Page:Harvard Law Review Volume 32.djvu/821

785 ACCELERATION PROVISIONS IN TIME PAPER 785 And a similar position is taken by Judge Carroll in the Kentucky Supreme Court: ^^* "It is quite usual to pledge collateral as security for the payment of a negotiable note, and we do not think that any narrow construction of the law should be adopted that would have the effect of impairing the use of this kind of security or that would deny to the holder the right to insist that if the value of the collateral deposited should become im- paired, the maker must strengthen it or else precipitate the maturity of the paper. This condition in the note is merely supplementary to the fixed and controlling promises and is really nothing more than additional security for the payment of the instrument. It is not, strictly speaking, 'an order or promise to do an act in addition to the payment of money,' but is rather an order or promise to do an act that will better secure the promise to pay the money stipulated at the time fixed in the note. If this condition or promise would disturb the negotiability of commercial paper the effect would necessarily be to lessen the usefulness of collateral as security, because holders of paper would not be disposed to accept collateral, much of which has a fluctuating value, if they were denied the right to insist that its value should be maintained in an amount sufficient to serve the purposes for which it was accepted." These two decisions and the cases in accord ^^^ are therefore cor- rect in holding that the acceleration provisions in the usual bank collateral note do not impair its negotiability. The result should be reached both at common law and under the Negotiable Instru- ments Law, which does little more in relation to this problem than declare broad common-:law principles.^^® The application of the three fundamental principles of this '" Finley v. Smith, 165 Ky. 445, 453, 177 S. W. 262 (1915, N. I. L.). 1^ See note 128, supra. 1^ Interesting modifications of the usual collateral note problem are presented by the obligations which the National Salt Company of New Jersey issued in 1901. These were secured by stock of an underlying corporation, the United Salt Company. The maker agreed that until payment no contract or improvements of the underlying company for utilizing steam in the manufacture of salt should be mortgaged, encum- bered, or disposed of; that no money borrowed or advanced by the maker for improving or operating the property of the underlying corporation should be a lien against the assets thereof; that the underlying corporation should not dispose of its patent rights except for licenses upon a stated royalty. As this was essentially an agreement to maintain adequate security, it was rightly held not to impair negotiability. National Salt Co. V. Ingraham, 143 Fed. 805 (C. C. A., 2d, 1906). Contra, Strickland v. National Salt Co., 79 N. J. Eq. 182, 81 Atl. 828 (1911), non-negotiable as containing a;promise to do an act in addition to the payment of money. And see National Salt Co. v. Ingraham, 122 Fed. 40 (C. C. A., 2d, 1903).