Bank of Monongahela Valley v. Weston

This action was brought upon two promissory notes, each made by Edwin F. Curtis, payable to the order of Weston Brothers, at the Bank of the Monongahela Valley, Morgantown, West Virginia, indorsed by Weston Brothers as first indorsers, and by William W. Weston as second indorser. The first note, dated at Olean, N. Y., December 15, 1892, was for $6,500, and ran four months, while the second, dated at the same place March 31, 1893, was for $5,000 at thirty days. The defense pleaded by Abijah and Orren Weston, who alone defended, was that the indorsement of the name of their firm was made after the dissolution thereof, by William W. Weston, the third member of the firm as it was formerly constituted, fraudulently, for the accommodation of the maker and without the knowledge of the other members, and that the plaintiff took the notes with knowledge of these facts.

The note for $6,500 was discounted by the plaintiff on the 22nd of December, 1892, and the proceeds were used to pay' a note dated April 7th, 1892, made by Curtis and indorsed by Weston Brothers for $1,760.28; also a note for $2,000, made and indorsed the same way, which became due on the 11th of February, 1892, and the balance was paid in cash. The other note in suit was given in renewal of two notes, dated June 4, and Eovember 19, 1891, for $2,500 each, both made and indorsed in the same way and carried along until they formed a part of the consideration of said note for $5,000. The note of June 4, 1891, for $2,500 was the first of the

Hone of these notes, in fact, passed through the hands of Weston Brothers in the course of their business, nor did the firm have any benefit from the discount thereof. They were indorsed in the name of the firm by William W. Weston, one of the members, for the accommodation of the maker.

The firm of Weston Brothers, composed of Abijah, Orren and William W. Weston, was organized about 1853, and did a large and prosperous lumbering business at Weston’s Mills, three miles from Olean, until it was dissolved in January, 1892. It was managed by William W. Weston, the resident partner, the residence of Abijah Weston being at Painted Post, about one hundred miles distant, and of Orren Weston at Tonawanda, over eighty miles distant. William signed checks, indorsed notes, and uséd the firm name in the transaction of the business of the firm, and as early as 1882 he began to use the firm name in indorsing for his friends. He did not simply indorse at rare intervals, but made it a practice, and continued it for ten years, until the dissolution of the firm, and even for a year or two after that. The other members knew that William was occasionally using the firm name in this way, although they did not know to what extent. They learned of it in various ways, sometimes by public report, and at others through the inquiry of some bank or individual to whom an accommodation note thus indorsed had been offered for sale. Their suspicions were aroused from seeing “ these men around the office,” for whom William was indorsing. They were accustomed to remonstrate with William and tell him he must not do it any more, and in response to letters of

Abijah, who stayed at William’s house whenever he came to Weston’s Mills, asked him how much paper was out and who the makers were, etc., but William was retiqent upon the subject and volunteered no information. At one time the partners learned that one bank in Olean held paper of this kind to the amount of $70,000, but upon confronting William with the fact he insisted that there was not more than $35,000. They made no inquiry at the bank or of persons outside of their own office. Abijah threatened periodically to dissolve the firm, or to post William as acting without authority in making these indorsements, unless he would stop, and he always promised to stop, but never kept his promise. About the first of April, 1891, he was asked by Abijah how long it would take to get rid of the paper that was then out, about $40,000 in amount, and he said “six months,” whereupon Abijah told him that he would give him that period to get rid of it, but in the meantime he must not indorse any more. Orren, in testifying to this conversation, did not state that Abijah told William he must not indorse any more. William, however, kept on indorsing and Abijah kept learning of it and remonstrating, but no notice was given to the public and

Other facts similar in character to those stated were proved. A large amount of this accommodation paper was put in evidence, as well as ten judgment rolls, representing judgments recovered by default against the firm after a personal service on each membfer thereof, upon paper indorsed in this way. When both parties rested, the court, on motion of the defendants, directed a verdict in their favor, although the plaintiff asked to go to the jury upon the whole- case. An order having been made that the plaintiff’s exceptions should be heard in the first instance by the Appellate Division, that court overruled the exceptions and dismissed the complaint.

As a verdict was directed for the defendants, although the plaintiff asked to go to the jury, all the facts warranted by the evidence must be assumed as settled in favor of the plaintiff for the purpose of this appeal. (First National Bank v. Dana, 79 N. Y. 108 ; Stone v. Flower, 47 N. Y. 566 .)

When a promissory note is presented by the maker, the purchaser has notice that the indorsements were not made in the ordinary course of business, because in that event the maker would not have it in his possession.- The note of June 4th, 1891, for $2,500, was not presented by the maker and hence it was taken without notice to put the plaintiff on inquiry as to the regularity or binding force of the indorsement. It was received from a bank and not from any party prior in order of liability or possession to the indorser, and was not accepted until after due inquiry whether it was all right, which elicited only favorable information. The plaintiff could have recovered upon that note and hence it constituted a good consideration, fro tcmto, for the note for $5,000,

The plaintiff was put upon inquiry as to the other notes, as they were presented by the maker. The remainder of its claim, therefore, depends upon the implied authority of William to make accommodation indorsements in the name of his firm. According to the evidence we think this was a question of fact, as we have already held in Smith v. Weston, a companion to the case in hand, and argued in connection therewith. The testimony, which came mainly from Abijah and Orren Weston, who were interested witnesses, presented a singular state of facts, as the jury might have found. For about ten years two members of the firm of Weston Brothers knew that the third was constantly using the firm name for the accommodation of friends. Having the power to prevent it they took no effective steps to do so, but let the public run the risk of loss through his indorsing in the name of the firm. They repeatedly remonstrated with him in private, and he always promised to stop, but never kept his promise, and they had reason to believe not only that he did not intend to keep it, but that he knew they did not expect him to keep it. If, upon the first discovery, they had warned him and he had not only promised, but had also lived up to his promisé, no question of fact would have arisen. Perhaps there might be more latitude than this without presenting a question of fact, but a systematic and persistent course of conduct, known to the defendants, calls in question their good faith. They had no right to assume that William would do otherwise in the future than he had in the past. If a son should forge Ms father’s name, to his knowledge, for a series of years, mere private expostulation would not save the father from liability. It would be necessary for him to take some public action for

It is, however-, insisted that as the indorsements in question were made after the dissolution, they were the acts of William only, and did not bind the firm because he had ceased to be its agent. A partnership continues, notwithstanding formal dissolution, as to third persons acting in good faith, who have had neither actual nor constructive notice that the firm has been dissolved. The rule is that as to all persons who have had actual dealings with the firm, actual notice of the dissolution must be given (Vernon v. Manhattan Co., 17 Wend. 524 ; affirmed, 22 Wend. 183 ; National Bank v. Norton, 1 Hill, 572 ; Buffalo City Bank v. Howard, 85 N. Y. 500 ); as to all who have had no dealings with the firm, but knew of its existence, though not of its dissolution, it is necessary that notice should be published by advertisement in a newspaper. (City Bank of Brooklyn v. McChesney, 20 N. Y. 240 ; Austin v. Holland, 69 N. Y. 571 ; National Shoe & Leather Bank v. Herz, 89 N. Y. 629 ; Elmira Iron & Steel Rolling Mill Co. v. Harris, 124 N. Y. 280 .) It may be that general notice of dissolution, as distinguished from particular notice, can be given in other ways, but we are of the opinion that mere notice to two prominent commercial agencies, the plaintiff not being a subscriber of either, is insufficient, because such agencies circulate the information contained in their books and reports among their customers only, who are required to treat it as confidential in character.

Without prolonging the discussion, we think that the judgment appealed from should be reversed and a new trial granted,, with costs to abide the event.

All concur.

Judgment reversed, etc.