
    ISRAEL LEWIS, et al., Plaintiffs and Respondents, v. ARCHIBALD G. ROGERS, impleaded, Defendant and Respondent.
    I. Negotiable Paper.—Bills op Exchange.—Promissory Notes. —Value, Parting with, what is.
    1. The mere suspension of the right of action on a past due debt is.
    
      a. Such suspension is ¿aused by the mere receipt, by the creditor, of the time note of a third person indorsed by the . debtor on account of the past indebtedness, without any express agreement that said note should be taken either in payment and satisfaction, or as collateral.
    ’II. Examination op witnesses on trial.
    1. Questions, what not improper as calling for conclusions of law, or operations of the mind.
    
    
      a. When one of the inquiries on the trial is as to the intent with which the witness did an act, then a question seeking for the operation of the mind is proper.
    
      b. When, in an action on a note of C., given by B. to the plaintiff, it becomes necessary for the plaintiff to prove that he parted with value on the faith of it, he may, after showing that between the receipt and maturity of the note he sold and delivered goods to B., be asked, “Were the supplies furnished by you to B. after the delivery and before the maturity of the note furnished on the note or not? ”
    1. Even if such question calls for an operation of the mind, it is proper.
    3. But it calls for a fact, and is therefore proper.
    3. Leading questions.
    
    The allowance or exclusion of leading questions is in the discretion of the trial judge.
    Present, McCunn and Jones, JJ.
    
      Decided December 30, 1871.
    This is an action against the maker and indorser of a promissory note, which was as follows:
    
      “ New York, December 11, 1869. .
    “Four months after date I promise to pay to the order of D. Woodhouse, Esq., five hundred dollars, at 4 and 6 Pine-street. Value received.
    “Arch! G. Rogers.
    Indorsed, “D. Woodhouse.”
    The maker, who alone answers, sets up as a defense that at the time he made and delivered the note the said Woodhouse agreed, tor a valuable consideration, to renew the said note by extending the time for the payment thereof beyond the time of terms therein mentioned, and for a further and like term; that he (the defendant) has been and was ready and willing to keep the agreement on his part, and caused a new noté for principal and interest properly executed to be tendered to the plaintiffs, which they refused to accept; that the action is prematurely brought; that the note was not indorsed to the plaintiffs for a valuable consideration, but, on the contrary thereof, was received by the plaintiffs for, and on account of, and to secure a pre-existing debt.
    On the trial before a referee it was proved that said Woodhouse, being indebted to plaintiffs in three hundred and eight dollars for goods sold and delivered by them to him, George Lewis, one of the plaintiffs, applied to him for payment. He said he had no money, but had something as good as money. He took out the note in question and told George to take it, and he took it. Nothing was said about trading out the balance. Nor was anything said about receiving the note either in payment or satisfaction of the debt, or as collateral security.
    The plaintiffs, after receiving the note, sold and delivered to Woodhouse goods amounting to the difference between the debt of three hundred and eight dollars and the amount of the note, and sixty dollars over and above the note.
    
      It was also proved that defendant Rogers, being indebted to Woodhouse, which indebtedness was by agreement to be paid in notes at eight months, Wood-house applied to him to make notes at four instead of eight months, to which Woodhouse consented, on condition that the four months’ notes, when due, should be renewed by other notes at four months. Thereupon Rogers gave Woodhouse two notes, dated December 11, 1869, one for two hundred dollars and one for five hundred dollars. And Woodhouse executed and signed a written instrument by which he agreed to cause these notes to be renewed before maturity for another prior of four months, and that they should not be put in the market for sale or loan, but should only be discounted at bank.
    At the maturity of the note in question Rogers made a new note for the same amount, adding the interest for four months longer, and gave it to Woodhouse to give to the parties holding the one in suit.
    There was conflict of evidence as to whether Wood-house tendered the new note before protest of thb old or not. There is no finding of fact on this.
    Mr. Woodhouse testifies that he gave plaintiff the note in suit by mistake ; that he held another note of Mr. Rogers for five hundred dollars which was not subject to renewal, and that was the one he intended to give plaintiff. There is no finding on this.
    It was shown on the trial that plaintiffs had not at any time before the maturity of the note any knowledge, information, or notice of the agreement or arrangement between Woodhouse and Rogers, nor any cause to suspect the existence of such arrangement.
    In the’course of the trial George Lewis was asked this question :
    Before the maturity of the note did he (Woodhouse) obtain any supplies on that note ?
    
      The question was objected to. Objection overruled, and defendants excepted.
    He was also asked:
    Were the supplies furnished by the plaintiff to defendant, Woodhouse, after the delivery of the note in suit and before the maturity thereof, furnished on the note or not ? which was objected to. Objection overruled, and defendant excepted.
    The referee reported in favor of the plaintiff for the full amount of the note.
    From the judgment entered on the report, the defendant appeals.
    
      Wm. Kronberg, attorney and of counsel for appellant, urged,
    I. The defendant Rogers having protected himself by taking a written agreement securing to him the right of renewing the note for another and additional term, these two papers, executed at the same time and in reference to the same subject matter, are to be taken together as one paper.
    This is so against these plaintiffs, unless they are to be protected by the rule applied in favor of the party who is a bona fide holder for value.
    
    In the first instance, the production of the note is sufficient for plaintiffs case; he is presumed to be the lawful owner, and to have received it in the due course of business and for value (1 Denio, 367; 1 Sandf. 37 ; 15 Barb. 285).
    It is, however, a mere presumption that so aids the plaintiff; a mere presumption, potent if undisturbed, is a slight thing and easily got rid of. Thus, for instance, if the defendant proves that the note was lost, stolen, perverted to an improper use, or the like, all the cases agree that this shifts the burthen of proof over on the plaintiffs, and obliges them to show that they took the note in the due course of business and parted with value.
    
    
      2. This parting with value is a vital and substan
      
      tial thing, and precisely what the words themselves import (Rosa v. Brotherson, 10 Wend. 86).
    Where a creditor receives the transfer of a negotiable note in payment of a precedent debt, he takes it, though transferred before maturity, subject to all equities existing between the original parties (Cardwell v. Hicks, 23 How. Pr. 281).
    
    
      A person who takes a note which- is fraudulent in its inception without knowledge of the fraud, and pays for it partly in cash and partly by discharging a precedent debt, is a bona fide holder for value only to the amount . of the cash paid (Farrington v. The Franklin Bank, 31 Barb. 187. Cases collected).
    It has been remarked that there is a conflict of authority in the decisions of the courts of this' State as to what constitutes a bona fide holder of negotiable paper for value; but it is believed that, with one or two exceptions, the cases can be harmonized and brought within well-established principles. And it is. well settled that where a note is transferred simply as collateral security for a precedent debt, the holder is not a holder for value, so as to cut off any defense existing in favor of the maker.
    The leading case in this State on the point is Codington v. Ray, 20 Johns. 637.
    That case was followed by Wardell v. Howell, 9 Wend. 170.
    Thus, it is only where the holder of negotiable paper received it before maturity in good faith, without notice of any equities between the original parties, and on the strength of it parted with property—gives up a valuable right or incurred liability, or received it in full payment of a precedent debt—he is a bona fide holder for value, so as to cut off any defense existing in favor of the maker. This principle was expressly decided in the affirmative in Bank of Salina v. Babcock, 21 Wend. 499: Weltheimer v. Meyer, 33 Barb. 215; Brown v. Leavitt, 31 N. Y. 113 ; Pratt v. Coman, 37 Id. 440 ; Traders’ Bank v. Bradner, 43 Barb. 379.
    3. The note in this case was (no settlement) turned out simply as security, no proof that it had been received in full payment of the debt, the indebtedness not canceled, but, on the contrary, it appeared that plaintiffs supplied defendant Woodhouse with meat to an amount exceeding the amount of the note by sixty dollars.
    In Bank of St. Albans v. Gfilliand, notes received “in full satisfaction” and the “indebtedness canceled,” and the decision has been followed by every well-considered case involving the same question since decided in the State.
    In Bank of Sandusky v. Scoville, plaintiff discounted the note and applied the proceeds to extinguish a precedent debt.
    In Young v. Lee the note was received in payment of a note due in a few days, which was “surrendered” on receipt of the new note, and the decision of the cases bearing upon this question attach great importance to the terms “ satisfaction,” “ canceled,” “surrendered,” “extinguished,” “given up,” &c.
    In Bright v. Judson, 47 Barb. 39, the reported note states “it is not enough that new paper should have been received in payment and satisfaction of the old, the old paper must be absolutely surrendered before maturity to the person from whom he receives the new paper.” These are almost verbatim the words of one of the learned justices who wrote opinion in the case.
    4. The referee erred in finding that the note in question was received in payment and satisfaction of a previous bill of about three hundred and eight dollars, &c.
    This finding is not supported by the evidence, no agreement, understanding or arrangement that the note should be taken in payment or settlement of the debt. Defendants’ exception well taken.
    
      But for that error he would ■. probably have reached a different conclusion: nothing short of an express agreement to receive the note of a third party in payment of a demand operates as a satisfaction and discharge of the debt. Call v. Sackett, 1 Hill, 516; Waydell v. Luer, 3 Denio, 410.
    
      But it is otherwise if there is-no agreement. Van Eps v. Dulage, 6 Barb. 244.
    Plaintiffs, receiving the paper for security merely for an antecedent debt, are not bona fide holders for value.
    
    Am. Ex. Bank v. Carliss, 46 Barb. 19, to constitute a bona fide holder the paper must be received in absolute payment of the antecedent debt, so that the liability of the debtor is discharged.
    Traders’ Bank v. Bradner, 43 Barb. 379, and it cannot be doubted that had the note been taken in absolute payment of the debt, and the debt been canceled, plaintiffs would have been regarded as holders for value.
    This was the substance of the defense of defendant Rogers, set up in his answer and substantially proven: the note and the agreement both go together, belong together, and which as a gainst a bona fide holder of the note who had in due course of business parted with value for the note, that agreement goes for nothing ; it is vital and effectually binding against any holder of the note not a bona fide holder, not having parted with value—why not?
    The holder has taken the note without parting with value, and therefore, as the cases say,- subject to the equities existing between the parties. .
    
      Therefore subject to the agreement.
    
    Stedwell v. Territt, 4 Bosw. 520, is an instance in which a note or acceptance became connected with and affected by another instrument.
    The judgment should be reversed and order of reference discharged.
    
      
      Lewis O. Corbet, attorney and of counsel for respondents, urged,
    I. The plaintiffs received the note in suit from Woodhonse in payment and satisfaction of a precedent debt. 1. Whether a note was taken absolutely as payment or not is a question of fact for the jury (Johnson v. Weed, 9 Johns 310 ; Noel v. Murray, 13 N. Y. 168). a. The referee distinctly finds that the note in suit was so taken. 2. It is prima facie evidence of satisfaction (Story on Prom. Notes, § 404).
    • II. The taking of a promissory note of a third party in payment and satisfaction of a pre-existing or precedent debt, constitutes the person so taking it a bona fide holder. (New York Marbled Iron Works v. Smith, 4 Duer, 377).
    " The law, at least in this court, must be considered as settled that the satisfaction of a precedent debt is as truly a valuable consideration for the transfer of a negotiable bill or note as the advance in cash of its amount at the time of the transfer.
    See also White v. Springfield Bank, 3 Sandf. 225; Bank of Salina v. Babcock, 21 Wend. 499; Bank of Sandusky v. Scoville, 24 Id. 115; Young v. Lee, 12 N. Y. 551; Bowles v. Rowland, 40 Barb. 369; Gould v. Segel, 5 Duer, 260 ; Bank of St. Albans v. Gilliland, 23 Wend. 311, 20 Johns. 646; Purchase v. Mattison, 3 Bosw. 310.
    . In Brown v. Leavitt, 31 N. Y. 113, the court say: “A further discussion of the question might lead to a suspicion that the law was in doubt on the point.
    New York State Bank v. Fletcher, 5 Wend. 87, Marcy, J., “I take the law to he that it inpayment if expressly accepted as such.”
    III. The plaintiffs delivered to said Woodhonse, at the time of receiving the note, and before the maturity thereof, merchandise to the amount of one hundred and ninety-two dollars, the balance of said note, which constituted a present sale.
    
    
      IV. Where the note of third party is taken from a debtor by a creditor at the time a debt is contracted, the presumption is that it was agreed to be taken in payment of such debt (Young v. Stahelin, 34 N. Y. 258 ; Noel Murray, 3 Kern. 171; Whitbeck v. Van Ness, 11 Johns. 409; Rew v. Barber, 3 Cow. 280 ; Breed v. Cook, 15 Johns. 241; Soffe v. Gallagher, 3 E. D. Smith, 507.)
    V. The acceptance of a note made by a third person on a precedent debt, suspends the creditor’s right to sue upon his original claim until the maturity of the note (Putnam v. Lewis, 8 Johns. 389 ; Pratt v. Coman, 37 N. Y. 441; Smith v. Applegate, 1 Daly. 91; Youngs v. Stahelin, 34 N. Y. 258.)
    VI. The acceptance of such a note on time, though not received as an absolute payment of the original debt, suspends the right of action on the original debt until the note becomes due, and this constitutes a sufficient consideration to make the plaintiffs dona fide holders of the note in suit (Pratt v. Coman, 37 N. Y. 441; Traders’ Bank of Rochester v. Bradner, 43 Bard. 379; Bowles v. Rowland, 40 Bard. 369.)
    VII. Assuming, for the purposes of this argument, that the plaintiffs did not receive the note in payment or satisfaction of said indebtedness, then it must be admitted that they received it as security.
    
    VIII. A person taking a note of a third party as security for a pre-existing debt, is a holder for a valuable consideration, entitled to protection against all the equities between the antecedent parties (Bank of New York v. Vanderhorst, 32 N. Y. 553; Young v. Lee, 2 Kern. 551; Spencer v. Ballou, 18 N. Y. 327 ; Boyd v. Cumming, 17 Id. 101; Mohawk Bank v. Corey, 1 Hill, 513; Bank of Rutland v. Buck, 5 Wend. 66 ; Stettheimer v. Myer, 33 Bard. 215; Heywood v. Watson, 4 Bing. 496; Percival v. Frampton, 2 C., M. & R. 180; Bramah v. Roberts, 1 Bing. N. C. 469.)
   Br the Court—Jokes J.

In the case of Pratt v. Coman, decided by the court of appeals (consisting of Ward Hunt, Ch. J., Martin Grover, Lewis B. Woodruff, Thomas W. Clerke, Theodore Miller, William J. Bacon, Henry Wells, and Charles Mason, Judges), the action was brought on a nóte made by defendant Coman, dated June 4, 1859, for three thousand dollars, payable six months after date, to the order of Mr. Agnew, and by him indorsed to the plaintiff. The defense was that Agnew by false representations induced Coman to buy certain stocks, in payment whereof he gave the note in suit.

The case was tried before a referee, who found that the note was procured by fraud, and that Agnew indorsed the note to plaintiff before maturity; that Agnew being indebted to the plaintiff in a large sum of money, for which the plaintiff held Agnew’s overdue notes, the plaintiff gave up to Agnew such overdue notes, and received therefor the note in suit and new notes made by Agnew for the balance, and that the plaintiff took the note in suit without notice of any defense; he also found that the said notes so due from Agnew to the plaintiff were surrendered by the plaintiff to Agnew, and this note of defendants, with Agnew’s indorsement, was delivered by Agnew to plaintiff on account of so much and as part of said indebtedness, and the note or notes of Agnew given for the balance; that no agreement was made at the time that the note in suit should be a payment of so much or any part of said indebtedness, nor was anything said on the subject, the transaction being simply a surrender of the old notes and the indorsement over of this and the giving of the other notes. On these facts the referee held that the plaintiff was not a dona fide holder for value, and gave judgment for defendants, which was affirmed by the general term. The court of appeals reversed the judgment, holding that the plaintiff was a bona fide holder for value. The learned judge who delivered the opinion of the court, placed the decision on two' grounds.

1. That the giving up toAgnew of his note and taking the note in suit for it was evidence of the intention of the parties to cancel the note; and whether it operated to discharge the pre-existing debt or not was immaterial, as it certainly operated to cancel the negotiable paper of the plaintiff, which was parting with value sufficient to constitute the plaintiff a bona fide holder.

2. That if a creditor, having a debt due him, receives from his debtor on account thereof the time note of a third person, payable to and indorsed by the debtor, without any express agreement that such note should be taken either in payment and satisfaction or as collateral, he parts with value, because he relinquishes his right to enforce the payment of his debt presently, and suspends his power to collect it until the note so received should mature.

The point involved in the first ground is that the . cancellation of prior overdue negotiable paper of the debtor, extinguishing a right of action thereon, is a parting with value.

•That involved in the second is that a suspension of the right of action on the original indebtedness, caused by the receipt of a time note of a third party, indorsed by its debtor, is also a parting with value.

Each of these points was fatal to the defense, and the decision (under the doctrine of James v. Patten, 6 N. Y. 9) must be taken as an authoritative adjudication on both. •

It will be observed that the learned judge, in course of his reasoning on the second ground, uses this phrase, “And the plaintiff, at the time of surrendering the old note, having the right to enforce its payment presently;” but, by this incidental allusion, he did not make, or intend to make, such surrender an element in Ms decision of the second ground, for it is obvious that the right of action was as fully suspended without the surrender as with it j moreover, the learned judge had previously held the surrender to work an extinguishment, and in this part of the argument, relative to the suspension and its effects, he cites with approval the case of Burns v. Rowland, 40 Barb. 368, cited from p. 374, where no element of surrender existed, and yet the suspension was held to be a parting with value.

The facts of this case bring it within the second point adjudicated by the court of appeals. The plaintiffs were consequently bona fide holders for value, and thus the defense is excluded.

The questions which were allowed under defendant’s exceptions were properly allowed. If they are to be regarded as calling for the operation of the mind, still, as to some extent the question is as to the intent in parting with the goods, they can be sustained by the principle of the case of Seymour v. Wilson, 14 N. Y. 567.

But I think they rather call for a fact, and are admissible under the doctrine of Sweet v. Tuttle, 4 Kern. 465, which case held that the question, “On the part and behalf and for whom were the services performed f ’ was proper.

As to their leading character, it is in the discretion of the trial judge either to allow or exclude leading questions.

In this aspect of the case, the matters suggested in the statement, as not having been passed on by the referee, are immaterial.

Judgment affirmed, with costs.  