
    Homestead Bank v. Wood.
    (New York Common Pleas—General Term,
    November, 1892.)
    As between the indorser of a promissory note and his immediate indorsee, the consideration for the indorsement may be shown by parol. In an action by the indorsee of a promissory note against the indorser, it appeared from defendant’s testimony that the indorsement and delivery of the note was to secure repaynent of an advance to enable him to complete certain buildings on their joint account; and that it was agreed that said advance should be repaid from the proceeds of a permanent loan upon, or the sale of the buildings on completion. Ho loan was procured, nor were the buildings completed and sold. Some of defendant’s testimony was excluded. Plaintiff requested the court to direct a verdict, and defendant opposed. The court directed a verdict upon the ground that the parol agreements were-incompetent to vary or contradict the terms of the indorsement. Held, that the exclusion of defendant’s testimony, and the direction of a verdict, was error, calling for the reversal of plaintiff’s judgment.
    To the.extent to which a party has performed an agreement with a corporation, it is estopped from claiming that it was ultra rires.
    
    Appeai from a judgment of the general term of the City Court, affirming a judgment for plaintiff, which was entered on a verdict directed by the trial court, and an order denying defendant’s motion on the minutes, for a new trial. Action to recover against defendant, Frederick Wood, as indorser of a promissory note.
    
      Charles F. MacLean, for plaintiff (respondent).
    
      Arteman B. Smith, for defendant (appellant).
   Bischoff, J.

Plaintiff sued to recover from defendant, Wood, as indorser, the amount of a promissory note made by one Edward E. Teller, to the order of Wood, and alleged to have been indorsed, negotiated and delivered, before maturity, and for value, by him to plaintiff. Wood did not dispute the facts of the indorsement and delivery of the note, but asserted, as a defense to any liability on his part, that the note was indorsed and delivered to plaintiff to secure it for the repayment of an equivalent sum advanced to Wood to enable him to complete certain buildings, then in the course of construction, for their joint account; that it was agreed between them that the sum so advanced should be repaid out of the proceeds of a permanent loan upon, or the sale of the buildings, when completed, and not otherwise; and that the buildings were neither completed, nor sold, and that the loan had not been procured. Defendant, Wood, also interposed as a counterclaim to plaintiff’s demand, damages which he alleged had accrued to him from plaintiff’s refusal to make the agreed advances of money required to complete the buildings.

On the trial, defendant Wood sought to establish an oral understanding substantially in accord with the agreements above mentioned. Some of his testimony was excluded, while in other respects it was admitted, but when both sides concluded the introduction of evidence, the fact of the agreements by plaintiff’s officers, with the sanction of the board of directors, sufficiently appeared from defendant’s testimony. Thereupon plaintiff’s counsel requested the court to direct a verdict for plaintiff, which was opposed by defendant’s counsel, who asked to be permitted to go to the jury on the question of the agreements. The court granted the motion, and directed a verdict as requested, assigning as the ground therefore that the parol agreements were incompetent to vary or contradict. the terms of the indorsement, and defendant’s counsel duly excepted.

The exclusion of the evidence offered and the direction of a verdict were errors for which the judgments and order appealed from must be reversed. As between the indorser and his immediate indorsee it is always competent to show by parol evidence what the consideration for the indorsement was, and that it has failed. 1 Rice Ev. p. 274; 2 id. p. 1137, and cases cited; Randolph on Negotiable Instruments, § 565; Bookstaver v. Jayne, 60 N. Y. 146; Isaacs v. Jacobs, 15 Daly, 490. So also it is a familiar rule in equity that parol evidence is admissible and competent to show that a written instrument which is absolute on its face was given and accepted as security only (Horn v. Keteltas, 46 N. Y. 606), and though equitable relief was not demanded by answer to the complaint, and the court below was without jurisdiction to grant affirmative equitable relief, defendant could, pursuant to the provisions of the Code of Civil Procedure, section 507, avail himself of a defense purely equitable. Cushman v. Family Fund Society, 13 N. Y. Supp. 428.

It is a sufficient answer to the proposition of respondent’s counsel that the verdict was properly directed, though the ground assigned therefor may have been erroneous, because the agreement to build was in violation of plaintiff’s corporate authority, and therefore ultra vires that plaintiff is estopped from so asserting to the extent to which the defendant has performed that agreement on his part. Whitney Arms Co. v. Barlow, 63 N. Y. 62 ; Lawson’s Rights, Rem. & Prac. 630, and cases cited.

The judgment of the general and trial terms of the court below, and the order denying defendant’s motion for a new trial, should be reversed and a new trial had with costs to appellant to abide the event.

Daly, Ch. J., concurs.

Judgment and order reversed, new trial granted, costs to «abide the event.  