Union National Bank v. Underhill , 28 N.Y. Sup. Ct. 178 ( 1880 )

Barrett, J.:

For some time prior to the transaction in litigation, the plaintiff bank, and Jesse S. Cheyney, had had dealings together, which finally resulted in an indebtedness to the former of some $5,000. For this, the bank held Cheyney’s protested check, indorsed by one Tail. The latter was an accommodation indorser, of which the bank was aware. After holding the protested check for some time, the bank began pressing both Cheyney and Vail for a settlement. Thereupon, Vail went to Cheyney, and induced him to give his firm' notes to take up the check. This firm was composed of Cheyney and the defendant Underhill. The firm name was Jesse S. Cheyney & Co. Underhill knew nothing of Oheyney’s action in the matter, and never assented thereto. Vail took the firm notes (which were payable to his order and indorsed by him) to the bank, and thereupon settled, the protested check, he paying a small difference in cash. The ■ court at Circuit directed a verdict for the plaintiff Underhill. This we think was error. The verdict should have been the other way. The bank may have been a holder for value, having taken the notes in payment and satisfaction of the check, but it was not a bona fide holder. This results from the fact that the precedent debt was Cheyney’s individual obligation. It is well settled that where a note is given in the firm name by one partner for his private debt, or in a transaction unconnected with the partnership business, which is the same thing, and it is known to be so given by the person taking it, the other partners are not bound, unless they have assented. (Gansevoort v. Williams, 14 Wend., 138 ; Joyce v. Williams, Id., 145; Wilson v. Williams, Id., 157; Livingston v. Hastie, 2 Caines, 246 ; Stall v. Catskill Bank, 18 Wend., 477; Elliott v. Dudley, 19 Barb., 326. And see Bank of Rochester v. Bowen, 7 Wend., 159 ; Dob v. Halsey, 16 Johns., 34; Bank of Vergennes v. Cameron, 7 Barb., 151; Fielden v. lahens, 6 Abb. Pr. N. S., 341.) Upon the face of the transaction, the bank was chargeable with notice. (Same case.) In Green v. Deakin (2 Starkie, 347), where a partnership bill was given by one member for his private debt,the court held that the nature of the transaction was intrinsically notice. “ The notice which defeats the plaintiff,” said Bronson, J., in Wilson v. Williams (supra), “is notice that the indorsements were not made on account of a partnership transaction.” In Elliott v. Dudley, supra, the court, Welles, J., said: “It is impossible for one partner, by his acts or admissions, to bind his copartners without their assent, express or implied, for án individual debt of his own. The plaintiff does not occupy the position of a bona fide indorsee, because the case shows that the note was taken by his clerk and agent for a debt previously existing and owing by De Witt (one of the partners) to the plaintiff.” (See also Arden v. Sharpe, 2 Esp., 524 ; Wells v. Masterman, Id., 731; Whitmore v. Adams, 17 Iowa, 567.)

There can be no doubt about this where the firm note is actually handed to the creditor by the partner, who is his individual debtor. It is urged, however, that the present case is not within these rules, because the final settlement was with Vail, not Cheyney. Indeed, the president of the hank talks of having dis* counted the firm paper for Yail, quite as though it were an independent and ordinary business transaction. This gentleman must have reconciled his testimony with his conscience, by theorizing as to the legal effect of the facts. He knew very well that Cheyney was the principal debtor, and that Yail was" merely liis smety. Yail kept no account with the bank. . He brought the notes for the express pmpose of taking up Cheyney’s protested check. The president knew that the firm signatures were in Cheyney’s handwriting. Finding that the notes were not quite sufficient in amount, Yail gave the bank his own check for the difference, and closed the matter. To talk of this as a discount of the notes in the regular course of business, is worse than absurd. It verges upon untruthfulness. There was a simple substitution of Jesse S. Cheyney & Co.’s notes, indorsed by Yail, for Jesse S. Cheyney’s check similarly indorsed. Whether the notes were received by the bank directly from the hands of Cheyney or Yail, was entirely immaterial. In either case, the 1/rcmsaobion itself was notice. The possible idea, attributed to the bank, that Yail might himself have acquired the firm notes hi some independent business transaction, and parted with them in the manner and for the purpose indicated, is far-fetched. The bank believed in no such coincidence. The truth was plainly before it, namely, that Yail had procured these notes to take up the check, and it was clearly put upon inquiry as to Underhill’s consent.

It is also urged that some of the money procured on Oheyney’s individual checks was used in the firm’s business. This was not established. 'Hr. Cheyney said that “some small amounts may home been,” but the main body of the indebtedness was previous to the existence of the firm. Again, he said that “ the indebtedness was due for bills ordered by myself previous to the existence of the firm, and possibly, as I cannot say positively, to the contrary, for some debts incurred after January 15, 1877,” the date of the formation of the firm. But even if a small firm indebtedness has been included, that would not render Underhill liable for Cheyney’s large individual debt. (See King v. Faber, 22 Pa., 21.)

The judgment and order denying a motion for a new trial should therefore be reversed, and a new trial ordered, with costs to abide tlie event.

Such, new trial sbould not take place upon the short calendar day. Tlie cause is too important to be tried at the special circuit.

Davis, P. J., and Brady, J., concurred.

Judgment reversed, new trial ordered, with costs to abide event.