have to enforce the instrument in order to charge secondary parties and avoid the Statute of Limitations. Leniency now might be unexpectedly used against him years hence, unless the law permits it.75 Consequently, the provision should be construed as optional. If the acceleration clause is impliedly or expressly optional, the time or times for payment remain as fixed by the instrument despite the default, unless the holder exercises his option. Therefore, the obligor cannot pay up the whole amount of the instrument at once against the holder's consent; 76 and the Statute of Limitations does not begin to run until the date fixed.77 And the rules as to equitable defenses and notice to secondary parties are in this situation the same as if no acceleration clause existed.

At this point, however, special difficulties arise with installment paper. If a note is payable in several installments without any acceleration provision, and one installment is known to be overdue, then a purchaser, though ignorant of equitable defenses, will be barred by such a defense from recovering subsequent installments,78 because he had ground to suspect some valid reason for the default. If due notice of the dishonor was not given to indorsers, this is an equitable defense which would prevent the purchaser who knew of the dishonor from charging them at all.79 Therefore an installment note with an acceleration provision is in these respects overdue on default, even though the option has not been exercised, and a holder with notice of the default is affected.80 The same result would follow if the option had been exercised, and a subsequent purchaser knew of the default, but not of the holder's election. In all these situations, the holder must have notice of the default. The absence of any indorsement on the instrument that installments have been paid is not per se notice and does not subject a

75 Belloc v. Davis, 38 Cal. 242, 249 (1869); Lowenstein v. Phelan, 17 Neb. 429, 431, 22 N. W. 561 (1885).

76 Cox v. Kille, 50 N. J. Eq. 176, 24 Atl. 1032 (1892).

77 See the cases in note 73, supra, except Cox v. Kille; and also Kennedy v. Gibson, 68 Kan. 612, 617, 75 Pac. 1044 (1904), semble.

151.

The authorities are reviewed in notes in 12 L. R. A. (N. S.), 1190; 51 L. R. A. (N. s.),

78 Vinton v. King, 4 All. (Mass.) 562 (1862).

79 Noell v. Gaines, 68 Mo. 649 (1878). This would also follow from the analogy of nonacceptance of bills of exchange. Whitehead v. Walker, 9 M. & W. 506 (1842). 80 Hall v. Wells, 24 Cal. App. Rep. 238 (1914).

purchaser to equities. It is, however, evidence of notice.81 Payment of a price large enough to include the defaulted installment would also be evidence.

Therefore, known default, regardless of the holder's option, is enough to render an installment instrument completely overdue for purposes of equitable defenses and charging indorsers, though not for tender of payment and the Statute of Limitations. The reason is, that the default is at a maturity, for the instrument has several maturities. The earlier maturity does not result from acceleration; it is already there, specified by the language of the instrument. This distinguishes the installment type of acceleration provision from all the others considered in this article.

The same principle applies to a series of notes which show on their face that they are part of the same transaction, 82 but not to instruments which are accelerated by default of interest.83 Failure to pay interest is as likely to result from temporary embarrassment as from an equitable defense; it does not entitle indorsers to notice; and therefore it is not equivalent to a dishonor for purposes of letting in equities.84

It is hardly necessary to state that a holder without notice of either default or exercise of the option is not affected by the acceleration provision.85

ACCELERATION BY AN EXTRINSIC FACT

Another type of acceleration clause provides for payment at a stated day or sooner upon the happening of an event entirely distinct from the collection of the instrument. Examples are: "ninety days after sight, or when realized"; 86 "in twelve months, or before

81 National Bank of North America v. Kirby, 108 Mass. 497 (1871); Taylor v. American National Bank, 63 Fla. 631, 649, 57 So. 678 (1912); McCorkle v. Miller, 64 Mo. App. 153 (1895); Gillette v. Hodge, 170 Fed. 313 (C. C. A. 8th, 1909).

82 25 HARV. L. REV. 286 collects the cases. The principle is the same whether the acceleration provision is present or not.

83 Gillette v. Hodge, 170 Fed. 313 (C. C. A. 8th, 1909).

84 Cromwell v. Sac County, 96 U. S. 51 (1877); the authorities are collected in 8 CORPUS JURIS, 478, which cites a few cases contra.

85 Lowenstein v. Phelan, 17 Neb. 429, 431, 22 N. W. 561 (1885); Core v. Smith, 23 Okla. 909, 924, 102 Pac. 114 (1909), semble; Gillette v. Hodge, 170 Fed. 313 (C. C. A. 8th, 1909).

86 Held bad in Alexander v. Thomas, 16 Q. B. 333 (1851).

87 ·

if made out of the sale of a machine": ' one year after date this to be paid when any dividends shall be declared on... shares";88 "Dec. 1, 1905; if crop . . . is below 8 bushels per acre this note shall be extended one year." 89 If such a clause clearly does no more than give the maker a limited option to accelerate payment, then it is like the cases which permit him to pay a note off on any interest date. However, most of these instruments must be construed as making the instrument automatically due, if the machine is sold or the dividends declared or the crop sufficiently large, etc. Such instruments are not suitable for circulation. They violate the first principle of this article, because maturity is fixed by an act not incidental to the collection of the instrument. The "on or before" and installment cases do involve such an incidental act. Here we cannot say that there is a principal maturity with acceleration as an optional means of enforcing the principal obligation. There are two maturities of coequal importance, and one of them is uncertain and could not stand alone. The holder is under no duty to inquire into dishonor by nonacceptance or refusal to pay on demand, but here is an outside fact which obviously affects payment. Since purchasers of negotiable paper should not be required to investigate outside facts, these instruments are not properly negotiable. Also the value is speculative, for no one can tell in advance whether the contingent event will occur, yet if it does the investment is destroyed.

Such an instrument has consequently been held in England not to be a valid note,90 but numerous decisions in this country repudiate the English case and uphold negotiability.91

The Negotiable Instruments Law provides that "instruments payable on or before a fixed or determinable future time specified therein" are negotiable.92 It has been held in Iowa that this validates acceleration by a contingent event,93 since the instrument is payable

87 Held good in Ernst v. Steckman, 74 Pa. St. 13 (1873); Cisne v. Chidester, 85 Ill. 523 (1877); Charlton v. Reed, 61 Ia. 166, 16 N. W. 64 (1883).

88 Held bad in Brooks v. Hargreaves, 21 Mich. 254 (1870).

89 Held good in State Bank of Halstad v. Bilstad, 136 N. W. 204 (Iowa, 1912, N. I. L.) 90 Alexander v. Thomas, 16 Q. B. 333 (1851).

91 Cases in the preceding notes; and those collected in 1 DANIEL, Negotiable INSTRUMENTS, § 43 ff.; 8 CORPUS JURIS, 138, note 75. See, also, Van Arsdale-Osborne Brokerage Co. v. Martin, 81 Kan. 499, 106 Pac. 42 (1910).

92 § 4 (2).

93 State Bank of Halstad v. Bilstad, 136 N. W. 204 (Iowa, 1912). Contra, Bright v. Offield, 81 Wash. 442, 448, 143 Pac. 159, 162 (1914, N. I. L.).

either on a fixed day or before it. By this argument any acceleration provision would be valid, yet, as we shall see, many such provisions are held invalid under the Act, and the Iowa court itself has construed the Act to forbid a chattel note with an acceleration provision, because of uncertainty in time. It seems impossible that the Act would be held to permit notes payable "in one hundred years or sooner when the peace conference is over"; "in twenty years or when an aeroplane crosses the Atlantic." This clause of the Act must be restricted to instruments which are literally payable "on or before" a day without further contingencies, so that the holder or maker accelerates by his election; or else we must construe the clause in the light of the law merchant to include other acts of acceleration, if they are business acts incidental to the collection of the instrument. The clause cannot authorize uncommercial acts of acceleration. Indeed, the instruments just considered bear the aspect of agricultural paper rather than commercial. They are open to all the objections which can be urged against notes payable on a contingency without any fixed time limit. They ought to be regarded as simple contracts for the repayment of a loan on peculiar conditions, and not as paper to circulate as a substitute for money.

JUDGMENT NOTES

Notes authorizing any attorney of record to confess judgment on behalf of the maker if he does not pay at maturity are negotiable, both at common law 95 and under the Negotiable Instruments Law. However, if judgment can be confessed before maturity, negotiability is denied by decisions before 97 and after the Act.98 A confession of judgment before maturity does not accelerate payment in some states.99 It simply gives the holder an immediate judgment lien, which can be enforced by execution after maturity. In other Iowa National Bank v. Carter, 144 Iowa, 715, 123 N. W. 237 (1909).

95 The cases are collected in 8 CORPUS JURIS, 128.

96 § 5 (2).

97 Overton v. Tyler, 3 Pa. 346 (1846), is the leading case. Richards v. Barlow, 140 Mass. 218, 6 N. E. 68 (1885), accord, is based on the old Massachusetts rule against acceleration provisions.

98 Milton National Bank v. Beaver, 25 Pa. Sup. Ct. 494 (1904); First National Bank of Elgin, Illinois v. Russell, 124 Tenn. 618, 139 S. W. 734 (1911); Wisconsin Yearly Meeting v. Babler, 115 Wis. 289, 91 N. W. 678 (1902).

See other citations in 8 CORPUS JURIS, 128.

99 Overton v. Tyler, supra.

states, execution can be levied at once.100 In any case the note is changed before maturity into a non-negotiable judgment.101 Is this rightly held to make the note itself non-negotiable? The decisions to that effect have been vigorously attacked.10

102

The fact that an obligation may become non-negotiable does not necessarily prevent negotiability at the outset. A restrictive indorsement, like "Pay A only," may prohibit the further negotiation of a negotiable note.103 Acceleration by conversion into stock before maturity is analogous to conversion into a judgment, and is always held unobjectionable, as we have seen.104 There are two distinctions, however, which will perhaps account for the failure to apply the analogy. When a note is exchanged for stock it is surrendered to the obligor and safely out of circulation, in the hands of the man who is most interested in canceling it. If judgment is entered on a note before maturity, the note will perhaps have to be filed with the clerk of court (this depends upon local rules), but it is not in the custody of the obligor. Access to records is easy, and the note may get out and into the hands of a bonâ fide purchaser without notice, so that the obligor would have to pay twice. However, this objection applies to notes payable on or before a fixed date at the option of the holder in whole or in part, which are held negotiable,105 although a maker who had paid a large part to the payee might have to pay over again in full to an innocent indorsee. A further peculiarity of these judgment notes is that they oust the courts of jurisdiction, and, therefore, like arbitration agreements are regarded jealously and tied down within narrow limits.

ACCELERATION IF THE HOLDER DEEMS HIMSELF INSECURE

In view of the liberal attitude taken by the courts towards the acceleration provisions already considered, especially those dependent upon an outside fact, a note, payable at a fixed date or sooner "on demand at the option of the holder if he deems himself insecure" 100 First National Bank of Elgin, Illinois v. Russell, supra.

101 See "Are Judgments Quasi Negotiable?” Roscoe Pound, 43 CENT. L. J. 440 (1896).

102 In the pamphlet, Some Observations on the Negotiable Instruments Act, William Trickett, Carlisle, Pa., 1916.

103 N. I. L. § 36.

104 N. I. L. § 5 (4); and supra, pages 762-63.

105 See supra, notes 46, 47, and infra, note 108.