OPINION OP THE COURT.
PARKER, J.A promissory note was made and delivered in the following form:
“6250.00. Albuquerque, N. M., Jan. 5, 1.911.
“On or before two years after date I promise to pay to tbe order of W. H. Gillenwater at Montezuma Trust Company six thousand two hundred fifty and no 100 dollars, wdth interest at the rate of six per cent, per annum from April 1,.' 1912, until paid, payable semiannually, with ten per cent, additional on the amount unpaid as attorney’s fees, if placed1 for collection in the hands of an attorney. All parties hereto and all indorsers hereof waive grace and protest and all appraisement laws and agree that this note may- be extended from time to time by any one or more of us without the knowledge or consent of any of the others of us, and after such extension, the liability of all parties shall remain as if no' such extension had' been made.
“Payable at the Montezuma Trust Company, Albuquerque; N. M.
“[Signed] Roderick Stover.”
Action was brought ou the note by the plaintiff as indorsee; claiming to be a bona ñde holder for value without notice and prior to maturity. The answer admitted the execution and delivery of the note, but alleged, by way of 'defense, that the note was given in payment' for shares of stock in a bank of which the payee of the note was the head, under.a proposed scheme for its reorganization and the increase of capital stock; that it was agreed-between the parties that proceeds arising from the sale of said stock should be deposited with and held as a special deposit by the Montezuma Trust Company until the re-, organization should be completed; that if the defendant would purchase 50 shares of the new capital stock for the sum of $6,250, his note would be accepted therefor, payable at such time as he desired, and that if for any reason it was not convenient for him to pay the note when it became due, he might extend the same from time to time until such further 'time as he desired; that said note would not be used, delivered, put into effect,- or considered valid or in force until the entire $200,000 of capital stock should be' fully subscribed; that said note was accordingly. given - in payment for a subscription for 50 shares of the--stock in the'said corporation contemplated to be organized; that the said corporation was never organized or created; nor were any other subscriptions to the stock thereof ever secured or paid for; that thereafter, in violation of this promise and agreement with the defendant, the payee of the note fraudulently and without authority indorsed the' said note to the plaintiff in this case for the .sole personal usg .and credit of the said payee; that the plaintiff had full knowledge and notice of all .of the facts hereinbefore -stated, and took the said note charged and chargeable with full knowledge and. notice thereof and of each of said facts. The plaintiff replied, denying that it. took the. said promissory note with knowledge of the facts and alleged that the same was delivered to the plaintiff for full value in due course of business. At the close of the trial each party moved for a directed verdict in his favor, and the court thereupon directed a verdict for the defendant. The only testimony given in the case was that of the vice-president and manager of the plaintiff bank, designed to show that the bank took the note as collateral security for a present loan made to payee of the note at the time, and in good faith without any notice of the facts alleged in the answer by way of defense. The motion of the defendant for a directed verdict was upon the ground that the note was without consideration, and that the note itself by its terms is not a negotiable promissory note, and that the plaintiff, there-. fore, took it chargeable with all the defenses and equities which would have been good as between the original parties. The grounds of the motion in behalf of the plaintiff for a directed verdict in its favor are not stated. A verdict was rendered by the jury, in accordance with the instruction 'of the court, in favor of the defendant. The motion for a new trial was filed and overruled, and the plaintiff appeals.
It is apparent that the question involved is a very narrow one. The position of the defendant is clearly shown by his motion for a verdict in his favor. It is based upon the proposition that the note was without consideration, or rather that the consideration therefor failed, which facts are admitted by the pleadings. ITpon the state of the pleadings it is clear that the original payee had no cause of action upon the note against the defendant. The defendant further urged upon the trial court that the form of the note is such that it is a non-nego'tiable instrument. Therefore, it is argued, that it was impossible for the plaintiff to become the holder in due course so as to cut off the defenses which would be available as between the original parties to the note. The argument is made by counsel for appellee that the note is non-negotiable -for two reasons, viz.: (1) It contains a provision that the maker shall have the right to extend the maturity of the note from time to time at his pleasure, thus rendering the time of payment indefinite and uncertain; (2) even if the power to extend the time of payment is conferred by the terms of the note, upon the payee or holder alone, yet this renders the time of payment indefinite and uncertain and destroys the negotiability of the note. On the other hand, counsel for appellant argues that no such power is conferred upon the maker, and he denies appellee’s second proposition entirely.
[1] The language employed in the note is certainly unfortunate. It provides that:
“All parties hereby * * * agree that this note may be extended from time to time by any one or more of us without the knowledge or consent of any of the others of us.”
The maker of the note is certainly one of the “parties.” The maker certainly has the power to extend the time of payment of the note by the express terms of the contract, in so far as the terms used give that power. But is the grant of power to the maker to extend the time of payment an absolute grant- of that power regardless of the consent of the holder? It would seem that the answer is determinable by a proper definition of the words “may be extended.’’ It is a matter'of common knowledge and practice that an extension of the time of payment of a note is accomplished by the concurrence of the payee or holder, and some one or more of the other parties to the contract. The actual extension of the time is effectuated by the agreement of the payee or holder. The maker or indorsers cannot extend the time unless the payee consents. If it is intended to give to the maker absolutely the right to extend, a provision is sometimes inserted that he may hav”e the right to an extension for a certain specific time, or according to whatever the contract may be between the parties. The provision then in this contract that “this note may be extended from time to time by any one or more of us without the knowledge or consent of any of the others of us,” in the light of commercial, custom and usages, as well as common knowledge, is the equivalent of saying that “this note may be extended, with the consent of the payee or holder, from time to time,” etc., because it is a contradiction in terms to say that a note may be extended without the consent of the payee or holder, unless the contract provides in terms that the maker shall have the right to an extension. The words “without the knowledge or consent of any of the others of us” can clearly have no application to the payee or holder. As before seen, there can be no such thing as an extension without his consent. The extension is effectuated by the making of a new contract between the parties, except in those cases where the right is given in terms to the maker, and a granting of the extension is, in such ease, but the performance of a contract already made. That this is the sense in which the word “extended” was used by the parties is made more manifest by the following clause:
“And after such extension liability of all parties shall remain as if no extension had been made.”
There could be no liability on the part of the payee or holder,, and the words used clearly indicate that the object of all of the provisions in regard to extensions were inserted simply to avoid the consequences, under the law merchant, of an extension without the consent of the indorsers or sureties. They do not grant the arbitrary right to the maker or other parties to the note to extend the same at their will and against the consent of the payee or holder; they simply provide that, in case of extension, they agree that their liability shall remain unchanged. It follows' that the payee or holder of this note .may insist upon payment of the same when due, and that there is consequently no uncertainty as to" the. time of payment, by reason of any right conferred upon the maker.
"We are aware that this interpretation does violence to the naked letter of the contract. It provides that the note may be extended by “any one” of the parties without the “knowledge or consent” of any of the others. Then the maker may mentally resolve to extend the note indefinitely, and, without the knowledge or consent of the payee, may effectuate an indefinite extension, thereby rendering the contract an empty shell, devoid of meaning or efficiency. If such were the sense in which the word “extended” was used by the maker and payee in this case, they must be convicted of a foolish, and vain act, if not an intention to carefully prepare a trap for the unwary. But no such presumption can be indulged. They are to be presumed to have intended to put out an ordinary note, expressing the ordinary binding contract of this kind.
Not much, if any, direct precedent is to be found in the cases, because no such, language, probably, was ever before used in a note. Some of the cases, however, are valuable for their statements of the principles governing these matters.
In First National Bank v. Buttery, 17 N. D. 326, 116 N. W. 341, 16 L. R. A. (N. S.) 878, 17 Ann. Cas. 52, the note in qúestion contained the provision/that:
“Tbe makers and indorsers herein severally * * * consent that the time of payment may be extended without notice.”
It was argued that under this provision the holder of the note might, without notice, extend the note indefinitely, thereby rendering the time of payment uncertain and the note consequently non-negotiable. The court said:
"It is strenuously argued that the use of the word ‘makers’ in the waiver admits of an extension being made at any time on Ue. nart of tbe holder, by a mere secret mental process unknown to any other party. This may be true as a rsychological f*ct. but we do not deem it so as a matter of practice in commerce and banking. To us it is quite clear that it has the same effect as though the note read ‘on the 1st day of Octobe”, 1803, or thereafter on demand.’ in which case there would be no question of its negotiability. Holders of notes do not, by a secret mental process, make an extension of the t''me of payment, but such extension, if made at all, is made by an agreement between the principal debtor and the holder of tbe paper, either with or without the consent of the indorsers.”
In National Bank v. Kenney, 98 Tex. 293. 83 S. W. 368, the note in question contained the provisions that:
“The makers and indorsers hereof hereby severally * * * agree to all extensions and partial payments before or after , maturity without prejudice to holder.”
The Texas court said:
“If, as argued, the effect of the stipulation is to give the right to the maker, without tbe consent of the holder, or to the bolder without tbe consent of the maker, to appoint another date of payment and thereby extend, the time it may be that it would render the instrument not negotiable. But we do not think it capable of that construction. It docs not say that either the bolder or tbe make” may extend the note. It merely makes a provision in case tbe time of payment may be extended. How extended? It seems to us th»t the extension meant is that which takes place when the debtor and creditor make an agreement upon a valuable conshderakon for the payment of the debt on some day subseouent to that previously stipulated. The obvious purpose of the provision-taken as a whole was merely to relieve the holder of the paper from the burdens made necessary by the rigid requirements of the mercantile law in order to secure the continued liability of the indorsers and sureties upon the paper. Therefore what was meant by the stipulation as to extension of time was simply that in case the holder and the maker should agree upon an extension, the sureties and indorsers should not be discharged. The holder and maker of any note may, at any time, agree upon an extension; therefore the fact that they may have that right does not affect the negotiability of the paper. * * * So in that case, the time at which the maker may elect to pay is uncertain, but the time at which the holder may demand payment is certain. It follows that if the holder has' the absolute right to demand payment at a certain date, the note is negotiable.”
In Longmont National Bank v. Loukonen, 53 Colo. 489, 127 Pac. 947, Ann. Cas. 1914B, 208, the note in question contained a provision that:
“The makers and indorsers hereof hereby * * * agree to any extensions of time of payment and partial payments before, at or after maturity.”
The court said:
“The provision under consideration does not mean that the holder, can arbitrarily extend the time of the payment of the note as he may see fit, over objection by the maker, nor can the latter make an extension without the consent of the holder.”
In Bank v. Dolsom, 163 Cal. 485, 126 Pac. 153, 41 L. R. A. (N. S.) 787, the note in question provided that:
“We agree that after maturity this note may be extended from time to time by any one or more of us without the knowledge or consent of any of the others of us, and after such extension the liability of all parties shall remain as if no such extension had been made.”
The court, in speaking of this provision, sajrs:
“There is nothing uncertain in this note about the date of maturity. The provision refers only to something that may be dore by the maker, if the holder agrees thereto, ‘after maturity.’ Clearly the provision referred to is in no way binding upon the holder of the note. No one can reasonably claim that the effect thereof is to give the maker the right to extend the time of payment, without the consent of the holder. The note was dated April 23, 1908, and by its terms, unaffected by anything in the provision referred to, was to mature ‘nine months after date,’ at which time the holder, so far as anything contained therein is concerned, had the absolute right to insist on payment. There was no provision under which the time so specified could be changed, or the right of the holder to insist on payment at such time be held to be affected. Where the time is thus definitely and irrevocably fixed at which the note shall mature and the holder shall be at liberty to compel payment, we are unable to see how a provision, looking to a possible agreement between the parties, after maturity, for an extension, renders the executed note at all indefinite or uncertain as to the time when it is payable.”
The interpretation of the language which is identical with the note here in question, in this regard, is exactly as we have interpreted this one. The fact of. the slight difference in the phraseology in the other regard in no way affects the reasoning in the California ease.
In Missouri-Lincoln Trust Co. v. Long, 31 Okl. 1, 120 Pac. 291, the note contained the provision that:
“The makers * * * consent that the time for payment may be extended without notice thereof.”
The court holds that the provision does not make a note non-negotiable, relying upon First National Bank v. Buttery, 17 N. D. 326, 116 N. W. 341, 16 L. R. A. (N. S.) 878, 17 Ann. Cas. 52, supra, and other cases for authority.
In Stitzel v. Miller, 250 Ill. 72, 95 N. E. 53, 34 L. R. A. (N. S.) 1004, Ann. Cas. 1912B, 412, the note contained the provision .that:
“We also agree that in case said note is not paid at maturity, it is at the option of the holder hereof to extend, as he deems proper, the payment of the above note, and that said extension shall not in any manner release one or either of us. from the payment hereof.”
The court says:
“The contention that said quoted words gave the holder the authority to extend the note as he pleased, that it could not be known what extensions he might grant, and that therefore the time when the note became due * * * was uncertain and undeterminate, rendering the note nonnegotiable, cannot be sustained. The note expressly provides that such option to extend can be exercised only upon the failure of the payors to make payment at its maturity.”
The decision is based upon the proposition that until the note matures no person under its terms had power to make an extension of time for payment, and contains an expression to 'the effect that, if there was authority to extend the note before maturity, it would render the note non-negotiable.
[2] A much more serious question arises under appellee’s second proposition. It is apparent that if a provision is inserted for extensions at or after maturity, they can have no effect upon the negotiability, of the note, because at maturity the note ceases to be negotiable by operation of law. It therefore becomes immaterial that a pro-' vision is inserted that, after the maturity of the note, the sureties and indorsers shall not be discharged in case the note is extended. This is clearly pointed out in the Illinois and , California cases, cited supra..
But where there is a provision authorizing extensions prior to maturity, then a more serious proposition is presented. If the note may be extended from time to time at will during the period prior to maturity, then the time of payment becomes uncertain and indefinite. , It is upon this proposition that, in a majority of the .states,,we believe, a note like the one here in question is held to be non-negotiable. Thus in Smith v. Van Blarcom, 45 Mich. 371, 8 N. W. 90, the note contained a provision that:
“The makers and indorsers of this note expressly agree that the payee, or his assigns, may extend,the time of payment thereof indefinitely, as he or they may see fit.”
The court, per Campbell, J., said:
“By the terms of this note, which must' be read- subject to the condition, it was not payable absolutely three months after date, or at any other one time. The time of payment could be postponed not merely once, but as often as either Charles H. Van Blarcom or his assigns might think it desirable. There is nothing on the face of the note whereby any one can tell, either directly or by reference to any particular event, at what period this paper will become absolutely payable. We cannot conceive how this can.be treated as not payable on a contingency.”
In Richmond National Bank v. Wheeler, 75 Mich. 546, 42 N. W. 963, a note containing a similar provision was likewise held to be non-negotiable. In Woodbury v. Roberts, 59 Iowa, 348, 13 N. W. 312, 44 Am. Rep. 685, the note contained a provision that:
“The makers and indorsers of this obligation further expressly agree that the payee, or his assigns, may extend the time of payment thereof from time to time indefinitely, • as he or they may see fit.”
The court said:
“But the note before us may never fall due, for payment may be extended indefinitely. * * * By regarding such paper as nonnegotiable no prejudice will result to the mercantile and financial business of the country, but sharpers will be defeated in their attempt to swindle the confiding and unwary, a result in accord with sound policy and good morals.”
In Farmer v. Bank, 130 Iowa, 469, 107 N. W. 107, the note contained the provision that:
"Sureties hereby consent that time of payment may be extended from time to time without notice thereof.”
The distinction drawn in this case is evidently based upon the fact that in the former there was an agreement to an extension, but in the latter there was merely an agreement that the surety should not be discharged in case an extension should be granted. In Glidden v. Henry, 104 Ind. 278, 1 N. E. 369, 54 Am. Rep. 316, the provision for extensions are the same as in the.Michigan case, supra, and the court said:
"In the case before us, all parts of the note must be looked to in determining the quality of the paper. There is a promise to pay in 12 months, but that promise is not certain and unconditional. The other clause is that the time of payment may be extended indefinitely, as the parties may agree. From an inspection of the note, it is impossible to tell when it may mature, because it is impossible to know what extension may have been, or may hereafter, be agreed upon.”
In Coffin v. Spencer (C. C.) 39 Fed. 262, the provision in the note was practically the same as in'the Michigan and Indiana cases, and the Circuit Court for the District of Indiana said:
“Tbe latter. I think the true reading, and it means-that at any time before or after maturity of the note by its terms, or by the terms of any agreement for renewal or extension, the holder, whether the payee or any assignee, may, by agreement with the maker, or with an indorser or other party liable on the paper, renew or extend the date of payment ‘from time to time,’ that is to say, definitely, without prejudice ultimately to his remedies against any of the parties. Every successive taker of the paper is, of course, bound to take notice of this stipulation, and, instead of looking only to the face of the instrument for the time of its maturity, as in case of commercial paper he must, is put upon inquiry whether or not any agreement for a renewal or extension of time nas been made. by his proposed assignor or by any previous holder. * * * Tbe note in suit, it seems clear enough, cannot be deemed negotiable.”
In Union Stockyards National Bank v. Bolan, 14 Idaho, 87, 93 Pac. 508, 125 Am. St. Rep. 146, the provision in the note is as follows:
“No extension of time of payment, with or without our knowledge, by the receipt of interest or otherwise, shall release us or either of us from the obligation of payment.”
The court said:
“This is an express contract to the effect that the time of payment may be extended to any one or all of the sureties, guarantors, indorsers, or makers of the note, without notice to all or any one of them. This undoubtedly renders the note non-negotiable under all the authorities that have been brought to our, attention on the subject.”
In Rossville State Bank v. Heslet, 84 Kan. 315, 113 Pac. 1052, 33 L. R. A. (N. S.) 738, the provision of the note was that:
“Each signer and indorser makes the other an agent to extend the time of this note.”
The court refers to the former case in that state of Bank v. Gunter, 67 Kan. 227, 72 Pac. 842, in which the provision appeared in the note that:
“The makers and indorsers * * * agree to all extensions and partial payments before or after maturity without prejudice to holder.”
In discussing the case under consideration, and the Gunter Case, the court said:
“Interpreting ‘signer’ to mean ‘maker,’ and the agency of each maker and indorser to act for the other, as equivalent to a consent to the action of either to an agreement for extension made by another, the only material difference discernible is that in the Gunter Case the note stated that the extension might be made befo£&_pr after maturity, while in this case it authorizes the extension without stating when it may be made. The precise inquiry suggested is whether the authority to extend here given may be exercised only after maturity. If so, the time is fixed for payment; for the promise, apart from this clause, is to pay on January 1, 1909, and an authority to extend afterwards would only amount to a waiver of the right to be 'relieved from liability for an extension without such authority. If, however, the clause is to be construed as giving the parties named the right to extend tbn time before maturity, its effect would be precisely the same as though the words ‘on or before’ had been inserted, and the rule of the Gunter Case would apply. * * * The vice of the stipulation in question is that the day of payment cannot be determined. The signer (maker) or any indorser may, at any time he sees fit to do so, as agent one for another, extend the time for payment by agreement with the holder. The payee in transferring the note may become an indorser, and therefore an agent for the maker, and his indorsee may, in turn, become an indorser with like power, so that the time of maturity must be indefinite, and not determinable from the instrument.”
See further many cases collected in a note to First National Bank v. Buttery, 17 Ann. Cas. 52.
It clearly appears from the reading of the foregoing cases, and many others which wo have examined, that in the opinion of those courts” the uncertainty as to the time of payment, which is held to render the note non-negotiable, arises out of the fact that there is an agreement in the note that the same may be extended prior to maturity. The fact that such extension of the time of payment is contemplated and provided íot is held to render the time of payment so uncertain as to destroy the negotiability of the instrument. On the other hand, there is a line of cases, mostly more modern, which takes a.n opposite view of provisions of this kind. They are based upon the proposition that the time of payment within’ the meaning and requirement of the law merchant and the negotiable instrument law is certain or determinable, whenever the time at which the payee or holder may demand payment is certain or determinable. We have before seen that, under the terms of this instrument, in this case, the payee or holder is entitled to demand pajunent on the day specified therein, there being no right on the part of any other party to the instrument to compel him to extend the same against his consent. The Texas case, heretofore cited and quoted from, is one of the leading eases adopting the latter position. The North' Dakota case is another leading case to the same effect. In Missouri-Lincoln Trust Co. v. Long, the Supreme Court of Oklahoma announces its adherence to the same doctrine that so long as the payee or holder may insist upon the payment of the note at maturity, there is no uncertainty as to the time of pavment, citing the Texas case, supra, and Missouri cases. In Longmont National Bank v. Loukonen, supra, the makers and indorsers agreed to any extensions of time of payment before, at, or after maturity. The Colorado court in that case adopts the reasoning of the Texas and North Dakota courts, and says:
“The time of payment of tills note, by .its express terms, is certain. A definite time when the holder may demand payment is stated, and the period of maturity is fixed. There is nothing in the note which gives the maker, or any one else, a right to demand an extension, or which binds the holder to give it. We are unable to perceive how the mere fact that the signers and indorsers undertake to be bound by any extension of time of payment, which may thereafter be settled upon, takes from an instrument, in all other respects commercial paper, its negotiable character. Any agreement for an extension, not appearing in the instrument, and unknown to a purchaser for value before maturity, would not defeat his right to demand payment of the note according to its original terms. * * * The sole purpose of the stipulation is for the protection of the holder, by continuing the liability of both maker and indorser in case of extension. * * * A legal right exists in the maker and holder of any negotiable instrument to agree to an extension, and the fact that such legal right exists does not make the paper non-negotiable; no more should the fact that the maker’s consent to an extension, which he always has the legal right to give, is-expressed in the note, but -which does not in fact constitute an extension, have such effect. To hold that an undisclosed agreement to extend destroys the obligation to pay a note according to its terms, thus making the time of payment uncertain, in the hands of a bona fide holder for value before maturity, would be contrary to every principle of justice and fair dealing; Such would be the effect of declaring this instrument non-negotiable.’’
The court cites the Missouri, North Dakota, Texas, and Oklahoma cases, before referred to.
In City National Bank v. Goodloe-McClelland Co., 93 Mo. App. 123, the note provided that:
“The makers and indorsers agree to all extensions and partial payments before or after maturity without prejudice to the holder.’’
The court held that this provision did not impair the negotiability of the note.
We propose to adopt what, we are free to admit, is the minority doctrine, at least so far as numbers of states are concerned, because-we believe the doctrine to be founded in reason, and to be the best suited to business and commercial usage. It is a matter of common knowledge that it is the general, if not. the universal, custom of banks to insert provisions of a similar nature to the ones inserted in the note in question, whenever they loan money. We cannot see that harm can come to the people of the business world by holding this note to be a negotiable instrument. On the other hand, wre can see that harm may come from unduly hampering business transactions of this kind. If a banker must insist upon payment of a note at maturity or otherwise lose the security of indorsers upon commercial paper, then the borrowers of money. from banks will inevitably suffer great inconvenience, and often great loss. This is apparent to all who have had experience or observation in commercial transactions of this kind. Nor will this holding operate as a restraint upon the dealing in commercial paper for the reason that under sections 52 and 56 of our negotiable instruments law (chapter 83, Laws of 1907) the assignee cannot take such paper and lose the benefit of its negotiable character unless he has actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounts to bad faith. A simple inquiry in good faith of the payee or holder of negotiable paper as to whether the same had been extended by the parties thereto would, we assume, be held to constitute such assignee a holder in due course. It follows that the judgment of the district court in holding that the instrument was non-negotiable was erroneous.
It is urged by counsel for appellant that this court should now enter judgment for the plaintiff upon the note in question. It appears, however, from the pleadings that the question of taking of the note by the plaintiff in good faith or bad faith was in issue, but was not decided by the court, the court having directed a verdict for the defendant upon the sole proposition that the note was nonnegotiable, and that therefore there was no question as to the good faith or bad faith of the plaintiff, in taking the note, for determination by the jury. It is argued, on the other hand, by counsel for appellee, that the action of the court in directing a verdict for the defendant was a finding that the burden of proof resting upon the plaintiff in regard to good faith in the taking of the note had not been met. We think not. The district court, at the instance of counsel for the defendant, held that the note was non-negotiable, and that therefore it was subject, in the hands of plaintiff, to all of the defenses set up in the answer. The plaintiff, of course, denied the allegations in the answer that it had taken the note in bad faith, and introduced proof on the issue. But this issue has never been submitted to a jury, nor decided by the court. It is therefore apparent that the cause must be retried.
For the reasons stated, the judgment of the court below is reversed, and the cause remanded to the district court,' with instructions to award a new trial; and it is so ordered.
Roberts, C. J., and I-Ianna, J., concur.