172 N.Y. 259 | NY | 1902
When this case was here upon a former appeal (
The plaintiff is a West Virginia bank that is seeking to collect in the courts of this state certain commercial obligations which it holds against parties residing here. The action is upon two promissory notes, the first for $6,500, dated December 15, 1892, payable four months from date, and the other for $5,000, dated March 31, 1893, payable thirty days after date. Both notes were made by Edwin F. Curtis to the order of and indorsed by Weston Bros., a firm composed of three brothers, then extensively engaged in business and of unquestionable financial standing and credit. The plaintiff discounted these notes for the maker at the rate of seven per cent, paying to him the proceeds, and when due they were duly protested for non-payment. The questions in the case arise solely upon the answer of Abijah Weston, a member of *262 the firm that indorsed the paper, and who died subsequently to the joining of issue and after the case was decided in this court upon the former appeal. This appeal involves only his liability as one of the indorsers, or the liability of his estate, his executor having been substituted in his place as a defendant. His testimony, however, taken upon the former trial, including his acts and correspondence bearing upon the issues, appear in this record and constitute an important feature of the case as it was submitted to the jury.
The answer of this defendant, so far as it is important to refer to it here, was simply this: That on the 3d day of January, 1892, prior to the making or indorsing of the notes in question, the firm of Weston Bros. was dissolved, that neither of the notes in suit was made, indorsed or discounted in, about or on account of the partnership business, or the winding up of its affairs, but that his brother William W. Weston, another member of the firm, after the dissolution, fraudulently indorsed the paper in the firm name at the request and for the accommodation of the maker and without the knowledge, consent or authority of the other members of the firm, all of which the plaintiff had notice when it discounted the paper.
The issues or questions presented for trial upon the pleadings were these: (1) Whether the firm was in fact dissolved as to the plaintiff; (2) whether the plaintiff had any knowledge or notice of the dissolution when it took the paper; (3) whether the plaintiff was an innocent or bona fide holder of the paper within the law merchant.
The facts bearing upon these issues are undisputed and identical with the facts appearing in the record when the case was here on the former appeal. There was a formal paper executed by the three partners stating that the firm was dissolved on "this 5th day of January, 1892, by mutual consent," with a statement that the business would be continued at the same place by the "A. Weston Lumber Co." It is admitted that this notice of the dissolution was never published and that the plaintiff had no knowledge of the dissolution. The plaintiff's *263 dealings with paper indorsed by the firm commenced long prior to the execution of this writing formally dissolving it and under circumstances quite significant upon the question of good faith. On the 26th day of May, 1891, the cashier of the bank at Olean, where the banking business of the firm was transacted, addressed a letter to the plaintiff's cashier inclosing a note of $2,500 made by Curtis, the maker of the notes in question and indorsed by the firm, for discount for a third party named in the letter. Two days after the plaintiff's cashier replied to the letter saying that he had received the letter and note but that "the parties are all strangers to us. Do you regard the note as all O.K.?" To this the cashier of the Olean Bank, who knew all about the firm if any one did, replied immediately "we consider Weston Brothers good beyond question. They are probably worth from one to two million." The plaintiff discounted the note, which was renewed from time to time, and that note with others of the same character made and indorsed by the same parties constitute the consideration of the notes in question. If that note had not been renewed when due it would be difficult to suggest any defense that the firm or any of its members could make to a suit upon the indorsement. The transaction is important now only so far as it tends to show how and under what circumstances the plaintiff was induced to discount paper upon the faith of the firm indorsement. There is nothing in the record to show that anything subsequently came to the knowledge of the plaintiff calculated to impair in the least the effect of a recommendation coming from such a responsible source. It appears without any dispute, since the facts were testified to by Abijah Weston himself, that for ten years prior to the indorsement of the notes in question he knew that his brother, who made the indorsement on these notes, was using the firm name for the accommodation of others by indorsing notes in the name of the firm, outside the partnership business. He had warned him against this course of business several times and forbidden him to do it any more. He remonstrated with him against the consequences that might *264 result from such indorsements and even threatened to "post him" on account of this misuse of the firm name, but took no action to prevent it, relying generally upon his brother's promise to desist but which promise was always violated. The testimony on this point is collated and discussed fully in the opinion of this court upon the former appeal and it is not necessary to repeat it here since a general reference is sufficient for all the purposes of this appeal. The brother and member of the firm who was thus engaged for years in using the firm name to give credit to the paper of parties outside the partnership business was all the time acting or assuming to act as the agent of the firm. When one partner, with the knowledge of the other partners, uses the firm name and indorsement to give credit to others in matters foreign to the partnership business, and this course of conduct is allowed by the other partners to continue during a long series of years, the question must always arise as to how far the habitual exercise of such an agency or authority, originally irregular or even void, is cured by acquiescence or made binding upon the firm as such by the doctrines of negligence or estoppel, and this brings us to the exceptions taken to the charge of the learned trial judge in submitting the case to the jury.
The plaintiff's counsel requested the court to charge that when the defendant became aware of the persistent and continued use of the firm name by his brother, outside the business of the firm, it became his duty to take some public action for the protection of outside parties. The court refused to charge the request, and the plaintiff's counsel excepted. We think that the request embodied a correct and important principle applicable to the proofs in the case, and that affected the issue between the parties from various directions, and should have been charged. When spurious stock has been issued and put in circulation by the officer of a corporation, and the board of directors, through negligence, have failed to discover or prevent the fraud upon the public, the stock so fraudulently issued and put in circulation will, in the hands of an innocent holder, be binding upon the corporation. (N. *265 Y. N.H.R.R. Co. v. Schuyler,
There are numerous other cases and authorities that deal with the unauthorized or fraudulent acts of agents that mislead innocent third parties to their prejudice that have been held to be binding upon the principal. The rule is not always expressed in the same form of words, but however stated the application to this case is apparent. These expressions have all the force of maxims to govern the conduct of men under circumstances such as the defendant was placed in when knowledge of the misconduct of his partner was brought home to him. The knowledge that he then acquired, or which is to be imputed to him, was sufficient to alarm the most serene confidence, since it appears that during ten years prior to the date of the notes in question paper of the same character as that now in question and put in circulation in the same way to the amount of over one million dollars passed through the bank where the defendant kept his account, and yet the defendant took no effectual means to put an end to the practice of lending the firm name for purposes foreign to the partnership business, and what is more remarkable still when the partnership was dissolved, as between the members themselves, the fact was not published or communicated in any way to the public or to parties who were giving credit to the firm name.
We think that the plaintiff was entitled to have the principles stated applied to the facts of the case. The request referred to above was repeated in various forms and with more or less modification of language, but in the main was refused. It is a general principle of law applicable to this class of cases that if a person either by words or conduct manifests his consent to an act which has been done he cannot question the legality of the act. If he has an interest to prevent an act being done, but so acquiesces in it as to induce a reasonable belief that he consents to it and the position of others is changed by their giving credit to his sincerity, he has no more right to challenge the act to their prejudice than he would have had it been done by his previous license. In equity where a man has been silent when in conscience he ought to have spoken, he shall be debarred from speaking *267
when conscience requires him to be silent. (Story's Eq. Juris. [Redf. ed.] § 1546; Niven v. Belknap, 2 Johns. 589; OnondagaCo. Bank v. De Puy, 17 Wend. 47; Bank of Batavia v.N.Y., L.E. W.R.R. Co.,
The plaintiff's counsel requested the court to charge that the discount of the notes at the rate of seven per cent when the legal rate of interest in the state where the bank was located was but six per cent, is no evidence whatever of bad faith on the part of the plaintiff in discounting the paper, it appearing from the undisputed evidence that it was the plaintiff's usual rate of discount. The court refused to so charge but left the question to the jury and the plaintiff's counsel excepted. The question raised by this exception is one of law. The court was requested to hold that certain evidence was not competent to prove a certain material fact which was in issue between the parties. We think that the evidence did not prove or tend to prove the fact. The defense of usury was not interposed and that question is not in the case. The sole question is whether the retention by the plaintiff of one per cent in addition to the ordinary and lawful rate of discount was a circumstance to show bad faith on the part of the holder of the notes, or in other words to show that the plaintiff was not a bona fide holder. It has been held that when paper is purchased at half the face value the price paid was a circumstance bearing upon the innocence or good faith of the purchaser. (Vosburgh v. Diefendorf,
The judgment should be reversed and a new trial granted, costs to abide the event.
PARKER, Ch. J., GRAY, BARTLETT, MARTIN, VANN and CULLEN, JJ., concur.
Judgment reversed, etc. *269