BLISS v.

CALIFORNIA CO-OP PRODUCERS

30 Cal. 2d 240
June 3, 1947
FACTS:
The California Co-op Producers was organized to process and ship agricultural
products through the use of the shipping terminal facilities. Growers of agricultural products
were to be solicited to use the facilities of the corporation in the marketing of their products.
Marketing contracts were entered into by the cooperative with many producers. Agricultural
producers executed non-bearing negotiable notes, payable to the co-operative, in ten
annual installments, with no acceleration clause. The co-operative agreed to furnish facilities.
Shidler, Winchester and Galbreath each executed one of the notes. The three makers
defaulted in the payment of the first installment. Later, while the note is still unpaid, the cooperative negotiated the notes to Bliss to secure payment of the co-operatives note, held by
Bliss. The co-operative, by reason of insolvency and bankruptcy, was unable to continue
to perform its obligation in its contracts with the producers, including the makers of the
three notes. The co-operative defaulted in payment to Bliss. Bliss sued the makers on
their notes. Judgment was given for plaintiffs against defendants and appellants Shidler,
Winchester and Galbreath on three promissory notes of which they were the makers. Their
defenses, among others, were fraud and failure of consideration.
ISSUE: Whether a transferee of an installment note is a holder in due course where the transfer
is made after one or more but less than all of the installments are due.
HELD: No.
A transferee of an installment note is a holder in due course as to the installments to
mature in the future when the transfer is made after one or more but not all of the installments
are due on its face unless the past due installments have not in fact been paid and he has
notice of that fact. Under the negotiable instruments law and the common law, the transferee of
an installment note is not a holder in due course as to any part of the note when the transfer has
been made after the maturity of one or more but less than all of the installments.
One may assume that the regular course of business has been followed, and that each
installment was paid when due. It is not significant, like it is where the whole principal is
overdue, that the note is still in the hands of the payee or holder. Where the whole principal is
overdue, that should warn the transferee that the note probably has been dishonored and there
may be some reason for it which would constitute a defense. The possession by the payee or
holder of an installment note before all of the installments are due does not signify dishonor. The
holder would necessarily retain it for collection of the balance of the installments. If, however,
the installments due on the face of the instrument have not been paid and the transferee has
notice of that fact, he is put on inquiry that there may be some defenses against it and he
cannot be a holder in due course. As held in one case: where the principal of a note is payable
in installments and one installment is overdue and unpaid at the time of transfer of the note, the
transferee is not a holder before maturity and hence is not a holder in due course, unless he
does not take with notice of the past-due installment.