cases since. What distinguishes this latter case is the inclusion within the holding:
"Thus far the facts appear without any real controversy, and unless there is something in the case to qualify them, they unquestionably establish that on the 18th of April, 1871, Smith became the bona fide holder of the $30,000 note for value paid, and as such entitled to the benefit of the deed of trust given by Williams to Jackson to secure its payment. Though he took it only as a collateral security for a loan made to Jackson at the time, he was entitled to the protection of a purchaser for value, without notice of anything to impeach his right."
This is an express acknowledgement by the U.S. Supreme Court that the lien created by the deed of trust automatically follows the negotiable instrument.
The citation is:
Swift v. Smith, 02 U.S. 442; 26 L. Ed. 193; 1880 U.S. LEXIS 2052; 12 Otto 442 (U.S. 1880).
Finally, in respect of questions in another thread with respect to the precise words necessary to create a blank indorsement and the implications thereof, I would mention the early U.S. Supreme Court case of Martin v. Cole. That case addressed the rather unique question as to the legal effects of an indorsement in blank by affixing the indorser's signature without any other words where the indorser claimed to have made such an indorsement subject to an express oral agreement with the subsequent holder to whom the instrument was delivered that the indorser was not accepting liability for non-payment:
The agreement set out and relied on in the plea was that "the said indorsement should never be filled up so as to make this defendant liable in any manner upon the said indorsement, but only to enable the said plaintiff to sue the said note in his own name, if suit thereon should become necessary." And the defendant averred that "he, relying upon the assurance of the said plaintiff that his indorsement would not be filled up so as to render him liable as indorser thereon, signed his name upon the back of said note, which without said assurance he would not have done." As the indorsement in blank, admitted by the defendant to have been made by him, without being filled up by the plaintiff at all, rendered him liable for the payment of the note as an indorser, the breach by the plaintiff of the alleged agreement was inconsequential, and could not, in law, result in any actionable injury; for filling up the blank indorsement in the manner in which it was done neither added to nor subtracted from the liability which the defendant assumed by merely writing his name on the back of the note.
The defendant below, however, further offered at the trial to prove that at the time the note was transferred by Martin to Cole it was expressly agreed between them that Martin should indorse his name on the note in blank, to enable Cole to collect it in his own name, and that Cole agreed then, in consideration of what he had given for the note, that he (Martin) was never to be called upon as indorser or guarantor of its payment in the event he failed to collect it from the maker of the note. No question was made at the time, nor has been raised since, as to admissibility of such proof under a plea of the general issue; and waiving any objection on that account, the rejection by the court below of this offer fairly raises the issue intended to have been made by the special plea, whether it is competent, in an action against an indorser by his immediate indorsee, upon an indorsement made in blank of a negotiable promissory note, to prove, as a defense, that as part of the transaction it was agreed between the parties, but not in writing, that it should merely have the legal effect of an indorsement expressed to be without recourse.
In other words, the indorsement was completely blank other than the indorser's signature, but the accompanying oral agreement was purportedly that the blank indorsement NOT be filled up as to make the indorser liable.
When the indorsement was subsequently completed and the holder sought recourse to the indorser rather than the insolvent maker, the Court found that a blank indorsement inherently implied recourse and that the written indorsement, even when incomplete, could not be altered as to legal effect by the parol evidence of the oral agreement.
It would seem in this case that if one wanted to make a blank indorsement without recourse, that one needed to expressly recite IN WRITING within the indorsement that it was without recourse. Otherwise, a blank indorsement would inherently imply recourse to the indorser even in respect of uncontested evidence of an oral agreement to the contrary.
The full citation of this case is:
Martin v. Cole, 104 U.S. 30; 26 L. Ed. 647; 1881 U.S. LEXIS 1965; 14 Otto 30 (U.S. 1881).
Once again, my purpose is not to expound upon commercial law as it now exists in any particular jurisdiction in consideration of the enactment of the UCC and/or subsequent authoritative cases, but rather to reinforce the ancient commercial practice of blank indorsements, which well preceded both the subprime meltdown and the epic foreclosure fraud crisis now taking place. The problem is not the blank indorsement, though these and other more recent cases show that such a blank indorsement can be fraught will peril of some mischief. The problem is the criminal conspiracies involving MERS, as well as contract forgers and perjurers, together with dishonest and unethical foreclosure mill law firms dominating the foreclosure industry.