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(182 N.Y.S.) suggested that the contract be terminated, and stated that he could take charge of the plant and equipment and proceed with work, em-. ploying the payee's concrete foreman as superintendent, and save the defendant time and money, and that it was impossible for him to regulate the cost under the present management. The defendant sent a copy of Whiting's telegram to Horowitz, who replied on May 21, 1912, that in his opinion Whiting's statements were not justified, and that he thought Whiting had made too low an estimate and was attempting to place the blame on the payee, and said that the work was taken over by the payee as an accommodation to the defendant, and that the payee was quite willing to relinquish it, and expressed the hope that the defendant would act on Whiting's recommendation. The work evidently was nearly completed at that time, and the papee was continued in charge, and completed it to the entire satisfaction of the defendant with respect to the work itself.
On the 31st of June, 1912, Whiting wrote O'Neill, of the land company, criticizing the work that was being done by the payee, and complaining of negligence and incompetency on the part of the superintendent of the payee, and stating that he had complained to Morton and to the superintendent with respect to the cost of the work; but as a witness he admitted that he had made no such complaint to them. On the 23d of July, 1912, Horowitz wrote the defendant asking for a check or note for vouchers aggregating $35,150.04 that had been rendered, and thereafter there was an interview between the defendant and Horowitz with respect thereto. The defendant testified that he then informed Horowitz that he was not disposed to give any more notes; that he had been informed, through Whiting, that Morton was not on the job between December and the end of May, although he had been assured by Horowitz that Morton would give it his attention, and he took the position that the matter should remain for adjustment, and that a proper investigation should be made, as he suggested when the note of May 1st was given; that Horowitz replied that his finance committee was criticizing him for not getting the notes for expenditures that had been made a month or two months before, and said, “It is not necessary to withhold the notes; my understanding with you is that the matter shall be investigated and adjusted, and it will save me adverse criticism if you will give me the notes;" and that he replied, “Very well, I will do so." Horowitz denied that conversation.
The notes were inclosed to Horowitz by the defendant, with a letter, dated August 2, 1912, containing no reference to the reservation with respect to adjustment, but merely stating that they covered the last two statements, which were being sent to Whiting for review. According to the testimony of the defendant, there was an interview between him and Horowitz in Chicago early in September, 1912. With respect to that interview he testified that he was desirous of taking up the matter of the adjustment of their account, because he expected to be very much occupied with personal matters between then and the 1st of November; that he informed Horowitz that the opportunity for making the necessary investigation had not been sufficient, and Horowitz agreed to that on the ground that the men who worked on the job had become scattered; that he told Horowitz that he was unwilling to make any payment on the notes until after the subject had been fully and entirely investigated, and every effort made to make an adjustment based upon the results of the investigation; that Horowitz asked what he suggested, and that he said that sufficient time should be given to get the information, and that the charges were serious, and that Horowitz should be as much interested as he in having an investigation complete and satisfactory; and that to this Horowitz assented, and said that he wanted the defendant to be satisfied that he had not been imposed upon, and that the complaint made to him by Whiting had been grossly exaggerated, and he asked what the defendant would suggest doing; that the defendant replied that the notes ought to be renewed for a sufficient length of time to permit the investigation and adjustment, whereupon Horowitz said that the matter of the defendant's contract, claims, and complaints had been the subject of discussion in the finance committee of the payee, and that the committee had charged him with showing favoritism to the defendant through friendship, but that he insisted that the renewal of the notes which he had agreed to should be made, so that the investigation could be conducted; that he told Horowitz that he thought the renewal ought to be for a year, to afford ample opportunity for the investigation, and for the adjustment after the result of the investigation; that Horowitz replied that it would be difficult for him to persuade the committee to allow such a renewal, but that he felt the defendant ought to have every opportunity to satisfy himself with respect to the facts, and that he would renew the notes for one year; that he then said:
“Of course, Mr. Horowitz, you must understand these various claims and complaints I have made, and whatever defenses I have to these notes, are reserved, so that they can be the subject of adjustment when the renewal period is up.”
He did not testify that Horowitz made any reply, but he says they both agreed to expedite the investigation, so that abundant time would be left for adjustment. Horowitz admitted an interview with the deferdant at about that time, but denied that there was any discussion with respect to the notes, and said that at the interview the defendant claimed to have discovered evidence of irregularity and extravagance, and that he asked for the facts, and assured the defendant, if there was anything wrong with respect to the expenditures made by the payee, the payee would suffer the consequences, and not require the defendant to sustain the loss. Horowitz contemplated going to Europe in the fall of 1912, and did not expect to return until after November 1st, when the notes were to fall due. He sailed on the 3d of October, 1912, and did not return until between the 15th and 20th of November of that year. The day before he sailed there was an interview between him and the defendant. At that time there was a balance of over $200,000 due from the defendant and Graham to the payee on account of the Chicago contract, and the defendant executed for himself and Graham four notes, for $50,000 each, therefor.
The defendant testified with respect to that interview that, while (182 N.Y.S.) receipts for the payments evidenced by the notes were being written out, he asked Horowitz if he had disposed of the renewal of the Uva notes during his absence, and that Horowitz replied, in substance, that he had, but that he had had great difficulty in getting it through the finance committee, and that they insisted that he was altogether too friendly in giving the defendant the renewals, but that he insisted that the defendant should have whatever time was necessary to make a complete investigation and reach an adjustment, and that they finally agreed to it; that Horowitz asked about the interest, and that he replied by asking what Horowitz would do with reference to the notes, if he were going to be away, and that Horowitz answered that he would give instructions to Mr. Pond, the treasurer of the payee, to exchange the existing notes for the renewal notes on the 1st of November; that Horowitz again asked with respect to the interest, to which he replied that it would be practically impossible to pay the interest, because “the amount that is to be payable on these notes is not ascertained,” and that the amounts could not be fixed until the "adjustment is reached," and that therefore there could be no interest paid "at this time,” and that he offered to give a note for the interest, payable on demand, which could be adjusted the same time the principal was taken up for final adjustment.
The defendant also testified that the defenses which he referred to in his testimony consisted of the investigation and adjustment of the amount to be paid by him. Horowitz testified that the first reference to the renewal of the notes falling due on November 1, 1912, was at this interview, and that, when the defendant requested a renewal for a year, he objected, saying that the investigation would not require a year, and did not involve the whole amount, and that the defendant agreed that he would take up the notes sooner, if the investigation was finished, but that he wanted the investigation completed.
There was evidence of negligence on the part of the payee's superintendent with respect to the work, and of his incompetency, which, however, was not known to the payee at the time; and the evidence shows dishonesty on the part of the payee's cashier on the job, through which several items, relatively small, however, were included in the vouchers which were not properly chargeable to the work, but this was not known to the payee until long after the work was completed. The learned trial court held that the evidence tending to impeach the vouchers upon which the original notes were given was sufficient to require the plaintiff to bear the burden of showing to what extent the vouchers were correct. The plaintiff failed to bear that burden, and the court determined the amount to be deducted from the notes in suit by determining what the work should have cost, if it had been skillfully and honestly performed. The learned counsel for the appellant contends that the nature and extent of the evidence tending to impeach the vouchers was not sufficient to constitute a prima facie impeachment of all the vouchers, and that it did not warrant the ruling to that effect made by the trial court; but, in the view I take of the case, it is unnecessary to consider or to decide whether that ruling was right, or whether the theory on which that issue was decided was correct, for I deem it an immaterial issue herein.
The plaintiff was the principal, but not the sole, banker of the payee of the notes, and since March 9, 1903, it has been represented on the board of directors of the payee by Mr. Kelsey, its president, and Mr. Stanley, its second vice president, treasurer, and the manager of its banking department, and by three others, forming a majority of the board. Kelsey was also chairman of the payee's finance committee, which had general charge of the contracts to be taken by the payee and of its finances. Stanley was also a member of the finance committee, and was one of the two members of the auditing committee of the payee. It is unnecessary at this point further to consider the relations between the plaintiff and the payee of the notes, for the trial court properly found that they remained separate and distinct corporations and that the payee was not a subsidiary of the plaintiff.
The latter part of October, 1912, Pond, the treasurer of the payee, informed Kelsey, the chairman of its finance committee, that he had notes of the defendant about to fall due, and that Horowitz had agreed to take renewal notes for a year therefor. Kelsey informed him that, since Horowitz was absent, the only thing to do was to take the renewal notes. Thereupon the renewal notes, which had been made by the defendant and left with his secretary for delivery, were procured and delivered to the treasurer of the payee. A few days thereafter a demand note of the defendant for the interest on the notes due November 1st was likewise received from him by the payee. That note was paid by him on May 2, 1913, by check inclosed with a letter stating that it was without prejudice or waiver of any rights or claims the maker had against the notes then held by the payee, and that any such rights or claims “on any account in connection with the contract” for the construction work were expressly reserved. The defendant's notes due November 1, 1912, in so far as they had been discounted by the plaintiff, were taken up by the payee's check given that day to the plaintiff for $63,406.38. They were retained by the payee for a few days, and returned to the defendant on receiving from him, as already stated, the notes in suit.
The payee was not in need of funds at the time it received from the defendant the notes in suit, but early in December thereafter it became necessary for it to discount some paper. The treasurer of the payee spoke to Mr. Stanley of having these notes, and of the necessity for discounting some paper within a few days, and said he intended to speak to Horowitz about it, and Mr. Stanley approved. The treasurer then spoke to Horowitz, who directed that he have the notes discounted. A few days later, and on December 7, 1912, the treasurer of the payee took the notes to the plaintiff and there informed Stanley, its treasurer, that they were the notes he had spoken to him a few days before about having discounted, and Stanley answered, "All right," and directed him to the discount clerk, and he informed the discount clerk that Stanley authorized their discount, and they were thereupon accepted and discounted. The testimony of the treasurer of the payee tends to show that he informed Stanley (182 N.Y.S.) on the first occasion, either of the amount of the notes or about the amount that was needed, but that nothing was said as to whose notes they were, and that Stanley on neither occasion examined them. When they became due, no adjustment had been made between the defendant and the payee. The defendant refused to pay them, and the payee likewise refused to pay them, and suggested to the plaintiff that it bring an action thereon, which it did.
Accepting the testimony of the defendant, as did the trial court, I am of opinion that the fair inference to be drawn therefrom, and the effect thereof, is only that the amount payable on the notes was subject to deduction according to any adjustment arrived at between the parties with respect to the defendant's claim that the charges for the cost of the work, and for which he gave the notes originally, were excessive. It is perfectly clear, I think, that the notes were unconditionally delivered, and the evidence of the defendant with respect thereto only shows a condition subsequent, which, being inconsistent with and contradictory of the terms of the notes, could not be proved by parol evidence, and did not constitute a defense thereto. Jamestown Business College Association v. Allen, 172 N. Y. 291, 64 N. E. 952, 92 Am. St. Rep. 740; Smith v. Dotterwich, 200 N. Y. 299, 93 N. E. 985, 33 L. R. A. (N. S.) 892; Grannis v. Stevens, 157 App. Div. 561, 142 N. Y. Supp. 835, affirmed 216 N. Y. 583, 111 N. E. 263; Nash v. Weidenfeld, 41 App. Div. 511, 58 N. Y. Supp. 609, affirmed 166 N. Y. 612, 59 N. E. 1127; Copans v. Dougan et al., 217 N. Y. 695, 112 N. E. 1056, reversing 158 App. Div. 896, 142 N. Y. Supp. 1113, on the dissenting opinion of Burr, J.; Pratt & Whitney Co. v. Pneumatic Tool Co., 50 App. Div. 369, 63 N. Y. Supp. 1062, affirmed on opinion below 166 N. Y. 588, 59 N. E. 1129; Smith v. Hedges, 89 Misc. Rep. 183, 152 N. Y. Supp. 95, affirmed 170 App. Div. 349, 155 N. Y. Supp. 934, affirmed 222 N. Y. 701, 119 N. E. 1077; Rice v. Grange, 131 N. Y. 149, 30 N. E. 46; Tradesmen's Nat. Bank v. Curtis et al., 167 N. Y. 194, 60 N. E. 429, 52 L. R. A. 430.
In Copans v. Dougan et al., supra, the action was on a note against the indorser, and the answer admitted the making and the indorsement of the note, and alleged that it was made to secure the defendant Cronk for $200, on account of the purchase price of a house and lot which he had sold to the maker, who had purchased goods for him and guaranteed the account, and it was verbally agreed by all parties to the instrument that Cronk should hold the note, and that when it fell due, if he was still liable on his guaranty, the amount of such liability should be deducted from the note. The plaintiff was present when the agreement was made, and was fully informed with respect thereto, and therefore was not a bona fide holder in due course. When the note became due, Cronk owed on account of the purchases guaranteed by the maker more than the amount of the note. Justice Burr, on whose dissenting opinion the decision of the Appellate Division was reversed, wrote, and Justice Thomas concurred with him, holding that by the pleadings, which were in precisely the same condition, so far as this point is concerned, as those in the case at har, the absolute