(182 N.Y.S.)

The court distinguished that case from the Jamestown Case, saying (at page 306, 93 N. E. 987 [33 L. R. A. (N. S.) 892]):

"The case of Jamestown Business College Ass'n v. Allen, supra, is a salient illustration of the converse of this rule. There the promissory note was rendered effective and complete by an unconditional delivery. The payee agreed to release the maker, and to cancel the note, upon a future contingency which might or might not arise. That was clearly a condition subsequent which brought the case within the general rule that a contract, reduced to writing and complete in its terms, cannot be varied and contradicted by oral testimony. Eighmie v. Taylor, 98 N. Y. 288; Thomas v. Scott, 127 N. Y. 133; Stowell v. Greenwich Ins. Co., 163 N. Y. 298; Mead v. Dunlwie, 174 N. Y. 108. Thus, to state the difference most concretely, the case at bar is one in which the oral testimony tends to show that the writing purporting to be a contract is in fact no contract at all, while in the case of the Jamestown Business College the oral testimony was in direct contradiction of the written contract as to the existence and validity of which there is no question."

So also in Grannis v. Stevens, 216 N. Y. 583, at page 587, 111 N. E. 263, 265, it was held:

"The manual transfer of an instrument, in form a complete contract, does not, however, bar parol evidence that it is not to become binding until the happening of some condition precedent resting in parol, or that the transfer is for a special purpose. * * * It is a question of fact whether any written agreement, though in the possession of the obligee, has been delivered by the obligor as a binding agreement, or whether any delivery that has been made is conditional only. Act and intention are the essential constituents of a delivery which makes the instrument operative according to its terms."

In Juilliard v. Chaffee, 92 N. Y. 529, it was held that parol evidence was proper to show that a writing admitting receipt of a sum as a loan to be paid on demand was not a loan, but an advance of money for a special purpose, and it was said:

"Nor does it deny the party in whose favor that agreement [the parol agreement] was made, the right of proving its existence by way of defense in an action upon the written instrument, under circumstances which would make the use of it for any purpose inconsistent with that agreement, dishonest, or fraudulent. A party, sued by his promisee, is always permitted

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to show a want or failure of consideration for the promise relied upon, and so he may prove by parol that the instrument itself was delivered even to the payee to take effect only on the happening of some future event, or that its design and object were different from what its language, if alone considered, would indicate. He may also show that the instrument relied upon was executed in part performance only of an entire oral agreement, or that the obligation of the instrument has been discharged by the execution of a parol agreement collateral thereto, or he may set up any agreement in regard to the note which makes its enforcement inequitable."

Defendant had no reason to believe that the agreement regarding the conditions attached to the delivery of these notes would not be performed in good faith by the Thompson-Starrett Company, and he had no reason to believe that the notes would be passed over into the hands of third parties, either before or after maturity. The prior notes had been taken up by the company itself and defendant had never had any transactions in relation thereto with plaintiff.

[5, 6] This brings us, then, to the consideration of the vital question

of whether defendant had, in fact, any just grievances as to his treatment by the Thompson-Starrett Company in the conduct of the work on the Uva project. As to this, it seems to me that the record conclusively demonstrates that the operation was not carried out in such a way by the Thompson-Starrett Company as to fulfill its obligation of diligence, honesty, and good faith to the defendant. A contract to do work upon a basis of cost plus a stipulated commission does not mean that the contractor has the right to expend any amount of money he may see fit upon the work, regardless of the propriety, necessity, or honesty of the expenditure, and then compel repayment by the other party, who has confided in his integrity, ability, and industry. While the statements as presented by the contractor made out a prima facie case of its right to recover the amount shown thereby, accompanied as they were by vouchers and proof of payment, the defendant presented proof which impeached these statements, showed that they were in many particulars deceptive and unreliable, and that many items. appearing thereon represented extravagance, waste, and dishonesty upon the part of the contractor's employés and representatives on the job. Sufficient was shown to completely destroy the value of the statements and vouchers, and to open the question as to what was the real cost of the work, honestly, efficiently, and properly done. Among the vast amount of proof upon this feature of the case it was proved by defendant:

(1) That irregularities existed in the use of the funds charged to respondent, including charges to the respondent under the contract for merchandise and personal pleasure expenditures, all unrelated to the work to be performed under the contract.

(2) That the superintendent was incompetent and wasteful and reckless in his relationship to the work in hand, as disclosed by the evidence.

(3) That the cashier made expenditures for merchandise and jewelry for his wife and for other uses of his wife and others unrelated to the contract, and charged such unrelated expenditures to the respond

ent.

(4) That this same cashier was unemployed at the time he was engaged by the contractor (having been so employed by it prior thereto), and as cashier received a salary of $100 per month; while on the work he was giving dinners and wine parties, and made use of the funds furnished by the contractor to pay for such entertainments, and for clothing, jewelry, and pleasure purposes of his wife, and charged the same to respondent as cost of work under the contract. (5) That this cashier, immediately after the completion of the job, admitted to a witness having made from $12,000 to $15,000 on this job, and exposed large rolls of paper money and quantities of gold, and engaged in lavish expenditures of a personal nature with bills of large denominations.

(6) That the records and the books of the contractor relating to the expenditures made for account of respondent are available, except the time books kept by Snellgrove, the timekeeper, from which Meredith, the cashier, made up the pay roll and pay checks, being the

(182 N.Y.S.)

foundation of alleged disbursements of $52,405.85 charged to the respondent as the cost of labor, and these very time books, not produced, are proved to have been shipped in one box and received at the office of the contractor in Chicago, in charge of Morton, the representative of the contractor who had charge of the work, and the loss or destruction of these time books is unaccounted for either by Morton or any other representative or officer of the contractor; these time books being the only and best evidence to justify and prove the propriety and correctness of the disbursements alleged to have been made for labor on this job.

(7) It is admitted in the letter of the contractor written on June 25, 1912 (and before the notes in question were made), to the contractor's agent, Morton, that the contractor had seriously "fallen down" on its part, and delinquency is admitted both by the president and by Morton, the contractor's manager, who was in charge of the work in Wyoming (even though such delinquency is claimed to be exaggerated by respondent).

(8) It is proved without contradiction, by the evidence of men actually engaged in the operation, what work was actually done and what labor was actually performed; and at the then existing schedule of cost, the aggregate price of labor and materials combined was proved to be approximately between $61,000 and $64,000, while the amount charged to respondent by contractor for the labor alone is $52,405.85.

(9) Defendant also proved by competent experts, thoroughly qualified to pass on the value of this particular work, what labor and materials were required to do the work, and that the combined cost under then existing conditions would be approximately between $62,000 and $67,000.

(10) It is also proved that the amount charged as expenditures is substantially 100 per cent. more than the amount proved by the witnesses who had actually worked on the job to be a proper expenditure and reasonable and proper cost, and also so proved by the expert witnesses.

To all of these charges of dereliction the contractor has made no satisfactory defense. It only sought to minimize the financial extent of the loss thus incurred by defendant through improper charges against him. But it has been unable to meet the specific charges which impeached its statements and vouchers and destroyed their value as conclusive evidence against defendant.

It may be noted that plaintiff made practically no effort or attempt to prove any expenditure of funds beyond the checks issued by it to its cashier in Wyoming. It made no effort to prove by the cashier, Meredith, the expenditure of any funds represented by these checks, although Meredith, as is shown by the record available, being then in the Utah state penitentiary, was called as a witness by respondent in the presence of Morton, representative of the contractor and counsel, and offered for examination; nor was Jennings, the superintendent, called to testify, although his integrity had been severely attacked, and his faithfulness and competency questioned.

The credible evidence justified the learned trial court in finding that

the reasonable cost of the work performed and materials furnished by the Thompson-Starrett Company, together with 10 per cent. for plant and overhead charges, together with the 5 per cent. of such cost as compensation to it, was $72,644.95, and that the total amount of defendant's indebtedness to the Thompson-Starrett Company on November 1, 1913, was only $53,150.64.

In my opinion, the judgment appealed from is correct, and should be affirmed, with costs.

CLARKE, P. J., and MERRELL, J., concur.

LAUGHLIN, J. (dissenting). This is an action on two promissory notes made by the defendant to the order of the Thompson-Starrett Company, on November 1, 1912, one being for $96,733.52, and the other for $3,094.63, payable in one year, with 6 per cent. interest. The plaintiff discounted the notes for the payee on the 7th of December, 1912, which was before maturity. By the pleadings, which are an amended complaint and an amended answer, it stood admitted that the notes, which recite that they were given for value received, were duly made, executed, and delivered to the payee on the date thereof, and that they were duly indorsed and delivered to the plaintiff on the 7th day of December, 1912, in consideration of the face value thereof. Defendant pleaded, but failed to prove, payment, and, evidently on the theory of payment, put in issue the allegations that the plaintiff was the holder and owner of the notes and denied the allegations with respect to nonpayment. For a second and partial defense the defendant pleaded facts arising in the course of and with respect to the execution and performance of an agreement between him and the payee for certain construction work by it for him at Uva, in the state of Wyoming, by which it was to be reimbursed by him for the cost of the work and to receive for its compensation 5 per cent. on the cost, and he was to give in payment his promissory notes on monthly statements to be rendered by the payee with respect to the cost, to which was to be added the 5 per cent.

The material facts so pleaded are that the payee entered on the performance of the work and rendered to defendant, from time to time, statements with respect to the cost, and represented that they were correct; that the defendant, relying thereon, executed and delivered notes, and paid on account of the notes $24,646.92; that on November 1, 1912, the amount of his outstanding notes aggregated the face of the larger note in suit; that the payee was unskillful, negligent, and wasteful in the performance of the contract, and unreasonably and improperly delayed the work, thereby largely and improperly increasing the cost, and that the statements rendered were false and fraudulent, in that they contained charges for unnecessary and useless supplies and materials, and for work and labor done and supplies and materials purchased at excessive rates, and for some expenditures not belonging to the work, and others caused by the unskillfulness and negligence of the payee, and by unreasonable delay on its part, and that such charges were knowingly made by the agents

(182 N.Y.S.)

and servants of the payee, with intent to deceive and to defraud the defendant; that these facts were unknown to the defendant when he received the statements and gave the notes called for by the contract, but that upon discovering them he notified the payee; that thereafter, and on the maturity of the outstanding notes, and in renewal thereof, he made and delivered the larger note in suit, and gave the other note in suit on a statement rendered by the payee with respect to disbursements made under the contract for the month of July, 1912, and that he expressly reserved to himself "all rights and claims against said notes alleged in the amended complaint in connection with the performance of said agreement on the part of said company." The defendant further alleged that the plaintiff, before receiving the notes, had knowledge of the claims of the defendant against the payee "in respect to said notes and the transactions hereinbefore alleged, and of the reservation by the defendant of his rights and claims against said notes." The case was tried and decided on these pleadings without amendment.

The court found that the notes were given and were indorsed and delivered to the plaintiff as alleged, and were discounted by it, and the proceeds placed to the credit of the account of the payee, and, in effect, that the amount of such credit was withdrawn by the payee on or before December 16, 1912, for it was found that on that day the plaintiff became the holder of the notes for value. The court found, however, that the plaintiff did not receive the notes in due course and that prior to receiving them and paying therefor, and, before paying the full amount, it had notice of the reservation by the defendant of his rights and claims against the notes "as set forth in the amended answer," and that before paying the full amount plaintiff had notice of sufficient facts to put it on inquiry with respect to the defense pleaded, and, if it had inquired, it would have ascertained the facts to be as pleaded in the amended answer; that the plaintiff did not take the notes in good faith; that the notes were made and delivered by the defendant under an agreement between him and the payee that they were made and delivered subject to all his rights, claims, and defenses, and without prejudice or waiver of any claims he might have against the notes on any account in connection with the agreement, and that such rights were expressly reserved by him; that the payee was unskillful, negligent, and wasteful in performing the work, and unreasonably and improperly delaying it, whereby the cost was largely and improperly increased; that the statements of cost rendered by the payee were false and fraudulent, in that they contained charges for expenditures not belonging to the work, and for moneys dishonestly appropriated by the agents, servants, and employés of the payee, and contained charges for expenditures in consequence of unskillfulness, gross negligence, and waste in the performance of the contract; that the plaintiff had notice that the title of the payee was defective, and failed to sustain the burden of showing that it was a holder in due course; that the amount owing by the defendant under the notes has not been liquidated, and that the reasonable cost of the work and materials, with 10 per cent. plant and overhead charges, and