To be a holder in due course a transferee must acquire the paper before it is overdue.
(1) In general.
If paper is overdue, it continues negotiable until discharged. But one who acquires it after it is overdue, takes it subject to the equities which exist against the party from whom he takes it. He must acquire it before it is overdue in order to have the standing of a holder in due course. "The question constantly arises, why is it in circulation - why is it not paid?"95 An instrument is overdue the day after its maturity. As we have seen days of grace are abolished.
93. Becker v. Hart, 120 N. Y. Supple. 220; see also McNamara v. Jose, 28 Wash. 461, 68 Pac. 903; Lassas v. McCarty, 47 Ore. 474, 84 Pac. 76.
94. Paika v. Perry, supra.
(2) When is demand paper overdue?
Paper payable on demand is due upon demand. But from the standpoint of a purchaser who does not know that a demand has ever been made, when is the paper overdue? If there is something wrong with the paper, it is hardly likely that the payee would make a demand, or at least, his demand would be refused. Such paper is negotiated. When is the party to whom it is sought to be negotiated put on notice by the lapse of time that the paper is overdue? This is a question of some difficulty. It is the general rule that demand paper is overdue after it has been outstanding a reasonable length of time. The law provides:
"When 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." 96
"In determining what is a reasonable time, or an unreasonable time, regard is to be had to the nature of the instrument, the usage of trade or business (if any) with respect to such instruments, and the facts of the particular case."97
95. Fisher v. Leland et al, 4 Cush. 456, 50 Am. Dec. 805.
96. Nego. Instru. Law, SEC. 59.
97. Ibid, Sec 193.
Example 40. A bought a demand note 23 days old. The note was void in the hands of the party from whom A bought it. No demand had actually ever been made. A claims to be a holder in due course and therefore not subject to defenses. Held not overdue. "It is unquestionable that one day would not be a reasonable time, and that five years would be an unreasonable delay. Intermediate these times there is nothing settled, and each case must be left to be determined upon its own peculiar circumstances." 98
Example 41. A bought a note payable on demand, between three and four months after its issue. Held, that it was overdue and A was subject to defenses. "On this question the authorities are not uniform but no case shows that more than three months can reasonably be overlooked."99
It is impossible to lay down a definite rule on this subject, but business custom is perhaps in favor of a three months period as not unreasonable. In a Kentucky case it was said more than four months would be unreasonable by the bank customs of that state100 and in South Dakota, the statute definitely sets out specific periods of time to govern this subject. The practical lesson for the business man is to be cautious in taking a demand bill or note more than, say, about three months old, although this is by no means to be taken as a definite rule.
(3) Is paper overdue if the interest is overdue?
Is the mere fact that interest on an instrument is overdue (for instance semi-annual interest on a threeyear note) a circumstance to make the instrument overdue to charge a holder as a purchaser of overdue paper? Held, not to be such a circumstance.101
98. Mitchell v. Catchings, 23 Fed. 710.
99. Paine v. Central Vermont R. Co., 14 Fed. 269.
100. Frazee v. Phoenix Nat. Bk., 161 Ky. 175, 170 S. W. 532.
(4) If an installment of principal is overdue, is instrument overdue?
Held, that such an instrument is overdue, and that the holder is subject to a defense to the entire note.102
(5) If an installment of interest is overdue where paper provides principal may therefor be declared due.
Held: not overdue.103
(6) Overdue paper sold in breach of trust.
If overdue paper is held by the apparent owner thereof in breach of a trust or condition under which he holds it, is the title of the taker good ?
Example 42. J entrusted to S certain promissory notes which were all indorsed in blank, and which S was to keep for J pending his absence. S borrowed money from a bank and put the notes up as collateral at a time when they were overdue. J, upon his return, learned of the facts and demanded the notes. Held, that the bank was entitled to them. Note, that in this case there was no defense sought to be made that the debt was not owing, but the sole claim was that S had broken faith and that B becoming a holder after maturity was subject to this defense. J should be bound by the act of S
1o1. Kelley v. Whitney, 45 Wis. 110.
in this case because by indorsing the notes in blank he gave S apparent title.104 Had the bank gone to the maker and asked him whether there was any reason why it should not acquire the paper he would have said that he had no defense. There was nothing within reason here to put the bank on notice, or that it could have done to protect itself.
102. Vinton v. King, 86 Mass. 562.
103. Gillette v. Hodge, 170 Fed. 313; contra, Hodge Bros. v. Wallace, 129 Wis. 84.
(7) How time computed.
In determining when an instrument is overdue the Negotiable Instrument law provides:
"Where the day, or the last day, for doing any act herein required or permitted to be done, falls on Sunday or on a holiday, the act may be done on the next succeeding secular or business day."105