App. Div. 633] First Department, July, 1921. are the three notes in suit, which it is alleged were wrongfully diverted by Herd from the purpose for which they were indorsed by negotiating them to Sickler and Carpenter, who took them with knowledge sufficient to put them on notice. At the conclusion of the case the appellant moved to amend his answer to conform to the proof so as to allege that the notes were obtained by him from Herd by fraudulent representations, stating that the case had been tried on that theory. The court granted the motion to amend to the extent that the answer may be deemed to allege that the notes were obtained by Herd from Pyne through fraudulent misrepresentations. In our opinion there was sufficient evidence to warrant a jury in finding that the original notes and the two renewals thereof were obtained through the trickery and fraud of Herd. It would be an unnecessary burden upon the court to detail the evidence in this case, with which the parties are thoroughly familiar and which is fully outlined in. the respective briefs of the learned counsel of the parties. The Negotiable Instruments Law and the decisions of the courts have firmly fixed the rule that the title of a person to negotiable paper is defective when he obtains it or any signature thereon by fraud or other unlawful means or through any breach of good faith or under circumstances amounting to a fraud and that to constitute notice of a defect in the title of the one negotiating it, the person to whom it is negotiated must have had actual knowledge of the defect or knowledge of such facts that his action in taking the note amounted to bad faith. (Neg. Inst. Law, §§ 94, 95, 98, 115.) Section 98 of the Negotiable Instruments Law provides: "Every holder is deemed prima facie to be a holder in due course; but when it is shown that the title of any person who has negotiated the instrument was defective, the burden is on the holder to prove that he or some person under whom he claims acquired the title as a holder in due course." Section 115 provides: "Every person negotiating an instrument by delivery or by a qualified indorsement, warrants: 2. That he has a good title to it; 4. That he has no knowledge of any fact which would impair the validity of the instrument or render it valueless." * * * * * * It follows that when the appellant had presented sufficient First Department, July, 1921. [Vol. 197 evidence of fraud or wrongful purpose on the part of Herd, in obtaining his indorsement, the burden of proof was upon the plaintiff to show that those through whom she claims title to the note, namely, Carpenter and Sickler, had paid a fair value for the notes and had acquired them in good faith. (Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 191, 201; Kelso & Co. v. Ellis, 224 id. 528, 537.) The learned trial justice evidently realized that there was enough evidence of fraud in the negotiation of the notes on the part of Herd, the maker, and that it was necessary for the plaintiff to furnish evidence of the good faith of Carpenter and Sickler, who were called as witnesses in behalf of plaintiff. It is, however, apparent from a reading of the record that the learned court failed to realize the importance of affording the defendant Pyne a considerable latitude in cross-examining these two witnesses in order that he might if possible show that they were not holders in good faith and that they had knowledge of the origin and purpose of the notes or at least sufficient knowledge concerning them as to put upon them the obligation to inquire as to the purpose for which they were indorsed by Pyne. The note for $10,000 and the one for $5,000 upon which two causes of action were based were negotiated by Herd with Carpenter on January 16, 1920, in the presence of Sickler toward the end of April, 1920, at the joint office of Carpenter and Sickler. The third note for $5,000, being the first cause of action, was negotiated by Herd with Sickler on January 26, 1920, at the same place. It was shown that Carpenter and Sickler had been friends for upwards of ten years and that they were acquainted and had transactions with Herd during a period of three or four years, and that the personal relationship between Carpenter and Herd was intimate. The evidence clearly indicates that Carpenter and Sickler were not disinterested witnesses, but on the contrary that they were directly interested in the result of this action. And even if it were assumed that the plaintiff holds an assignment of the notes in her own right, there would then be an implied warranty on the part of the assignor that he had a good title to the notes. (Neg. Inst. Law, §§ 97, 115.) But aside from this legal assumption, which would show App. Div. 633] First Department, July, 1921. the interest of these witnesses, the jury would have been warranted in finding that plaintiff is a mere dummy acting for them and that as matter of fact they were directly interested in the outcome of this action. Where the determination of an important issue depends upon an interested witness whose testimony is suspicious or where the attendant circumstances are inconsistent with the conduct of a bona fide holder of the notes for value, it is for the jury to say, although there is no direct oral or written testimony contradictory of that given by such witness, whether his testimony is to be credited and whether he was a bona fide holder of the notes for value. (See Canajoharie Nat. Bank v. Diefendorf, supra, 200; Kelso & Co. v. Ellis, supra, 535, 537.) It follows that the learned trial court erred in directing a verdict. But independent of the conclusion which we have reached concerning the judgment, we have deemed it desirable also to consider the appeal from the order denying the motion for a new trial upon the ground of newly-discovered evidence. It appears from the papers on appeal that a few weeks after the trial of this action certain facts were developed in bankruptcy proceedings against Herd which were then pending, which bear strongly upon the question of the good faith of Carpenter and Sickler as holders of the notes in suit. During the course of the trial of this action it was established that one of the considerations which induced defendant Pyne to indorse the original series of notes as well as their renewals was that Herd stated that he had purchased an auxiliary schooner named David Cohen and that he desired to use the proceeds of the notes to pay off the indebtedness on that vessel. Upon cross-examination Carpenter was asked: "Q. Did you ever hear of the David Cohen before the 16th of January, 1920?" to which he replied: "Not that I know of." In the examination of this witness before the United States commissioner on December 10, 1920, he testified that he had received a letter from Herd dated April 10, 1919, which is set forth in the record on appeal and from which it appears that Herd proposed to borrow from Carpenter $70,000 and to turn over to him all his right, title and interest in the property referred to therein which included the schooner David Cohen. There was also a letter produced at the First Department, July, 1921. [Vol. 197 examination dated May 13, 1919, written by Carpenter to Herd in which it is stated: "Confirming conversation with you and Mr. Knowles, will you kindly send him the following papers in accordance with the understanding: All of the stock of the three companies owning the Schrs. 'Exilda,' 'Arthur M. Gibbons' and' David Cohen.'" In addition to the foregoing testimony there is a mass of evidence submitted upon this motion from which it appears that Carpenter and Sickler, and through them a corporation of which Sickler was vice-president, were actually getting the benefit of about $90,000 of the $150,000 original notes which Pyne claims were diverted by Herd. It would extend this opinion to an undue length to refer to all the details of the unusual situation which was developed in the bankruptcy proceedings subsequent to the trial of the action. There can be no question but that the newly-discovered evidence has an important bearing upon the trial of this action and that it would probably change the result. As already stated the evidence was of such a character that it would probably change the result if a new trial were granted. It could not have been discovered before the trial by the exercise of due diligence. It is not evidence which is merely cumulative. We are of the opinion that the interests of justice will be served by reversing the order denying the motion for a new trial, with ten dollars costs and disbursements, and granting the motion. The judgment is reversed and a new trial ordered, with costs to defendant Pyne to abide the event. CLARKE, P. J., DOWLING, SMITH and PAGE, JJ., concur. Judgment reversed and new trial ordered, with costs to appellant to abide event. Order reversed, with ten dollars costs and disbursements, and motion granted. App. Div. 639] First Department, July, 1921. In the Matter of the Transfer Tax upon the Estate of ELLEN SCULLY (orse ELLEN P. SCULLY) Deceased. THE COMPTROLLER OF THE STATE OF NEW YORK, Appellant; STATE BANK OF CHICAGO, as Administrator, etc., of ELLEN SCULLY, Deceased, Respondent. First Department, July 1, 1921. Taxation transfer tax unverified petition in application for exemption from transfer tax has no probative value-order for exemption reversed and proceeding remitted to surrogate. Where a petition in proceedings for exemption from transfer tax is based upon information and belief and does not state any of the sources of information upon which the petitioner relies and is not sworn to, it has no probative value in the absence of any affidavit, and an order granting the exemption will be reversed and the proceeding remitted to the surrogate. APPEAL by the Comptroller of the State of New York from an order of the Surrogate's Court of the county of New York, entered in the office of the clerk of said court on the 10th day of March, 1921, declaring the estate of Ellen Scully exempt from transfer tax. Lafayette B. Gleason, for the appellant. Joseph F. McCloy, for the respondent. GREENBAUM, J.: The proceedings for exemption were based upon a petition made by the State Bank of Chicago, an Illinois corporation, which recited that Ellen Scully died on the 25th day of March, 1920, a resident of Cook county, State of Illinois; that the said Bank of Chicago was duly appointed administrator of her estate by the Probate Court of Cook county; that she was the widow of one John Scully, who died a resident of the State of Illinois on the 25th day of January, 1920, just two months before his widow died; that John Scully left a will bequeathing his entire estate to his widow and that the said Bank of Chicago was also administrator with the will annexed of the said John Scully's estate; that among the assets of |