
    The Skinner Engine Co., Respondent, v. The Old Staten Island Dyeing Establishment, Appellant.
    (New York Common Pleas
    —General Term,
    April, 1895.)
    An agreement by a creditor to take approved paper in settlement of a precedent debt is not an agreement for the extinguishment of the debt, and does not discharge the debtor from it, and an acceptance of a note of a third party under such an agreement, without the surrender of security or any evidence of the indebtedness, does not make such creditor a bona fide holder of the note.
    Proof that the note in suit was given upon the faith of a contract for the performance of certain work by the payee, and upon his promise to immediately complete it, that he did not do so, and that the maker was injured in consequence thereof, is sufficient to show a failure of consideration, which is available as a defense against a holder of the note who has not parted with value for it.
    Appeal by defendant from an affirmance by the City Court of a judgment entered upon a verdict directed at the Trial Term, and from an order affirming an order denying defendant’s motion for a new trial.
    The action was upon a promissory note made by defendant to the order of William Barnhurst for $558.90, dated July 18, 1893, at ninety days, indorsed and delivered before maturity by Barnhurst to the plaintiff for a valuable consideration, as alleged. The defense denies the delivery and the consideration as alleged and sets up an affirmative defense of failure of consideration.
    
      
      Geo. Zabriskie, for appellant.
    
      Ham/pton I). Ewing, for respondent.
   Daly, Oh. J.

The trial judge directed a verdict for the plaintiff on the ground that the evidence established that it was a holder for value, before maturity, of the note in suit, without notice of the equities set up in the answer. The defendant claims that the evidence shows that the plaintiff took the note in payment of an antecedent debt, but not in discharge or extinguishment thereof, and, therefore, parted with no value.

The acceptance by a creditor from his debtor of a new security, or obligation, for an old debt is the mere substitution of one executory agreement for another, and there is no extinguishment of such debt unless there is an express agreement to accept the new obligation, or security, as a satisfaction of the old (Mayer v. Heidelbach, 123 N. Y. 332-340), or unless there is a surrender of the evidence of the former indebtedness. Youngs v. Lee, 12 N. Y. 552; Brown v. Leavitt, 21 id. 113.

In the present case no security or evidence of indebtedness was surrendered by the plaintiff on receiving the note in suit from the payee. It is claimed, however, that there was an agreement that it should be received in extinguishment of the debt, and that this agreement was to be inferred from a previous course of dealing and arrangement between the parties. The transfer of this note was evidenced by a correspondence between the payee and the plaintiff, the latter asking for a settlement for, three engines shipped to him for which he was indebted in the sum of $853, and stating that if the parties did not desire to pay all cash plaintiff would be willing to take half cash and their note at sixty days for the balance. In reply the payee stated that he would send a piece of short customer’s paper on account, and two days later transmitted the note in suit in a letter, suggesting that it be handed to the bank for collection at once, to which defendant answered that it was immediately placed in the bank and would go to its proper destination next morning. The correspondence contained no statement from which an agreement to take the note in extinguishment of the prior debt should be inferred. The receipt of a note in payment of a precedent debt does not alone operate as a discharge of the debt pro tembo. Fisher v. Sharpe, 5 Daly, 214.

The plaintiff’s books, showed an entry of a credit trade to the payee of this note. It was testified by the treasurer of the plaintiff company that the company had prior transactions with the payee for a number of years, and had received commercial paper in payment of accounts, and that when it was received it was said between them that it was accepted as an extinguishment of the debt, and that the note in suit was not received in any other way. On cross-examination, however, the witness modified his statement by testifying that he told the payee that the company would be willing at any time to take approved paper in settlement for anything he bought. This was not an agreement for the extinguishment of the debt, and did not, under the authorities, discharge the debtor from it. The plaintiff was, therefore, not a holder for value within the rule protecting such holder against prior equities.

The answer sets up a defense which, if proved, would be sufficient. It appears that the note was given by the defendant to Barnhnrst upon the faith of his contract, previously made, to erect an iron smokestack at defendant’s works, which was to be furnished with guy bands, rope, etc., to posts or fastenings, and for which he was to be paid the sum of $535 ; that he set up the smokestack, but without guying it fast as agreed, and received defendant’s note in advance of the completion of the work, upon his promise to immediately complete the same, which he, however, neglected to do, the smokestack being subsequently blown down and damaging defendant’s buildings to their damage in more than the amount of the note, and that this occurred before the transfer of the note to the plaintiff. The facts pleaded will show a failure of consideration, which was available as a defense against a holder of the note who had not parted with value.

With respect to the proof of transactions between the president of the plaintiff company and the payee of the note, to establish that it was taken in extinguishment of the old debt, it is proper to say that the testimony of the president should have been submitted to the jury as that of an interested party, not because of pecuniary interest in the result of the action, but of his business relations with the plaintiff and the interest or bias which might result therefrom. Michigan Carbon Works v. Schad, 38 Hun, 71; Merrill v. Consumers' Coal Co., 114 N. Y. 216; Goldsmith v. Coverly, 31 Abb. N. C. 149. The interest of the witness, though he may be unimpeached, requires that his testimony should be submitted to the jury. Elwood v. W. U. Tel. Co., 45 N. Y. 549.

Judgment reversed, new trial ordered, with costs to appellant to abide event.

Bischoff and Pbyob, JJ., concur.

Judgment reversed and new trial ordered, with costs to appellant to abide event.  