Johnson v. Lee — 30 N.Y. St. Rep. 392

Majority

p. 392

Seth R. Johnson, Pl’ff, v. Mon Lee et al., Def’ts.

(City Court of New York, Trial Term,

Filed April 8, 1890.)

Headnote

Paetneeship—Bills and notes.

The note in suit was made and endorsed by one Chu Pong in the names of two Chinese firms, in each of which he was a partner. The defense was forgery, and it was claimed that plaintiff taught him to forge notes and procured the same to be discounted, giving Chu Pong forty per cent, of the proceeds, and that the articles of copartnership forbid the making or endorsement of notes by the partners. A large portion of the proceeds were traced to banks where Chu Pong made deposits for the firms. Ileld, that under all the circumstances the testimony as to plaintiff’s complicity in the fraud was not to be believed; that he was a bona fide holder, and that defendants were bound by Chu Pong’s apparent authority as a partner to endorse the notes.

The action is upon a promissory note held by the plaintiff, dated Hovember 22, 1889, payable on demand at the Bowery Bank, for $1,980.34. It was made in the firm name of Mansingson & Company to the order of said firm, and bears the endorsements of Mansingson & Company, Chu Fong, Quong Hong Luong & Company, and the following waiver : “We do hereby waive demand of payment, notice of non-payment and protest of the within note. Chu Fong, Quong Hong Luong & Company.” Upon the back of the notes are two credits, one of $75.00 and the other of $104.80, aggregating $179.80, leaving a balance due ou the note of $1,800.54, and this is the sum the plaintiff seeks to recover. The names Mansingson & Company and Quong Hong

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Luong & Company were put upon the note by Chu Fong, who was a member of both firms.

The defense is that the note is a forgery, made and endorsed by Chu Fong, at the procurement of the plaintiff, without consideration, and without the knowledge or consent of the firms whose names appear thereon as makers and endorsers, and that the same were uttered by Chu Fong, at the instance and connivance of the plaintiff, for the purpose of defrauding the two firms, the members of which are defendants herein.

Mansingson & Company also claim that the act of Chu Fong, in putting their firm name on the note as endorser, violated the provisions of their articles of copartnership, which provide that no member of said firm shall enter into any such obligation without the consent of all other members thereof first had and obtained. The note in suit brought to a close a series of transactions had between the plaintiff, on the one hand, and Chu Fong upon the other, in the course of which large numbers of notes, purporting to have been made by Chinese firms and individuals, were discounted by the plaintiff, and it was claimed by the defendants that these transactions were so interwoven one with the other, by renewed notes and otherwise, that it was impossible to consider one without investigating all. This opened the door for a vast amount of oral and documentary proof, and incidentally brought into the case circumstances connected with the purchase and title of certain real property in Pell street, New York, and Fulton street, Brooklyn, and the deposit of $4,000 as security for a judgment upon appeal to the general term of the supreme court, one branch of which is still undisposed of. These features, while not bearing directly on the issue involved, were admitted as side lights reflecting upon the course of dealing between the plaintiff' and Chu Fong, tending to establish or negative the theory of forgery and fraud pleaded by the defendants.

The contention of the defendants is, that Chu Fong was an innocent Chinaman, ignorant of business methods and of crime, that the plaintiff instructed him in the art of forgery, by fur-' nishing him with a book of signatures, teaching him how to make notes in the name of his own and other firms, upon which the plaintiff was to raise money, and to use it and divide the profits in the proportion of forty per cent, to Chu Fong and sixty per cent, to himself, and that the plaintiff drew the notes and had Chu Fong sign and endorse them, and plaintiff raised the money on them; repeating this until Chu Fong had sufficient skill in the art of note making to draw and fill up the notes himself, and thereafter compelling Chu Fong to keep up the supply of forged notes until he refused to make any more, and then giving him forty-seven dollars to run away to Canada. It was also claimed by the defendants that the note in suit was to take up one of the forged notes of the Chinese Six Society, for $1,500, which was not then due, and that the balance, to wit, $300 was to be given by the plaintiff to some woman who was then demanding that amount of money from him.

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And it is charged that the plaintiff wrongfully inserted the figures $1,980.84 in the body of the note instead of $1,800, the sum Chu Fong intended the note to represent.

The plaintiff denies every imputation of wrongdoing, and claims that the note in suit was given for checks, notes and accounts of the firm of Mansingson & Co., the makers, and Quong Hong Luong & Co., the endorsers, due to him from them, and surrendered at the time of receiving the note, and that he took it in good faith, with no knowledge of any restriction upon the power of Chu Fong, a partner in both of said firms, to execute said instrument.

The stenographer’s notes cover 1275 pages of typewritten matter, but notwithstanding this mass of evidence, oral and documentary, most of which relates to transactions other than the one in suit, it will be necessary only to state the facts found with reference to the subject of the issue, and the propositions warranting the legal conclusions arrived at.

Edward 0. James, for pl’ff; W. 0. Beecher and B. T. Morgan, for def’ts.

Chu Fong, the individual who figures most prominently in the various transactions with the plaintiff, is an intelligent Chinaman, with a fair knowledge of English. He was a member, not only in the firm of Mansingson & Co., but Quong Hong Luong & Co. His partners had every faith in him up till about the time he broke off his transactions with the plaintiff, when his partners for the first time charged him with wrongdoing, and caused his arrest as a criminal. That he may have wronged them is true, but the question to be determined is whether the consequences of his acts are to be borne by them or visited upon the public. That he entered into an alliance with the plaintiff to ruin the two firms of which he was a member, is highly improbable, to say the least. Neither he nor the plaintiff could be benefited by such a consummation. That the plaintiff instructed Chu Fong in the art of forgery, or furnished him with a book of signatures, and taught him to make notes in the names of his own and other firms, is still more improbable. That Chu Fong became the pliant tool of the plaintiff, and forged notes bearing the names of Chinese firms, which the plaintiff (knowing all the facts concerning them) took to his bank, had discounted on his own responsibility, gave Chu Fong checks for the amounts of the discounts, had him draw the money and hand it back to the plaintiff, is too unlikely to invite belief. The books of the bank and the plaintiff’s deposit book show the discounts and the checks given to Chu Fong, but show no return of the money to the plaintiff or to his credit. The checks, when traced, show that the money was not returned to the plaintiff. Indeeed a large portion of the proceeds found their way to the Bowery Bank, in which Chu Fong had opened accounts in the names of the two firms, and made deposits to their credit. These, and like circumstances, convince me that the plaintiff is a Iona fide holder for value, without notice of any infirmity in the notes or his title to them. The act of Chu Fong, in wilfully misrepresenting the purchase price of the Brooklyn prop

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erty, in lying about the Pell street property, the Kearsing notes, and fraudulently imposing on Mr. Brownell, clearly demonstrate that he is not to be believed. A man that will wilfully and fraudulently lie as to one thing, cannot inspire confidence in his declarations. Chu Pong claims that he was the fool, the plaintiff the knave; that at the time both were engaged in a conspiracy he thought it lawful, while the plaintiff knew the contrary; that, though he perpetrated the acts of forgery, the plaintiff got all the money and kept it. Chu Fong asks the court to believe too much. His story is unreasonable, inherently improbable, and, viewed in the light of his conduct, wholly unreliable. The claim that the plaintiff first schooled Chu Fong into a knowledge of making notes is negatived by the fact that the first note was filled up by a clerk in Howe & Hummel’s office. That firm were his attorneys at the time, and so all through the case are circumstances, small in themselves, but significantly strong when put .togesher, tending to discredit Fong. In short the evidence carefully considered justifies the conclusion that Fong is what his partners have termed him, a criminal. The plaintiff was indiscreet in making so many discounts without consulting the other members of Fong’s firms, but indiscretion is not crime, and want of judgment not evidence of bad faith. A little wisdom would have told the plaintiff that no man could pay sixty per cent a year for the use of money, and last long. At this rate money doubles itself in one year and eight months.

The'plaintiff swears that he took Fong’s statement in regard to the parties to the notes before discounting them; that Fong explained the financial standing of each to every note he gave; told why they needed the money and how they could pay it back, and why they could pay the large interest exacted and still make money. It would seem that, led on by the temptation of five per cent, a month for the use of money he obtained from his bank at six per cent a year, the plaintiff was lured into discounts, till, at the close of the transactions, there was (as he swears) a loss to him of about $15,000. Usury is not pleaded, and that feature of the case need not be considered.

The defendants’ evidence, that the plaintiff was advised of the restriction upon the powers of any of the partners of Mansingson & Co. to execute promissory notes or other obligations, is indefinite. The agreement containing the limitatation was written in Chinese characters, which the plaintiff could not read, and there is no claim that he was even shown a translation of it. The plaintiff denies that he had knowledge or notice of the condition, and upon the evidence I find he had no information in respect thereto. The provisions of the partnership articles limiting the ordinary powers of the partners, although binding on them, do not affect the plaintiff, who dealt with the partner without notice thereof. Private instructions or limitations only charge those in the secret, and not the general public. Lawson’s Bights & Bern., § 647. The partners of Chu Fong deny any knowledge that he opened a bank account in their names, or that he was having firm paper discounted. On these features of the case it will be found that some

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of the checks on the Bowery Bank contain the picture of a China-man and the printed name of “ Mansingson & Co.,” and on the cards of the firm appeared the name of Chu Fong as “general manager.” He was evidently the leading man in both firms. Next it appears that notes were issued by Chu Fong in the firm names to people other than the plaintiff, and these were, upon inquiry, found to be sanctioned by other members of the firm. But whether the defendants had knowledge or notice is not necessary to charge them. Chu Fong was a member of both firms, and, as such, the accredited agent of each. They held him out to the world as worthy of confidence, and are liable for his misconduct

The liability of a firm for the fraud of one of its members in procuring money upon false pretenses, is sustained by several authorities. Rapp v. Latham, 2 Barnwell & Alderson, 795; Stall V. Catskill Bank, 18 Wend., 466 ; North River Bank v. Aymar, 3 Hill, 262 ; Griswold v. Haven, 25 N. Y., 595 ; Bank v. Bradner, 44 id., 680 ; Chester v. Dickerson, 54 id., 1; Bradner v. Strang, 89 id., 299. See, also, the following authors: Collyer on Partnership, Perkins’ ed., §§ 445, 447; Lindley on Partnership, Ewell’s 2d Am. ed., 150; Lawson’s Rights & Rem., § 650; Story on Partnership, § 108.

Judge Story in his work on Partnership, says: “ The whole doctrine proceeds upon the intelligible ground that where one of two innocent persons must suffer t>y the acts of a third person, he shall suffer who has been the occasion or cause of the confidence reposed in said third person.” Sec. 108.

Mr. Collyer places the language of Judge Story at the head of the section in which he treats of this class of liabilities, and expressly applies the principle to the case of negotiable securities fraudulently issued by one of the partners. §§ 445 and 447. Mr. Bindley also places the liability upon the same ground, and illustrates it by the case of Rapp v. Latham, supra. This principle has been applied where firms were not the recipient of the money fraudulently obtained. Griswold v. Haven, 25 N. Y., 595 ; Bank v. Bradner, 44 id., 680 ; and in the case of agency it was applied where neither the principal nor agent received any benefit from the fraud, but were, in fact, the victims of it. Armour v. R. R. Co., 65 N. Y., 111 ; Bank v. R. Co., 72 N. Y., 188 ; Bank v. R. R, Co., 106 id., 195 ; 8 N. Y. State Rep., 209.

In cases where the firm has received the benefit of the fraud the innocent partners have always been held liable. Chester v. Dickerson, 54 N. Y., 1 ,11; Bradner v. Strang, 89 id., 299, affirmed 114 U. S., 555 ; Rapp v. Latham, 2 B. & A., 795.

In this case, the firm or principal is estopped from denying the authority of the partner or agent to issue the false instrument. N. R. Bank v. Aymar, 3 Hill, 267 -8; F. & M. Bank v. B. & D. Bank, 16 N. Y., 135 -7; Griswold v. Haven, 25 id., 602.

In North River Bank v. Aymar, supra, it is laid down that where an agent executes an instrument in the name of his principal, purporting to act by authority, such act is equivalent to an express declaration that the instrument is executed in the business of the

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principal and for his benefit, and the latter is estopped to deny that the authority has been pursued.

In the Farmers & Traders’ Bank v. Butchers & Drovers’ Bank, supra, Selden, J., says : “ The giving of a note in the partnership name, by one of the partners, is a virtual representation that it is given in the partnership business, and, if negotiable, this representation is deemed in law to have been made to every subsequent bona ficle holder of the note.” In Griswold v. Haven, supra, Selden, J., says: “ The mere assumption of a partner or agent of power to execute such paper is a virtual representation to all who may take it of the existence of every fact essential to the powers.”

So far as the plaintiff is concerned, the apparent authority of Chu Fong was the real authority and binds his partners. The presumption of law is that all commercial paper which bears the signature of the firm, executed by one of the partners, is the paper of the partnership. The burden of proof is on the firm to show the want of authority of the partner, and it will then devolve on the plaintiff to show that he is a bona fide holder for value. 5 Wait’s Act. & Def., 129 ; Cow. Treat., § 200.

Indeed, it may be regarded as settled that a promissory note made by one partner in the firm name, though outside the partnership business, and without the knowledge or consent of the other partners, is binding on the firm in the hands of a bona fide holder for value. First Nat. Bank v. Morgan, 73 N. Y., 593 . A partner may likewise secure a firm note not yet due, by issuing new notes to enable the creditor to bring a suit thereon at once. Nealis v. Adler, 19 Abb. N. C., 385 . And where one is a member of several firms he may draw and endorse the same paper as the representative of each. Miller v. Bank, 48 Pa. St., 514 ; 88 Am. Dec. 475 . The fact that the plaintiff filled up the note after it was signed, does not impair or vitiate it, or deprive it of negotiable qualities. Chemung Canal Bank v. Bradner, 44 N. Y., 680 ; and see Harris v. Berger, 15 N. Y. State Rep., 389. Upon the entire case the plaintiff is entitled to judgment for $1,800.54, with interest, aggregating $1,841.56, with costs.