Lemoine v. Bank of North America

15 F. Cas. 309 | U.S. Circuit Court for the District of Eastern Missouri | 1874

DILLON, Circuit. Judge.

On the facts found by the district court, upon which, by stipulation, the cause is submitted to this court, it is to be taken as true that the notes in question were indorsed with the firm name of Earickson & Boyd solely for the accommodation of White Brothers, the makers, without any consideration to the in-dorsers therefor.

It is also to be taken as true that this in-dorsement of the firm name was made by Earickson, without the knowledge or consent of Boyd and against the express stipulation on this subject in their articles of co-partnership, and that the notes when thus indorsed were returned to the possession of the makers, from whom the bank received them and at whose instance it discounted them, and who, through the checks of Earick-•son, drawn in the firm name, received the proceeds of the transaction. There is no finding or agreement that the indorsement of the firm name was made in accordance with any habit of dealing of the firm known to Boyd, or that there was with Boyd’s knowledge such a course of dealing as respects accommodation indorsements in the firm name as to justify an inference of Earickson’s authority to bind the film in this manner.

I concede that in favor of third persons acting in good faith it is a presumption of law that notes indorsed in the name of the firm were indorsed on the partnership account, and hence the indorsement on the notes in question will bind the firm, unless it appears that the bank had notice that the indorsement was made outside of the partnership affairs. Story Notes, § 72: Byles, Bills, 47; Austin v. Vandermark, 4 Hill, 259, 262, per Nelson, C. J. But inasmuch as the settled rule of law is thal it is not within the general scope of one partner to bind the firm by contracts of suretyship or to issue accommodation paper in the name of the firm for third persons, if the bank had notice that this was an accommodation in-dorsement, the burden of proof is upon it to show the assent of the other partners (either expressly or from the firm’s course of dealing in this respect) or their subsequent ratification. Byles, Bills, 47, and cases cited in the notes. If, therefore, the bank discounted these notes without notice of the fact that the name of the firm had been indorsed upon them by one of the partners without the consent of the other and for the accommodation of the makers, it is entitled to hold the firm upon the indorsement, although in point of fact it was placed there by one of the partners in fraud of the rights of his co-partner, or without authority from him.

And the question on which the case turns is whether the bank had such notice, for it is not attempted to show that Eariekson had authority from Boyd, express or implied, to make the indorsement. The bank is sought to be affected with such notice by virtue of the fact that after the notes bore the in-dorsement of the firm they were in the hands of the makers, who met one of the directors of the bank when on his way to a meeting of the board of directors, and giving him the notes asked him to have them discounted for the makers. It does not appear that the di rector informed the board of whom he had received the notes, but this is not material, for the learned counsel for the bank conceded on the argument that he supposed the law to be that the beard or the bank -would be chargeable with the knowledge of the director thus obtained.

Thus viewed, the real question in the case is reduced to this: Does the fact that the maker is in possession of a note before maturity, indorsed by another, affect the bank that receives it from the maker and discounts it for him, with the notice that it was indorsed for the maker’s accommodation?

At the bar counsel stated tnat they had been unable to find any adjudged cases upon the exact point, and they argued it on general principles. In view of the nature of the notice- required to defeat the rights of the holder for value of commercial paper, as settled by the supreme court of the United States in Goodman v. Simonds, 20 How. [61 U. S.] 343, I was at first impressed in favor of the bank; but subsequent reflection has brought me to an opposite conclusion. To make accommodation paper is so entirely extra the business of a co-partnership and the legitimate authority of a partner, that the presumption is against, and properly against,* the power of one partner thus to bind his co-partners; for suretyship, it has been well remarked is “a contract which carries with it a lesion by its very nature.” Louisiana State Bank v. Orleans Nav. Co., 3 La. Ann. 294. Therefore when a bank has knowledge that an indorsement of the name of a firm is an accommodation in-dorsement it is bound at its peril to ascertain whether the members of the firm on whom it intends to rely assented to this use of its name. This it can easily do. While on the other hand, if the bank were entitled to presume that the other members of the firm assented, the presumption would in many instances, as in the case before us, be contrary to the fact, and highly disastrous to innocent partners, who would be without the means of guarding against the fraudulent use of the co-partnership name in unauthorized transactions.

If the facts of the case as found by the district court be considered there can be little doubt that the bank knew the discount was for the benefit of White Brothers, and consequently that the indorsement of Eariekson & Boyd was presumptively, as it was in fact, for the accommodation of the makers.

On examination I find several cases distinctly asserting this to be law, and have not met with any holding a different view. When a note not due is taken by the makers to a bank for discount for their account, with an indorsement thereon, the presumption, unless there is something in the transaction to rebut it, is that the indorsers are sureties for the maker, and that they did not indorse it in the ordinary course of business. Upon this subject Mr. Chancellor Walworth, in Stall v. Catskill Bank, 18 Wend. 478, holds this language: “If, therefore, it appears from the face of the paper that the partnership name is signed as surety for some other person, the party who takes the note from such person has actual notice of the fact that it is not signed in the ordinary course of partnership business. He must, therefore, at his peril, make the necessary inquiries and ascertain that there is some special authority for one partner to sign the partnership name as such surety, express or implied. So if the drawer of a note carries it to the bank to get it discounted on his own account, or transfers it to a third person, with the name of the firm indorsed thereon, the transaction, on its face, shows that it is a mere accommodation indorsement, or the note would not be in the hands of the drawer; and the bank or person who thus receives it from the drawer being thus chargeable with the notice that the firm are mere sureties of the drawer, and that it has not passed through their hands in the ordinary course of partnership business, the members of the firm, who have been made sureties without their consent, are not liable to such holder of the note.”

This language was quoted and approved by Mr. Chief Justice Sawyer in giving the judgment of the supreme court of California in Hendrie v. Berkowitz (1869) 37 Cal. 113, and in which the court distinctly held, in a' case, precisely like the one now before the court, that the presumption was that the in-dorsement was an accommodation indorsement, and that the burden of proving the consent of the member who did not write the indorsement is upon the holder. So, in Overton v. Hardin (1869) 6 Cold. 375, the supreme court of Tennessee said: “There can be no doubt that the possession of an indorsed note by the maker is presumptive evidence that it was indorsed for his accommodation. Edw. Bills, 103, 105; Brown v. Taber, 5 Wend. 566; Erwin v. Shaffer, 9 Ohio St. 43.” In this last case Brinkerhoff, J., says: “That although an indorsed note in the hands of the maker after due is presumed to have performed its office, and to have been paid off and taken up by the maker, yet no such presumption arises in the case of such a note before due; but that on the contrary, in such case, it is a matter of legal presumption that the note is unsatisfied, and is indorsed and placed in the hands of the maker for his accommodation. Wallace v. Branch Bank of Mobile, 1 Ala. 565; Mauldin v. Branch Bank of Mobile, 2 Ala. 502; Stall v. Catskill Bank, 18 Wend. 478.” See, also, language of Mr. Justice Nelson in Bank of Rochester v. Bowen, 7 Wend. 159; Byles, Bills, 47, and note.

The amount of the notes less the discount was, in accordance with a usage of the bank, placed to the credit of the last indorsers, in this case Eariekson & Boyd, and was drawn out on the two checks of Eariekson & Boyd, signed by Eariekson, without the knowledge of Boyd, in favor of White Brothers. One of these checks showed on its face that it was for the proceeds of the note discounted, and the amount of each showed that it was for the note transactions. It is insisted that this makes the indorsement binding on both. This view rests upon the ground of ratification by Boyd; but the essential element of knowledge on his part, both of the fact of the indorsement and of the check being drawn, is wanting. The checks do not therefore change the rights of Boyd, or make binding upon him his partner’s act in indorsing the firm’s name to the notes in question. The district court erred in holding that the two notes were a claim upon the firm assets. The indorsement is alone binding upon Eariekson. Judgment accordingly.

The court entered a judgment reversing the judgment below and entering a judgment against Eariekson alone, and ordering a transcript thereof to be seat to the district court. Same principle applied: See West St. Louis Sav. Bank v. Shawnee County Bank [Case No. 17,462].