This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Before the Negotiable Instruments Law was enacted, it was held that the payee of an instrument might be a bona fide holder, if he took for value without notice before maturity, and in the usual course of business, although the instrument was not, of course, indorsed to him by the original payee.1 Such a set of facts arises, as a rule, when one or more of the original makers has been guilty of unfair dealing toward other makers, of which the original payee is ignorant. In such a case the original payee has been protected, and it has been assumed that the rule which requires a bona fide holder to take by delivery, or by indorsement and delivery, according to the nature of the instrument,2 applies only when the bona fide holder claims by transfer from the original payee. Under the Negotiable Instruments Law, it has been held in some jurisdictions that the original payee may take as a holder in due course, on the theory that the Negotiable Instruments Law was intended, upon this point, to codify the pre-existing law; and that the provisions with reference to delivery, or to indorsement and delivery, applied only when the holder in due course claimed as the transferee from the original payee.3 While this would seem to be the necessary result of the Negotiable Instruments Law taken as a whole, it has been held,4 sometimes without discussion,5 that the provisions, with reference to delivery or with reference to delivery and indorsement, preclude the original payee from being a holder in due course. In other jurisdictions the courts have refused to recognize an innocent payee as a holder in due course, under the facts of the particular case, but they have kept from laying down the rule that the original payee never could be a holder in due course.8
10 English -American, etc., Go. v. Hiers, 112 Ga. 823, 38 S. E. 103.
1 Glenn v. Rice, 174 Gal. 269, 162 Pac. 1020; State v. Emery, - Okla. - , 174 Pac. 770.
See also Madison Trust Co. v. Stahl-man, 134 Tenn. 402, 183 S. W. 1012.
2 First National Bank v. Buchan, 79 Minn. 322, 82 N. W. 641.
California. Glenn v. Rice, 174 Cal. 269, 162 Pac. 1020.
Massachusetts. Hubbard v. Chapin, 84 Mass. (2 All.) 328.
Oklahoma. State v. Emery, - Okla. - . 174 Pac. 770.
Oregon. Benson v. Keller, 37 Or. 120, 60 Pac. 918.
4 Simmons v. Hodges, 250 Fed. 424.
5 Simmons v. Hodges, 250 Fed. 424.
6 Section 54 of the Negotiable Instruments Law. See Central Savings Bank v. Stotter (Mich.), 174 N. W. 142.
7 Voss v. Chamberlain, 139 Ia. 569, 19 L. R. A. (N.S.) 106, 117 N. W. 269.
1 Munroe v. Bordier, 8 C. B. 862; Armstrong v. American Exchange Bank, 133 U. S. 433, 33 L. ed. 747; Boston Steel & Iron Co. v. Steuer, 183 Mass. 140, 07 Am. St. Rep. 426, 66 N. E. 646.
See also Redfield v. Wells (Ida.), 173 Pac. 640; Johnston v. Knipe (Pa. St.), 103 Atl. 957.
If a renewal note is made out directly to an indorsee of a prior note, the payee of the second note may be regarded as a holder for value. New Haven Bank Nat. Banking Association v. Jordan Co. (Conn.), 104 Atl. 392; American National Bank v. Hill, 169 N. Car. 235, 85 S. E. 209.
2 See Sec. 2365.
3 Alabama. Ex parte Goldberg, - Ala. - , 67 So. 839.
District of Columbia. Thompson v. Franklin National Bank, 46 D. C. App. 218. Idaho. Redfield v. Wells, 31 Ida. 415, 173 Pac. 640.
Massachusetts. Liberty Trust Co. v. Tilton, 217 Mass. 462, L. R. A. 1915B, 144, 105 N. E. 605; Colonial Fur Ranching Co. v. First National Bank, 227 Mass. 12, 116 N. E. 731.
Pennsylvania. Johnston v. Knipc (Pa. St.), 103 Atl. 957.
4 St. Charles Savings Bank v. Edwards, 243 Mo. 553, 147 S. W. 978.
See on this question. Long v. Mason (Mo.), 200 S. W. 1062.
5Bowles Co. v. Clark, 59 Wash. 336, 31 L. R. A. (N.S.) 613, 109 Pac. 812.