CHAPTER XXI. Sec. BONA FIDE HOLDERS AND RIGHTS ON TRANSFER CONTINUED. 467. Overdue paper. 468. Overdue paper-Default in payment of interest. Sec. 477. Same subject-Rule in Vermont. 478. Indorsement subsequent to notice. 479. Notice Fraud. 480. Notice -Fraudulent alteration. 481. Erasures-Forgery - Notice Negligence-Recovery. 469. Overdue paper-Demand notes. 470. Delivery of paper to impostor or wrong party-Liability to drawee or bona fide holder. 471. Application by bank of proceeds to credit of depositor. 482. Knowledge-Purchaser of mar472. Notice knowledge-Generried woman's note. 483. Notice-Accommodation paper. or ally. 473. Notice or knowledge-Contin- 484. Notice-Notes of a series. 485. Notice Corporation-Agency. ued. 474. Notice or knowledge-Matters 486. Same subject. apparent from the paper it- 487. Corporation indorsement - Ac- 475. Notice or knowledge - Sus- 488. Notice-Purchaser of bonds. 476. Same subject-Decisions. § 467. Overdue paper.1-Ordinarily the indorsee or transferee of overdue commercial paper obtains no better title than that of the transferrer.1* Under the negotiable instruments law, one of the require 1 See § 239, herein. 1* United States.-Fowler v. Brantley, 14 Pet. (U. S.) 318; Foley v. Smith, 6 Wall. (U. S.) 492. Alabama.-Marshall v. Shiff, 130 Ala. 545, 30 So. 335. Georgia.-Harrell v. Citizens' Bkg. Co., 111 Ga. 846, 36 S. E. 400; Steed v. Groves, 103 Ga. 550; 30 S. E. 626. Illinois.-Morgan v. Bean, 100 Ill. App. 114. Missouri.-Williams v. Baker, 100 Mo. App. 284, 73 S. W. 339; Mayer v. -ments of a holder in due course is that he became a holder of the instrument "before it was overdue without notice that it had been previously dishonored, if such was the fact;" and "In the hands of any other than a holder in due course, a negotiable instrument is subject to the same defenses as if it were non-negotiable." So the purchaser from a bank, of overdue paper, is subject to equities, even though he had no actual notice of the bank's want of authority to sell, and only knowledge of circumstances which ought to have put him on inquiry.3 Washington.-Gordon v. Decker, 19 Wash. 188, 52 Pac. 856. See Merchants' Loan & Trust Co. v. Welter, 205 Ill. 647, 68 N. E. 1082. Rights of holder of negotiable paper transferred after maturity. See note 46 L. R. A. 753, under the following headings: "(I.) Effect of transfer after maturity on negotiability; (II.) rights acquired under transfer: (a) the general doctrine; (b) different statements of the rule; (c) the correct rule; (III.) defenses which maker may make: (a) general rules as to right to defend; (b) want or failure of consideration; (c) illegal consideration; (d) usury; (e) fraud in inception; (f) violation of contemporaneous agreement; (g) that it was partnership paper; (h) that it was accommodation paper; (i) that it was intended for collateral security; (j) that it had been lost or stolen; (k) that transfer was unauthorized; (7) that debt had been attached or garnished; (m) payment: (1) as a defense generally; (2) payment by person only secondarily liable; (3) effect of reissue after payment; (n) right of the transferee to sue; (IV.) equities of intermediate holders; (V.) exception as to paper taken from bona fide holder; (VI.) exception as to collateral matters: (a) the general rule; (b) what matters are collateral-instances; (VII.) excep tions as to set-offs and counterclaims: (a) the general rule; (b) under statutes as to set-off of mutual claims; (c) under special statutes; (d) equitable set-offs; (e) interposition of set-off against set-off; (f) effect of agreement for set-off; (VIII.) exception as to instruments drawn payable without defalcation or discount; (IX.) effect of dishonor as to interest, instalments, or part of a series; (X.) effect of transfer and indorsement at different times; (XI.) effect of extension of time; (XII.) effect of renewal of note; (XIII.) effect of action brought; (XIV.) rights of holder against indorser: (a) general rules as to effect of transfer; (b) demand and notice to charge indorser: (1) on time notes; (2) on demand notes; (XV.) special rules based on character of the instrument: (a) checks; (b) certificates of deposit; (c) negotiable bonds; (XVI.) actions against transferees to enforce equities; (XVII.) proof with reference to equities." 2 Negot. Insts. Law N. Y., Laws 1897, c. 712, §§ 91 (subd. 2), 97; 2 Cumming & Gilbert's Annot. Genl. Laws & Stat. N. Y., pp. 2551, 2553. See Lawrence v. Clark, 36 N. Y. 127. Cussen v. Brandt, 97 Va. 1, 5 Va. Law Reg. 98, 1 Va. Sup. Ct. Rep. 193, 32 S. E. 791. This rule is, however, subject to qualifications and exceptions, or at least there are certain cases in which purchasers of overdue paper have not been precluded from recovering thereon. And it is held that the equities to which a purchaser of overdue paper is subject are limited to those which arise out of the note itself and not out of independent transactions between prior parties. A purchaser from the transferee of a note secured by mortgage may, it is decided, obtain a title free from equities where he pays value therefor in good faith, even though the paper was obtained by fraud and was overdue in the owner's hands before it was assigned to the transferee. Again, where a negotiable promissory note has been, before its maturity, duly indorsed and delivered in escrow, with the contract of its purchaser to convey in consideration of it certain land, and proceedings were necessary to enable the purchaser of the note to convey the land and carry out the contract for which the note was taken, the fact that such proceedings were not completed, and the contract not fulfilled and the note not delivered by the depositary to the purchaser until after it matured, will not deprive the buyer of the rights of the bona fide purchaser before maturity, where he has completed the transaction in ignorance of any defense." § 468. Overdue paper-Default in payment of interest.-The rule that one who takes notes after they become due and payable, or after maturity, is not a holder in due course, and takes the paper subject to the equities between the original parties, applies to a person who takes notes after they have become due and collectible for default in • Examine the following deci- . N. Y. 397, 57 N. E. 631, aff'g 50 N. sions: Y. Supp. 1126. Tennessee.-Equitable Ins. Co. v. Harvey, 98 Tenn. 636, 40 S. W. 1092. 'Hunleath v. Leahy, 146 Mo. 408, 48 S. W. 459. Gardner v. Beacon Trust Co., 190 Mass. 27, 76 N. E. 455. See Whitney Nat. Bk. v. Cannon, 52 La. Ann. 1484, 27 So. 948. Note indorsed after maturity but taken before maturity. Transferee may be holder in good faith. Ft. Dearborn Nat. Bk. v. Berrott, 23 Tex. Civ. App. 662, 57 S. W. 340. payment of the annual interest, said notes expressly stipulating that any delinquency in the payment of interest should cause the whole note to become immediately due and collectible.8 § 469. Overdue paper-Demand notes.-The general rule above stated as to overdue papers* applies to a note payable on demand. But a demand note is not overdue and subject, as against the indorsee or transferee, to equities between the parties, where it is kept alive for a period of time beyond which it would otherwise have been overdue, by continuous payments of monthly interest to the original payee, and it also appears that if payments were made as principal the note was to run for a certain period, which period extended beyond the time of the transfer. And in such case the special equity that payments made as principal had been credited as interest amounting in all to enough to pay the notes, with interest, was held not available where the maker knew that the payments were applied as interest.10 § 470. Delivery of paper to impostor or wrong party-Liability to drawee or bona fide holder.-The drawer of a check, draft, or a bill 8 Hodge v. Wallace (Wis. 1906), 108 N. W. 212. The court, per Cassody, C. J., declared this case distinguishable from those cases "where the stipulation for accelerating the maturity of the note or notes on non-payment of interest or other default is contained in a mortgage or trust deed given to secure the same" from "those where one of a series of notes or an instalment of interest has become due and unpaid, with no stipulation as here, that 'such delinquency shall cause the whole note to immediately become due and collectible;'" from those cases "where the stipulation for accelerating the maturity of the note or notes contained therein is made optional with the payee or mortgagee, or his representatives or assigns," and the court also says: "It was held by this court, several years ago, that 'one who takes a promissory note, which shows that interest on the principal sum therein named is past due and unpaid, takes it subject to all equities between the original parties.' Hart v. Stickney, 41 Wis. 630, 22 Am. Rep. 728. That case followed Newell v. Gregg, 51 Barb. (N. Y.) 263. To the same effect: First National Bank v. Forsyth, 67 Minn. 257, 69 N. W. 909, 64 Am. St. Rep. 415. Such ruling, however, was out of harmony with the decisions of this court already cited, and goes beyond what was necessary to sustain the contention of the defendants in this case, based on such express stipulation." Laws 1899, p. 705, c. 356, §§ 1676-22. 8* See § 467, herein. 'Causey v. Snow, 122 N. C. 326, 29 S. E. 359. See §§ 464, 465 herein. 10 McLean v. Bryer, 24 R. I. 599, 94 N. W. 695. of exchange, who delivered it to an impostor, supposing him to be the person whose name he has assumed, must, as against the drawee or a bona fide holder, bear the loss where the impostor obtains payment of, or negotiates the same. In such a case the fact that the check was drawn by the trust department of a trust company on its own banking department and payment of it refused by the banking department, because of lack of identification of the person presenting the check immediately after it was issued, is immaterial.11 Again, a telegraph company which, upon order by telegraph, issues and delivers its check by mistake to the wrong party, is liable in the amount thereof to an innocent purchaser for value, who takes the same upon his indorsement. Prima facie such indorser is the payee intended, and a purchaser who takes the check from him in good faith, believing him to be the payee, is not called upon to inquire any further than may be necessary to establish the identity of the indorser and the party to whom the check was delivered as payee.12 "Land Title & Trust Co. v. Northwestern National Bank, 211 Pa. 211, 60 Atl. 723 (Dean, J., and Potter, J., dissenting). The court relied upon Land Title & Trust Co. v. Northwestern National Bank, 196 Pa. 230, 46 Atl. 420, 50 L. R. A. 75, 79 Am. St. Rep. 717, which holds that a bank is not liable for the payment of a check on a forged indorsement where the person who committed the forgery and received the money was in fact the person to whom the drawer delivered the check, and whom he believed to be the payee named. In this case the facts were as follows. A person calling himself A called on B, a property owner, under the pretense of desiring to purchase real estate, and secured from his title papers. A took the papers to a responsible conveyancer, to whom he applied for a loan on mortgage, representing himself as B. The conveyancer, believing the man to be B, negoti ated the loan, and a settlement was made through a trust company, to which the conveyancer introduced A as B. A signed the mortgage as B, and received the trust company's check drawn on itself to the order of B. This check, indorsed with B's name, was deposited in a bank by a person who had opened an account with it as R, and was collected by the bank of the trust company in the usual course of business. It did not appear that A and R were the same person. The fraud was discovered six months later, when B was called upon to pay the interest on the mortgage. The money was drawn out of the bank by R four weeks after it was deposited. A and R disappeared, and were not heard of afterwards. It was held that the trust company could not recover from the bank the amount of the check. (Green, C. J., and Dean, J., dissented.) 12 Burrows v. Western Union Telegraph Co., 86 Minn. 499, 90 N. W. 1111. The court, per Lewis, J., said: "This presents a question somewhat difficult of solution. We have found |