BLISS v. CALIFORNIA CO-OP PRODUCERS30 Cal. 2d 240June 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 co-operative negotiated the notes to Bliss to secure payment of the co-operative’s 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.”