Case Name: The Gladstone Exchange Bank v. Patrick W. Keating and Thomas P. Sheehan
Court: Michigan Supreme Court
Jurisdiction: Michigan
Decision Date: 1892-12-24
Citations: 94 Mich. 429
Docket Number: 
Parties: The Gladstone Exchange Bank v. Patrick W. Keating and Thomas P. Sheehan.
Judges: McGrath, C. J., Long and Durand, JJ., concurred with Montgomery, J.
Reporter: Michigan Reports
Volume: 94
Pages: 429–437

Head Matter:
The Gladstone Exchange Bank v. Patrick W. Keating and Thomas P. Sheehan.
Banks and tanking — Overdrafts—Unauthorized payment — Partnership — Limitation upon authority of memters.
1. Either member of a copartnership has the power to protect himself by stipulating that the other member shall not have authority to bind the firm by signing checks,' if notice is given to the bank which is the depository of the firm.
2. Where, in a suit by a bank against copartners to recover for overdrafts paid on the defendants’ checks, it appears from the plaintiff’s own testimony that it had been instructed by the defendants to pay no checks not countersigned by their bookkeeper, and that the checks in suit were not so countersigned, the plaintiff, in order to recover, must show that the firm received the benefit of the money so paid, and it has the burden of making such showing.
S. In a suit by a bank to recover for overdrafts paid on the defendants’ checks in violation of their instructions to the bank, the defendants are not estopped from relying upon such fact as a defense on the ground that it was their duty to examine the checks when returned to them, and notify the bank of its violation of said instructions.
4. Testimony objected to as “incompetent” is properly admitted if competent for any purpose.
5. One partner drew his individual check, payable to the order of the bookkeeper of the firm, for the firm. The bookkeeper indorsed the check, and deposited it to the credit of the firm in the bank where it kept its account. The check, not being paid, was charged back in the firm account. And it is held that recovery can be had on the check in a suit brought by the bank against the firm to recover for overdrafts paid on the firm checks, it having been sent as a firm asset, and received and deposited as such to the knowledge of the drawer; citing Bank v. Morgan, 117 U. S. 96.
Error to Wayne. (Reilly, J.)
Argued November 4, 1892.
Decided December 24, 1892.
Assumpsit. Defendants bring error.
Reversed.
The facts are stated in the opinion of Grant, J.
Brennan, Donnelly <& Van DeMarTc, for appellants.
Wells, Angelí, Boynton,é McMillan, for plaintiff.'

Opinion:
Montgomery, J.
I think the judgment in this case should be reversed.
It appears that the two defendants joined in a letter to the plaintiff, instructing it to pay no checks on the part of defendants unless they were countersigned by Robert C. Sheehan, son of the defendant Sheehan, and the bookkeeper of the firm. Notwithstanding this direction, the plaintiff paid 22 checks, for the amount'of which defendants deny liability. There was no showing by the plaintiff that the defendants derived any benefit from the moneys received upon these checks. It rests its claim of liability upon the contract implied from' the signing of the checks in the firm name.
It is suggested that the burden of -proof would rest upon the defendants to show that the moneys did not go to the benefit of the firm. In my judgment, this is not the correct rule in such a case. The plaintiff seeks to recover, notwithstanding it appears affirmatively that the money was paid out by it upon checks which were drawn without the requisite authority of the firm. There can be no doubt about the power of either member of a copartnership to protect himself by stipulating that the other member shall not have the authority to bind the firm by signing checks, if notice is given to the bank Avhich is the depository of the firm; and when, on the affirmative showing of the bank, as in this case, it appears that the bank has disregarded the notice, how can it be said that a prima facie case is shown, without further showing that some benefit was derived by tbe firm from the payment of the money?
It is also suggested that the defendants are estopped from relying upon this defense, for the reason that there was an opportunity for an examination of the account and checks, and that the defendants should have examined these checks, and notified the plaintiff of the excess of authority and of the invalidity of the checks; and the case of Bank v. Morgan, 117 U. S. 96, is cited to sustain this position. But in the case cited the party drawing the check had prima facie authority to draw it; the bank acted in good faith in making the payment; the check passed back into the hands of the drawer, with opportunity to examine and observe the error; it appeared charged in the account of the drawer. Under these circumstances, it was held that there was a duty to notify the bank, in order that it might protect itself. But what notice was requisite in this case to enable the bank to protect itself ? The moment it paid one of these checks its officers knew from direct notification that they were violating the express instructions and directions of defendants. Why notify them of what they already knew? If either party was entitled to notice of this transaction from the other, it was certainly the two defendants, as individuals, who were entitled to notice from the bank that some person connected with the firm was assuming to violate the express instructions of the firm, of which the bank as well as the defendants was apprised.
As to the other questions discussed, I agree with Mr. Justice Grant.
McGrath, C. J., Long and Durand, JJ., concurred with Montgomery, J.