National Bank v. H. P. Snyder Manufacturing Co.

Spring, J. : The action is upon a promissory note for $5,000 purporting to be executed by the defendant, a domestic corporation, with its place of business in the city of Little Falls, m the coiinty of Herkimer. The note was made payable to the order of the Newport Knitting Company, another manufacturing corporation located at Newport, in said county, and, as it is claimed, negotiated by it and for its benefit with the plaintiff. Upon a prior appeal (107 App. Div. 95) a new trial was granted for errors in the exclusion of evidence tendered on behalf of the defendant. In 1901 the hank held four notes, of $5,000 each, which it had received from the Newport Knitting Company. One of these notes was executed by Homer P. Snyder, who was a director in both of [372] these corporations, and. in fact three men—Sheard, Snyder and Senior:—composed the majority of the directorate of each company. The.bank examiner had censured the plaintiff for. continuing these four notes whicli it held, and its cashier, in a conversation with Hr. Senior, requested that the note executed .by Homer P. Snyder either be paid at maturity or that commercial paper' be substituted in its place. Hr. Senior, thereupon, promised to take up the note and present in its. place the note of the defendant, which the plain-, tiff agreed to accept, and this was done: The note was carried along by renewals until July, 1903, when the one in suit was given, which is the last of the series. . The evidence shows, without dispute, that the defendant received nothing whatever- for this note, or any of the series. It became maker to accommodate the payee, the Newport Knitting Company, and the notes were renewed along from time to time, at the iiistance of the payee, and the discount was always paid by it. The defendant, therefore, was entitled to the ruling that the note was accom•modation paper within the terms of the Negotiable Instruments Law (Laws of 1897,. chap. 612, § 55, as amd. by Laws of 1898, chap. 33.6.) ' _ The court permitted the jury to determine whether the note was for the accommodation of the knitting company against the protest and exception of the defendant, and this submission to the jury constituted reversible error. We start, therefore, with the fact established that the note is accommodation paper, and the other element necessary to a recovery is to prove that the plaintiff was not aware of the vice in the note. If the story of Hr." Senior is correct,-the plaintiff knew that when the first of the series of the notes, of which the note in suit was one, was accepted by it, the real party in interest was still the Newport Knitting Company, and this was corroborated to-some extent by the fact that the payee continued to pay the discount on this list of notes the same as upon the one for which it was a substitute and the "-others composing the $20,000 liability. Hr. Wooster, the. cashier of the plaintiff, in his narration of the conversation'With. Hr; Senior", testified to facts indicating that the plaintiff believed that the note was ordinary commercial paper owned by the knitting company, which is now insolvent, and this controversy made the [373] vital question of fact the good faith of the plaintiff in accepting the note. • . ' In submitting this question to the jury the court said that the burden was upon the defendant to prove that the plaintiff knew or had reason to suspect that the note was accommodation pape'r when it accepted it. In other words, that the burden was upon the defendant to prove this fact to the satisfaction of the jury. That is not the rule where the note is accommodation paper. (Smith v. Weston, 159 N. Y. 194, 198 et seq.; Vosburgh v. Diefendorf, 119 id. 357, 364; Citizens' Bank v. Rung Furniture Co., 76 App. Div. 471.) It was for the plaintiff to establish the bona fldes of the transaction. It is claimed that the inter-relations of the stockholders at least permit the inference that the note was not accommodation paper. As noted above, the majority of the board of directors was composed of the same ■ individuals in each corporation, and the major part of the stock of the two companies was owned by the same persons. So far as the evidence shows, however, there does not seem to have been any interconnection of business between the two companies indicating that each was liable for the obligations of the other. The defendant sold machinery to the knitting company which was paid for. That is the only transaction referred to. The companies must be treated as distinct entities whatever may be the composition of their stockholders or directorship, unless there is something to create the inference that they were in fact one body in dealing with the plaintiff, and there was no proof of any such relationship. It is to be borne in mind that the defendant in this case is a manufacturing corporation. When an individual signs a note, either as maker or indorser, for the benefit of another, and-allows it to be put in circulation, he is liable to a holder for value although such holder knew him to be an accommodation party. (Neg. Inst. Law, § 55, as amd. supra ; National Citizens' Bank v. Toplitz, 81 App. Div. 593; affd., 178 N. Y. 464.) But a manufacturing corporation has no power to bind itself as an accommodation party. (Central Bank v. Empire Stone Dressing Co., 26 Barb. 23; Bank of Genesee v. Patchin Bank, 13 N. Y. [374] 309; National Park Bank v. German Am. M. W. & S. Co., 116 id. 281.) So that the rule adverted to does not obtain in this case, and the plaintiff must show both that it was a holder for value, and also that it- did not know the accommodation character of the defendant’s signature. The other question discussed in the brief of the appellant’s counsel we do not deem it essential to refer to. The judgment and order should be' reversed and a new 'trial granted, with costs to the appellant to abide the event. , All concurred; Williams, J., in result only. Judgment and order reversed and new trial granted, with costs to the appellant to abide event.’