First National Bank of Friendship, New York, Plaintiff, v. Abijah Weston, Defendant, Impleaded with Others

First National Bank of Friendship, New York, Plaintiff, v. Abijah Weston, Defendant, Impleaded with Others. Bills and notes—indorsers of a renewal note thereby waive protest of the original note — an accommodation indorsement by one partner is fraudulent as to the firm — notice from, the fact that the payee of the note presents it for discount with the indorsement of a firm thereon. A renewal note, discounted by the holder of the original note, pays neither the debt nor the original note, but simply extends the time of payment - thereof, notwithstanding the fact that the original note is at the time of the acceptance of the renewal note canceled and given up to its makers; hence, where accommodation indorsers of the original note indorse the renewal note they cannot, as. .against the holder, subsequently insist that they were damnified by the-holder’s failure to protest the original note for non-payment at maturity and to give them notice of such protest, as by their indorsement of the renewal note they waive the right to notice of default on the part of the makers of the original note, and signify their willingness to extend their liability thereon. The indorsement of a note for the accommodation of a third party is not an act within the scope of a partnership business, and when made by one partner, without the knowledge of the other, is fraudulent as to the firm, and where a note made by a firm to the order of one of its members, and indorsed by him,, is subsequently indorsed for accommodation by one member of another film in the firm name without the knowledge of his copartner, and is presented to a bank for discount for his own benefit by the payee of the note, the bank is sufficiently apprised of the fact that the indorsement has not been made by the last-mentioned firm in the regular course of its own business, but for the accommodation of the payee, and the discount of the note by the bank without inquiry as to the circumstances attending the indorsement, deprives the bank of 'the character of a bona fide holder. Motion by the plaintiff, the First Rational Bank of Friendship, Rew York, for a new trial upon a case containing exceptions, ordered to. be heard at the Appellate Division in the first instance upon the verdict of a jury rendered by direction of the court after a trial at' the Cattaraugus Trial Term. This action is upon a promissory note of '$3,000, bearing date. March 1, 1887, signed by G-eorgé Yan Campen &■ Sons, and payable to the order of George Yan Campen two months afterdate. The note bears the-indorsement of the payee and also of “Weston Brothers,” a firm which consisted of the defendants in this action, and as thus indorsed it was, before its maturity, discounted by the plaintiff and a draft, on Rew York for a part of the proceeds, thereof was delivered to the payee, George Van Campen, and the balance of such ¡proceeds was placed to his credit upon the books of the bank. When this note matured it was renewed by another note for a like amount and executed by the same parties. This renewal note was in turn also renewed at its maturity, and in this manner the original note was renewed from time to time until December 31, 1892, when the last renewal note was given, which ran for the period of one year from its date. When the original note ivas.renewed it was canceled and surrendered to the makers and a new note was substituted in its place upon the plaintiff’s discount book. Thereafter George Van Campen died and the subsequent renewals were made payable to and were indorsed by his administrator, J. K. Van Campen, but with this exception the renewals were executed by the same parties as the original note. The indorsement of the name of Weston Brothers was made by William W. Weston, one of the firm, without the knowledge or consent of his copartners and as an accommodation' to the payee. The defendant Abijah Weston, who was the responsible member of the firm, although he had no knowledge that his brother had indorsed this particular note, was informed that he was indorsing similar paper in the firm name and to a large amount. He frequently found fault with his brother for thus using the firm name and insisted that he must cease doing so, but as his directions in this regard were not followed the firm was dissolved by mutual consent on the 5th day of January, 1892. When the last renewal note ’ was presented to the bank its president, Mr. Miner, who is now dead, was informed by the payee, J. K. Van Campen, that the firm of Weston Brothers had been dissolved; buthe was also informed that the note offered in renewal was indorsed by the firm prior to its dissolution. Upon these facts, together with some others to which allusion will be made in the opinion which follows, both parties moved for the direction of a verdict at the close of the proofs. ■ The defendants’ motion was granted and the plaintiff’s exceptions were ordered to this court in the first instance. C. S. Gary, for the motion. J. H. Waring, opposed. [MAJORITY — Adams, J. :] Adams, J. : 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 Oampen’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 thus 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 ivas 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 wraive, 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 io 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 Yan 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 oe 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 plantiff 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, mses 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 Re defeated without proof of actual notice of the defect in title or Rad 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 flfor 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 oyer 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, ic will be remembered, was made by Yan Campen & Sons to the order of George Yan 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 procu/red 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 Yan 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 Yan 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.