SECURITY NATIONAL BANK OF SIOUC CITY v.

GUNDERSON
52 SS 25, 216 NW 595| 1927| Miser, J.
Provisions Extending Time of Payment
J. Paras

DOCTRINE: Whenever a holder makes an extension of time of payment, such extension is not done secretly but by agreement
between the principal debtor and the holder, either with or without consent of the indorsers.

CASE SUMMARY: The promissory note involved here contained a clause which allowed the holder/maker to make extensions
of time of payment. The clause also stated that any objection or defense that an indorser or surety may have against an extension
are deemed waived. The issue was WoN such a clause rendered the note non-negotiable for violating the requirement that
payment must be made at a determinable future time. The Court held that this type of clause does not affect the negotiability of
a note.

FACTS:
The note contained a clause which allowed the holder and maker to make extensions of time for payment without any notice.
The clause also provided that all defenses an indorser/maker may have against this extension of time are waived.

Argument of Respondent: Contends that the clause does not affect the negotiability of the note. He cited numerous court
decisions, and also cited Brannan’s book on NIL, which stated that instruments containing similar clauses were held by the court
to remain negotiable. Brannan’s work stated that these clauses are intended “merely to prevent the discharge of secondary parties
by extensions of time, but not to alter the specified date of maturity.” Respondent also cited Book 5 of Uniform Laws. This
book stated that decisions regarding this type of clause were not consistent, but that the trend of opinion is toward the view that
such clauses do not destroy a note’s negotiability.

Argument of Petitioner: The bank contends that the clause makes the note non-negotiable for violating the requirement of
the Rev. Code that payment must be made at a determinable future time. It stated that Brannan and other writers are in error.
It contends that “the language of the clause is plain that the maker may make with any holder an agreement for extension; likewise, the indorser
may do the same; neither can object to the contract, permitting changes that are practically unascertainable.” The bank cited numerous decisions
from Idaho, Indiana, Michigan, and Kansas to support its argument.

ISSUE:
WON clauses allowing extensions of time without notice and waiving any defense against this extension affects the negotiability
of promissory note. - NO

RULING: NO. The note remains negotiable.

The Court stated that whenever a holder makes an extension of time of payment, such extension is not done secretly but by
agreement between the principal debtor and the holder, either with or without consent of the indorsers.

The waiver of defenses on the parts of the makers and/or indorsers only serves as protection for the holder against any release
of indorsers (due to extensions of time of payment) without said holder’s consent. This relieves the holder from the requirements
of mercantile law in order to secure the continued liability of the indorsers and sureties upon the note.

This extension of time simply means that in case the holder and the maker should agree to an extension, the sureties and
indorsers should not be discharged.

DISPOSITION: Judgement for plaintiff

NOTES/RELEVANT PROVISIONS CITED: N/A