Second Nat. Bank of Morgantown v. Weston

Decision Date07 October 1902
Citation64 N.E. 949,172 N.Y. 250
PartiesSECOND NAT. BANK OF MORGANTOWN v. WESTON et al.
CourtNew York Court of Appeals Court of Appeals

OPINION TEXT STARTS HERE

Appeal from supreme court, appellate division, Fourth department.

Action by the Second National Bank of Morgantown against Charles Weston, as executor of Abijah Weston, deceased, and others. From a judgment of the appellate division (61 N. Y. Supp. 1147) overruling plaintiff's exceptions, ordered to be heard in the first instance by such division, denying a motion for new trial, and directing judgment for defendants, plaintiff appeals. Reversed.

C. S. Cary, for appellant.

J. H. Waring, for respondents.

CULLEN, J.

The action was brought against Wallace W. Weston, Orren Weston and Abijah Weston, as makers, and George E. Ramsey, as indorser, of three promissory notes, all bearing date December 21, 1891, and payable, respectively, at 20, 21, and 24 months after date, at the First National Bank of Olean, N. Y. The plaintiff is a national bank located at Morgantown, W. Va., about 400 miles from Olean. The defendants Weston were up to the 5th day of January, 1892, copartners carrying on a very large lumber business at Weston Mills, near Olean, under the firm name of Weston Bros. On that day the firm was dissolved, but no notice of the dissolution was given in any other manner than by communication to two commercial agencies, and the plaintiff had no knowledge of the fact until November, 1893. In September, 1891, application was made by the payee, Ramsey, through the law firm of Cox & Baker, of Morgantown, to the plaintiff, for the discount of certain notes of Weston Bros. held by him. On such application being made, the plaintiff wrote to the First National Bank of Olean, and received a letter from its cashier, stating the wealth of the makers, that the notes would be promptly paid, and that the Olean bank would itself have discounted the notes, but it did not have the available funds. The plaintiff wrote to the makers, Weston Bros., and received an answer from that firm saying that the notes held by Ramsey were given for the purchase of real estate, and were all right. It also wrote to several parties in Olean, with whom it had acquaintance, and was informed of the excellent business standing of the makers, and that they were regarded as millionaires. On these reports the notes were discounted at the rate of 8 per cent. per annum, and the proceeds placed to the credit of Ramsey, and paid out on his order. The notes were paid at maturity. In May, 1892, other notes of the same character, and apparently of the same date, were discounted for Ramsey. On this occasion the plaintiff received another letter from Weston Bros., saying that ‘the paper that Ramsey had, made by that firm, was some of the same realty transaction which it [the plaintiff] had already discounted,’ and as to which the firm had written to it, and that they would be paid as usual. These notes were also paid in due course. Finally, in June, 1893, the plaintiff discounted the three notes in suit. On the trial it was proved by the defendant that the notes were not given for any consideration, but were made by Wallace W. Weston, one of the members of the firm, simply for the accommodation of the payee, Ramsey, and that though they bore date December 21, 1891, they were not actually made until a year after the firm had been dissolved. It further appeared that Abijah Weston, the respondent's testator, had for some time prior to the dissolution of the firm been aware that Wallace W. Weston was giving firm notes for his personal transactions and for the accommodation of others, and had remonstrated with him on his action. For this reason the firm was dissolved and the business turned over to a corporation, but, as stated, no proper notice was given of such dissolution, nor of the fact that Wallace W. Weston had improperly used the firm paper.

We have decided in Bank v. Weston, 159 N. Y. 201, 54 N. E. 40,45 L. R. A. 547, that the notice of dissolution given by communication to the commercial agencies was insufficient. The proof for the respondent established that the notes were fraudulently issued by the defendant Wallace W. Weston as against his former copartners. It thereupon was incumbent upon the plaintiff to show that it was a bona fide holder of the notes for value, and the only question to be considered on this appeal is whether it so conclusively established that fact as to be entitled to the direction of a verdict in its favor.

Before a discussion of that question is had, there is to be considered a claim made by respondent that we are concluded by the unanimous decision of the appellate division. It is said that where each party requests the direction of a verdict, and neither asks to go to the jury, the case presented on appeal is the same, in effect, as if the case had been duly submitted to the jury, and they had found a verdict for the party in whose favor the court directs a verdict. It is then contended that, such being the effect of a directed verdict, a unanimous affirmance is conclusive upon us that there was evidence to justify the direction of a verdict, to the same extent as if the affirmance was a judgment entered upon the verdict of a jury. The first proposition is ture, however, only to a qualified extent. A directed verdict, when no request is made to go to the jury, is the same, in effect, as the verdict of a jury, only when the disposition of the cause depends upon the determination of some question of fact. In that case it may be that a unanimous affirmance is conclusive. But in such a case it is never necessary for the respondent to invoke the rule of a unanimous affirmance, for this court is precluded from examining any question of fact, whether the affirmance is unanimous or not. But the right of a party to have a verdict directed in his favor on uncontroverted evidence presents merely a question of law, and that question of law is expressly reserved for our consideration, both by the constitution and by the provisions of the Code, except in the single case where the cause is submitted to the jury, and the verdict rendered by it unanimously upheld by the appellate division.

While, after proof had been given on behalf of the defendants that the notes were fraudulently and illegally issued, it became incumbent upon the plaintiff, in order to succeed, to establish that it had acquired the notes in good faith for value, still the question was solely one of good faith. ‘The rights of a holder are to be determined by the simple test of honesty and good faith, and not by a speculative issue as to his diligence or negligence.’ Magee v. Badger, 34 N. Y. 247, 90 Am. Dec. 691;Bank v. Diefendorf, 123 N. Y. 202, 25 N. E. 402, 10 L. R. A. 676;American Exch. Nat. Bank v. New York Belting & Packing Co., 148 N. Y. 698, 43 N. E. 168. Negligence of the holder is simply material so far as it goes to show lack of good faith. ‘The holder's rights cannot be defeated without proof of actual notice of the defect in title, or bad faith on his part, evidenced by circumstances. Though he may have been negligent in taking the paper, and omitted precautions which a prudent man would have taken, nevertheless, unless he acted mala fide, his title, according to settled doctrine, will prevail.’ Cheever v. Railroad Co., 150 N. Y. 59, 66,44 N. E. 701, 34 L. R. A. 69, 55 Am. St. Rep. 646.

Assuming the truth of the evidence given on behalf of the plaintiff, there is no circumstance disclosed by the record from which there can be imputed to it negligence,-much less, bad faith. On the contrary, it seems to have acted with great caution and care. We shall not elaborate the discussion, but simply say we do not see what more the plaintiff could have done, if it was to discount the notes at all. The respondent insists that the discount of the notes at 8 per cent. per annum (the legal rate in West Virginia, as in this state, being 6 per cent.) was evidence of bad faith....

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