Atlantic State Bank v. Savery

DyioiaN, J.: This action is against the members of the late firm of John Savory’s Sous on a promissory note for $3,000, dated Boston, February 27, 1877, made by Charles E. Parker & Co., payable to their own order, four months after date, at 97 Beekman street, Now York, and indorsed by Charies E. Parker & Co., Alexander Law and John Savery’s Sons. The note never came to the possession of John Savory’s Sons, and the firm had no interest in it, and. knew nothing about it, and in no way participated in its proceeds. Alexander Law was a member of both firms, and also had private dealings with Leonard, Sheldon & Co., bankers and brokers and stock dealers, in New York, being indebted to them in the sum of about $10,000. He delivered the note to them and they sold it to the plaintiff, and gave Law credit on his account with them for [40] tbe proceeds. The indorsement of John Savery’s Sons was in the handwriting of Law. The note was purchased by the president of the plaintiff on the 4th of April, 1877, at nine per cent discount, and a bill of sale given by Leonard, Sheldon & Co. instead of their indorsement. The defendants claim that the indorsement of their firm on the back of the note by Law was unauthorized and fraudulent, and imposed no liability upon them, and this question must be first examined. Within the scope of the partnership each partner, by virtue of the relation, is invested with a general agency to buy and sell, pay and receive and borrow money, and draw, indorse and negotiate bills, notes and checks. The capital and stock in trade is brought into community, and the partners may enter into any engagement, usual in the ordinary course of trade. But their power is limited to the ordinary business of the firm, and if one partner assumes to act in a manner not within the scope of the partnership, the intendment of law will be that he is acting on his private account, and the use of the partnership name in such a transaction is fraudulent and void, when so used with the knowledge of the creditor. It is not important here to speak of acts apparently within the business of the firm, but in fact beyond it, because Sheldon & Co. knew that the proceeds of the note was to be applied in reduction of the individual liability of Law to them, in which the firm of John Savery’s Sons had no interest. Sheldon &- Co. did not receive the note as their paper. They never bought it and never owned it. They received it from Law and sold it for him and gave him credit for the proceeds. Beyond all dispute the good faith of Sheldon & Co. is impeached in the transaction, and no recovery could have been sustained in their favor against the defendants on this paper. Does the plaintiff occupy a more advantageous position ? William Leonard, of the firm of Leonard, Sheldon & Co., was a director of the plaintiff at the time of the purchase of the note by its president, and it is claimed that his knowledge that the indorsement of the defendants was not in the ordinary course of their business, and was a fraud upon them, is the knowledge of the bank, and must be imputed to it. To this, however, it must be answered that what knowledge he possessed [41] was not received by him, as director or officer of the plaintiff, and he never acted upon the matter for the plaintiff in any official capacity. At the meeting- of the board of directors, next after the purchase of the note, the president and Mr. Leonard were present, but no quorum was obtained and no action was taken. The plaintiff is a bona fids holder for value, unless it is chargeable with the notice of the infirmity in the indorsement of the defendants, by reason of the knowledge possessed by Leonard; as has been already stated that knowledge was not acquired officially, or while acting in that capacity, and there is no testimony to implant the fraud of Law into the plaintiff’s title. The unofficial knowledge or acts of a director are no more operative on the plaintiff than those of a stranger. (National Bank v. Norton. 1 Hill, 579; Westfield Bank v. Cornen, 37 N. Y., 320; Seneca Co. Bank v. Neass, 5 Denio, 329.) It is also claimed that no recovery can be had, for the reason that the plaintiff had no power to purchase the note in suit. The plaintiff is a State Bank, as contradistinguished from a National Bank, and has power to carry on the business of banking by discounting bills of exchange, notes and other evidence of debt, and by exercising such incidental powers as shall be necessary to carry on such business. (Laws of 1838, chap. 260, § 118.) In the technical sense in which the word discount is commonly used, it signifies the taking of interest in advance. The bank has the power and the right to loan money on commercial paper and take interest in advance on the loan, instead of waiting for the application to be made therefor at its counting-room. What difference can there be between an application by the president of a bank for permission to take a promissory note and advance the money on it, retaining the interest, and doing the same thing on the application of the holder at the bank. In principle there is none, and no evil against which the Legislature intended to guard, by restricting the power of banks, can arise in one transaction more than in the other. A power to discount includes the power to purchase, and every piece of commercial paper discounted, is purchased, and paid for, and owned. “Now to discount includes to buy, for discounting in most cases is but another term for buying at a discount.” (Tracy v. Talmage, 18 Barb., 462.) [42] We bare already intimated our view that the promissory note in question had no legal inception until it came to the plaintiff, and as it was purchased at a discount greater than the legal rate, that fact would have been an important one on the question of usury if that defence had been interposed. Its only effect, however, would have been to reduce the amount of the recovery, as a usurious loan by a State bank is not now void, ancl only subjects the bank to a forfeiture of the interest. (Farmers and Mechanics' National Bank v. Dearing, 91 U. S., 29; Hintermister v. First National Bank, 64 N. Y., 212.) The defendants' exception should bo overruled, motion for a new trial denied, and judgment ordered for the plaintiff on the verdict, with costs. Barnard, P. <T., concurred; Gilbert. J., not sitting.. Exceptions overruled, and judgment for plaintiff upon the verdict.