Garfield National Bank v. Colwell

This action was brought to recover the balance remaining due upon a promissory note made by the defendant to the order of S. S. Hepworth & Go. which note was discounted by the plaintiff.

It appeared from the evidence that the defendant was an employee of Hepworth & Co. and knew the vice-president of the plaintiff, Mr. Robinson. At the time the note in question was made the defendant had a conversation about the need of Hep-worth & Co. for money and that Robinson thereupon suggested this note. The witness says “ I told him I understood from Hep-worth & Co. that I would incur no liability in signing this note.” Whereupon Robinson told him to have such a note made up and that he would see that it was discounted.

“He told me when it was signed and made up to take it up to the Garfield bank and he would leave instructions at the bank to have it discounted.” The defendant further testified that he saw the cashier and told him that he had a note signed by himself and endorsed by Hepworth & Co., and that Mr. Robinson asked him to take the note up there and present it to him and he would lewe instructions to have it discounted; that he had told Robinson that he had been informed by Hepworth & Co. that he would incur no liability at all. The cashier replied that he so understood it; whereupon the defendant handed him the note. The defendant received none of its proceeds nor any consideration whatever for its signature.

The cashier testified that the conversation was that the defendant signed the note simply to make it in bankable form, and that he assumed no responsibility and had no responsibility attached to him. “I accepted said note under these circumstances as cashier of the Garfield Bank.”

Proof having been given of the discount of the note by the plaintiff and that it was then held by it, the court directed a verdict for the plaintiff.

In this we think there was error. Undoubtedly it would be no defense to shotf that the plaintiff knew at the time of the discount of the note that it was accommodation paper. The mere fact that it was accommodation paper would in no way affect the

In the case at bar, however, the proofs show a different state o£ affairs; not only that it was accommodation paper, but also that there was a distinct understanding between the maker of the note and the payee that the maker should incur no liability by the signing of the note.

The cases of Benton v. Martin, 52 N. Y., 573 , and Seymour v. Cowing, 1 Keyes, 532, establish the proposition that a person has the right, in the case of an unsealed instrument, to impose conditions the observance of which is essential to its validity. This rule is the foundation upon which those cases rest which hold that where there has been a 'diversion of the note, unless the holder is-a bona fide holder, without notice, he cannot recover.

In the case at bar it appears that the plaintiff knew that it was the understanding of the defendant that he should not, under any circumstances, be liable upon the note.

Knowing that this was the agreement between the parties, it is difficult to see how, with such knowledge, it could acquire the right to enforce that which it knew had been agreed should not be enforced. The plaintiff did not, therefore, occupy the position of a bona fide holder without notice.

• The judgment and order appealed from must be reversed and a new trial ordered, with costs to the appellant to abide the event.

Brady and Daniels, JJ., concur.