Newman v. Newman

Laughlin, J.:

This is an action on a promissory note purporting to have been made by the defendant corporation to the order of the defendant Newman, which he indorsed and delivered to the plaintiff, who is his brother, for value before maturity.

The note is as follows:

“ $833.34/100 New York, December 30, 1911.

“ On June 20th, 1912, after date we promise to pay to the order of Herman A. Newman, Eight hundred thirty-three 34/100 Dollars at the Garfield National Bank, New York.

“Value received with interest at §%.

“ THE JNO. J. MITCHELL CO.,

“ M. V. Quinlan, Treas.

“ Herman A. Newman, Vice-Pres.”

The only defense interposed which it is necessary to consider on the appeal is that the note was given without consideration and that, therefore, it was not authorized. The by-laws of the defendant corporation were not proved, nor does it appear, otherwise than by the form in which the note in suit and two others executed at the same time were made, who, if any one, was authorized to make promissory notes for the corporation in the ordinary course of its business. Quinlan was the treasurer and the defendant Newman was the vice-president of the corporation, and they made this note and two other promissory notes, bearing the same date, each for one cent less than the amount of the one in suit payable to the same payee on the 20th day of April and the 20th day of May, 1912, respectively on or about the day they bear date. At the time the notes were executed and delivered to the payee no consideration therefor was received by the corporation, but shortly prior thereto the payee had advanced to the corporation the sum of $1,500. The president of the corporation testified that the only consideration for the notes was the amount thus advanced. According to the testimony of the payee he transferred the first two notes to the plaintiff and received by check $1,500 therefor, and thereafter transferred the note in suit to the plaintiff on the day when the first note became due and received therefor $851.65 by check drawn to his order individually. The proceeds of these checks were appropriated to the defendant Newman’s individual use, and it is conceded that he did not account for any part thereof to the corporation. When the first two notes became due it would seem, from the certifications and indorsements thereon, that they were presented to the Garfield National Bank, at which they were payable, and instead of being paid, were certified by it and made payable through the Clearing House and were subsequently collected by the Chatham and Phenix National Bank of New York, and it was stipulated that the plaintiff received the proceeds of the collection.

The defendant’s counterclaim for part of the moneys collected by the plaintiff on the first two notes was allowed to the extent of $166.66, which was the excess of the face value of those notes over the $1,500 advanced or loaned by the payee to the corporation.

These are. the only material facts shown with respect to the authority of the treasurer and vice-president to execute the note, or the consideration therefor, or the circumstances attending the delivery thereof to the plaintiff, or the knowledge or information received or acquired by him.

The theory on which the complaint was dismissed and the recovery on the counterclaim had, as appears by the findings of fact, was, that the face of the note put the plaintiff on inquiry, and that he is chargeable with such knowledge as a reasonable inquiry would probably have revealed.

The learned counsel for the appellant contends that the corporation ratified the note in suit by paying the other two, and that the fact that it might have been but was not sued on the loan affords a sufficient consideration. It will be seen from the statement of facts that there is no evidence that there was any agreement or understanding when the $1,500 was loaned or advanced by the payee of the notes to the corporation that notes were to be issued therefor, nor is there any evidence that at the time the notes were issued the payee was demanding payment of the loan or that he attempted to exact the additional $1,000 as usury for a further forbearance, or that on issuing the notes there was any understanding or agreement with respect to forbearance. If the additional $1,000 was exacted as usury the entire amount of the note in suit would represent a usurious excess of interest. These facts, however, it is not necessary to consider further nor is it necessary to express an opinion on any question of usury in this case, for no point in that regard was made upon the trial or on the appeal. The reasonable inference from the facts is, that the additional $1,000 was a pure gratuity or bonus, without any consideration flowing to the corporation therefor, and that is the theory on which the case was tried and on which the appeal has been argued.

The plaintiff having made no inquiry, so far as the evidence shows, cannot be heard to say that an inquiry would not have revealed the truth. According to the evidence there was no fact which inquiry would have revealed, if it revealed the truth, that would have tended to show either actual or apparent authority or consideration for the making of the note in excess of the amount of the loan; and there is nothing to justify an inference that reasonable inquiry' would have resulted in information contrary to the true facts. The authorities, therefore, on which the appellant relies (Ward v. City Trust Co., 192 N. Y. 61; Wilson v. M. E. R. Co., 120 id. 145) are not in point. If the plaintiff was put upon inquiry by the form of the note, then he is chargeable with knowledge that the note was given without consideration, and, manifestly, he cannot enforce payment. The rule which precludes his right to recover on the note, I think, sustains the counterclaim for the amount which he collected on the second note over and above the amount of the loan. (See Rochester & C. T. R. Co. v. Paviour, 164 N. Y. 281.) There is no evidence on which a ratification or an estoppel can be predicated, for it does not appear that either the first or second note was paid by the corporation at the time the plaintiff became the holder of the note in suit. It is not claimed that plaintiff did not know that his brother was selling those notes for his own benefit or that there is any evidence from which it might be inferred that the plaintiff was led to believe that these notes were being negotiated for the benefit of the corporation. The plaintiff received the note from his brother who, although an officer of the corporation, and one of the makers of the note as such officer, was made the payee of the note in his individual right, and sold it for his own benefit, as apparently was well understood by the plaintiff, who paid for it by check to the order of his brother individually.

It is well settled under the authorities that in these circumstances the plaintiff would have been put on inquiry if he had taken the note in payment of or as security for an indebtedness or obligation owing by his brother. (Ward v. City Trust Co., supra; Wilson v. M. E. R. Co., supra; Rochester & C. T. R. Co. v. Paviour, supra. See, also, Havana C. R. R. Co. v. Knickerbocker T. Co., 198 N. Y. 422.) The only points of difference between the adjudicated cases cited and the case at bar are that here another officer of the corporation joined with the plaintiff’s brother in making the note and the plaintiff paid consideration for the note in the form of a check to the order of his brother individually, instead of applying it in extinguishment of or as security for an indebtedness from his brother to him. I am of opinion that the fact that another officer of the corporation joined with plaintiff’s brother in making the note did not relieve the plaintiff from inquiry when he found that his brother was negotiating the note for his personal benefit. (Squire v. Ordemann, 194 N. Y. 394; Cheever v. Pittsburgh, etc., R. R. Co., 150 id. 59. See, also, Wilson v. M. E. R. Co., supra.) It is not claimed that there is any distinction on principle between purchasing such a note with knowledge that it is being negotiated for the benefit of an officer of the corporation individually and giving him individual credit on it. Of course, if there was any fact or circumstance indicating that the plaintiff’s brother was negotiating the note to raise funds for the corporation or to indicate that a reasonable inquiry would have revealed that fact, the case might require a different decision. When it was shown that this note was issued without consideration to plaintiff’s brother individually and that the plaintiff paid for the first two notes precisely the amount of the loan made by his brother to the corporation and about ten per cent less than the face value of short term notes of an apparently solvent corporation, I am of opinion that it was incumbent on the plaintiff to show the circumstances under which he acquired the notes and" that on his failure to take the stand and his brother’s failure to testify on the subject — further than to state the consideration which he received — the inference is fairly warranted that plaintiff knew perfectly well the entire transaction and that there was in fact no consideration for the notes other than the $1, 500. (See Vosburgh v. Diefendorf, 119 N. Y. 357; American Ex. Nat. Bank v. N. Y. Belting, etc., Co., 148 id. 698; Canajoharie Nat. Bank v. Diefendorf, 123 id. 191; Gerard v. McCormick, 130 id. 261; Bank of New York N. B. Assn. v. A. D. & T. Co., 143 id. 559.) Although the trial court did not specifically make a finding to this effect, yet since the finding would be warranted by the evidence, this court would not be required to reverse the determination even if the form of the note in and of itself did not put the plaintiff on inquiry.

It follows that the determination should be affirmed, with costs.

Clarke and Scott, JJ., concurred; Ingraham, P. J., and McLaughlin, J., dissented.