#### Garfield Nat. Bank *v.*Colwell.

*(Supreme Court, General Term, First Department.*

June 26, 1890.)

Negotiable Instruments—Bona Fide Purchasers.

Where a bank discounts a note with knowledge that the maker signed the note simply to make it in proper form, and with the understanding that he assumed no responsibility in doing so, there can be no recovery as against such maker in favor of the bank.

Appeal from circuit court, New York county.

Action by Garfield National Bank against Frank W. Colwell. There was a verdict and judgment for plaintiff, and defendant appeals. For former litigation between the same parties, see 8 N. Y. Siipp. 380; 5 N. Y. Supp. 956; 4 N. Y. Supp. 5.

Argued before Van Brunt, P. J., and Brady and Daniels, JJ.

*W. B. Ellison,*for appellant. *L. C. Waehner,*for respondent.

Van Brunt, P. J.

This action was brought to recover the balance remaining due upon a promissory note made by the defendant to the order of S. S. Hepworth & Co., which note was discounted by the plaintiff. It appeared from the evidence that the defendant was an employe of Hepworth & Co., and knew the vice-president of the plaintiff, Mr. Robinson. At the time the note in question was made the defendant had a conversation about the need of Hepworth & Co. for money, and that Robinson thereupon suggested this note. The witness says: “I told him I understood from Hepworth & Co. that I would incur no liability in signing this note.” Whereupon Robinson told him to have such a note made up, and that he would see that it was discounted. “He told me when it was signed and made tip to take it up to the Garfield Bank, and he would leave instructions at the bank to have it discounted.” The defendant further testified that, he saw the cashier, and told him that he had a note signed by himself, and indorsed by Hepworth & Co., and that Mr. Robinson asked him to take the note up there and present it to him, and he would leave instructions to have it discounted; that he had told Robinson that he had been infofmed by Hepworth & Co. that he would incur no liability at all. The cashier replied that he so understood it, whereupon the defendant handed him the note. The defendant received none of its proceeds, nor any consideration whatever for its signature. The' cashier testified that the conversation was that the defendant signed the note simply to make it in bankable form, and that he assumed no responsibility, and had no •responsibility attached to him. “I accepted said note under these circumitances as cashier of the Garfield Bank.” Proof having been given of the discount of the note by the plaintiff, and that it was then held by it, the court directed a verdict for the plaintiff. In this we think there was error. Undoubtedly it would be no defense to show that the plaintiff knew at the time of the discount of the note that it was accommodation paper. The mere fací that it was accommodation paper would in no way affect the right to recover, because the giving of the note as an accommodation, if no recovery could be had upon it by the holder of the note, would not be any accommodation to anybody, because nobody could use it. In the case at bar, however, the proofs show a different state of affairs; not only that it was accommodation paper, but also that there was a distinct understanding between the maker of the note and the payee that the maker should incur no liability by the signing of be note. The case of *Benton*v. *Martin,*52 N. Y. 573, and *Seymour*v. *Cowing,**40 N. Y. 532, establish the proposition that a person has the right in the •ose of an unsealed instrument to impose conditions the observance of which is essential to its validity. This rule is the foundation upon which those cases rest which hold that, where there has been a diversion of the note, unless the holder is a *tona fide*holder without notice he cannot recover. In tn» *865case at bar it appears that the plaintiff knew that it was the understanding of the defendant that he should not under any circumstances be liable upon the note. Knowing that this was the agreement between the parties, it is difficult to see how with such knowledge it could acquire the right to enforce that which it knew had been agreed should not be enforced. The plaintiff did not therefore occupy the position of a *bona fide*holder without notice. The judgment and order appealed from must be reversed, and a new trial ordered, with costs to the appellant to abide the event. All concur.