indorsement of the transferrer. When the indorsement is procured, it does not date back to the time when the instrument was delivered.

288. Delivery. One important element of negotiation is delivery. As between immediate parties, that is, as between maker and payee, indorser and indorsee, and as regards a holder not in due course, delivery must actually be made, and as to these parties it may be shown on what condition, if any, it was made. But as between the payee or an indorsee and a remote holder in due course, that is, a purchaser of the instrument for value and without notice of any infirmity, delivery is conclusively presumed.

EXAMPLES

306. A draws a note to bearer and C steals it and gives it to X, who pays C the face value of the note without knowing that C is a thief. X may recover from A.

307. If C had tried to recover from A, he would have lost his action because he stands in the position of an immediate party.

In this case, under the statute, the burden would be on A to show that the note had been stolen.

The above examples illustrate the rule often briefly stated: a thief of a negotiable instrument can give good title, but not if the instrument requires filling up in any material respect, to make it complete.

289. Holder in due course.-The holder of a negotiable instrument is any person who has legal possession of it and is entitled to recover. The term is general and includes payee, indorsee or bearer. It is necessary now to inquire what is meant by holder in due course. Involved in these words is the whole essence of negotiable contracts,—those principles which differentiate these

contracts from the ordinary form of contracts. A holder in due course is a person who purchases the instrument for a valuable consideration and takes it without notice of any defect or defense that prior parties may set up. Certain attributes must be present to constitute a holder in due course.

290. Regularity of face of instrument. The instrument must be complete and regular upon its face. If there is any irregularity such as an erasure, ambiguous or uncertain clause, the transferee before taking the paper must ascertain the causes, for the irregularities are notice that the paper was not issued in the regular course of business. The fact that the instrument is post-dated is not such defect as will put the transferee on inquiry. The rights of the holder are to be determined by the test of honesty and good faith, and not by a speculative issue as to his diligence or negligence.

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291. Maturity.-If an instrument is overdue when transferred the transferee is not a holder in due course. A promissory note is due when the principal is to be paid. Interest may be overdue, but this fact alone will not constitute the transferee a holder not in due course. Where the date of payment is specified the paper comes overdue on the date succeeding. Demand paper matures a reasonable time after demand. What is a reasonable time depends on the circumstances of each case. Anything above three months is an unreasonable time. A month, under certain circumstances, has been held not such an unreasonable time as would discredit a note.

292. Good faith of the transferee.-A holder in due course must have taken the instrument in good faith. Any facts that would cause an ordinary man to be suspicious ought to be investigated.

EXAMPLE

308. C approaches X and offers a note of $500 for $300. The note was in fact stolen by C from the maker, A. If X takes the note the difference between the amount paid and the face of the note will constitute X a transferee in bad faith, and hence not a holder in due course.

The question is not one of diligence or negligence in making inquiry in every suspicious case. The circumstances must so obviously arouse suspicion that to accept the paper passively with the expectation of recovering on it would amount to bad faith. The court seeks to discover whether the particular transferee acted fairly and honestly, not whether he acted as a prudent man should act.

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293. Notice of defect.-Closely related with the subject of good faith spoken of in the preceding section is that of notice. Any notice of a defect in title or of previous dishonor will prevent a transferee from being a holder in due course. He is not bound, however, to go even to a neighbor, whose note is offered him in payment of a debt, to inquire if there are any defects in the instrument unless not to do so would constitute downright bad faith. The mere fact that the payee a check informs an indorsee that the drawer desired him to hold it a few days before presentment is not sufficient to charge the indorsee with notice. It must be remembered that were banks and persons engaged in making many commercial exchanges compelled to inquire into the history of every instrument presented to them the consequent hampering of business intercourse would be of vastly more detriment than is the occasional instance of hardship.

294. Consideration.-One who does not pay value

for a note or bill is not a holder in due course. The negotiable instruments law has attempted to give a simple and conclusive definition of value, but the subject still is unsettled. "Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value." But suppose a note is received merely as collateral security for a debt. Most courts would hold that if the debt were incurred at the same time the instrument was delivered, the receiver would be in the position of a bona fide holder in due course. If the debt, however, was already in existence the question presented would be variously decided, most jurisdictions holding that the receiver of a negotiable instrument as collateral security for a preexisting debt is a holder in due course; other courts do not regard him as such.1

295. Title derived from holder in due course.-A holder who derives his title through a holder in due course, and who is not himself a party to any fraud or illegality affecting the instrument, has all the rights of such former holder in respect to all prior parties. If knowledge that a prior party procured the instrument by fraud became general a holder in due course would find himself unable to dispose of the paper unless the above rule were enforced.

EXAMPLE

309. A makes a note to C. It is stolen by X who forges C's name and thereby transfers it to E. Thereafter G hears of the circumstances and accepts the note from E, paying value for it. G can recover from A, for he has all the rights

1 The former view is taken in California, Colorado, Connecticut, District of Columbia, Georgia, Illinois, Indiana, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, North Carolina, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington,

of his immediate predecessor, who was a holder in due course. If G transferred it to X, the latter, being a party to the theft, could not recover.

296. Rights of holder in due course.-Chapter XXI treats of personal and real defenses. An instrument in the hands of a holder in due course is not subject to personal defenses. Real defenses render the instrument void and are good as against even a holder in due course. Every holder is presumed to be a holder in due course, but the presumption is overcome by proof of a personal defense, and thereupon the holder must proceed to prove that he is a bona fide purchaser for value without notice of defects.

West Virginia, United States, England, and Canada. Those upholding the latter view are Alabama, Arkansas, Iowa, Kentucky, Maine, Michigan, Mississippi, Missouri, New Hampshire, New York, North Dakota, Ohio, Pennsylvania, Wisconsin.

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