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making and delivery of the note was admitted, and that, if that were doubtful, the defendant pleaded and attempted to prove that, if at the maturity of the note the payee was indebted to the maker, such indebtedness should be offset against the note, which could not be done even between the original parties.

In Pratt & Whitney Co. v. Pneumatic Tool Co., supra, it was pointedly held that only conditions attaching to the delivery of a note which go to its existence as a contract may be shown by parol, and that no conditions which concede the existence of the contract and tend to vary its terms may be shown in defense, unless properly pleaded as a counterclaim, where a counterclaim is available. There, as here, the making and the delivery of the note were admitted, and the defendant pleaded, as a defense only, that it was given for work and material, and that it was agreed that the giving of the note should be without prejudice to the right of the defendant to have the proper deductions made in the amount of the bills theretofore rendered, and that the defendant should not be compelled to pay until such adjustment was made, and then only so much of the note as represented the actual amount of the cost to the plaintiff for work and material. Evidence of these facts was given in the defense of the action, but it was held that neither the defense pleaded nor the evidence given thereunder showed that the note was delivered conditionally and was not to become a contract, or a failure of consideration, but at most showed an offset which could only be availed of by counterclaim.

In Smith v. Hedges, supra, on the facts as stated in the Court of Appeals memorandum of affirmance, it was held that in an action on a note, brought by an assignee after maturity, an answer to the action on the note given in part payment for construction work pleading a failure of consideration, in that the work for which the note was given was not performed, was properly stricken out as pleading no defense, as was also a defense that the maker stated when he gave the note that it was for the accommodation of the payee only, and that he did not admit that any amount was due or owing to the payee, and that if the work was not completed at the maturity of the note he would not pay it, as was also a defense that he made the note relying on the false and fraudulent representations of the payee that it could and would complete the work within 10 days.

In the case at bar there was ample consideration for the giving of the original notes, in that the giving thereof was required by the contract, and the renewal notes rested on the same consideration, for they were given in payment of the former notes, which were surrendered, and on the further consideration of the extension of the time of the payment of the indebtedness, or, in view the evidence most favorable to defendant, for such amount thereof, as might be found on the adjustment to be due and owing from him, and on Horowitz's agreement to make such an adjustment.

There can be no doubt but that, as between the original parties, the payee of those notes became a holder for value, for they were given in payment of former notes, which were then surrendered to the maker. Kelso v. Ellis, 224 N. Y. 528, 121 N. E. 364; section 51. Negotiable (182 N.Y.S.) Instruments Law; McKinney's notes and citations to the section in his Ann. Consol. Laws of N. Y.; and Birdseye's notes and citations in Cummings & Gilbert's Consol. Laws of N. Y. vol. 5 (2d Ed.) p. 5450. If the action were by the payee on the original notes. I think the defendant could not defend on the theory of partial failure of consideration, which is the only possible defense pleaded here, predicated on the fact that the payee had breached its contract to furnish true and honest vouchers or had overcharged for the work, for the defendant agreed to give the notes on the presentation of the vouchers and its agreement to perform and its performance of the work constituted the consideration for his agreement to give the notes; but, of course, in that case the defendant could have interposed a counterclaim based on the excessive or unauthorized charges. Gillespie v. Torrance, 25 N. Y. 306, 82 Am. Dec. 355; Pratt & Whitney Co. v. Pneumatic Tool Co., 50 App. Div. 369, 63 N. Y. Supp. 1062, affirmed 166 N. Y. 588, 59 N. E. 1129; Manufacturers' Nat. Bank v. Russell, 6 Hun, 375; Rice v. Grange, 131 N. Y. 149, 30 N. E. 46.

Surely the renewal notes were not open to defenses which could not have been interposed to the original notes, for the agreement between the defendant and Horowitz with respect to the renewal notes did not enlarge the rights of the defendant; and, moreover, here there were additional considerations for the renewal notes, consisting of Horowitz's agreement to make a proper adjustment with the defendant, which he has not breached, for so far as appears there was an honest effort to reach an agreement, but without success, and there was also the extension of the time of payment. O'Brien v. Fleckenstein, 180 N. Y. 350, 73 N. E. 30, 105 Am. St. Rep. 768; Emerson v. Sheffer. 113 App. Div. 19, 98 N. Y. Supp. 1057; Milius v. Kauffmann, 104 App. Div. 442, 93 N. Y. Supp. 669; McCormick Harvester Mach. Co. v Yoeman, 26 Ind. App. 415, 59 N. E. 1069; Rice v. Grange, supra. Ordinarily, a renewal note, where the note of which it is a renewal is retained, is merely a continuation of the original note; but where, as here, the original notes are given up on the execution and delivery of the renewal notes, the renewal notes are taken for value, for they are taken in payment of the old notes. Twelfth Ward Bank v. Samuels, 71 App. Div. 168, 75 N. Y. Supp. 561, affirmed Same v. Schauffler, 176 N. Y. 593, 68 N. E. 1125; Hayward v. Empire State Sugar Co., 105 App. Div. 21, 93 N. Y. Supp. 449, affirmed 191 N. Y. 536, 84 N. E. 1114; Jagger Iron Co. v. Walker, 76 N. Y. 521; First Nat. Bank v. Weston, 25 App. Div. 414, 49 N. Y. Supp. 542.

But if the defense pleaded, in so far as it has been proved, would have constituted a good defense as between the original parties, without being pleaded as a counterclaim, on the theory that it shows a partial failure of consideration, it is not available as a defense in this action, brought by the bank, which discounted the notes for full value before maturity, and, I think, became a holder in due course, without notice of any infirmity in the notes, or of the facts upon which the defense is predicated.

There is no evidence of express notice to the plaintiff that the defendant claimed to have any defense to the original notes, or to the renewal notes, including those on which the action is brought. The only theory on which it is claimed that the plaintiff is chargeable with notice of any such defense is on account of the relationship between the plaintiff and the payee. All of the testimony and evidence in the case that was competent as against the plaintiff is to the effect that its representatives, who were taking part in the management of the affairs of the payee, had no notice or knowledge of any of the material facts on which the defendant predicates his defense. The only claim is that the plaintiff's representatives were in a position to acquire knowledge of these facts, and that it was their duty to inquire, or that it may be inferred that Horowitz communicated to the finance committee of the payee his interview and understanding with the defendant. But such an inference would be unwarranted, in view of the fact that the testimony of Horowitz and of all the plaintiff's representatives who were connected with the payee is to the contrary, and it is the only evidence in the case on the subject.

The notice or knowledge acquired by an agent which is imputable to his principal is limited to notice to or knowledge acquired by him while acting for his principal, or which, if acquired while representing another principal, is in his mind when so acting, and when the agent has no private purpose of his own to influence him in refraining from making disclosure to his principal, or from acting for the protection of his principal with respect thereto. Constant et al. v. Univ. of Rochester, 111 N. Y. 604, 19 N. E. 631, 2 L. R. A. 734, 7 Am. St. Rep. 769; McCutcheon v. Dittman, 164 N. Y. 355, 58 N. E. 97; Comey v. Harris, 133 App. Div. 686, 118 N. Y. Supp. 244, affirmed 200 N. Y. 534, 93 N. E. 1118; Cragie v. Hadley, 99 N. Y. 131, 1 N. E. 537, 52 Am. Rep. 9; Holden v. New York & Erie Bank et al., 72 N. Y. 286; Crooks v. People's Nat. Bank, 72 App. Div. 331, 76 N. Y. Supp. 92, 495; N. Y. Assets Realization Co. v. Pforzheimer, 158 App. Div. 700, 143 N. Y. Supp. 898; Republic Life Ins. Co. v. Hudson Trust Co., 130 App. Div. 618, 115 N. Y. Supp. 503, affirmed 198 N. Y. 590, 92 N. E. 1100; C. N. Bank v. Clark et al., 139 N. Y. 307, 34 N. E. 908, 36 Am. St. Rep. 705; Logan v. Fidelity Phenix Fire Ins. Co., 161 App. Div. 404, 146 N. Y. Supp. 678, affirmed 220 N. Y. 688, 116 N. E. 1058.

It does not appear that the plaintiff was under any obligation to discount any or all the notes the payee might desire to have discounted, or to discount the notes of the defendant. It was, through representatives, exercising a financial supervision over the business of the payee, to protect it with respect to credit it had extended or might extend to the payee. In other words, it was exercising this supervision for its own protection only, and not for the benefit of the defendant or others dealing with the payee, and it appears that discounts were obtained by the payee from other banking institutions from time to time. The payee, in making and performing contracts, was acting for itself, and not as agent of the plaintiff, which through its representatives exercised such restraint and control over the business of the payee as was deemed necessary for its own protection. Therefore, I think the plaintiff was not even chargeable with all notice and knowledge of the payee's business as the same was from time to time transacted, but (182 N.Y.S.) only such as bore upon any credit which the payee might apply to it for.

I agree with the learned trial court that the, representatives of the plaintiff had notice and knowledge that this contract had been made by the payee, and that the work was being performed by it, and that notes were being given by the defendant to the payee under the contract, long prior to the time when, according to the testimony of some of them given on the trial, they first acquired knowledge thereof; but that has no material bearing on the points upon which the decision of the issues depends. The plaintiff is not chargeable with knowledge of the interview between the president of the payee and Horowitz. Knowledge of any agreement made by Horowitz in procuring the renewal notes would, of course, be chargeable to the payee, which was his principal; but there is no evidence that he communicated the facts to the finance committee of the payee, on which the plaintiff had representation, or to any of its representatives. There is merely his statement to defendant that he did; but he did not represent the plaintiff, and his admissions or declarations are not binding upon it, and all the testimony in the case shows that he did not so cominunicate it to the finance committee, and there is no evidence, competent as against the plaintiff, that he did. If the plaintiff, in the circumstances, were chargeable with knowledge of all the records of the payee, notice of this verbal agreement between Horowitz and its president could not be imputed to it, for that agreement was in no manner made a matter of record.

The plaintiff's representatives on the finance committee and on the auditing committee of the payee had knowledge of this contract, and doubtless, through them, notice that the notes were given with respect to the contract work was imputable to the plaintiff; but upon no theory of the evidence was notice or knowledge that the defendant claimed or had or reserved any defense to these notes, in whole or in part, brought home to any of the plaintiff's representatives in the management of the affairs of the payee, and therefore there is no basis for imputing such notice or knowledge to Stanley, who, as treasurer of the plaintiff, authorized the discount of these notes by it, or for charging the plaintiff with notice or knowledge of the conversations between the defendant and Horowitz with respect to the giving of the renewal notes, or any of the notes of which they were renewals. There is no evidence of notice or knowledge to the plaintiff's representatives, in the management of the affairs of the payee, of any of the correspondence or interviews showing or tending to show that the defendant claimed to have a defense in whole or in part to any of the notes given to the payee, or a claim for a deduction of any amount from the vouchers purporting to represent the cost of the work plus the payee's commissions. The record evidence with respect thereto was kept by Horowitz, personally, and was not seen by, or known to, or available to the plaintiff's representatives; but if they would have been entitled to see it, had they insisted on seeing it, I think that it is quite clear that the plaintiff is only chargeable with such notice and knowledge as its representatives actually had.

The plaintiff's representatives may have been negligent with respect to the performance of their duty toward it in supervising the affairs of the payee; but the plaintiff owed no duty to the defendant, and its representatives in the management of the payee were under no obligation to the defendant, to investigate or inquire with respect to his interviews or negotiations or correspondence with Horowitz. The defendant acquired no right under the agreement between the plaintiff and the payee with respect to supervision or financial control. That agreement the plaintiff made solely for its own protection. It had the same right as any one else to discount these notes, and owed the defendant no duty of inquiry with respect thereto. The uncontroverted evidence shows that it had no notice or knowledge that these renewal notes were not what they purported to be, or that they were subject to any adjustment or deduction between the defendant and the payee, or that there was any implied agreement between them that they were not to be negotiated. The plaintiff, through its representatives, is chargeable with knowledge or notice that the notes were renewal notes in connection with the contract work, but not with any verbal arrangement between the defendant and Horowitz with respect thereto.

A bank need not be suspicious of its customers, and may assume, when they present papers for discount, that they are acting in good faith and within their lawful rights. Am. Ex. Nat. Bank v. N. Y. Belting & P. Co., 148 N. Y. 698, 43 N. E. 168. Therefore the title of the plaintiff is to be tested, not by its diligence or negligence in making inquiries, but by its honesty and good faith, and if it had no actual notice of any infirmity in the notes or defect in the title of the payee, and acted in good faith, even though it acted negligently and omitted to make inquiries which a prudent man would have made, its title is unimpeachable. Cheever v. Pittsburg S. & L. R. Co., 150 N. Y. 59, 44 N. E. 701, 34 L. R. A. 69, 55 Am. St. Rep. 646; Carlisle v. Norris, 215 N. Y. 401-415, 109 N. E. 564, Ann. Cas. 1917A, 429. If the defense pleaded be a partial failure of consideration, the burden was on the defendant, not only of showing the partial failurue of consideration, but that plaintiff was not a holder in due course (Broderick & Bascom Rope Co. v. McGrath, 81 Misc. Rep. 199, 142 N. Y. Supp. 497; Abramson v. Steele, 176 App. Div. 865, 163 N. Y. Supp. 827; Greenhall v. Davis, 190 App. Div. 632, 180 N. Y. Supp. 525 [1st Dept., decided Feb. 4, 1920]; sections 54, 91, 94, 95, 96 and 97 [Negotiable Instruments Law (Consol. Laws, C. 38)]), and that he failed to do.

The defendant, being a capable, experienced lawyer, and knowing that the payee had negotiated his former notes, must have known that it would likely, or, at least, that it might, negotiate the notes in question. He could have protected himself by not giving negotiable notes, or by exacting an agreement that the notes were not to become obligations until the matters in difference were adjusted, and then only to the extent of the balance found to be due and owing by him. The payee was financially responsible, and it is perfectly evident that he gave all the notes, intending that they should be negotiable instruments, and, if negotiated, that he would look to the payee to take them up

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