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ARTICLE V.

RIGHTS OF HOLDER.

Section 90. Right of holder to sue; payment.

91. What constitutes a holder in due course.

92. When person not deemed holder in due course. 93. Notice before full amount paid.

94. When title defective.

95. What constitutes notice of defect.
96. Rights of holder in due course.
97. When subject to original defenses.
98. Who deemed holder in due course.

§ 90. Right of holder to sue; payment.-The holder of a negotiable instrument may sue thereon in his own name (a); and payment to him (b) in due course (c) discharges the instrument.

(a) This applies to a holder to whom the instrument is indorsed restrictively. See section 67 and note. Where the plaintiff is the payee, the production of the paper is sufficient. Tullis v. McClary, 128 Iowa, 493; Williams v. Holt, 170 Mass. 351. And where the instrument is payable to bearer, or, if payable to order, is indorsed in blank, possession is sufficient evidence of title on which to maintain the action. Newcombe v. Fox, 1 App. Div. 389; Weber v. Orton, 91 Mo. 680. The court will never inquire whether he sues for himself or as trustee for another, nor into the right of possession, unless on an allegation of mala fides. Ellicott v. Martin, 6 Md. 509. And the prima facie case made in favor of the plaintiff by his possession of the instrument can not, in the absence of mala fides, be rebutted by evidence that the title was in some other party. (Id.) As a general rule possession by the attorney for a party is possession by the party himself. Kunkel v. Spooner, 9 Md. 462. But, of course, the indorsement must be proved; the mere introduction of the note, with the name written on the back, is not sufficient. Tyson v. Joyner, 139 N. C.

69. The mere possession by another than the payee, of an unindorsed negotiable note not payable to bearer, is not prima facie evidence of ownership. Shepard v. Hanson, 9 N. D. 249.

(b) The instrument can be satisfied only by payment to the owner at the time or to such owner's authorized agent. If the recipient of the money is not actually authorized the payment is ineffectual, unless induced by unambiguous direction from the owner or justified by actual possession of the note. Marling v. Mommensen, 127 Wis. 363.

(c) The maker of a note, in order to avail himself of the defense of payment before maturity, must show that the indorsee had prior notice of the paymnt. Yenney v. Central City Bank, 44 Neb. 402. But where the instrument is indorsed "for collection,” the payment to the indorser after the transfer is a good defense, even against a claim of prior beneficial ownership by the indorsee. Smith v. Bayer, 46 Ore. 143.

§ 91. What constitutes a holder in due course.-A holder in due course is a holder who has taken the instrument under the following conditions:

1. That it is complete and regular upon its face (a);

2. That he became the holder (b), of it before it was overdue (c), and without notice that it had been previously dishonored, if such was the fact;

3. That he took it in good faith and for value (d);

4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it (e).

(a) To determine the character of an indorsee as a bona fide holder for value without notice, the point of time at which he parts with his money is the important fact. If the paper was then on its face irregular — out of the usual course of business the effect of that knowledge on the indorsee could not be prevented by subsequently putting it in a regular shape. Losee v. Bissell, 76 Pa. St. 459, 462. The fact that the instrument is post-dated affords no cause of suspicion so as to put the transferee on inquiry. Brewster v. McCardel, 8 Wend. 478. As to incom

plete instruments, and the authority to fill up blanks therein, see section 33.

(b) Under the statute the payee may be a holder in due course. Boston Steel & Iron Co. v. Steuer, 183 Mass. 140; Vander Ploeg v. Van Zuuk (Iowa), 112 N. W. Rep. 807. This is the rule at common law. See Watson v. Russell, 3 B. & S. 34; 5 B. & S. 968; Nelson v. Cowing, 6 Hill, 333, 339. Thus, the holder of a draft drawn by a bank on its correspondent may be deemed a holder in due course, though he is named therein as payee. Armstrong v. American Exchange National Bank, 133 U. S. 433. See note to section 33.

(c) McKim v. King, 58 Md. 502; Marsh v. Marshall, 53 Pa. St. 396; Davis v. Miller, 14 Gratt. 1; Cottrell v. Watkins, 89 Va. 801. At one time it was doubted whether the mere fact that a negotiable note was overdue at the time of the transfer was in itself sufficient to affect the title of the holder, and whether it was not necessary that there should be something on the face of the paper besides the day of payment to show that it had been actually dishonored. This doubt was expressed by Lord Kenyon in Brown v. Davies, 3 T. R. 80, decided in 1789; but Ashurst and Buller, J.J., were of opinion that the mere fact of its being overdue at the time of the transfer was sufficient to affect the title, and that one taking a note under such circumstances takes it upon the credit of the transferrer. Subsequently in Boehm v. Sterling, 7 T. R. 423-430, Lord Kenyon gave his assent to the rule thus laid down, and it has never since been questioned. A promissory note matures when, by its terms, the principal becomes due; and one who purchases it in good faith, for value, before maturity, is within the protection of the law merchant, although interest is overdue at the time of such purchase. Kelley v. Whitney, 45 Wis. 110. But see Hart v. Stickney, 41 Wis. 630; Newell v. Gregg, 51 Barb. 253. But a note payable by instalments is overdue when the first instalment is overdue and unpaid, and one who takes it afterward takes it subject to all equities between the original parties. Vinton v. King, 4 Allen, 562. A transfer upon the day of maturity is before the instrument is overdue; for the principal debtor has the whole of that day in which to pay. Continental Nat. Bank v. Townsend, 87 N. Y. 8. But see Sargent v. Southgate, 5 Pick. 312; Ayer v. Hutchins, 4 Mass. 370; Pine v. Smith, 11 Gray, 38. A check deposited with a bank on the day

of its date can not be considered as overdue when so deposited. Shawmut National Bank v. Manson, 168 Mass. 425. A check dated in a suburb of New York City June 1, 1900, was sent in the course of business to the State of Kansas, where it arrived on June 8, 1900, and was purchased by a Kansas bank in good faith and for value.- Held, that the check was not overdue to such an extent as to put the bank upon inquiry or raise any presumption that it knew of any defense existing between the original parties. Citizens' State Bank v. Cowles, 89 App. Div. (N. Y.) 281, reversed on other grounds in 180 N. Y. 340.

(d) Under this section, it is not sufficient to constitute a bank a holder in due course that it has discounted the paper and placed the proceeds to the credit of its customer. Albany County Bank v. People's Ice Co. 92 App. Div. (N. Y.) 47; Consolidation Nat. Bank v. Kirkland, 99 (Id.) 121; City Deposit Bank v. Green, 130 Iowa, 384; McKnight v. Parsons (Iowa), 113 N. W. Rep. 858; Elgin City Banking Co. v. Hall (Tenn.), 108 S. W. Rep. 1068. And merely crediting to a depositor's account, the amount of a check drawn upon another bank, where the account continues to be sufficient to pay the check in case it is dishonored, does not make the bank a holder of the check in due course within this section. Citizens' State Bank v. Cowles, 180 N. Y. 346. So, where the credit given by the bank is only provisional, Commercial Nat. Bank v. Citizens' State Bank, 132 Iowa, 706, 708, or the paper is received for collection only. Bank of America v. Waydell, 187 N. Y. 115. But if the bank incurs a liability by reason of the deposit, or where it obligates itself to honor a check, it is a holder for value. Montrose Savings Bank v. Claussen (Iowa), 114 N. W. Rep. 547. So, if the depositor was indebted to the bank. City Deposit Bank v. Green, 130 Iowa, 384. Thus, where a bank purchased a note and credited the proceeds to the seller's account, which was subject to check, being at times overdrawn, it was held that the bank was a holder for value, though on different dates, including the date of maturity, the seller had a balance in the bank exceeding the amount of the note. Northfield Nat. Bank v. Arndt (Wis.), 112 N. W. Rep. 451. So, where a bank discounted a note for the payee, who was indebted to the bank on a note due at that time and charged to the payee's account, and the account was made, good by the application of the proceeds of the discount, it was held that the bank

was a holder for value under this section. Wallabout Bank v. Peyton, 123 App. Div. (N. Y.) 727. But where the avails of a discount are applied to an existing indebtedness, the bank must show that there was an agreement that they should be applied in payment and extinguishment thereof. Consolidation Nat. Bank v. Kirkland, 99 App. Div. (N. Y.) 121. If one purchases an accommodation note for cash and sells it to a bona fide purchaser in exchange for the purchaser's note, the latter may be a holder in due course within the meaning of the statute. Mehlinger v. Harriman, 185 Mass. 245. Where the payees give the usual written direction in accommodation notes, at the foot of the note, "credit the drawer," and the note is afterward discounted in bank, or found in the possession of any person not a party to the original transaction, the presumption is that the holder is a holder for value, and that the drawer received the proceeds according to the directions so given. Steckel v. Steckel, 28 Pa. St. 233, 235. As to what will constitute value, see section 51. Prima facie value is presumed. See section 50.

(e) As to what is necessary to constitute notice, see section 95.

892. When person not deemed holder in due course.Where an instrument payable on demand is negotiated an unreasonable length of time after its issue, the holder is not deemed a holder in due course (a)..

(a) Under this section it has been held that a check issued on a certain date, and bearing that date and negotiated at noon of the following day, was not overdue so as to carry to an indorsee notice of its illegality or previous dishonor. Matlock v. Scheuerman (Ore.), 93 Pac. Rep. 823. So, a cashier's check issued May 18th, and indorsed five days later, was held to have been negotiated within a reasonable time. Singer Manufacturing Co. v. Summers, 143 N. C. 102. As to what is reasonable time will depend upon the facts of the particular case. See section 4. No absolute measure can be fixed. A day or two, Field v. Nickerson, 13 Mass. 131, 137; seven days, Thurston v. McKenn, 6 Mass. 428; and even a month, Ranger v. Cory, 1 Metc. 369, is not too long; while eight months, American Bank v. Jennes, 2 Metc. 288; Ayres v. Hutchins, 4 Mass. 370; Nevins v. Townsend, 6 Conn. 7; three months and a half, Stevens v. Brice, 21 Pick. 193; and even two

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