## Facts

- A bank loaned $25,000 to a corporate borrower for 90 days, evidenced by a note endorsed by five individuals as guarantors.
- One endorser (Rochman) asserted he agreed with a bank officer that any renewal note would require the same five endorsements.
- The bank later renewed the loan, advanced an additional $10,000, and accepted a new note endorsed by four individuals; one of the original endorsers did not sign the renewal note.
- Despite the missing endorsement, the bank extended credit and later sued the borrower and the four signers on the renewal note after default.
- Two endorsers (Rochman and Horowitz) argued their endorsements were delivered on the condition that the missing original endorser would also sign, making the instrument ineffective as to them when that condition was not met.
- The trial court granted the bank summary judgment, reasoning the condition was insufficient notice and that public policy barred proof of oral conditions on a note delivered to a bank; the intermediate appellate court affirmed.

## Issues

1. Whether guarantor-endorsers may assert, and prove by parol evidence, an oral condition precedent that their endorsements would not become effective unless a specified co-guarantor also endorsed the renewal note.
2. Whether a payee that is not a holder in due course takes the instrument subject to a conditional-delivery (condition-precedent) defense under U.C.C. §§ 3-305 and 3-306.
3. Whether public policy bars guarantors from asserting conditional delivery against a bank payee.

## Decision

- The court reversed the order affirming summary judgment and denied the bank’s motion for summary judgment.
- A non–holder in due course, including a payee in its own transaction, takes subject to the defense of nonperformance of a condition precedent, including conditional delivery.
- Parol evidence is admissible to show that delivery of an instrument to the payee was conditional and therefore did not become operative when the condition was not satisfied.
- No categorical public-policy rule prevents guarantors from proving an oral condition precedent merely because the payee is a bank.
- Factual disputes about what was agreed and communicated regarding the required endorsements precluded summary judgment.

## Legal Principles

- Under U.C.C. § 3-306(c), a person who is not a holder in due course takes an instrument subject to the defense of nonperformance of any condition precedent.
- Conditional delivery is a condition-precedent defense that, if proved, can render the instrument unenforceable against the party whose obligation was conditioned.
- Parol evidence may be used to prove conditional delivery because it addresses whether the instrument became effective, not to vary its written terms.
- Public policy does not bar proof of conditional delivery against a bank payee; the availability of the defense depends on holder-in-due-course status and proof of the condition.

## Conclusion

The court held that guarantor-endorsers may attempt to prove that their endorsements were conditionally delivered and thus ineffective absent a required co-endorsement, and that such proof is not barred by the parol evidence rule or a special public-policy exception for banks; summary judgment for the bank was therefore improper.


Long Island Tr. Co. v. Int’l Inst. for Packaging Educ., Ltd., 38 N.Y.2d 493, 344 N.E.2d 377 (N.Y. 1976)