
    The National Bank on Barre, Plaintiff, v. Peter C. Foley, Defendant.
    (Supreme Court, Cattaraugus Trial Term,
    April, 1907.)
    .Negotiable instruments: Bona fide holders — What constitutes — General rules — Presumptions and burden of proof; Parting with value — Discounting and giving credit: Actions — Evidence — Sufficiency.
    Where the payee in a note negotiates it in breach of faith, the burden is upon the holder to show that it acquired title as a holder in due course.
    Where the corporation with which the note was negotiated gives credit for part of the amount of the note upon an old account, it is not, to that extent, a holder for value. And where it does not appear that the payee is responsible, or that the maker was known to the officers of the corporation, and no inquiry is made as to the maker of the note and the circumstances under which the payee acquired it, good faith is not established.
    Where it appears that the plaintiff, a national bank, upon receiving the note, credited the amount of it to the corporation from which it was received, which had a general account at the bank, but it does not appear what the condition of the account was nor whether the entire proceeds of the note were not standing to the credit of the corporation from whom the plaintiff received it when the latter first had notice of the fraud of the payee, the plaintiff has not shown that it parted with value for the note without notice of the fraud.
    
      Action on. a promissory note. Trial by court without a jury.
    F. L. Eaton, for plaintiff.
    Henry Donnelly, for defendant.
   Pound, J.

Thomas E. Eagan, the payee, negotiated the note in suit made by the defendant under the name and style of Foley Brothers, in breach of faith. The burden is, therefore, on plaintiff to show that it, or the Barre Supply Co., under which it claims title, acquired title as a holder in due course. Neg. Inst. Law, § 98.

First. Do the proofs establish that the Barre Supply Co. acquired title as a holder in due course? Did it acquire title to the note in good faith? Proof that it parted with value for the note before maturity is not enough. Canajoharie N. Bank v. Diefendorf, 123 N. Y. 191.

The company gave Eagan $300 in cash and .a credit of $100 on an old account for the note. To the extent of the credit of $100 it is not a holder for value, for it does not appear that the credit discharged the debt, or any part thereof, or extended the time of payment. The company parted with nothing so far as the $100 is concerned. Roseman v. Mahony, 86 App. Div. 377.

It, therefore, stands in the position of a holder of the note at a discount of twenty-five per cent, from the face value.

The evidence of the circumstances under which it acquired the paper does not indicate that Cave, the treasurer of the company, who transacted- the business with Eagan, made any inquiries to ascertain how Eagan acquired possession of the note. Plaintiff’s offer was merely to prove that Eagan made no disclosure about it and that the company took the note without knowledge, supposing Eagan owned it. Mere denial of knowledge or notice of the breach of faith is insufficient under the circumstances of this case. It does not appear that Eagan was a responsible party or that Foley or the name of Foley Brothers was known to Cave, the treasurer of the Barre Supply Co. From the negligence of Cave to make the natural and usual inquiries as to the maker of the note and the circumstances under which Eagan acquired it, good faith cannot be established. Vosburgh v. Diefendorf, 119 N. Y. 357.

Second. It does not appear that the plaintiff bank parted with value for the note without notice of Eagan’s breach of faith. It gave the Barre Supply Company credit on the latter’s business account for $394, the proceeds of the note, less the discount. That alone is not enough to constitute the bank a holder in due course. Citizen’s State Bank v. Cowles, 180 N. Y. 346. The Barre Supply Company drew $300 at the time the note was discounted at the bank and paid'the same to Eagan. But it appears that the company had a general business account at the bank and it does not appear what the condition of that account was at the time the note was discounted or any time thereafter. It does not follow that $300 was paid upon the note in suit then or at any other time. For all that appears, the Barre Supply Company may still have had to its credit at the bank the entire proceeds of the note when the bank first had notice of the fraud perpetrated by Eagan. Albany Co. Bank v. People’s Co-op. Ice Co., 92 App. Div. 47.

Judgment for the defendant dismissing the complaint, with costs.

Judgment for defendant, with costs.  