National Security Bank v. McDonald

Colt, J. The defence in this case is, that the note in suit was given by one partner in fraud of the partnership, without consideration, and outside the partnership business. There was evidence tending to show that the note was given by Thomas McDonald without the knowledge of the firm, for the purpose of giving to Kent security for the Grimes note, which had been previously obtained by him from the firm, and had been passed out of his hands into the possession of Carlton, as security for a loan of $200. It was not contended that the bank had any knowledge of the dealings between Kent and the defendants, except such as' it had from the face of the two notes, and the memorandum written upon the one in suit. But we are of opinion that the knowledge thus derived was sufficient to charge the bank with notice that the note in suit was given as security only for the payment of the Grimes note. Both notes were dated on the same day, were given for the same amount, and were made payable at the same time. The memorandum on the back of the note in suit, which was taken by the bank when the Grimes note was discounted, necessarily conveyed the information that the note then discounted represented a debt due from Grimes to Kent; and that the note in suit was made and delivered by the firm to Kent, as security only for the payment of the Grimes note. It is plain from the writings alone that, upon the payment of the Grimes note, Kent would have no valid claim against the firm upon the note in suit. The bank was bound to take notice of the contents of the notes received by it as securities for the loan then made. Freeman's National Bank v. Savery, ante, 78. It follows that the plaintiff bank cannot be considered as a holder for value, without notice of the alleged existing infirmity in the origin of the note. In order to charge all the members of the firm upon the facts thus brought to its knowledge, the burden [85] is on the bank to show that the note was given with the consent of all the partners, or in payment of a debt contracted in the course of the partnership business. It could not be properly ruled, as matter of law, that the plaintiff was entitled to a verdict against both defendants. Exceptions sustained.