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B L I SS , E T A L . v.

C A L I F O R N I A C O - O P P R O D U C E R S
TOPIC: Holder at or after maturity
03 June 1947
Carter, J.
30 Cal. (2d) 240, 181 P.
and
(2d) 369
without notice of dishonor; Sec.
53
SUMMARY: Holders of 3 PNs payable in installments sued the 3 makers for the amount. The
rule is that a transferee of an installment note is a holder in due course as to the
installments to mature in the future, unless the past due installments have not been
paid and he has NOTICE of such nonpayment. As nonpayment was sufficiently proven
but notice was not established by evidence, the case was remanded and ordered
retried solely on the issue of notice.
FACTS:
California Co-op entered into marketing contracts with many agricultural producers
to furnish the latter with certain shipping facilities and to provide them with
insurance. The agricultural producers executed non-interest bearing PNs payable to
the cooperative in INSTALLMENTS.
Shildler, Winchester, and Galbreath (hereinafter 3 makers), were among those
who executed PNs. The notes had no acceleration clauses.
April 1928 The first installment being still unpaid, the cooperative pledged
(negotiated) the 3 notes to Bliss et al. to secure the payment of the cooperatives
note for $5000, held by Bliss.
1930 The cooperative became insolvent, then bankrupt. It was unable to continue
the performance of its obligations under its marketing contracts, including the 3
makers of the PNs.
The cooperative also defaulted in its payment of its note to Bliss et al. The latter
sued the 3 makers.
DEFENDANTS ARGUE: They are not liable on the PNs because there was failure of
consideration.
PLAINTIFFS ARGUE:
(1) The asserted failure of consideration did not occur until after appellants had notice
of the transfer of their notes to plaintiffs and thus the failure of consideration is not
a defense.
(2) Defendants have enjoyed the fruits of the marketing contract with the corporation
and hence are estopped to raise the defense of failure of consideration.
W/N Bliss, et al. are holders in due course Evidence is insufficient; retrial
necessary.
The rule is that 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 been paid and he has notice of that fact.
The decision in this case must turn on (1) W/N the first installment due on Jan.
2, 1928 was paid, and if not paid, then (2) W/N Bliss, et al. had notice of
such nonpayment.
VILLARAMA, BIANCA DANICA S.
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TC found that it the first installment not paid. Therefore, the first of the 2
conditions is present.
o On the subject of notice to plaintiffs of appellants' failure to pay the first
installment, the findings are unsatisfactory. The evidence with reference to
the existence of notice is sketchy. We believe the issue of notice should
be retried.
In case it is found that plaintiffs had notice, and were not therefore holders in due
course, for the guidance of the court we will discuss the issues pertinent to the
defenses interposed:
(1) Plaintiffs urge that the asserted failure of consideration did not occur until after
appellants had notice of the transfer of their notes to plaintiffs. The general rule
is that an assignee of a chose in action is subject only to all equities and
defenses existing at or before the notice of the assignment, BUT where there is a
failure of consideration under a bilateral contract consisting of a breach by the
assignor, such failure is a good defense to an action by the assignee whether it
occurred before or after the notice of assignment.
(2) We do not find any estoppel or reason springing from the foregoing
circumstances which prevent appellants defending on the ground of failure of
consideration.
o

The judgment is REVERSED and the case may be retried only upon the issue of
NOTICE of nonpayment of the first installment at the time of the transfer, and
judgment may thereafter be entered in accordance with the views expressed
herein in the light of the determination of the issue of notice.

TRAYNOR, J. (dissenting)
It is unnecessary to remand this case to the trial court for a finding on the question
of notice, since the findings and the evidence show that plaintiffs took the notes
without notice that the first installments had not been paid.
In the absence of the operation of an acceleration clause, however, the fact
that the maturity date of one or more installments has passed cannot make the
instrument overdue as to installments payable in the future. The instrument
is in part overdue and in part not.
The more realistic interpretation, and the one in accord with the expressed intention
of the Uniform Negotiable Instruments Act to make installment notes negotiable,
would be that the instrument, like the principal obligation, is overdue only as to
matured installments, but not as to installments payable in the future. A
contrary holding would render installment notes nonnegotiable after the
due date of the first installment. Even if a transferee could thereafter be a
holder in due course if that or subsequent installments were paid, he would still
have to ascertain at his peril whether the previous installments had been paid. Thus
the privilege of a holder of a negotiable instrument to be free from a duty to inquire
into the relations between previous parties to the instrument would be denied the
holder of an instrument payable in installments.
VILLARAMA, BIANCA DANICA S.
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A transferee has no reason to conclude from the mere fact that the note circulates
after the due date of one or more installments that such installments were not paid;
he may assume that the ordinary course of business has been followed and
that the installments have been paid.
The mere fact that one or more installments of an installment note are unpaid when
the note is negotiated does not convey knowledge to the transferee of a defense
against the note; nor does it reveal such knowledge of circumstances that it can be
said that the holder of the note shut his eyes to the facts and in bad faith sought to
avoid the knowledge of a defense.

VILLARAMA, BIANCA DANICA S.


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