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.
The rule is the same under the express provisions of the Negotiable Instruments Law. Ohio Valley Banking & Trust Co. v. Great Southern Fire Insurance Co., 176 Ky. 694, 197 S. W. 399; Union Investment Co. v. Epley, 164 Wis. 438, 160 N. W. 175.
This rule protects the maker, but not a payee who has indorsed in blank. Justice v. Stonecipher, 267 111. 448, 108 N. E. 722. See, Some Problems in Overdue Paper, by Francis R. Jones, 11 Harvard Law Review, 40; and Rights in Overdue Paper, by Zechariah Chafee, Jr., 31 Harvard Law Review, 1104.
2 Fairfield County National Bank v. Hammer, 89 Conn. 592, L. R. A. 1918E, 163, 95 Atl. 31.
3 State v. Sapulpa, - Okla. - , 160 Pac. 489.
4Haug v. Riley, 101 Ga. 372, 40 L. R. A. 244, 29 S. E. 44.
A note which is payable on demand is not mature until a reasonable time has elapsed.13 On this point the Negotiable Instruments Law provides: "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." 14 Within the meaning of this rule, two months has been held not to be an unreasonable time.15On the other hand, a year and a half has been held to be an unreasonable time.16 The fact that a note which by its terms is payable at a certain time, contains a provision which authorizes the payee to declare such note to be due before such period of maturity in case the payee feels himself insecure, does not render such note a demand note;17 and for the purpose of transfer it is due at the time fixed and not in a reasonable time.18 For the purpose of determining the rights of the holder, a check is not overdue until a reasonable time has elapsed.19 One day,20 four days,21 five days,22 six days,23 or ten days,24 have been held not unreasonable intervals. It has been held that the express provision of section 186 of the Negotiable Instruments Law, to the effect that a check must be presented within a reasonable time after it is issued or the drawer will be discharged from liability thereon to the extent of the loss caused by the delay, composes the sole consequence of failure to present a check for payment within a reasonable time; and that, accordingly, one who takes a check for value and without notice after the lapse of a reasonable time,21 such as five weeks after it is drawn,26 may be a bona fide holder. A certificate of deposit, which provides that it shall not bear interest after twelve months, is to be regarded as due after a reasonable time, which must not exceed twelve months from its date.27 A certificate of deposit, which is to bear interest if left for six months, and which is not to bear interest after twelve months, is presented in a reasonable time if presented eleven months after it was issued.28 A certificate of deposit, payable when returned, is not overdue until it is returned.29
5 Union State Bank v. Benson, 38 N. D. 396, L. R. A. 1918C, 34.1. 165 X. W. 509.
6Union State Bank v. Benson, 38 N. D. 396, L. R. A. 1918C, 346, 163 N. W. 609.
7 Bank v. Pennsylvania & Kentucky Fire Brick Co., 175 Ky. 192. L. R. A. 118E, 165, 194 S. W. 110.
8 Whitney National Bank v. Cannon, 62 La. Ann. 1484, 27 So. 948.
See also, Farmers' & Merchants' State Bank v. Beal, 102 Kan. 481, 170 Pac. 1007.
9 Calhoun v. Ainsworth, 118 Ark.
316, L. R. A. 1913E, 39.1, 176 S. W. 316.
10 Calhoun v. Ainsworth, 118 Ark. 316, L. R. A. 1913E, 39.1, 170 S. W. 316.
11 Marion National Bank v. Harden, - W. Va. - . 97 S. E. 600.
12 Railway Postal Clerks' Investment Association v. Wells, 147 Ga. 377, 04 S. E. 228.
13 Title Loan & Investment Co. v. Fuller (Kan.), 184 Pac. 727; Guckian v. Newbold, 23 R. I. 533, 394, 51 Atl. 210; Colona v. Parkaley National Bank, 120 Va. 812, 92 S. E. 979.
14 Section 53 of the Negotiable Instruments Law.
15 Colona v. Parksley National Bank, 120 Va. 812, 92 S. E. 979.
16 Guckian v. Newbold, 23 R. I. 553, 694 51 Atl. 210.
Twenty months is an unreasonable time. Title Loan & Investment Co. v. Fuller, - Kan. - , 184 Pac. 726.
17 Puget Sound State Bank v. Washington Paving Co., 94 Wash. 504, 1(52 Pac. 870.
18 Puget Sound State Bank v. Washington Paving Co., 94 Wash. 504, 162 Pac. 870.
19 Johnson v. Harrison, 177 Ind. 240, 39 L. R. A. (N.S.) 1207, 97 N. E. 930; Matlock v. Scheuerman, 61 Or. 49, 17 L. R. A. (N.S.) 747, 93 Pac. 823.
20 Matlock v. Scheuerman, 51 Or. 49, 17 L. R. A. (N.S.) 747, 93 Pac. 823.
21 Johnson v. Harrison, 177 Ind. 240, 39 L. R. A. (N.S.) 1207, 97 N. E. 930.
22Fealey v. Bull, 163 N. Y. 31)7, 67 N. E. 631.
23 Rothschild v. Corney, 9 Barn. & C. 388; Estes v. Shoe Co., 59 Minn. 504, 60 Am. St. Rep. 424, 61 N. W. 674. (Especially if the parties are a considerable distance apart.)
24 Ames v. Meriam, 98 Mass. 294.
25 German-American Bank v. Wright, 85 Wash. 460, 148 Pac. 709.
26 German-American Bank v. Wright, 85 Wash. 460, 148 Pac. 769.
27 Easley v. East Tennessee National Bank, 138 Tenn. 369, L. R. A. 1918C, 689, 198 S. W. 66.
If a bona fide holder of a negotiable instrument has transferred it as collateral for his own debt, he acquires his original rights upon paying such debt or upon repurchasing such instrument from the person to whom he has transferred it, even though he reacquires it after maturity.30 The renewal of the original note for which another note has been transferred as collateral security, does not prevent the payee from holding such collateral note as a bona fide holder.31
There is a conflict of authority as to whether one who takes after maturity takes subject to collateral defenses, such as set-off and counter-claim. Some courts hold that such defenses can not be interposed,32 and others that they can.33 But even where set-off can not ordinarily be asserted against a transferee after maturity, such set-off may be asserted against a transferee where the note is assigned fraudulently to defeat the set-off.34