cumstance justifying a suspicion in the mind of the holder, or indicating that the delay in negotiation was "for an unreasonable length of time after the issue of the note," within the meaning of section 4 of the Negotiable Instruments Law.

Judgment modified, by increasing the amount thereof to $380.07, with interest from November 30, 1915, and appropriate costs in the court below, and, as so modified, affirmed.

The third case, above mentioned, where the instrument has a fixed date of maturity, but is subject to acceleration into an earlier maturity is one in which there is some conflict of authority as regards its negotiability, a situation which will be most unfortunate, if the conflict becomes widespread, because the use of this kind of instrument is becoming very common. The problem is simply this: A note will contain a fixed date of maturity, and will also contain a clause authorizing the holder to confess judgment at any time after date, or to declare the note due upon default of interest payments or of installments of principal, or to declare the note due upon the depreciation of collateral put up by the maker to secure payment of the note, or upon the maker's failure to deposit additional collateral. We have already discussed at some length the question as to whether such an instrument is negotiable,.and we have found that there is considerable conflict among the authorities-some holding that the time of payment is uncertain; others holding that it is certain. Assuming that the instrument is held to be negotiable-and this must be the situation before our question arises is a purchaser of such an instrument after the event has happened but before the fixed date arrives, a purchaser before maturity? If the stipulation is treated as giving an option only to the holder to declare the note due, and he has not yet done so, there is no difficulty in holding that a purchaser is a purchaser before maturity. But if the holder has demanded payment, and payment has been refused, and the holder has then negotiated the instrument to the present holder, is the latter a purchaser before maturity? Again, suppose the stipulation be treated, not as giving to the holder an option to declare the note due, but as actually maturing the instrument upon the happening of the event. Here it is more difficult to hold that a purchaser after this date, but before the date arrives, is a purchaser before. maturity. Of course, the holder may not know that the event has happened, but it would be possible to require him to ascertain at his peril whether it had happened or not.

GILLETTE et al. v. HODGE et al.

(United States Circuit Court of Appeals, Eighth Circuit, 1909. 170 Fed. 313, 95 C. C. A. 205.)

AMIDON, District Judge. This was an action brought by Hodge Bros., the defendants in error, against the plaintiffs in error, on three promissory notes, dated April 13, 1903, payable to Robert Burgess &

Son, or order, respectively, July 1, 1904, 1905, and 1906, with interest payable annually. The notes contained a provision that default in the payment of interest should cause the whole note to become immediately due. The plaintiffs are private bankers, who discounted the notes at the rate of 10 per cent. on June 2, 1904, passing the proceeds to the credit of the payees, who afterwards drew the same in full. The answer interposes two defenses: First, that the notes were given as the purchase price of a stallion, and that the horse failed to comply with the warranties made by the vendors; second, that the notes were handed to the payees by the defendants upon an express agreement that they should not be treated as delivered until the signature of four other persons named in the answer should be obtained, and that, unless such signatures should be obtained, the notes should be of no effect. To make these defenses available, the defendants first sought to show that the notes were dishonored at the time they were acquired by the plaintiffs. Their main reliance for establishing this fact is the provision in the notes that they should become immediately due if there was default in the payment of interest. The first year's interest was due April 13, 1904. This installment of interest was, therefore, past due on June 2d, when plaintiffs acquired the notes; and it is urged that this fact, when combined with the clause of the note just referred to, caused the notes to mature April 13th, and that they were, therefore, dishonored at the time of the indorsement. The difficulty with this contention is that the provision of the notes upon which it is based is not self-executory. It simply gave to the holder an option to declare the notes due for default in the payment of interest. There is some conflict in judicial decisions as to the effect of such a provision (Hodge Bros. v. Wallace, 129 Wis. 84, 108 N. W. 212, 116 Am. St. Rep. 938); but it was expressly ruled by the Supreme Court of the United States in the case of Chicago Railroad Equipment Co. v. Merchants' National Bank, 136 U. S. 268, 10 Sup. Ct. 999, 34 L. Ed. 349, that a similar provision did not of itself cause the notes to mature upon default in the payment of interest.

On quite elementary principles, the judgment in this case was right, and should be affirmed.

CITIZENS' NAT. BANK OF GLENWOOD SPRINGS v. FIRST NAT. BANK OF PORTLAND, OREGON.

(Supreme Court of Colorado, 1919. 66 Colo. 426, 182 Pac. 12, 5 A. L. R. 587.) DENISON, J. * * No transaction between the acceptor and holder of a negotiable instrument can advance its maturity as against a subsequent holder in due course, even though it was negotiated after such transaction. If it could, the safety of negotiable paper would be destroyed, and the law merchant nullified. When a certified check is presented for payment, the debtor bank, if it has a defense against the holder, can protect itself by marking the face of the paper, so as to destroy its negotiability. *

* *

It is believed that, in any and all cases where the fixed date of maturity has not yet arrived, a purchaser before the fixed date. should be regarded as a purchaser before maturity. This seems to have been provided for in one case in the Negotiable Instru

ments Law, and by analogy should be extended to all other cases. Section 52 provides that a holder in due course is one who takes the instrument before it is overdue and without notice that it had previously been dishonored, if such was the fact, and section 117. provides that the omission to give notice of dishonor by nonacceptance does not prejudice the rights of a holder in due course. These sections refer to the case of a time bill of exchange which was in fact presented for acceptance before the date fixed for payment. Other sections of the act make this a dishonor of the instrument. It is then due and the holder may sue upon it. But the effect of sections 52 and 117 apparently enables a purchaser of such instrument after dishonor by non-acceptance and before the arrival of the fixed date of maturity to be a holder in due course. This rule should be applied in all cases where the instrument has matured as the result of the operation of an acceleration clause before the fixed date of maturity arrives.

SECTION 4.-MUST BE A PURCHASER IN GOOD FAITH

In any case where it becomes important for the holder of a negotiable instrument, in his suit thereon against the maker, drawer, or acceptor, to establish his position as that of a holder in due course, the object of the plaintiff is to be thereby enabled to shut out defenses which the defendant had against the party with whom he dealt. If there are no such defenses, it is immaterial whether the plaintiff is a holder in due course or not. If there are defenses, such as lack or failure of consideration, fraud, or payment before maturity, the plaintiff will be able to recover from the defendant only in the event that he is a holder in due course. It is perfectly apparent, therefore, that the holder acquires this extraordinary right to compel a person to pay a sum of money under these circumstances, only because the holder is an innocent. purchaser. If the holder has knowledge of this defense, there is no reason why he should be given this preferred position. The law therefore properly provides that, unless the purchaser was a purchaser in good faith, he will not be a holder in due course. Several sections of the Negotiable Instruments Law deal with the requirement of good faith.

Section 52. A holder in due course is a holder who has taken the instrument (1) complete and regular on its face and (3) in good faith; and section 52 (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.

Section 56. 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.

Section 55. The title of a person who negotiates an instrument

is defective within the meaning of this act when he obtained the instrument, or any signature thereto, by fraud, duress, or force and fear, or other unlawful means, or for an illegal consideration, or where he negotiates it in breach of faith, or under such circumstances as to amount to fraud.

Section 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.

Section 59. Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course. But the last mentioned rule does not apply in favor of a party who became bound on the instrument prior to the acquisition of such defective title.

It is to be noticed that a holder, in order to be holder in due course, must have acquired title to the instrument without knowledge of two varieties of facts: (1) Infirmities in the instrument; and (2) defects in title. These two expressions: Infirmities in the instrument and defects in title have a more or less overlapping meaning, but it is necessary to note that there are two very different kinds of rights possessed by other persons, which the holder must be unaware of if he is to be holder in due course. We may more accurately refer to these rights of third parties as (1) equities of defense and (2) equities of ownership. The expression "infirmity in the instrument" is used to describe equities of defense, while the expression "defects in title" describes a kind of title which is not perfect, a.situation which obviously gives rise to an equity of ownership in some other person. To illustrate the distinction between equities of defense and equities of ownership: If P. obtains M.'s note by fraud, or without consideration and P. negotiates to A., M.'s equity against P. is an equity of defense an infirmity in the instrument. P.'s title is not defective. On the other hand, if P. obtains M.'s note for a consideration and there is no fraud-that is, obtains the instrument under circumstances where M. really is indebted to P. in the sum specified-we have a case where there cannot be any infirmity in the instrument, any equity of defense. But there may arise a claim of ownership which will render the title of a subsequent holder defective. Suppose P. intrusts this note to A. for a special purpose, perhaps with directions to deposit it to P.'s account. Suppose, further, that the instrument, at the time it left P.'s hands, was in such form that it could be negotiated by delivery, that is, was then payable to bearer, either because originally made payable to P. or bearer, or because of the blank indorsement of P. If the note were payable to P.'s order, A., by virtue of his possession of a negotiable instrument payable to bearer has the legal power to pass a good title to

an innocent purchaser, but since his possession was for a special purpose, he violates a contract duty in doing so. If A., therefore, violates his trust and negotiates to B., there is an outstanding claim of ownership, an equity of ownership, in P., and A. has the defective title. This is the transaction described in the last clause of section 55. Similarly the title of a thief or finder of bearer paper is likewise defective. The person who lost it or from whom it was stolen has the equity of ownership. At this point it should be recalled that if the person intrusted with the instrument for the special purpose, or the thief or the finder, had possession of paper then payable to the order of the payee or of some special indorsee, such party in possession does not even have a defective title. He has no title at all. He has no power to negotiate. If the indorsement of the payee or special indorsee be forged, no title passes to the transferee. Such a transferee, no matter how innocent, cannot be a holder in due course. He is not even a holder. He is merely a person who has physical possession of a piece of paper evidencing a series of contracts which is owned by the person whose name was forged who in law is still the holder. Section 55 makes mention of another kind of defect of title; that is, another situation out of which may arise an equity of ownership. The first clause of the section states that a title is defective when he, the party who sold the instrument to the person now claiming to be a holder in due course (let us call him A.), obtained the instrument by fraud, duress, or force or fear, or other unlawful means. In the case above discussed the instrument was assumed to have been acquired by A. (1) by the voluntary act of P., the owner; (2) by finding; (3) by larceny. In each case, his title was defective. We also find, from the first part of section 55 that A.'s title will be defective if A. acquires the instrument by fraud, etc., practiced by him upon P.

In speaking of defective titles, we should keep in mind the various ways in which they are created. Wherever we find a defective title in one person, there is some other person who has the equity of ownership. And it is the equity of ownership to which the holder in due course is not subject.

To summarize: The holder in due course takes free from two kinds of equities: Equities of defense; and equities of ownership. We shall later see that a holder not in due course will take free from some kinds of equities of ownership, but that he cannot take free from equities of defense.

A great deal of litigation over negotiable instruments raises questions relating to bad faith. If the instrument were procured by the payee from the maker by fraud, or without consideration, or under circumstances revealing some other personal defense, it is almost certain that the payee will negotiate the instrument to a holder in due course, for that is the only opportunity he has of forcing collection. It will be to the interest of the payee to negotiate to one who was absolutely bona fide, but it often happens