Case ID: ad_127/html/0572-01.html
Source: Caselaw Access Project
Author: {"author": "Houghton, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Wilson R. Hunter, Respondent, v. Isaac N. E. Allen, Defendant, Impleaded with Alexander S. Bacon, Appellant.
    First Department,
    July 8, 1908.
    Bills and notes—promissory, notes with, blanks unfilled—bona'fide holder—transferee after maturity—principal and agent — notice to cashier of bank—appeal—theory of parties at trial.
    Where the cashier of a bank on receiving notes drawn to the order of a third party, but blank as to date, time of payment and amount, fills in the blanks and procures the indorsement of the payee and places the proceeds to the payee’s credit-, the bank is not a bona fide holder either under the.Negotiable Instruments Law or the law merchant.
    The same is true of a transferee of the bank purchasing the notes after maturity.. The bank is chargeable with the notice to its cashier that the notes were-not complete and regular upon their face.'
    Although some of the notes in suit were filled in'when, received by the- bank prior to indorsement by the payee, yet when on trial and on the argument of the appeal all the parties treat them as having the same legal status as the. notes having the defects aforesaid, the Appellate Division will apply the same rule to both kinds of notes.
    Appeal by the defendant, Alexander S. Bacon, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Hew York on the 18th day of May, 1907, upon the verdict of a jury, and also from an order entered in said clerk’s office on the doth day of ■ May, 1907, denying the said defendant’s motion for a new trial made upon the minutes.
    
      Alexander S. Bacon, appellant, in person.
    
      Louis Sturcke, for the respondent.
   Houghton, J.:

In the opinion of this court on a former appeal (106 App. Div. 557) the main facts involved are set forth, and it is now necessary to state only those material to the questions of law arising on the present appeal.

The appellant Bacon and one Allen composed the copartnership firm of I. N. E. Allen & Co., lumber commission merchants doing business in the city of New York. Bacon claims to have retired, Allen continuing the business alone but under the copartnership name.

By the dissolution agreement Allen assumed the liabilities and was to wind up the partnership affairs, but legal notice of Bacon’s withdrawal was not given. Allen became interested in the North State Lumber Company, Ltd., operating near Durham, N. C. It became the custom for the First National Bank of Durham to permit the lumber company to overdraw its bank account, and to draw on Allen & Co. in New York to make good such overdrafts. Either to meet these overdrafts or to furnish money to the lumber company, Allen sent to the bank or to the lumber company the notes in suit, payable to the order of the lumber company, signed I. N. E. Allen & Co.” When the cashier of the bank received them some of them were blank as .to date, time of payment and amount, and he or some one under his direction filled in these blanks as occasion required, and the lumber company indorsed them and the bank placed the proceeds to the credit of the company. This was the general practice and the precise situation as to the notes known as the August fourth notes.

It is claimed that authority to fill out these blanks came from Allen through the president of the lumber company, who was instructed to .authorize the cashier to fill up the notes for as large an amount as the bank would take. The notes not having been paid they were transferred to the plaintiff after their maturity.

The plaintiff, amongst other claims, insists that the bank was a bona fide holder and that, therefore, he is entitled to be so considered. The appellant Bacon conteúds that the bank was not a bona fide holder as matter of law, and that they were accommodation notes as to himself given by Allen & Co. after his retirement from the firm, and that he cannot be held liable on them because the giving of accommodation paper was not any part of the copartnership business.

We think it is very clear that the bank was not a bona fide Bolder of the August fourth notes. When the cashier of. the bank received them-they were not complete notes and could only be made "so by filling in the amount and date arid time of payment. The cashier was engaged in the business of the bank in discounting 'them, and notice to him was notice to the bank itself. (Gibson v. Nat. Park Bank of N. Y., 98 N. Y. 87.)

The notes purported to be made in Hew York State and were payable there, and by the express provisions of the negotiable Instruments Law (Laws of 1897, chap. 612, § 91, subd. 1) one can be a holder in due course of a negotiable instrument only where the instrument is complete and regular upon its face.” This statutory provision is but a codification of the rule of the law merchant, which was that a party buying commercial paper which remains in some essential particular incomplete and imperfect, doés not acquire the character of a bona fide holder. ' (Davis Sewing Machine Co. v. Best, 105 N. Y. 59.)

The situation is not such as existed in Chemung Canal Bank v. Bradner (44 N. Y. 680). In that case a draft'containing blanks was in the possession of the holder, and it was held that authority on his part to fill them in could be assumed from hiS' possession. The decision was based on the doctrine that because apparent authority had been given it would be»a fraud upon innocent parties to permit an assertion to the contrary. (Town of Solon v. Williamsburgh Savings Bank, 114 N. Y. 136.) In the present case as to the August fourth notes, the blank notes were sent to the bank and filled' in by the bank officer. There was no reliance on possession as evidencing authority to complete the instrument.

On the former appeal this court in effect held that the bank was not a. bona fide holder, and it is conceded that plaintiff by his purchase after maturity acquired no such right unless he obtained it through the bank itself. The trial court was requested by the appellant in various forms to hold and to charge the jury that neither the bank nor the plaintiff was a bond fide holder, and his refusal was error for which the judgment must be reversed.

On the trial and on the argument on appeal the parties treated all'the notes as practically within the same legal status. But if it be assumed that the August twenty-second notes are legally different because .they were received by the bank from the maker filled in but not indorsed by the payee whose indorsement was afterwards procured by the bank, still in view of the charge of the court and the attitude of the parties in treating all the notes as governed by the same rule, we think we should not now be called upon to separate them and treat them differently. Some of the exceptions to the charge and requests which were refused relate to both classes of notes. Viewing the exceptions as well taken at least as to some of the notes; we think we should treat the case as the parties have treated it and hold that one rule at least on this appeal governs both kinds of notes.

On the former appeal, however, this court held that there was a question of fact as to whether the notes were as to Bacon in fact accommodation paper, or whether they were given in the course of the business of Allen & Co. Even if the notes were accommodation paper because they were given outside the business of the firm, the appellant Bacon would be liable if he authorized them to be given or if he ratified the giving of them with knowledge of the facts or omitted to stop their issue after knowledge. (Bank of Monongahela Valley v. Weston, 159 N. Y. 201.) The plaintiff Claims that they were not accommodation notes given outside the business, but were given in the business of the firm of Allen & Co., and he also insists there is evidence of knowledge or ratification and that in fact there was no dissolution of the firm.

The appellant insists that there is no evidence sufficient to sustain a verdict upon any of these issues and asks that the complaint be dismissed.

We think the plaintiff has a right to have a jury pass upon these questions. On a new trial with the question as to either the bank or plaintiff being a bona fide holder eliminated, or the jury properly instructed as to the August twenty-second notes as the facts shall appear, the jury can intelligently pass upon the questions of fact unembarrassed by that feature of the case.

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

Ingraham, McLaughlin, Clarke and Scott, JJ., concurred. .

Judgment and order reversed, new trial ordered, costs to appellant to abide event.