Gladstone Exchange Bank v. Keating

Montgomery, J. I think the judgment in this case should be reversed. It appears that the two defendants joined in a letter to the plaintiff, instructing it to pay no checks on the part of defendants unless they were countersigned by Robert C. Sheehan, son of the defendant Sheehan, and the bookkeeper of the firm. Notwithstanding this direction, the plaintiff paid 22 checks, for the amount'of which defendants deny liability. There was no showing by the plaintiff that the defendants derived any benefit from the moneys received upon these checks. It rests its claim of liability upon the contract implied from' the signing of the checks in the firm name. It is suggested that the burden of -proof would rest upon the defendants to show that the moneys did not go to the benefit of the firm. In my judgment, this is not the correct rule in such a case. The plaintiff seeks to recover, notwithstanding it appears affirmatively that the money was paid out by it upon checks which were drawn without the requisite authority of the firm. There can be no doubt about the power of either member of a copartnership to protect himself by stipulating that the other member shall not have the authority to bind the firm by signing checks, if notice is given to the bank Avhich is the depository of the firm; and when, on the affirmative showing of the bank, as in this case, it appears that the bank has disregarded the notice, how can it be said that a prima facie case is shown, without further showing that some benefit [431] was derived by tbe firm from the payment of the money? It is also suggested that the defendants are estopped from relying upon this defense, for the reason that there was an opportunity for an examination of the account and checks, and that the defendants should have examined these checks, and notified the plaintiff of the excess of authority and of the invalidity of the checks; and the case of Bank v. Morgan, 117 U. S. 96, is cited to sustain this position. But in the case cited the party drawing the check had prima facie authority to draw it; the bank acted in good faith in making the payment; the check passed back into the hands of the drawer, with opportunity to examine and observe the error; it appeared charged in the account of the drawer. Under these circumstances, it was held that there was a duty to notify the bank, in order that it might protect itself. But what notice was requisite in this case to enable the bank to protect itself ? The moment it paid one of these checks its officers knew from direct notification that they were violating the ■express instructions and directions of defendants. Why notify them of what they already knew? If either party was entitled to notice of this transaction from the other, it was certainly the two defendants, as individuals, who were entitled to notice from the bank that some person connected with the firm was assuming to violate the express instructions of the firm, of which the bank as well as the defendants was apprised. As to the other questions discussed, I agree with Mr. Justice Grant. McGrath, C. J., Long and Durand, JJ., concurred with Montgomery, J.