Sproul v. Beskin

Blackmar, J.: The plaintiff having proved the note, and that he had paid the same and taken it up from the bank, rested on the prima facie case. The burden then shifted to the defendant to prove the defective title to the note as alleged in the answer, but he was prevented from so doing by rulings by the court, on the ground that the plaintiff was not present at the time of the transaction. The defendant had the right to prove that his signature was procured on the promise that the note would be filled up with the same indorsers as before, and so afford him the security of the prior obligations, and that Gruner fraudulently filled it out in violation of the agreement. He was entitled to prove this whether plaintiff Sproul was present at the time of the conversations or not. In fact, the presence or absence of the plaintiff at the time of the transaction makes no difference whatever ás to the relevancy or competency of evidence of the transaction, including conversations which were a part thereof. The repeated rulings of the court, excluding over defendant’s objection and exception, evidence of the conversation between Gruner and defendant when defendant was induced to place his name on the back of a note to be filled up by Gruner, x were erroneous. As the result of these rulings, all that was left of defendant’s case then were the words “ Part Renewal,” [278] wMch defendant wrote over his indorsement. The words “ Part Renewal ” in themselves carry no definite meaning. Their full meaning can only be ascertained when read in the light of the whole transaction, and the defendant was not permitted to show what the transaction was. If the defendant had been permitted to prove the allegations of his answer as to the circumstances under which he gave his indorsement, he would have proved a defect in the title (Neg. Inst. Law [Consol. Laws, chap. 38; Laws of 1909, chap. 43], § 94), and the burden would have shifted to the plaintiff to show, that his title was that of a holder in due course. (Neg. Inst. Law, § 98.) The remaining question is whether the defendant has not cured the error by calling the cashier of the Peekskill National Bank, and so showing that the bank was a holder in due course. The note was discounted for value, for the bank gave up the prior note which bore the obligation of the parties. The pre-existing debt was a sufficient consideration under the statute. (Neg. Inst. Law, § 51.) The question remains whether the bank took the note in good faith. (Neg. Inst. Law, § 91.) This depends upon whether it had knowledge of any defect or knowledge of any facts which should have put it upon inquiry (Neg. Inst. Law, § 95), and the burden of showing that the bank had no knowledge or notice equivalent to knowledge was on the plaintiff. (Smith v. Weston, 159 N. Y. 194.) The words “ Part Renewal ” were written over the indorsement of the defendant. Under the circumstances the words charged the bank with knowledge that there was a limitation put upon the use of the indorsement. A reasonable inference was that it was to be used in “ part renewal ” of another note, and the other to which it obviously referred was the original note upon which it was applied. A renewal means the continuance of the old obligation. (Jagger Iron Co. v. Walker, 76 N. Y. 521; First National Bank v. Weston, 25 App. Div. 414; Hayward v. Empire State Sugar Co., 105 id. 21.) A continuance of the old obligation includes the continuance of the obligations of all parties liable thereon. The note was presented by the maker, indicating that it had not yet an inception. It was apparently complete on its face, and yet its form was such that it could not be [279] a part renewal of the other note, according to the accurate meaning of the term. The cashier of the bank testified that he knew that the word “ renewal ” had a special meaning; and that a note having this word could not be used for an original credit, but that this was a new transaction, and in effect that he relied on plaintiff’s indorsement. Reasonable inquiry would have disclosed the situation, and if the allegations of the answer, which the defendant was not permitted to prove, represent the situation, which must be assumed for the purposes of this decision, the bank could not take the note in good faith. The question is not presented to us to determine whether, if the bank is a holder in due course, the plaintiff’s position is the same. (Neg. Inst. Law, § 97.) When the situation is fully disclosed by the evidence, it may become an issue whether the plaintiff was a party to any fraud or illegality affecting this instrument. There is no evidence to that effect now in the record. The judgment is reversed and a new trial granted, costs to abide the event. Jenks, P. J., Stapleton, Rich and Putnam, JJ., concurred. Judgment reversed and new trial granted, costs to abide the event.