Sec. 54. Where the transferee receives notice of any infirmity in the instrument or defect in the title of the person negotiating the same, before he has paid the full amount agreed to be paid therefor, he will be deemed a holder in due course only to the extent of the amount theretofore paid by him.

§ 117. Purchaser with notice from holder in due course. The holder of a bill or note who has purchased it in good faith and for value ought to be permitted to exercise all of the rights incident to the ownership of the instrument. There is no reason why he should be confined to collecting the instrument from the maker. Why should he not be permitted to negotiate the instrument to whomsoever he pleases, whether by way of sale or by way of gift? That he may do so is well settled. In consequence, a defrauded maker cannot object to the plaintiff's recovery on the ground that he paid nothing for the note, but received it as a gift from an innocent purchaser. Nor can the maker object that the transferee of the innocent holder for value knew of the fraud when he received the instrument, or that he received the paper after maturity. To allow the maker such a defense would be in effect to deprive the innocent purchaser of one of his rights on the instrument, i. e., to transfer it as he pleases and to whom he will.

§ 118. Same: Participant in prior wrongdoing. This doctrine, which allows the transferee of a holder in due course to recover from the maker, though he received the instrument after maturity, paid no value, and had notice of the maker's defense, obviously ought not to be applied

in a case where the instrument gets back into the hands of the party who was guilty of the fraud. The reasons for this limitation of the rule are well stated by Judge Cooley in a case (29) where the payee, who had secured a note from the maker by fraud, sold it to an innocent purchaser and then bought it back again. That learned judge said:

"It is perfectly true, as a general rule, that the bona fide holder of negotiable paper has a right to sell the same, with all the rights and equities attaching to it in his own hands, to whomever may see fit to buy of him, whether such purchaser was aware of the original infirmity or not. Without this right he would not have the full protection which the law merchant designs to afford him, and negotiable paper would cease to be a safe and reliable medium for the exchange of commerce. For, if one can stop the negotiability of paper against which there is no defense, by giving notice that a defense once existed while it was held by another, it is obvious that an important element in its value is at once taken away. But I am not aware that this rule has ever been applied to a purchase by the original payee, nor can I perceive that it is essential to the protection of the innocent indorsee, that it should be. It cannot be very important to him, that there is one person incapable of succeeding to his equities, and who consequently would not be likely to become a purchaser. If he may sell to all the rest of the community, the market value of his security is not likely to be affected by the circumstance that a single individual cannot compete for its pur

(29) Kost v. Bender, 25 Mich. 515.

chase, especially when we consider that the nature of negotiable securities is such that their market value is very little influenced by competition. Nor do I perceive that any rule or principle of law would be violated by permitting the maker to set up this defense against the payee, when he becomes indorsee, with the same effect as he might have done before it had been sold at all, or that there is any valid reason against it.”

The doctrine and its limitations are stated in the N. I. L. as follows:

Sec. 58. But a holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect to all parties prior to the latter.

CHAPTER VI.

OBLIGATIONS OF PARTIES AND TRANSFERORS.

SECTION 1. CONTRACTS OF PARTIES TO INSTRUMENT.

§ 119. Contract of maker and acceptor. A promissory note must contain an "unconditional promise" to pay at a designated time. "The maker of a negotiable instrument by making it engages that he will pay it according to its tenor" (1). The maker, then, is absolutely and unconditionally bound to pay his note at its maturity. A bill of exchange is an "unconditional order" to the drawee to pay at the designated time, and his acceptance is an assent to the order. The acceptor, therefore, is absolutely and unconditionally bound to pay the bill at its maturity, and stands under an obligation with respect to a bill similar to that of the maker of a note.

§ 120. Presentment for payment. Since the maker or acceptor is unconditionally bound to pay the holder at maturity, it is his duty to seek him out and discharge his obligation by payment. It is not the duty of the holder to disclose his whereabouts or to present the instrument for payment, but he may if he chooses, the instant the instrument is overdue, institute an action against the acceptor or maker and compel him to pay not only the sum

(1) Neg. Inst. Law, sec. 60.

due upon it, but also the costs of the action. Notwithstanding the very terms of a bill or note payable on demand, this rule is applied to them, and it is the duty of the maker or acceptor to pay without demand (2). Even where the instrument is expressly payable at a special place, e. g., at a particular bank, the holder is not bound to present it at the bank for payment; nor is the maker or acceptor discharged by having money deposited in that bank set apart for the payment of the instrument. The N. I. L. (3) does provide that "if the instrument is, by its terms, payable at a special place, and he is able and willing to pay it there at maturity, such ability and willingness are equivalent to a tender of payment upon his part." But even a tender of payment does not discharge the acceptor or maker: its utmost effect is to stop the running of interest, and to prevent the holder from recovering the costs in an action brought after the tender (3a).

§ 120a. Contract of drawer and indorser. The N. I. L. describes the contracts of the drawer of a bill and indorser of either a bill or note as follows:

Sec. 61. The drawer by drawing the instrument engages that on due presentment the instrument will be accepted or paid or both, according to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount

(2) Sec. 70.

(3) Sec. 70.

(3a) Hills v. Place, 48 N. Y. 520.