Opinion
February Term, 1898.
C.S. Cary, for the motion.
J.H. Waring, opposed.
The record before us does not disclose upon what ground the direction of the verdict was given; but two propositions are now presented by the learned counsel for the defendants, either of which, it is contended, is sufficient to sustain the action of the trial court. These propositions are: First, that no steps were taken by the plaintiff at the maturity of the first note to charge the indorsers thereon, and, second, that the use of the firm name as indorsers upon the note for Van Campen's accommodation was a fraud upon the defendant Abijah Weston, and that the plaintiff failed to show that it was a bona fide purchaser for value, and without knowledge of such fraudulent indorsement. These propositions will be considered in the order in which they have been stated.
It is an undisputed fact that the note in suit was not protested at its maturity and that the usual steps to charge the indorser were omitted. The important question, therefore, to be considered is, what effect did such omission have upon the plaintiff's right of action? In pursuing the inquiry this presented it is to be borne in mind that the taking of the successive renewals did not extinguish the plaintiff's debt or pay the original note, even though such note was canceled and delivered up to the makers. It simply operated to extend the time of payment of the first note until the note given in renewal thereof became due, when, if not paid, the plaintiff might sue upon the original demand and bring the renewal note into court to be given up on the trial. ( Muldon v. Whitlock, 1 Cow. 290; Novelty Mfg. Co. v. Connell, 88 Hun, 254; Jagger Iron Co. v. Walker, 76 N.Y. 521.) This being the case, it follows, we think, that whatever liability was assumed by the firm of Weston Brothers as indorsers of the note in suit, was not discharged in consequence of the failure of the plaintiff to protest the same at its maturity. The defendant's undertaking, it is true, was not an absolute one, and, before it could become such, it was incumbent upon the plaintiff to notify him or his firm of the default in payment by the makers of the note; but this notice was something which the indorsers might waive, and the indorsement of the renewal note, before the original note matured, not only indicated that they knew that the time of payment of the first note was to be extended, but that they were willing it should be; and also that their liability as indorsers should continue. In these circumstances protest and notice thereof would have been a mere idle form; the indorsers would have gained nothing by it, nor were they in any wise damnified by its omission, and, consequently, their second indorsement amounted to a waiver of their right to insist that the customary steps should have been taken to charge them as indorsers upon the original note. We have considered this branch of the case upon the assumption that the defendant, as a member of the firm of Weston Brothers, incurred a liability in consequence of the indorsement of the note in suit by his firm, and we now come to the consideration of the effect of such indorsement, which, we doubt not, is the vital question in the case.
Unquestionably the indorsement of notes for the accommodation of third parties is not within the scope of partnership business, and consequently the several indorsements of the Van Campen notes by William W. Weston, in the name of his firm, operated as a fraud upon his copartners unless made with their consent. ( Foot v. Sabin, 19 Johns. 154; Stall v. Catskill Bank, 18 Wend. 466; Smith v. Weston, 81 Hun, 87.)
As correlative of this proposition it may be asserted that, to entitle the plaintiff to recover against the defendant upon an indorsement thus made, it became necessary to show that it was a purchaser of the note in suit in good faith and in the usual course of business. ( Vosburgh v. Diefendorf, 119 N.Y. 357; Canajoharie Nat. Bank v. Diefendorf, 123 id. 191.)
That the plaintiff purchased this note before its maturity for a full and fair consideration and without actual notice of its fraudulent indorsement is not denied; but it is contended that the transaction, at the time the note was discounted, was of such a character as to charge the plaintiff with notice that Weston Brothers were mere sureties for the makers, and that the note had not passed through their hands in the ordinary course of partnership business. In short, it is insisted that the plaintiff was a purchaser of the note in bad faith, and this contention seems to call for a definition of the obligation resting upon a party to whom negotiable paper is presented for discount before its maturity. Fortunately the rule which governs such transactions has been recently formulated by the Court of Appeals which, in referring to a holder of negotiable paper whose title was challenged in consequence of bad faith in its purchase, uses this language: "He is not bound, at his peril, to be on the alert for circumstances which might possibly excite the suspicion of wary vigilance; he does not owe to the party who puts the paper afloat the duty of active inquiry, in order to avert the imputation of bad faith. The rights of the holder are to be determined by the simple test of honesty and good faith, and not by a speculative issue as to his diligence or negligence. The holder's rights cannot be defeated without proof of actual notice of the defect in title or bad faith on his part evidenced by circumstances." ( Cheever v. P., S. L.E.R.R. Co., 150 N.Y. 59.)
It would seem only necessary, therefore, to apply the rule as thus stated to the case in hand, in order to test the correctness of the defendant's contention. As has just been shown, the plaintiff discounted the note in question before its maturity, and parted with full value when it obtained the same. It had no actual notice of the circumstances under which the note was indorsed, and, so far as it appears, made no effort to ascertain what they were; but this it was not called upon to do, unless there was something upon the face of the note itself which seemed to impose upon it the duty of active inquiry, in order to avert the imputation of bad faith.
Had the note in question been made by the firm of Weston Brothers to the order of Van Campen, and then transferred by the payee to the plaintiff for value, before maturity, a presumption would have arisen that it had been given in the ordinary course of business in payment of a debt due from the makers to the payee; and in such a case it would undoubtedly have been a valid obligation as against the makers, although, in point of fact, it was given for the accommodation of the payee. ( First Nat. Bank of Chittenango v. Morgan, 73 N.Y. 593.)
This, however, is not such a case, and in one essential particular it also differs from the Cheever Case ( supra). In the last-mentioned case a note was made by the president of a corporation which was regularly executed and which he was fully authorized to execute. It was made payable to the order of the president's private secretary and by him indorsed over to a mercantile firm of which the president was a member. It was subsequently indorsed by such firm and wrongfully diverted by the president into the hands of a stranger, having no knowledge or notice of any defect in the title, as collateral security for a cash advance of more than its amount upon the note of the firm and for its benefit. Upon this state of facts it was held that the appearance of the signature of the president of the corporation upon the face of the note was not sufficient to put the transferee upon inquiry so as to render him chargeable with all the facts that such inquiry would have revealed and thus deprive him, as matter of law, of the character of a bona fide purchaser.
In the case under consideration the note, it will be remembered, was made by Van Campen Sons to the order of George Van Campen, a member of the firm; it was then indorsed by the payee and subsequently by Weston Brothers, after which it was taken by the payee to the bank where he procured it to be discounted for his own benefit. These are circumstances, we think, which were well calculated to apprise the bank that the indorsement of Weston Brothers was not made in the regular course of business, and that it could have been made for no other purpose than the accommodation of the payee; and, if so, then the plaintiff was bound to take notice that such indorsement was not within the scope of the partnership business, and if, with this notice, it discounted the note without inquiry as to the validity of the indorsement, it was chargeable with such bad faith as in our opinion deprived it of the character of a bona fide holder. ( Bank of Rochester v. Bowen, 7 Wend. 158; Boyd v. Plumb, Id. 309; Joyce v. Williams, 14 id. 141; Fielden v. Lahens, 6 Abb. [N.S.] 341; Nat. Park Bank v. G.A.M.W. S. Co., 116 N.Y. 281; Smith v. Weston, 88 Hun, 25.)
In this connection it is proper to suggest that this action was originally brought upon the last renewal note. Upon the trial thereof it did not appear that the payee was a member of the firm of Van Campen Sons, and considerable stress was laid upon this fact when the case came up for review at the General Term. (88 Hun, 29.) Subsequently the complaint was amended so as to permit the plaintiff to count upon the first note, and when the case came on for trial upon the issues thus tendered it was expressly admitted that the payee therein was a member of the firm of Van Campen Sons, consequently the reason which seems to have actuated the General Term in granting a new trial no longer exists. We do not discover that there was any issue of fact in the case, and, if there was, no occasion arose for submitting it to the jury, inasmuch as both parties requested the direction of a verdict. ( Thompson v. Simpson, 128 N.Y. 270, 283.)
Our conclusion of the whole matter is that the case was properly disposed of by the trial court and that the plaintiff's motion should, therefore, be denied.
All concurred.
Plaintiff's exceptions overruled, motion for a new trial denied, with costs, and judgment ordered for the defendant upon the verdict, with costs.