L. 1909, ch. 43 Rights of Holder ARTICLE 6 RIGHTS OF HOLDER §§ 90, 91 Section 90. Right of holder to sue; payment. 91. What constitutes a holder in due course. 94. When title defective. 95. What constitutes notice of defect. § 90. Right of holder to sue; payment. The holder of a negotiable instrument may sue thereon in his own name; and payment to him in due course discharges the instrument. This section was derived from the Negotiable Instruments Law of 1897, § 90. Discharge of instruments: see infra, §§ 200-206. Presumption of ownership.- The holder of a note is presumed to be the owner thereof. Newcombe v. Fox, (1896) 1 App. Div. 389, 37 N. Y. S. 294, affirmed without opinion (1897) 154 N. Y. 754, 49 N. E. 1101; Brown v. Janes, (1911) 71 Misc. 316, 130 N. Y. S. 333. Allegation of ownership.-An allegation in a complaint on a note that the instrument was made payable to the order of the plaintiff indicates that the delivery was to him, and sufficiently shows his ownership, and it is not incumbent on him to allege that he has not parted with possession or title for these facts will be presumed in the first instance. Pittsburgh First Nat. Bank v. Stallo, (1914) 160 App. Div. 702, 145 N. Y. S. 747. Consideration for transfer not material.— Where a note is transferred after maturity so that the transferee becomes the legal owner of the obligation, such transferee is entitled to maintain an action thereon, and a payment to or recovery thereon by such owner protects the maker, though the consideration paid by such transferee may not be adequate. Hunter v. Allen, (1905) 106 App. Div. 557, 94 N. Y. S. 880. See supra, §§ 50, 51, as to the consideration for an instrument. Discharge. By the express provisions of this section, the payment of a check in due course discharges the instrument. Poess v. New York Twelfth Ward Bank, (1904) 43 Misc. 45, 86 N. Y. S. 857. Cited. Schlesinger v. Kurzrok, (1905) 47 Misc. 634, 94 N. Y. S. 422. § 91. What constitutes a holder in due course. A holder in due course is a holder who has taken the instrument under the following conditions: 1. That it is complete and regular upon its face; 2. That he became the holder of it before it was overdue, and 8 91 Rights of Holder L. 1909, ch. 43 without notice that it had been previously dishonored, if such was the fact; 3. That he took it in good faith and for value; 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. This section was derived from the Negotiable Instruments Law of 1897, § 91. Holder for value: see supra, §§ 51, 52. Instrument payable on demand: see infra, § 92. Notice of defect: see infra, §§ 93, 95. Rights of holder in due course: see infra, § 96. When instrument subject to original defenses: see infra, § 97. Presumption that holder is in due course: see infra, § 98. Holder for value distinguished from holder in due course.-A holder for value of an instrument, as defined in section 52, supra, is to be distinguished from a holder in due course as defined in this section, for a holder in due course is one who has no notice of any defect in the title of the person negotiating the instrument. Laing v. Hudgens, (1913) 82 Misc. 388, 143 N. Y. S. 763. See also Anchor Realty Co. v. Bankers' Trust Co., (1916) 161 N. Y. S. 300. Completeness.—One who takes a negotiable instrument which is not cornplete on its face is not a holder in due course thereof. Davis Sewing Machine Co. v. Best, (1887) 105 N. Y. 59, 11 N. E. 146; Hunter v. Allen, (1908) 127 App. Div. 572, 111 N. Y. S. 820. "The rule that a party buying commercial paper which remains in some essential particular incomplete and imperfect does not acquire the character of a bona fide holder, rests upon sound reasons and is well established in commercial law. No stronger evidence could be afforded that such paper had been prematurely put in circulation contrary to the will and intention of the maker, than the fact that it had not been fully and completely prepared, to perform the office for which it was designed. It is apparent that such paper must have been taken from the possession of its maker before an intention to part with it had been fully formed, and that he still designed to add some provision or formality to give it vitality and effect." Davis Sewing Machine Co. v. Best, (1887) 105 N. Y. 59, 11 N. E. 146. The provision of this section to the effect that one to be a holder in due course of a negotiable instrument must take the instrument complete and regular upon its face, is but a codification of the rule of the law merchant, that a party buying commercial paper which remains in some essential incomplete and imperfect does not acquire the character of a bona fide holder. Hunter v. Allen, (1908) 127 App. Div. 572, 111 N. Y. S. 820. Where notes at the time of their discount by a bank are blank as to the date, time of payment and amount, and these blanks are filled by the bank, it is not a holder in due course. Hunter v. Allen, (1908) 127 App. Div. 572, 111 N. Y. S. 820. One who takes a note with knowledge that it had been indorsed before it was filled in and signed by the maker, is not a bona fide holder for value. Dumbrow v. Gelo, (1911) 72 Misc. 400, 130 N. Y. S. 182. If the place of payment in certain bonds is blank, a transferee thereof will not acquire a good title as against the real owner, the bonds having been stolen from the true owner and negotiated. Ledwich v. McKim, (1873) 53 N. Y. 307. Apparent alteration. Where the mere inspection of a check discloses that it has been altered, a transferee thereof cannot be a holder in due course under this section, as it is not complete and regular on its face when taken; and when the transferee is not a holder in due course, he cannot enforce the L. 1909, ch. 43 Rights of Holder 8 91 check under section 205, infra, according to its original tenor. Elias v. Whitney, (1906) 50 Misc. 326, 90 N. Y. S. 667. No indorsement.- Where an instrument is transferred without the indorsement of the payee, the transferee cannot be a holder in due course until the indorsement is placed on the instrument. See supra, § 79. Parting with value.-One who does not part with value for a negotiable instrument cannot be a holder in due course thereof. Peterson v. Fowler, (1914) 162 App. Div. 21, 147 N. Y. S. 280. People who receive gifts of negotiable securities take them subject to all equities then existing between the original parties. Champlain First Nat. Bank v. Wood, (1891) 128 N. Y. 35, 27 N. E. 1020; Mandan First Nat. Bank v. Gilmor, (1896) 18 Misc. 614, 42 N. Y. S. 467. One to whom a check is given as a loan without consideration passing between the parties is not a holder in due course. Rosenthal v. Parsont, (1908) 110 N. Y. S. 223. A parting of value, though not conclusive, indicates good faith on the part of the transferee of the instrument. See infra, § 95. And see supra, §§ 51, 52, as to when a transferee has parted with value. Transfer after maturity.-Where a note which is invalid in the hands of the holder as against the maker is not transferred by such holder until after its maturity, the transferee is not a holder in due course and takes the instrument subject to the equities between the original parties. Owen v. Evans, (1892) 134 N. Y. 514, 131 N. E. 999; Chester v. Dorr, (1869) 41 N. Y. 279; Hunter v. Allen, (1908) 127 App. Div. 572, 111 N. Y. S. 820; Cole v. Stearns, (1897) 20 Misc. 502, 46 N. Y. S. 238, affirmed 23 App. Div. 446, 162 N. Y. 637, affirmed (1900) 162 N. Y. 637 mem.; Alsen v. Ensign, (1894) 7 Misc. 682, 28 N. Y. S. 386. After the maturity of an instrument, a purchaser for value is not a bona fide holder to the extent of being protected in his purchase unless he succeeds to the rights of such a holder, for the fact of nonpayment discredits the instrument and deprives it of any immunity which is secured in favor of a holder in due course. Northampton Nat. Bank v. Kidder, (1887) 106 N. Y. 221, 12 N. E. 577, 60 Am. Rep. 443. Interest past due.— Though the principal of a negotiable instrument was not due at the time of its transfer, if interest is due thereon and unpaid, the transferee is put upon inquiry, and the good faith of the transferee becomes a question for the jury. Citizens' Sav. Bank v. Couse, (1910) 68 Misc. 153, 124 N. Y. S. 79. Railway bonds may be overdue, though the time for the maturity of the principal has not expired, where they provide that the principal shall be due after a default in the payment of interest and such default has occurred. Northampton Nat. Bank v. Kidder, (1887) 106 N. Y. 221, 12 N. E. 577, 60 Am. Rep. 443. Payee as holder in due course.— — Ordinarily the payee of a negotiable instrument will not be in the position of a holder in due course. See Miller v. Campbell, (1916) 173 App. Div. 821, 160 N. Y. S. 834. But, under the common law, the payee of a negotiable instrument might in some cases become a holder thereof in due course, and the doctrine so far as it is applicable has not been changed by the Negotiable Instruments Law. Brown v. Brown, (1915) 91 Misc. 220, 154 N. Y. S. 1098. Thus, the payee of a check who cashes the same for the maker may be a holder in due course of the instrument. Bergstrom v. Ritz-Carlton Restaurant, etc., Co., (1916) 171 App. Div. 776, 157 N. Y. S. 959. A payee may be so disconnected with the transaction in which the paper is issued, as to be deemed a holder in due course. Miller v. Campbell, (1916) 173 App. Div. 821, 160 N. Y. S. 834. See also Empire Trust Co. v. Manhattan Co., (1916) 97 Misc. 694, 162 N. Y. S. 629. Transferee as not being holder in due course.-A transferee may be so associated with the consideration of the note and the transaction in which the note is given, as not to be entitled to assert the rights of a holder in due course. Thus, where a purchaser of real property executed several §§ 92, 93 Rights of Holder L. 1909, ch. 43 notes some of which, according to the understanding of the parties, were to have been made payable directly to the agent who negotiated the sale, but were made payable to the principal, who indorsed them to the agent, it was held that the agent was not a holder in due course so as to be protected against a claim of failure of consideration. Miller v. Campbell, (1916) 173 App. Div. 821, 160 N. Y. S. 834. Denial that plaintiff is holder in due course. In an action on a note, an allegation in the answer that the plaintiff is not a bona fide holder in due course of said note is a conclusion of law, for it is impossible to determine which of the conditions specified in this section have not been complied with. Rogers v. Morton, (1905) 46 Misc. 494, 95 N. Y. S. 49. Cited. Citizens' State Bank v. Cowles, (1905) 180 N. Y. 346, 73 N. E. 33, 105 A. S. R. 765; A. E. McBee Co. v. Shoemaker, (1916) 174 App. Div. 291, 160 N. Y. S. 251; Sabine v. Paine, (1915) 166 App. Div. 9, 151 N. Y. S. 735; Interboro Brewing Co. v. Doyle, (1915) 165 App. Div. 646, 151 N. Y. S. 325; Coffin v. Levis, (1914) 164 App. Div. 314, 149 N. Y. S. 986; Equitable Trust Co. v. Taylor, (1911) 146 App. Div. 424, 131 N. Y. S. 475; Linick v. Nutting, (1910) 140 App. Div. 265, 125 N. Y. S. 93; Benedict v. Kress, (1904) 97 App. Div. 655, 89 N. Y. S. 607; German-American Bank v. Cunningham, (1904) 97 App. Div. 244, 89 N. Y. S. 836; Karsch v. Pottier, etc., Mfg. Co., (1903) 82 App. Div. 230, 81 N. Y. S. 782; Sutherland v. Mead, (1903) 80 App. Div. 103, 80 N. Y. S. 504; Petrie v. Miller, (1901) 57 App. Div. 17, 67 N. Y. S. 1042, affirmed (1903) 173 N. Y. 596, 65 N. E. 1121; Mechanics', etc., Nat. Bank v. Termini, (1915) 93 Misc. 1, 156 N. Y. S. 433; Goldberg v. Berg, (1916) 93 Misc. 498, 157 N. Y. S. 209; Weiss v. Russer, (1909) 62 Misc. 292, 141 N. Y. S. 983; Gansevoort v. Gilday, (1907) 53 Misc. 107, 104 N. Y. S. 271; Greeser v. Sugarman, (1902) 37 Misc. 799, 76 N. Y. S. 922; Siegmeister v. Lispenard Realty Co., (1907) 107 N. Y. S. 158; Goetling v. Day, (1904) 87 N. Y. S. 510; Anchor Realty Co. v. Bankers' Trust Co., (1916) 161 N. Y. S. 300. § 92. When person not deemed holder in due course. 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. This section was derived from the Negotiable Instruments Law of 1897, § 92. When instrument is payable on demand: see supra, § 26. Time of presentment of demand note: see infra, § 131. Determination of reasonable time: see supra, § 4. Prior rule.- Prior to the enactment of the Negotiable Instruments Law it was held that a demand note payable with interest, when not transferred until nearly three months after its date, is subject in the hands of the transferee to equities between the original parties. Herrick v. Woolverton, (1870) 41 N. Y. 581, 1 Am. Rep. 461. Considered as overdue. "In this country, the law is, that a promissory note, payable on demand, unless demanded within a reasonable time, is considered as overdue and dishonored." Herrick v. Woolverton, (1870) 41 N. Y. 581, 1 Am. Rep. 461. § 93. 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 L. 1909, ch. 43 Rights of Holder $ 94 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. This section was derived from the Negotiable Instruments Law of 1897, § 93. Declaratory of the law. This section is thought to be declaratory of the law. Albany County Bank v. People's Co-operative Ice Co., (1904) 92 App. Div. 47, 86 N. Y. S. 773. See also Pearce, etc., Engineering Co. v. Brouwer, (1894) 10 Misc. 502, 31 N. Y. S. 195, wherein it was said: "The transfer of a negotiable promissory note before maturity as collateral security for moneys advanced constitutes the transferee a bona fide holder when the loan or advance was made in good faith. . . . If the holder of such paper has paid but a part of the consideration or value, he is entitled to be considered a bona fide holder pro tanto . . . and may recover his actual payment." And see also Dresser v. Missouri, etc., R. Const. Co., (1876) 93 U. S. 92, 23 U. S. (L. ed.) 815, promulgating a similar rule for the federal courts. Avails of note deposited in bank.- Where the holder of a note discounts it and it is placed to his credit in the bank, the bank is not a holder in due course until the avails have been paid to the depositor; if, before the funds are thus paid, the bank receives notice of an infirmity in the instrument, it cannot subsequently pay the moneys to the payee so as to become a holder in due course. Albany County Bank v. People's Co-operative Ice Co., (1904) 92 App. Div. 47, 86 N. Y. S. 773. See also supra, § 51, as to when bank has parted with value. Cited.― Rosenbaum v. Roth, (1914) 164 App. Div. 617, 150 N. Y. S. 396; Goetting v. Day, (1904) 87 N. Y. S. 510. § 94. When title defective. The title of a person who negotiates an instrument is defective within the meaning of this chapter 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 when he negotiates it in breach of faith, or under such circumstances as amount to a fraud. This section was derived from the Negotiable Instruments Law of 1897, 8 94. Conditional delivery as a defense: see supra, § 35. Notice of defect: see infra, § 95. As against holder in due course: see infra, § 96. Failure of consideration.- Failure of consideration is not one of the defenses specified in this section, and hence its proof does not throw the burden on the holder of establishing his bona fide position. Broderick, etc., Hope Co. v. McGrath, (1913) 81 Misc. 199, 142 N. Y. S. 497. And see infra, § 98, as to the burden of proof. See also §§ 50-55, as to the consideration of instruments. Knowledge of officers of insolvency of bank in which deposit is made.— Where one deposits his own check drawn on another bank with a banking corporation which is known to be insolvent by the officers thereof and which actually suspends business a few hours later, the check is deemed to have been procured by fraud and the representative of the bank cannot enforce it against the drawer. Grant v. Walsh, (1895) 145 N. Y. 502, 40 N. E. 209, 45 A. S. R. 626. Declarations of former owner. The declarations of a former owner of negotiable paper are not admissible against the holder or assignee to affect |
