Opinion
March, 1897.
Macklin, Cushman Adams, for appellants.
Harris Corwin, for respondent.
This is an appeal by the defendants composing the firm of Doherty Brothers Company, from a judgment for the sum of $1,546.13 entered against them on a verdict directed by the court, after a trial before the court and a jury.
The plaintiff, a foreign corporation, is the holder of a promissory note against these defendants, the alleged makers of the note, and one Charles Selig, the payee and indorser thereof.
The defense interposed by the alleged makers of the note was substantially a general denial.
They deny that the note was delivered to the plaintiff for value, and a separate defense to the effect that they carried on the business of lake and transportation business; that the note in question was not made and delivered for a partnership purpose, and that the plaintiff took said note with notice that said note was not made and delivered for a partnership purpose.
It is not contradicted that these defendants composing the firm of Doherty Brothers Company were engaged only in the canal, towing, transportation and commission business and had no business except lake and canal towing, that the note in question was made by the defendant Abbott, a member of the firm of Doherty Brothers Company, who wrote the whole note and signed the firm name to it.
The note was given by Abbott to Selig apparently for bicycles sold by Selig to Abbott personally.
Selig gave the note to the plaintiff to apply it upon his pre-existing running account. Selig told the plaintiff that he obtained the note from Mr. Abbott.
In behalf of Doherty Brothers Company it was testified that they never dealt in bicycles, never authorized Abbott to deal in bicycles, never received any bicycles, never received any consideration for the note and never knew anything about it.
The plaintiff made some inquiries in regard to Doherty Brothers Company and saw the sign over the door reading "The New York Buffalo Transportation Company."
Selig, who was a witness for the plaintiff, would not say that he did tell the plaintiff of the transaction in which he got the note.
Defendants' counsel then asked to go to the jury, which was denied, and a verdict was directed for the plaintiff, and from the judgment entered thereon this appeal is taken.
It appears from the evidence that the defendants were in an entirely different business from that of the purchase and sale of the bicycles, to-wit: Canal and boat transportation, and this was known to Selig, who sold the bicycles to Abbott, a partner of the other defendants. Selig did not know the other members of the firm and saw Abbott make out and sign the full name of the firm to the note in question and then gave it to him in payment of the bicycles purchased a few days before.
Here, then, was sufficient to create at least a presumption that Selig had taken the note for a private debt of Abbott, and thus put him on his inquiry.
Of course, prima facie, the execution of the note in the name of the firm by one partner binds the whole, and the burden of proving presumptive want of authority and of course fraud, for that necessarily follows, lies upon the partners. Martin v. Niagara Falls Paper Mfg. Co., 122 N.Y. 165, 174.
The fact, however, of the paper of the firm given out of the partnership business by one member without the knowledge or consent of the others is presumptive evidence of want of authority to bind the other members of the firm, and if the person taking knows the fact at the time, he is chargeable with notice of such want of authority and guilty of concurring in an attempted fraud upon the other partners.
Earl, J., in Union Nat. Bank v. Underhill, 102 N.Y. 340, says: "But when one partner has a transaction with a third person which is neither apparently nor really within the scope of the partnership business, the partnership is not bound by his declarations or acts in the transaction. He cannot by his declarations make that a partnership transaction which does not appear to be such and which is apparently and really an individual transaction. In such a case the third person has notice that the transaction is outside of the partnership business and he cannot rely upon the partnership credit."
If the above be true this note would have been void in the hands of Selig and the question would have gone to the jury.
Now, then, since presumptively Selig had no title to the note, the one to whom he transferred it would get no better title, and that particularly when the note was given for a precedent debt.
This will be observed from the evidence of the plaintiff's witness Ventres.
"My company's office is at 107 Chambers street and No. 91 Reade street, New York. Its business is manufacturing of bolts and nuts and heavy hardware and we also have a bicycle department. We do not manufacture bicycles. So far as we know Mr. Selig's business was a general commission dealer. We have had business with him since last November or December. I have forgotten when, exactly. He had a running account with our firm. At the time I received this note from him there was a running account.
"Q. Do you know what was the state of this account at the time you received this note in regard to the amount due by him to your company? A. I should say, taking into consideration that bill, a couple of thousand dollars. The note was not the exact amount of the bill. It was given in payment of a bill for bicycles which amounted to something more than $1,425, something about $1,550. These bicycles had been purchased prior to the giving of this note and had been charged to Mr. Selig by our concern; we did not ask him for the note; he came and offered this note to us; prior to the time we took it. I should think perhaps two or three days or something of that kind. We did not retain the note in our possession during these two or three days. I did not take it the first time he offered it, simply because I told him we would look up the parties to see if they were all right."
The rule is well settled that one who receives a note before due and without notice or knowledge of any fraud in its inception or transfer, but for a precedent debt and without parting with value or any valuable consideration, does not acquire a valid title to the note, but takes it subject to all its infirmities precisely as if he had taken it after dishonor or with knowledge of all the circumstances affecting its validity. Lawrence v. Clark, 36 N.Y. 127.
There is no evidence that the plaintiff sold the goods to Selig on the faith and credit of this particular note, and even if such an interpretation or impression can be conveyed, Selig contradicts this and says it was on the account he owed the plaintiff.
The case then shows that there was a conflict of evidence as well as that all the witnesses were interested and that it was necessary to show that the plaintiff obtained this note before maturity for value, in good faith and without any knowledge or notice of the same being tainted with fraud.
This, we think, ought to have been submitted to the jury.
The learned trial justice, therefore, erred in refusing to permit the defendants to go to the jury and in directing a verdict for the plaintiff.
This question was excluded during the trial:
"Q. Did you make any other inquiries except going down there and inquiring at the office of Doherty Brothers Company?"
This was error, as the plaintiff was bound to show that it had no knowledge or notice of the fraud or of the infirmities of this note.
The judgment and order are reversed and a new trial granted, with costs to the appellants to abide the event.
FITZSIMONS, J., concurs.
Judgment and order reversed and new trial granted, with costs to appellants to abide the event.