§ 53. Instrument payable on demand-negotiation at unreasonable time.-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.

What is a reasonable time.-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, 51 Ore. 49. So, of a check drawn on Saturday and negotiated on the following Monday. Asbury v. Laube, 151 Ky. 142. 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. But a note payable on demand purchased more than a year after its date was held to have been overdue. McAdam v. Grand Forks Mercantile Co., 24 N. D. 645. As to what is reasonable time will depend upon the facts of the particular case. See page 7. 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 months and a half, Losee v. Durkin, 7 Johns. 70; Sice v. Cunningham, 1 Cowen, 397, 404, have been deemed sufficient to discredit a note. See note to sec. 71.

Coupons 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.

§ 54. 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.

Common Law Rule-Reason of. 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. 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. Dreser v. Missouri, etc., R. R. Construction Co., 93 U. S. 93.

§ 55. 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, or other unlawful means, or for an illegal consideration, or when he negotiates it in breach of faith, or under such circumstances as amount to a fraud.

Variant readings.-In Wisconsin the following is added at the end of the section: " and the title of such person is absolutely void when such instrument or signature was so procured from a person who did not know the nature of the instrument and could not have obtained such knowledge by the use of ordinary care."

Renewal Notes-Usury.-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.

Paper obtained by misrepresentation.-Where brokers employed to purchase stock represented that they had acquired the stock, and received a check, though they had not in fact done so, their title was defective within the meaning of this section. People's State Bank v. Miller, 152 N. W. Rep. (Mich.) 527.

Where fraud does not affect party. 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 Reserve Bank v. Morse, 163 Mass. 381, 385.

Where only part of signatures are obtained by fraud.-Under this section where a note is made by several persons, and the signatures of some of the makers are obtained by fraud, the paper is voidable by all the others, though they were not themselves deceived; for when several persons assume such an obligation it is material and important that all who join as makers should share equally in bearing the burden of payment, and if, through the fraud of the payee, such equality of burden is disturbed, and the burden increased as to some of the persons signing the paper, such fraud renders the title defective as to all. Schmidt v. Bank of Commerce, 234 U. S. 64; Hodge v. Smith, 130 Wis. 326; Aukland v. Arnold, 131 Wis. 64.

§ 56. 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.

Rule at common law. The rule adopted in the statute is that which was established by the great weight of authority. In numerous well-considered cases it was held that 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 put 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.

Application of the section. For cases applying this section see Interboro Brewing Co. v. Doyle, 165 App. Div. (N. Y.) 646; Coffin v. Tevis, 164 Id. 314; Wallabout Bank v. Peyton, 123 Id. 727; German-American Bank v. Cunningham, 97 Id. 244; Van Slyke v. Rooks, 181 Mich. 88; Pratt v. Rounds, 160 Ky. 358; Farmers' Bank v. First Nat. Bank, 164 Ky. 548; Moutenegro-Riehm Co. v. Illinois Trust Co., Id. 608; Davis v. Clark, 85 N. J. L. 696; Arnd v. Aylesworth, 145 Iowa, 185; American Nat. Bank v. Lundy, 21 N. D. 167.

Opportunity for inquiry.-As the transferee is not bound to make inquiry, the fact that the transferrer lives near him is not material. Seltzer v. Deal, 135 N. C. 428.

Financial condition of maker. The fact that the holder may have known of the maker's impecunious circumstances is not enough to put him upon inquiry; for one to whom the paper is offered has a right to rely upon an indorser's responsibility, even though he knows that the maker is in poor circumstances. Baruch v. Buckley, 167 App. Div. (N. Y.) 113.

Payment of value. 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.

Purchasing paper at a discount.-Under this section the mere fact that the holder has taken the paper at a large discount is not sufficient, standing alone, to deprive him of his claim to be a holder in due course. Ham v. Merritt, 150 Ky. 11; Wells v. Duffy, 69 Wash. 310; McNamara v. Jose, 28 Wash. 461. But 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; Sabine v. Paine, 166 App. Div. (N. Y.) 10; Harris v. Johnson, 89 Conn.

128.

Rate of interest.-A bank is not chargeable with bad faith because it discounted notes at seven per cent. per annum when the legal rate of interest is but six per cent. Bank of Monongahela Valley v. Weston, 172 N. Y. 259.

Purchase of check by bank.-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.

Statement of consideration.-The fact that the nature of the consideration is stated upon the face of the paper is not notice of any defect of title. Bank of Sampson v. Hatcher, 151 N. C. 359.

Paper made by corporation.-Where a corporation is authorized to execute notes, a negotiable note executed and issued by it for an ultra vires purpose is not void in the hands of an innocent purchaser for value before maturity, even though the purpose for which the note was executed was in violation of the public policy of the state. Jefferson Bank v. Chapman, 122 Tenn. 415, 416.

Paper indorsed to corporation.-The provisions of this section apply to all classes of persons, artificial as well as natural. Cox & Sons Co. v. Northampton Brewing Co. 245 Pa. St. 418.

Paper of corporation received from officer.-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