Ross v. Whitefield — 36 N.Y. Super. Ct. 50

Majority

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JAMES ROSS, Plaintiff and Appellant, v. GEORGE WHITEFIELD, Defendant and Respondent.

Headnote

A. lent B. his note for $500, which was renewed several times for the benefit of B., and was finally renewed by the defendant in a note payable to a firm of which B. was a member, the firm having discounted that note without any knowledge of the note being made for the accommodation of B. This note was renewed several times by the defendant to said firm. Before the last note became due, A. notified B. that he would not renew the note again. When the note became due, B. obtained from said firm its check, payable to the order of A., with the expressed purpose of paying this note, and accepting a new note of A. for the amount, payable to the said firm, as he had done several times before. B. delivered the check to A. , for the purpose of enabling him to take up and pay this note, and without requiring him to give a new note to the firm ; thus, in fact, converting the partnership property to the payment of his personal debt. A. took up and paid the note, with the check, in ignorance of the arrangements between B. and his said firm.

Upon the firm bringing suit against A. to recover the amount of the check, as money loaned to him.

Held, That when the firm gave the check, it knew, or was bound to know as one of the payees of the note, that, as between A. and B., that B. was bound to indemnify A. against the payment of the note (Horton v. Rogers, 12 Wend. 484 ; Id. 14; Wend. 576).

Under Geery v. Cockroft, and cases there cited (33 Sup. Ct. R. 146), if the firm assented to the check being used to pay the obligation of A. (one of the firm), that A. could apply it to that purpose. In this case the firm’s assent was not only such as they gave, but also such as they authorized B. to give. The check being made payable to the order of A., shows that the firm expected it would go into his hands, and having entrusted B. with it (Story, Agency, note to § 34), the firm held out B. as having unlimited power to dispose and use it as he might please (Story, Agency, § 228, Coddington Bay, 20 Johns. 687 ; Hartfield n. Reynolds, 34 Bari. 613).

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The firm was, under these circumstances, bound by the action of B. in the premises, irrespective of any special instructions given to him, and the assent or direction of B. as to the application of the check to the payment of the note, was in fact the assent of the firm.

Before Barbour, Ch. J., and Freedmah and Sedgwick, JJ.

Decided May 3, 1873.

■Conclusions of the Court.—Sedgwick, J.—That A. appropriated the firm check to discharge the debt of B., with the assent of the firm, or if otherwise, the firm was botmd to provide for the payment of the note, inasmuch as A. was not liable on it to the firm, and the check was in effect ■used to pay the debt of the firm as endorsers on the note to the holder, •who discounted it, and therefore the assignee of the firm cannot recover ■from the defendant the amount of the note. Babbottb, Ch. J., dissenting.

Appeal from a judgment entered in favor of defendant on the report of a referee.

The facts appear sufficiently from the opinions delivered and head notes.

T. J. McKee and Thomas Allison, for appellant.

A. E. Morris, for respondent.

The check in contest here was written Tby Bullwinkle, and by him handed to Merrill. It was payable to the defendant, Whitefield. When Bullwinkle did this, he knew, or was bound to, as one of the payees of the note, that, as between Whitefield and Merrill, at least Merrill was bound to indemnify Whitefield against the payment of the note (Morton v. Rogers, 12 Wend. p. 484 ; S. C., 14 Id. p. 576 ; Nelson v. Cowing, 3 Hill, p. 336).

Under Geery v. Cockroft, in this court (33 Supr. Gt. R., 146), Dob v. Halstead (16 J. R. p. 34), and Rogers v. Batchelor (11 Peters, p. 230), there is no doubt that, if Bullwinkle had assented to the check being

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paid in satisfaction of Merrill’s obligation, that Whitefield conld receive it for" that purpose.' blow, Bullwinkle’ s assent is not only such as he himself gave, but: such as he authorized Merrill to give. This is a stronger case than if the check had been drawn to bearer. It being drawn by Bullwinkle to Whitefield shows that he expected it would go into his hands. Having entrusted Merrill with such a check (Story’s Ag. note to § 34), he held the latter out as having an unlimited power to dispose and use such instrument as he might please (Story's Ag. p. 228 ; Coddington v. Bay, 20 Johns, p. 637; Hatfield v. Beynold, 34 Barb. p. 613). Bullwinkle having made Merrill his agent, and having, under the circumstances above considered, sent him to Whitefield, is bound by Merrill’s exercise of such power, as he had apparently given to him, irrespective of any special instructions. If, in this manner, Merrill could bind Bullwinkle, there is no doubt that, as a matter of fact, he gave to Whitefield Bullwinkle’s unconditional assent to the check being used in favor of Merrill’s obligation to Whitefield.

A check is not looked upon in such circumstances as ordinary commercial paper, but as an' equivalent of money. It may be doubted that this case should be looked upon otherwise than if Merrill had drawn money upon the firm’s check and paid it to Whitefield (Sterling n. Jaudon, 48 Barb. p. 459 ; Reynolds v. Kenyon, 43 Barb. p. 599). Whitefield having done that with the check which Bullwinkle authorized him to, cannot be liable to Bullwinkle for so doing; still less would he be liable to the plaintiff, as assignee of the firm.

When the case was here before, the chief justice demonstrated that, in an action by the firm on the note against Whitefield as maker, there could not have been a recovery before the adoption of our present" system. Chitty on Bills, p. 71, says that “where an action is brought by several plaintiffs, whether or not general

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■partners or indorsees, against an acceptor, it is a good defence to show that the acceptance was given to accommodate one of them, or on his promise to provide for the bill and the innocent co-plaintiffs, however defrauded by their partners, cannot recover at law or in equity.”

In Sparrow v. Clusmein (9 B. & C. 246), cited by the learned chief justice, the court said: “A party to whom an acceptance is given upon a condition that he will provide for it when due, and who does not perform that condition, cannot sue the acceptor, and if he therefore could not have sued alone, how can he sue jointly with others? His partners, being bound by his act, cannot recover through him.”

This has a close application here. Merrill, for several motes, had, for his own accommodation, procured Whitefield to become maker. For some reason this ended. Merrill then presented a note drawn to the order of Bull winkle & Merrill, and requested Whitefield to become an accommodation maker to it. It is very clear that the circumstances implied, not that Merrill should be the indemnity of the defendant, as in former cases, but that the firm should be his security ; and that the mote in question, which was the successor of the first mote, was given upon Merrill’s promise (implied) that the firm would protect Whitefield. Of all this the firm, being the payees, had constructive, if not actual, notice, .and when Bullwinkle endorsed the name of the firm •upon the note and procured it to be discounted, he ratified, if he were not originally bound by Merrill’s promise, that the firm would take care of the note. If we could conceive that the firm paid Merrill personally such a new consideration for the note as would make it, under ordinary circumstances, a bona-fide holder, that fact would not alter the situation. They did not buy accommodation paper, given for the purpose of benefiting Merrill in any way that it could be used; but they

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Bought it with knowledge of the condition affixed when it was given to Merrill, viz., that the firm would provide for its payment.

But there could he no such new consideration given hy the firm to Merrill. If they advanced anything on it to Merrill, whose money did they advance? It was Merrill’s money as much as it was Bullwinkle’s, and an advance under such circumstance would give (if it is-possible to state that it gave any right of action) only that right of action agaipst Whitefield which the firm would have had, or Bullwinkle would have had, against Merrill on the advance. It is very clear that that would not have been an action on the advance at all. Of itself, it would not have given any right to an accounting; but an accounting being had for other reasons, that Avould be an item.

The chief justice, when reversing the former judgment, surmised that possibly, under our present system, Bullwinkle might have been entitled in an action brought by ‘1 himself and Merrill against their defendant to recover judgment for the amount of his interest in the $500.” But that in order to do this, it would be necessary for him to prove at least the extent of the interest of Bullwinkle in the $500 received by the defendant, and that it was unnecessary to speculate on possible rights which might not thereafter appear in the action.

The plaintiff has not at all shown what was demanded by the chief justice. They,, to be sure, gave evidence of a very vague kind, that if the partnership affairs had been wound up at the time the check was given, May 7,1862, Merrill would have been entitled to nothing. But they also proved that the partnership did not cease until January 1, 1863. Therefore, they proved that on May 7,1873, Merrill’s interest in the firm depended upon the possibility of the future existence of the firm for the rest of the year. For instance, in a, month’s time the business of the firm might have been

Dissent

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profitable, and in such case it would appear that on an accounting, Merrill did have an interest in the firm assets, including that $500 if it had not been paid out. I do not think that the plaintiff could have shown what was asked without proving that at the time of the giving of the check, there-had been a dissolution and an accounting, which resulted in Bullwinkle’s becoming sole owner of the assets formerly belonging to the firm.

I havp come to the conclusion that,—1. Whitefield appropriated the firm check to discharge Merrill’s obligation with the assent of Bullwinkle. 2. If this is not so, that the firm of Bullwinkle'& Merrill was bound to provide for the payment of the note, inasmuch as Whitefield was not liable upon it to the firm, and that the check was in effect used to pay the debt of the firm on the note to the holder who discounted it. The judgment should be affirmed, with costs.

Feeedman, J., concurred.

This is an appeal by the plaintiff from a judgment rendered upon a second trial of the action which was directed by the General Term on a former appeal, in June, 1869 (see 1 Sweeny JR. 318). The findings and conclusions of the referee upon the second trial were as follows :

" I do find as matter of fact, that on the 7th day of May, 1862, the firm of Bullwinkle & Merrill of this city, held the promissory note of the defendant made to the order of said firm for five hundred dollars, which fell due on that day and was deposited in the bank of said firm for collection, that this note had been made by the defendant without consideration, and solely for the accommodation of Wm. H. Merrill, one of the members of said firm, that Merrill individually received from his said firm the sum of five hundred dollars, upon the security of said note, that on said 7th day of May, 1862,

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the said Bnllwinkle gave his partner Merrill the check of the firm for five hundred dollars, drawn to the order of the defendant, and signed "by said Bnllwinkle with the firm name, to take up said note, that this check Merrill handed to the defendant, who paid the note made "by him to the firm. That defendant received, said check in good faith, and not as a loan from said firm, but as a performance of Merrill’s individual obligation to provide for the note at maturity.

“ And I do further find that at the time of the making of the said check, the said Merrill, although nominally a member of said firm of Bnllwinkle & Merrill, actually had no interest therein, the whole of the assets of said firm belonging to Bnllwinkle, who alone was liable for all the obligations of the firm.

“ And I do further find that the plaintiff is the lawful owner by assignment of the claim against the defendant in this suit.

“ And I do find as matter of law, that there is nothing due and owing by the defendant to the plaintiff, and that the plaintiff’s complaint should be dismissed with costs.”

On the argument of this appeal, an admission or statement was also made to the court by the counsel for the respondent, in his brief or points, as follows: “It seems to the defendant’s counsel that the evidence shows pretty clearly that Bull winkle did not assent to the disposition which Merrill made of the check. Bnllwinkle gave the check to Merrill with the understanding that it should be loaned to the defendant to enable him to take up the note, and upon condition that the defendant should give a "new note in renewal. Merrill diverted the check from the purpose for which it was intended by his partner, and used it for the payment of his own debt. These seem to be the facts (very different from what is assumed in the opinion of the learned referee).” And the sole point made by the counsel for the defend

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ant (if that can "be called a point which states no proposition of law or fact, "but merely asks a question), is contained in the words following:

“The only question here presented is, can money so paid be recovered back in face of the additional testimony that the check was signed by Bullwinkle himself, and not'by Merrill, and that the defendant received it not as a loan to enable him to take up his note, but in performance of his, Merrill’s, own individual obligation to meet the note at maturity, and in entire ignorance of the understanding between Merrill .and his partner in regard to its disposition? ”

The admission before the court on the part of the plaintiff that Bullwinkle gave the check to Merrill to loan to the defendant upon condition that the latter should give a new note in renewal, and that Bullwinkle did not assent to the disposition which Merrill made of the note, is of the highest importance, inasmuch as it fully establishes a very material fact which the referee might well have found upon the evidence, but which he had failed, through inadvertence or otherwise, to find.

In the case of Geery v. Cockroft (33 Supr. Ct. 146), it was held by the General Term of this court that where goods belonging to a mercantile firm had been delivered by one of the partners, in payment of his individual indebtedness to the defendant, without the consent of the other partners, and without any knowledge on the part of the defendant that the goods belonged to the firm, no title whatever passed by such delivery, and that the firm were, consequently, entitled to recover from the defendant the value of the goods ; and the opinion of Mr. Justice Stoby in Rogers v. Bachellor (12 Peters, 229) is to the same effect.

In this case it is clear that Merrill was, as between himself and the defendant, primarily bound to pay the note; and although the same was held by a firm of which he was himself nominally a member, yet he was in

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debted thereupon to the extent of the real ownership and interest therein of Bullwinkle. The delivery of the check, therefore, and the moneys or credits belonging to the nominal firm against which the same was drawn, to the defendant by Merrill, for the purpose of paying the note was an attempted appropriation of partnership property to the payment of the individual indebtedness of Merrill alone ; and as the assent of Bullwinkle was not given to such appropriation, no title to the check or the money drawn .thereon passed to the defendant by such delivery ; and it follows that the plaintiffs, as assignees of the firm of Bullwinkle & Merrill are entitled to a judgment.

The judgment should be reversed and a new trial granted, with costs to abide the event.

Cases cited

Rogers v. Morton 12 Wend. 484 N.Y. Sup. Ct. p. 50