J. W. O'Bannon Co. v. Curran

McLaughlin, J.: This appeal is from an interlocutory judgment overruling a demurrer to the second and. third causes of action set forth in the complaint. In each case the demurrer was upon the ground that the facts stated did not constitute a cause of action. The second cause of action alleged is to recover upon a promissory note made by the James Freeman Brown Company, a domestic corporation, dated' October 12, 1903, and payable three months after date to the plaintiff at 73 Franklin street, ¡New York. It is alleged in substance, with reference to this cause of action, that the defendant indorsed the note and it was then delivered before maturity to the plaintiff which gave full value therefor, relying on the credit of said indorsement; that before the note became due and on the 7th of December, 1903, an involuntary petition in bankruptcy was filed against the James Freeman Brown Company and a receiver appointed; that on the same day the defendant, as president of the company, pursuant to a vote of the board of directors, filed a written admission of its inability to pay debts and a willingness that it be adjudged bankrupt, and that it was so adjudged on the 20th of February, 1904; that at the maturity of the note the maker was insolvent, its business suspended, its place of business closed, its property still in the possession of the receiver, and that the note was not paid, of all of which facts the defendant then had actual knowledge ; that no part of the note has been paid, except a dividend declared in the bankruptcy proceedings, and that the balance is now due and owing to the plaintiff from the defendant, for which sum judgment is asked. The third cause of action alleged is on another note and the allegations respecting it are substantially the same. The appellant contends that no cause of action is stated against him as indorser upon the notes because it does not appear that they were presented for payment and notice of non-payment given to [92] him. Prior to the enactment of the Negotiable Instruments Law (Laws of 1897, chap. 612) it was held that an indorser of a note or the drawer of a draft was not discharged by an omission to demand payment and to give notice of non-payment, where such omission could not possibly operate to his injury; but such injury was presumed, until it was made to appear that no damage could have resulted; that mere proof of insolvency of the maker or drawer was not sufficient and would not excuse the neglect. (Smith v. Miller, 52 N. Y. 545 ; Clift v. Rodger, 25 Hun, 89; Commercial Bank of Albany v. Hughes, 17 Wend. 94; Mechanics’ Bank of N. Y. v. Griswold, 7 id. 165.) If this were to be here applied, then it is quite evident under the facts alleged the plaintiff would be entitled to recover, because the defendant was in no way prejudiced by the failure to present the notes for payment, or to give him notice of non-payment. The Negotiable Instruments Law, however, provides that due presentment and notice of dishonor are necessary to charge an indorser (§§ 130,* 160) but either presentment for payment and notice of non-payment may be dispensed with by waiver, which may be express or implied (§ 142, subd. 3 ; § 180), so that the real question here presented is whether the facts show such waiver. I think they do. Prior to the maturity of the notes the maker had been adjudicated a bankrupt and the adjudication was based at least in part upon the written admission of the defendant of its inability to pay debts, coupled with a willingness that it be adjudged a bankrupt. It is true the defendant signed this admission in his official capacity as president of the corporation, while he is only liable as indorser as an individual, but as an individual he knew when the notes fell due that the corporation could not pay them because it had then been ad judicated a bankrupt and all of its property was in the hands of a receiver in the bankruptcy proceedings, in which he participated. Under such circumstances the defendant must be deemed to have waived, at least impliedly, within the meaning of the sections of the Negotiable Instruments Law above referred to, presentment of the notes and notice of dishonor. By his consent and with his co-operation it had been rendered impossible for the maker to pay — all of its property being then in custodia legis. [93] This view is also sustained by what this court decided in Moore v. Alexander (63 App. Div. 100). There, Mr. Justice Ingraham, in considering the liability of an indorser where no presentation had been made, said: “ * * * It is only when, because of some act of the indorser, the non-payment by the maker and a failure of notice to the indorser cannot possibly operate to the injury of the latter that the omission is excused.. The mere fact of insolvency of the maker is not enough. * * * The fact which would excuse this presentation must, as I understand it, be some act in which the indorser participated, by reason of which the knowledge of the fact that the maker would not pay the bill could be of no benefit to him.” When the notes in question fell due the maker could not pay, the indorser knew it because he had participated in the act which made it impossible for it to pay, and for that reason a failure to present the notes for payment and give him notice of non-payment could not, by any possibility, have injured him. The judgment appealed from, therefore, is affirmed, with costs, with leave to the defendant to withdraw demurrer and answer on payment of costs in this court and in the court below. Patterson, P. J., Laughlin, Houghton and Scott, JJ., concurred. Judgment affirmed, with-- costs, with leave to defendant to withdraw demurrer and answer on payment of costs. Footnotes [*] Amd. by Laws of 1898, chap. 336.—[Rep.