Case Name: Frank H. Graf, App'lt, v. Joel B. Smith, Resp't
Court: New York Supreme Court, General Term
Jurisdiction: New York
Decision Date: 1891-12-31
Citations: 42 N.Y. St. Rep. 793
Docket Number: 
Parties: Frank H. Graf, App’lt, v. Joel B. Smith, Resp’t.
Judges: 
Reporter: New York State Reporter
Volume: 42
Pages: 793–796

Head Matter:
Frank H. Graf, App’lt, v. Joel B. Smith, Resp’t.
(Supreme Court, General Term, First Department,
Filed December 31, 1891.)
Bills and notes—-Diversion.
A contractor with defendant stated to him that he was in need of help; that he was short on his pay rolls; owed for moulding, marble, etc., and could not get any more credit for them;, that if defendant would give a ñóte, the work would be done before it became due, or if not he would pay it. Defendant gave the note on condition that the work would be attended to at once, and it was transferred to plaintiff to take up the payee’s, unpaid check given for borrowed money. Held, that as the n-,te was not specially restricted by defendant the transfer to plaintiff did not constitute a diversion thereof.
Appeal from a judgment in favor of the defendant rendered, upon a verdict had at circuit, and also from an order denying the-defendant’s motion for a new trial.
A. G. /Smith, for app’lt; T. O' Callaghan, Jr., for resp’t.

Opinion:
Barrett, J.
This case was tried and sent to the jury upon an erroneous view of the legal effect of the facts proved. The action was against the defendant as the maker of a promissory note payable to the order of T. Aspinwall & Son. The latter firm endorsed the note and transferred it before maturity to the plaintiff. This transfer was to pay- a loan previously made by the plaintiff to Aspinwall & Son for which he held their unpaid check. At the time when the transfer was made the unpaid check was surrendered to Aspinwall & Son. The defense was that the note was given by the defendant to the Aspinwalls for a specific purpose, and that it was fraudulently diverted by them from that purpose. If this defense had been established, there would be no-doubt as to the correctness of the verdict, for the reason that the surrender of the valueless check of Aspinwall & Son did not constitute the plaintiff a bona fide holder of the note in suit so as to shut out the defense of fraudulent diversion. The case of Phœnix Insurance Co. v. Church, 81 N. Y., 218, is directly in point, so far as this question is concerned, and the distinction between the surrender of a debtor's own note and the surrender of his-worthless check is there'pointed out (p. 226 and 227).
The difficulty in the present case, however, is that a fraudulent, diversion of the note was not established, and the error consisted, in the supposition that what was proved by the defendant amounted to such a diversion. All that was proved was this: Some weeks before the note in suit was given, Aspinwall & Son had made a contract with the defendant to do the tiling work on some buildings. The work had not yet commenced when a, representative of the Aspinwalls, one Robinson, called at the defendant's office and asked the defendant's son, Frank B. Smith, if the defendant could not help them out in some way, that they were very short of money and did not know how they were going-"to pull through." The son replied that he could not help them, out anyway. Thereupon Robinson said:'
"We are going to do this work. Here are those vestibules; the work will be done, and if the work is not done we will pay the note. The work will be all done before the note is due." Hpon that understanding Mr. Frank B. Smith directed his father " to make out a note for $500 at three months." The son further testified as follows:
"He" (Robinson) "said they were short of money for payrolls, and they could not get along with their work at all, and it-would be a great accommodation, and he said he could get my note discounted, and it would give him money for his pay-rolls and to do the work, the tiling work of the buildings."
And again:
" He said they had to buy mouldings, and that their account on that was so large that they could not get any more credit on it, and they would have to have more money to buy mouldings and for their pay-rolls, etc."
Upon cross-examination the same witness testified as follows :
" Mr. Eobinson said that he wanted this note for the marble man; that their account with him was so large they could not get any more credit for marble, and they said they could not raise money to meet their pay-rolls, and wanted me to help them. He said Mr. Aspinwall sent him up to see if I could not help him out."
Eobinson was also examined upon behalf of the defendant, and has testified that he asked Mr. Smith if he would give them some money, as they were "rather short." To which Smith replied, that " he could not." Eobinson then said, " Can you not give us a note ? " And Smith replied, " I will give you a note if you will promise to attend to the work at once." And Eobinson took the note from him " on that understanding."
The testimony given by the plaintiff need not be referred to, as the question of law necessarily depends upon the effect of the evidence which the jury by their verdict seem to have credited.
We think that, upon this testimony, which is all that was adduced by the defendant in support of his ' defense, no restriction was imposed upon Aspinwall & Son as to the manner in which they should use the note, and that the defense of a fraudulent diversion was not made out. It was simply a general accommodation. What Eobinson pleaded for was "help." If the Aspinwalls had help, they could fulfill their tiling contract. They wanted money for their pay-rolls, money to buy mouldings with, money for their marble man. ' But the note was not specifically restricted by the defendant to all or to any one of these purposes. These were simply specifications of the Aspinwalls' needs and formed the basis of the appeal for help generally. The defendant's inducement was, to sustain the Aspinwalls until they could perform their tiling contract, and the note"'was undoubtedly given to enable them to perform that contract. In other words, it was given to enable them to raise money to be used in their business, they promising, when thus in funds, faithfully to perform their existing co'ntract with the defendant. A fraudulent misappropriation cannot be predicated of such' facts. Such a misappropriation occurs where there is a diversion from, the original object and design, as where the note is designed to be discounted for the purpose of taking up other paper of the person giving the accommodation, or was otherwise intended for his benefit. Daniel on negotiable Instrujnents (3d ed.), vol. 1, § 794.
The benefit here referred to is a direct benefit to the accommodation maker. Not a benefit solely to the payee, even though, such be'nefit may enable the payee to do something for the accommodation maker which he has agreed to do, but which, were it not for the accommodation, he might be unable to do. Mr. Daniel also-says (Id. § 793):
"If the note be made for general accommodation, without restriction as to its use, the party accommodated may use it in any way beneficial to himself, provided such use be legal, and it will not matter that hefails to apply the proceeds according to a prim- agreement., for otherwise there could be no recovery on accommodation paper."
And in support of this latter proposition he cites Broohs v. Hey,, 23 Hun, 372.
Iu the case at bar the defendant had no interest in the specific-application of the proceeds of the note. His only interest was in its use to benefit and sustain the Aspinwalls and enable them to-keep up. Thus the note had all the elements of accommodation paper, and the defendant was liable thereon although it was applied to the payment of a pre-existing debt. Indeed, he would have been equally liable if the note had merely been pledged to-secure such a debt. Id., § 793, and cases there cited. Even if,, upon a strained construction of the evidence, it could be held that, the note was given in anticipation of the work to be done under the tiling contract, still, that would not avail the defendant, for it. would simply amount to a case of mutual promises, and the agreement of the Aspinwalls, though subsequently unfulfilled, would support the note and furnish an adequate consideration therefor. It follows that in no aspect of the case was a defense made out,, and that the learned judge should have directed a verdict for the plaintiff.
The judgment and order' appealed from should, therefore, be-reversed, and a new trial ordered, with costs to appellant to ^bide; the event.
Van Brunt, P. J., and Andrews, J., concur.