Court Opinion

ID: 3495541
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:03:24.513005+00
Date Added: 2024-06-11T14:05:12.943780
License: Public Domain

I cannot agree with Mr. Justice FELLOWS in his view that the law of this case was settled by the opinion of Mr. Justice SHARPE in 239 Mich. 404, and that plaintiff was not a holder in due course of the note at bar.
The issue in the former case, in connection with which the language quoted by Mr. Justice FELLOWS was used, was whether plaintiff had shown by competent testimony that the seller had exhausted its credit account with plaintiff before the note there and here at bar, the last renewal note, had become due. The question of the effect of failure to exhaust such credit before maturity of the original note, which is the issue here, was not there raised nor passed upon.
I am not at this time inclined to join issue with Mr. Justice FELLOWS upon his determination of the major questions raised by counsel, although I reserve freedom of future consideration of the rule "first money in, first money out." But I think the case calls for the application of other principles. I also wish to make it clear that in accepting counsel's concession that the two new notes at bar were renewals and were not in payment of the original, this opinion is not to be considered either as approval or disapproval of the concession.
In some respects a renewal note is a new engagement, new negotiable paper, which may be circulated, negotiated, and held in due course. Whitney National Bank v. Cannon, 52 La. Ann. 1484 (27 So. 948). The original note is ordinarily surrendered and canceled. No action can be brought *Page 562 
on the debt until the due date of the renewal. 3 R. C. L. p. 1218; Price v. Dime Savings Bank, 124 Ill. 317 (15 N.E. 754, 7 Am. St. Rep. 367).
On the other hand, a renewal is treated as a continuation of the original note. Renewal is not payment. Molsons Bank v.Berman, 224 Mich. 606 (35 A.L.R. 1289). Usury tainting an original note attaches to all subsequent renewals. GladwinState Bank v. Dow, 212 Mich. 521 (13 A.L.R. 1233). Renewal notes extending back to a valid original debt incurred prior to the date of an alleged fraudulent conveyance by a bankrupt are enforceable. Allen v. Hillman, 215 Mich. 312. As between the original parties, defenses open on the original note are open on renewals. Anderson v. Engard, 236 Mich. 221. They are also open against a holder who had notice of them when he took the original. Adams v. Ashman, 203 Pa. 536 (53 A. 375). A holder in due course of the original takes the renewal as a holder in due course, even though he has knowledge of infirmities when he takes the renewals. Molsons Bank v. Berman,supra; Coleman v. Shortsville Wheel Co., 257 Fed. 591.
These decisions indicate the basis of the general rule stated in 8 C. J. p. 443:
"Where a note is given merely in renewal of another note and not in payment, the renewal does not extinguish the original debt nor in any way change the debt except by postponing the time for payment."
See, also, 3 R. C. L. p. 1217.
In Grace  Co. v. Strickland, 188 N.C. 369 (124 S.E. 856, 35 A.L.R. 1296), plaintiff purchased the original note after maturity, for value, and took a renewal without notice of infirmities. It was held *Page 563 
not to be a holder in due course of either note. In discussing the effect of the renewal the court said:
"It means the substitution in place of one engagement of a new obligation on the same terms and conditions — that is, the re-establishment of a particular contract for another period of time.
It is evident from these authorities that the renewal of a promissory note projects the holder into the extended term of the renewal with the same rights and disabilities he acquired when he took the original note. Where the original is negotiated before its maturity, its due date has no effect upon a purchaser, but his rights and disabilities are to be determined as though, at the time he took the paper, the due date of the renewal were effectively made the due date of the original. It is the theory of renewal that the original engagement carries through its own period into the extended term, without interruption and change of status of any party to it.
The cited cases dealt with parties whose relationship to the original note and whose rights and disabilities thereunder had become definitely fixed at the time they took the instrument. The case at bar is novel in that the relationship of plaintiff was not completed but was in process of formation and subject to change of rights during the original term of the original note. It was a holder in good faith, without notice of infirmity, before maturity, had performed a well-recognized business operation of payment of value for the note, but had not become a holder in due course because such operation is not recognized in the law as payment of value until the deposit has been exhausted. The plaintiff, therefore, had done all things ordinarily necessary to become a holder in due course, and failure to complete *Page 564 
the status was due to neglect of the payee to draw the account. As a renewal is merely a continuation of the original obligation for a new term, it is a logical application of the principle governing renewals and of the rules which have been applied in the adjudicated cases to hold that plaintiff entered the renewal period with the same status it had during the original term, including the right of completion of the operation of becoming a holder in due course by exhaustion of the credit account. As this was done during the renewal term, plaintiff became such holder.
This rule conforms to the general usages and convenience of business, to aid which the law merchant was evolved. As this is a case of first impression, we are justified in giving weight to such considerations. In the ordinary course, most bills and notes find their way into banks and financial institutions and are paid for by deposit to the seller's account. Any other rule would leave the purchaser no recourse except to charge the note to the seller's account at maturity, as he could not afterward become, directly from such seller, a holder in due course of a renewal; the seller would be put to the task of finding another means of negotiation; the maker would be aided not at all as the note still would be subject to transfer to a holder in due course other than such first discounting purchaser; and the net result would be inconvenience to common and proper methods of business.
There was evidence that after maturity of the renewal note at bar an arrangement was made by which the Lynch Construction Company paid all of its matured obligations to plaintiff by a new note. This testimony was in conflict and presents a question for the jury. *Page 565 
Judgment reversed, and new trial ordered.
NORTH, C.J., and CLARK, J., concurred with FEAD, J.