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the 5 per cent. compensation added thereto, was $72,644.95; and that the balance owing by the defendant on account of the work was $53,150.64.
As conclusions of law the court found that the plaintiff did not take the notes in good faith; that there was a partial failure of consideration for the notes, which is a defense pro tanto, and that plaintiff was only entitled to recover on the notes for the reasonable cost of the work, plus 5 per cent., less the amount paid to apply on the cost of the work, and was not entitled to interest, on account of the fact that the amount owing had not been liquidated; and judgment was directed in favor of the plaintiff for $53,150.64, with costs. The case was submitted on the proposed findings and briefs, and the court wrote an opinion.
Thereafter additional findings, to conform the decision to the views of the court expressed in the opinion, were made at the request of the defendant, but are not embodied in the decision. The court thereby found that a note for $50,000, of which the larger note in suit was in part a renewal, was given by the defendant May 1, 1912, in renewal of former notes, and that it was given subject to claims and defenses against the same, and on the representation that the statements of cost which had been rendered by the payee were correct, and on an agreement that an investigation with respect thereto would be made, and that, if anything was found wrong, it would be corrected and an adjustment made, and that for the work remaining to be done notes would be given maturing November, 1912; that pursuant thereto three notes were thereafter given, aggregating $49,828.11, maturing on November 1, 1912; that the notes in suit were given, not as evidence of defendant's indebtedness in a fixed amount, but with the distinct understanding that the amount was to be fixed after an investigation into the bona fides of the bills or statements rendered by the payee, and were subject to all of the defendant's defenses and claims against the notes; that the notes in suit were negotiated by the payee in breach of faith and in fraud of the rights of the defendant; and, as conclusions of law, that the title of the payee was defective, and that the plaintiff was not a holder in due course, and was only entitled to recover the amount actually due to the payee.
One Louis J. Horowitz was the president of the payee, which in 1911 was engaged in various building enterprises throughout the country, and was constructing a $4,000,000 office building, to be known as the "Insurance Exchange Building," for the defendant and one Graham, in Chicago. Defendant had invested upwards of $100.000 in acquiring all the stock and bonds of the North Laramie Land Company, which owned 4,000 acres of reclaimed land in Platte county, Wyo., and had acquired the right to furnish water for irrigating purposes for 4,000 more acres of reclaimed land, and was engaged in constructing a system of irrigation, consisting of three storage reservoirs connected with the North Laramie river and with one another by about 20 miles of ditches. The work was then being done under the supervision of John A. Whiting, the land company's engineer, and one Shelburne, its resident engineer. The work, however, was not
(182 N.Y.S.) being done satisfactorily, and the defendant was desirous of completing it, to enable him to realize on his investment in the enterprise. Defendant requested Horowitz, representing the payee, to finish the work, and showed Horowitz plans that had been prepared by Whiting for concrete facings for two dams. Horowitz stated that it was too small an enterprise ordinarily to interest the payee, but, in appreciation of defendant's having given it the contract for the Chicago building, it would undertake the work. Defendant, who was an experienced lawyer and the general counsel for many corporations, thereupon prepared and submitted to Horowitz a proposed contract, as follows:
"Chicago, Ill., August 17, 1911, "Thompson-Starrett Company, 51 Wall Street, New York-Gentlemen: 1 am sending you herewith drawings and general specifications for reinforced concrete facings to be constructed on the North Laramie Land Company's project near Uva, Wyoming. I desire you to put yourselves into communi. cation with Mr. J. A. Whiting, engineer, Cheyenne, Wyoming, who will give you any additional necessary information and instructions you may require for the purpose of executing this work. I herewith employ you to execute such work as Mr. Whiting may direct you in writing to execute, upon the understanding that I will pay you for this work on the basis of cost to you plus five (5%) per cent. of the cost for your profit. I agree that your cost is to include expenses of every nature incurred by you, including railroad transportation, board bills, and wages of people employed entirely or in part in connection with this work.
"You are to render to me monthly statements, showing the cost to you, of the work at the end of each month. To this cost you will add the 5 per cent. commission above referred to. Against such bills I will give you my premissory notes, with interest at the rate of six (6%) per annum, maturing May 1, 1912. As soon as practicable for you to do so, I will be glad to have from you an approximate estimate as to the total probable cost of the work ordered up to any one time, such estimate, of course, to be in no way binding upon you. "Yours very truly,
The defendant at the same time prepared a letter to Whiting, a copy of which he inclosed to Horowitz with the proposed contract. In that letter he incorporated a provision for the approval of the vouchers of the contractor in advance by Whiting. Horowitz, on receiving the proposed contract and the copy of the letter to Whiting, on August 17, 1911, as president of the payee, wrote the defendant, suggesting that, inasmuch as the approval of the vouchers was not provided for in their agreement, defendant write Whiting that such approval was unnecessary. Horowitz testified that he stated to the defendant that such a checking up of vouchers in advance was not customary, and, on most jobs, the payee received its money before it submitted vouchers, and that it did not wish to be delayed in receiving its money by the checking up of the vouchers in advance by an engineer of whom it knew nothing, and that the vouchers would be submitted to the defendant, and that, after he reimbursed the payee for the money expended, "he could then do such checking as he had a mind to." It is evident that this work was not of the kind usually performed by the payee, and it was to be done at a very remote and inconvenient point with respect to obtaining labor and material. The work to be done and the material to be used were to be determined
by Whiting, and the work was to be done under his general supervision and under the direct and immediate supervision of the defendant's resident engineer, Shelburne. Horowitz's letter, suggesting the elimination of the provision for the approval of the vouchers in advance, was received by the defendant before he forwarded the letter which he had written to Whiting, and, without protest, he thereupon eliminated that provision. The payee had an office in Salt Lake City in charge of one Morton, and Horowitz forwarded to him the plans for part of the work which had been delivered to him by the defendant, and directed him to make arrangements to meet the defendant's representatives on the ground and plan for the execution of the work.
Pursuant to these instructions, Morton went to Uva on the 24th of August, 1911, and with Whiting and one O'Neill, of the land company, inspected the work as then contemplated, and estimated that it could be completed in about three months at a cost of about $30,000. At that interview Whiting gave Morton a former order for that part of the work which could then be proceeded with, and Morton thereupon proceeded to employ a staff to take charge of the work, which he contemplated visiting at short intervals from his office in Salt Lake City, which was about 500 miles from Uva. After inquiries into satisfactory references, he employed one Jennings, of Salt Lake City, as superintendent at a salary of $175 per month and expenses, and also employed at $100 a month and expenses one Meredith, whom he had known since 1905, and who had worked for the payee for two years, commencing in 1907, as cashier at Salt Lake City, and during that time had handled satisfactorily for the payee about $1,500,000, while receiving a salary of $125 per month. Morton also employed one Shelgrove, a young engineer, as timekeeper. The payee's representatives established a camp and commenced the work in September, 1911, and continued the work, with the exception of concreting, which it was obliged to suspend earlier on account of the cold weather, until January 6, 1912, when weather conditions required complete suspension of the work. Work was resumed again on January 27, 1912, on the ditches and in hauling material, and continued until April 13th, when the weather permitted the resumption of the work of concreting, and from that time it was continued until it was wholly completed on the 3d of July, 1912.
The vouchers for the work to the end of December, 1911, aggregated $52,396.79, but it appears that more work had been ordered by Whiting than Morton made his estimate on, and the cost of the work was largely increased, owing to the fact that the cold weather set in unusually early in the fall of 1911; the temperature having fallen to zero in the month of October. It appears that down to the end of December, 1911, as great progress as could have been expected was believed to have been made by Whiting and Shelburne, defendant's representatives, and by the payee's representatives. No complaint had been made, and the suspension of work had been made at the suggestion of Whiting. There was no direct supervision of the work, either by Whiting or Morton, between January 27th and April 13th. (182 N.Y.S.) During that period it was left to the other representatives of the payee, acting under the direction of Shelburne with respect to the work.
The first complaint from the defendant with respect to the work was a telegram to Morton on April 9, 1912, in which he stated that he had relied upon the assurances of Horowitz that the work would be done as economically and expeditiously as possible, and that the cost down to that time had been many times the estimate made, and was appalling, and that the work was not complete, and that the water was rising, and the reservoirs and ditches were not ready. He also stated that he had had a favorable offer for the sale of the whole project, which, owing to the fact that the work was not completed, he could not accept, and that he wished to know definitely when the work would be completed. Morton thereupon wrote Horowitz, explaining the reasons for the increase in the cost, which were as already stated, and this was communicated to the defendant. On the 12th of April, 1912, defendant wrote Whiting, stating that the vouchers received down to March 1st aggregated $67,178.72, and that apparently considerable work remained to be done. To this Whiting replied that the present progress of the work was very satisfactory, and that the project would be in shape to conserve water at an early date, and that the length of time required to complete the work would depend upon the weather and the number of teams obtainable, and that he believed it would be completed within 60 days. He also stated that favorable weather was some 30 days later that year than usual. From that time on, and until its completion, there was no serious or well-grounded complaint with respect to the progress of the work.
Notes aggregating, with interest, $72,225.10, were to fall due May 1, 1912, and there was an interview between Horowitz and the defendant on April 29th concerning them. With respect to this and other interviews and matters there was a serious conflict between the testimony of Horowitz and that of the defendant. The learned trial court accepted the testimony of the defendant, and as it was a question of veracity, with bụt little or no evidence corroborating either, and both were interested, an appellate court would not be warranted in holding that the trial court erred in so doing. We therefore accept the testimony of the defendant, but not in all respects the construction placed thereon by the trial court.
With respect to that interview the defendant testified, in substance, that Horowitz called at his office, and he stated to Horowitz that the cost of the work down to that time had very materially exceeded $60,000, which was a revised estimate made by a representative of the payee in December, 1911, and that he objected to paying the notes falling due May 1st, in view of the excessive cost, and owing to the delay in completing the work, and that he was unwilling to pay them without some investigation on his own account "with reference to the correctness of the situation”; that Horowitz expressed confidence that Morton had given the work every possible attention, that the cost was no more than it should be, and that the increased cost was due largely to weather conditions and to the additional work ordered by the engineers; that he thereupon stated that he had no information from his own representative with respect thereto, and that he "wanted to write Mr. Whiting and get some information"; that Horowitz then sugested that he pay the notes down to $50,000, and "renew them for $50,000 until November 1st, and that in the meantime he could make whatever investigation and inquiry he cared to make” to satisfy himself that what Horowitz had continually said to him was correct; that he then asked Horowitz, “What about the balance? Is there any assurance, is there any indication, what I am to meet there?” and that Horowitz said, "Let whatever balance there is, let that-make your notes payable November 1st, so that in the meantime the work will be completed, and then, if there is anything wrong, it will be corrected;" that Horowitz assured him that the work would cost him infinitely less by the payee doing it than if any one else had done it, whereupon he said, “Well, I am willing to do that; I am willing to pay you down to $50,000, and then in the meantime I will give you these notes, but there must be some adjustment between now and November 1st, and find out exactly what is right;" that Horowitz replied, “That is perfectly satisfactory to me; I will find out what the amount is, so that we can figure it out." The figures representing the amount necessary to reduce the indebtedness to $50,000 were furnished, and on April 30, 1912, defendant inclosed a check to Horowitz for $22,225.10 and a note for $50,000, payable on or before six months from May 1, 1912, "account my notes and obligation held by you in re North Laramie Land Company,” and requested that Horowitz return the other notes. The other notes were returned to the defendant shortly thereafter, and he testified that he had previously received notice from the plaintiff with respect to them, and that, on receiving them, he noticed that they had been discounted by the plaintiff.
This is the only testimony in support of the supplemental findings, to which reference has been made, with respect to any agreement or understanding between the defendant and the payee at the time the note for $50,000 was given on May 1, 1912. There is no other testimony or evidence bearing on the question as to whether the note then given, or the notes thereafter given on vouchers subsequently submitted by the payee, were to be held by or to be negotiated by the payee. Defendant continued to give notes on vouchers submitted for the completion of the work. The aggregate of the vouchers, plus the 5 per cent. which the payee was to receive as compensation, was $121,504.56. Defendant retained the vouchers as received, and never forwarded any of them to Whiting or to Shelburne to check up, or for information, until the 25th of June, 1912, when they aggregated $100,143.27.
The first complaint by Whiting with respect to extravagance or negligence in the performance of the work was a telegram on May 17, 1912, in answer to a telegram from the defendant, referring to the fact that the work had then cost over $83,000, and that the payee claimed that the increase in the cost was due to extra work constantly ordered by Whiting. In that telegram Whiting stated that the contractor was constantly exceeding its own estimate by 50 per cent. and that there was lack of economy and proper handling of men, and he