months and a half, Losee v. Durkin, 7 J. R. 70; Sice v. Cunningham, 1 Cowen, 397, 404, have been deemed sufficient to discredit a note. Coupons payable to bearer are, when overdue, subject to equities; they are not in this respect like bank notes. McKim v. King, 58 Md. 502.

893. Notice before full amount paid.-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 (a).

(a) Dresser v. Missouri Etc. R. R. Construction Co., 93 U. S. 93. The case falls within the general rule that the portion of an unperformed contract which is completed after notice of a fraud is not within the principle which protects a bona fide purchaser. (Id.) This section is merely declaratory of the law as it existed before the enactment of the statute. Albany County Bank v. People's Ice Co., 92 App. Div. (N. Y.) 47.

§ 94. When title defective.-The title of a person who negotiates an instrument is defective within the meaning of this act when he obtains the instrument, or any signature thereto, by fraud, duress, or force and fear, (a) or other unlawful means, or for an illegal consideration, (b) or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud (c).

(a) Statute applied in German-American Bank v. Cunningham, 97 App. Div. (N. Y.) 244. Where a note was executed by several persons, and the signature of one of them was secured by fraudulent representations as to the character of the instrument, it was held that the note was void under this section. Aukland v. Arnold (Wis.), 111 N. W. Rep. 212. So, where signatures were secured to a note under a promise that the paper should not become a binding obligation until signed by certain other persons, and part of the other signatures were obtained

without a disclosure of the conditional character of the prior signatures, it was held that the latter were obtained by fraud. Hodge v. Smith, 130 Wis. 326. Commercial paper executed under duress is void, even though there may be some consideration to support it. Magoon v. Reber, 76 Wis. 392.

(b) Under this section the title of a person negotiating a note is defective where the only consideration was usury on a former note between the same parties. Keene v. Behan, 40 Wash. 505.

(c) The fraud in putting the paper into circulation must be a fraud against the defendant. Kinney v. Kruse, 28 Wis. 189. Thus, the fact that one who held possession of a note for the payee put it in circulation in fraud of his rights is no defense in a suit by the holder against the maker. (Id.) And where the fraud consists in the misapplication of the proceeds received for the paper it will not affect the paper in the hands of the holder, as he is not in any manner bound to look to their application, nor responsible for the misappropriation of them. Gray's Admr. v. Bank of Kentucky, 29 Pa. St. 365. There is no distinction between obtaining a note by fraud and fraudulently putting it in circulation. National Revere Bank v. Morse, 163 Mass. 381, 385. For a case applying this provision see Aukland v. Arnold, 131 Wis. 64.

$95. What constitutes notice of defect.-To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith (a).

(a) The holder is not bound at his peril to be on the alert for circumstances which might possibly excite the suspicion of wary vigilance; he does not owe to the party who puts the paper afloat the duty of active inquiry in order to avert the imputation of bad faith. The rights of the holder are to be determined by the simple test of honesty and good faith, and not by a speculative issue as to his diligence or negligence. The holder's right cannot be defeated without proof of actual notice of the defect in title or bad faith on his part evidenced by circumstances. Though he

may have been negligent in taking the paper, and omitted precautions which a prudent man would have taken, nevertheless, unless he acted mala fide, his title, according to settled doctrines, will prevail. Valley Savings Bank v. Mercer, 97 Md. 458, 479; Cheever v. Pittsburgh, Shenango & Lake Erie R. R. Co., 150 N. Y. 59, 65; American Exchange National Bank v. New York Belting, etc. Co., 148 N. Y. 705; Knox v. Eden Musee Am. Co., 148 N. Y. 454; Canajoharie National Bank v. Diefendorf, 123 N. Y. 202; Vosburgh v. Diefendorf, 119 N. Y. 357; Jarvis v. Manhattan Beach Co., 148 N. Y. 652; Murray v. Lardner, 2 Wall. 110; Swift v. Smith, 102 U. S. 442; Belmont v. Hoge, 35 N. Y. 65; Welsh v. Sage, 47 N. Y. 143; Nat. Bank of Republic v. Young, 41 N. J. Eq. 531; Fifth Ward Sav. Bank v. First Nat. Bank, 48 N. J. Law 513; Credit Company v. Howe Machine Co., 54 Conn. 357; Ladd v. Franklin, 37 Conn. 64; Croft's Appeal, 42 Conn. 154; Morton v. N. A. & Selma Ry. Co., 79 Ala. 590; Phelan v. Moss, 67 Pa. St. 59; Moorehead v. Gilmore, 77 Pa. St. 118; Second National Bank v. Morgan, 165 Pa. St. 199; Frank v. Lilienfeld, 33 Gratt. 377. And as the transferee is not bound to make inquiry, the fact that the transferer lives near him is not material. Seltzer v. Deal, 135 N. C. 428.

The payment of value is a circumstance to be taken into account, with other facts, in determining the good faith of the purchaser, but it is not conclusive. Cunningham v. Scott, 90 Hun, 410, 411; Tischler v. Schurman, 49 Misc. (N. Y.) 257. And while the mere fact that paper has been purchased at a discount will not, ordinarily, be evidence of bad faith, yet where the discount is very large, that circumstance may be considered, in connection with other facts, in determining the question of the purchaser's good faith. Williams v. Huntington, 68 Md. 590. But a bank is not chargeable with bad faith because it discounted notes at the rate of seven per cent. per annum when the legal rate of interest was but six per cent. Bank of Monongahela Valley v. Weston, 172 N. Y. 259. And the fact that a bank purchases a check, instead of receiving it on deposit for collection, is not such a deviation from the usual course of business as will justify a conclusion of bad faith on its part. Citizens' State Bank v. Cowles, 89 App. Div. (N. Y.) 281. Nor does it charge an indorsee with notice of an infirmity in a check that the payee, on transferring it, stated that the drawer had asked that it be held

for a few days before presentment for payment. Matlock v. Scheuerman (Ore.), 93 Pac. Rep. 825.

The mere fact that the holder for value of a promissory note made by a third party receives it from a person engaged in the note-brokerage business, as collateral security for a loan to such broker, is not sufficient to raise a doubt as to the authority of the broker to so deal with the note. American Ex. Nat. Bank v. New York Belting and Packing Company, 148 N. Y. 698. And a bank has a right to assume, as to notes offered to it, whether for discount or as collateral security, by a customer who has an account with it, and who is in the habit of borrowing money from it, that the customer is acting in good faith and within his lawful rights; and the fact that the customer is engaged in the business of notebrokerage is not enough to deprive the bank of the right to indulge in such assumption. (Id.) The fraudulent misappropriation by the broker of the proceeds of discount is not sufficient to put the holder to the proof of his bona fides. Sloan v. The Union Banking Company, 67 Pa. St. 470. And the fact that the transferee may know that the person from whom he receives the paper is crooked" in business matters does not affect his title or make it his duty to inquire about the paper. Seltzer v. Deal, 135 N. C. 428. In the case last cited, the court said: "It would be almost impossible for the business of banking to be carried on if it was incumbent on bank officers, whenever negotiable paper was offered for discount or sale, to inquire into whether any of the parties to be charged were crooked in their business methods."

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In Chemical Nat. Bank v. Kellogg (183 N. Y. 92, 96) it was said: "The only practicable rule is to make the face of the paper itself, when free from suspicion, sufficient evidence, in the absence of notice, against all who aided to put it into circulation in that condition, unless the note is void by the positive command of a statute, such as the act against usury. No other rule would work well, for it would be intolerable if every bank had to learn the true history of each piece of paper presented for discount before it could act in safety. It is better that there should be an occasional instance of hardship than to have doubt and distrust hamper a common method of making commercial exchanges." Accordingly, it was held in that case that a married woman who, for her husband's accommodation, had indorsed a note dated and payable in New York, was estopped from showing, as against a

New York bank which had discounted the paper in good faith, that the indorsement had been made in New Jersey, where her contract was void.

One who receives the notes of a corporation from one of its officers in payment of, or as security for, a personal debt of such officer does so at his peril. Prima facie the act is unlawful, and unless actually authorized, the purchaser will be deemed to have taken them with a notice of the rights of the corporation. Wilson v. Metropolitan Ry. Co., 120 N. Y. 145, 150. And where the maker of a note, which is payable to his order, and purports to be indorsed by a corporation, procures it to be discounted for his own benefit, this of itself, if unexplained, is notice that the indorsement is not made in the usual course of business, but is for the accommodation of the maker. National Park Bank v. GermanAmerican Mutual Warehousing and Security Company, 116 N. Y. 281. But the mere fact that the payee of a promissory note, made by a corporation, is a director of such corporation, is not notice to a transferee of any infirmity in the paper, nor is it sufficient to put him upon inquiry concerning the circumstances under which it was issued; and the rule applicable to notes made by officers of a corporation to their own order and used to pay their individual obligations, has no application to notes made by duly authorized officers payable to a director. Orr v. South Amboy Terra Cotta Co., 113 App. Div. (N. Y.) 103.

§ 96. Rights of holder in due course.-A holder in due course holds the instrument free from any defect of title (a) of prior parties and free from defenses available to prior parties among themselves, (b) and may enforce payment of the instrument for the full amount thereof (c) against all parties liable thereon.

(a) Under this section, a holder in due course of a promissory note payable to bearer can acquire a good title to the note from one who has stolen it. Massachusetts Nat. Bank v. Snow, 187 Mass. 160.

(b) One of the most important questions that has arisen under the statute is whether a holder in due course may recover upon paper void as between the immediate parties because given in