Brown v. Pettit

• Decision Date: 05 October 1896
• Docket Number: 381
• Citation: 35 A. 865,178 Pa. 17
• Parties: J. L. Brown v. William H. Pettit, Administrator, and Mary A. Davis, Administratrix, of John S. Davis, deceased, and Webb Evans, Late Partners, trading as Davis & Evans, Appellants
• Court: Pennsylvania Supreme Court

35 A. 865

178 Pa. 17

J. L. Brown v. William H. Pettit, Administrator, and Mary A. Davis, Administratrix, of John S. Davis, deceased, and Webb Evans, Late Partners, trading as Davis & Evans, Appellants

No. 381

Supreme Court of Pennsylvania

October 5, 1896

Argued May 7, 1896

Appeal, No. 381, Jan. T., 1896, by defendants, from judgment of C.P. McKean Co., June T., 1894, No. 222, on verdict for plaintiff. Reversed.

Assumpsit on a promissory note. Before MORRISON, J.

HISTORY OF THE CASE.

The defendants, John S. Davis and Webb Evans, were partners under the firm name of Davis & Evans, in a general merchandising business at Kane, in McKean county, Pennsylvania, in 1892 and 1893, and J. L. Brown, the plaintiff and appellee, was at the same time doing a private banking business at Wilcox, Elk county, Pennsylvania. Kane and Wilcox were ten or twelve miles apart, connected by railroad and telegraph, and with mail communication three times a day.

On January 17, 1893, Evans presented at the banking house of Brown, the plaintiff, a note for $1,250, drawn by himself to the order of Davis & Evans and by them indorsed.

It was also indorsed "Joshua Davis." John S. Davis, the partner of Evans, was wholly ignorant of the transaction until after the note in suit -- which was a renewal of the original note discounted January 17, 1893 -- became due April 4, 1894. The proceeds of this original note were, at Evans' request, placed to his individual account on the books of the bank and were used by him for his individual purposes. No part of the proceeds was used in the business of the firm of Davis & Evans. The written portion of the body of the note in suit, and the indorsement "Davis &amp Evans," were in the handwriting of Evans, and the indorsement, "Joshua Davis," was a forgery.

Other facts appear by the opinion of the Supreme Court.

The court gave binding instructions for plaintiff.

Verdict and judgment for plaintiff for $1,406,37. Defendants appealed.

Error assigned among others was binding instructions for plaintiff.

Judgment reversed and venire de novo awarded.

Joseph W. Bouton, of Bouton & Gallup, and J. M. McClure, with them W. P. Weston, for appellants. -- The circumstances were such as to invite inquiry, and the appellee, having failed to inquire, bad faith on his part is to be implied, and his claim to be a bona fide holder thereby defeated: Smith v. Harlow, 64 Me. 510; 2 Randolph on Commercial Paper, 999: Merritt v. Northern R.R., 12 Barb. (N.Y.) 605; Tanner v. Hall & Easton, 1 Pa. 417; Hendrie v. Berkowitz, 37 Cal. 113; Wood's Byles on Bills and Notes, 101; Miller v. Manice, 6 Hill (N.Y.), 114; N.Y. Fireman Ins. Co. v. Bennett, 5 Conn. 574; Miller v. Consolidated Bank, 48 Pa. 514; Haldeman v. Bank of Middletown, 28 Pa. 440; Central Nat. Bank v. Frye, 20 N.E. 325.

T. A. Lamb and F. P. Schoonmaker, with them Wm. Wallace Brown and A. P. Huey, for appellee. -- The plaintiff in this case is a bona fide holder of a negotiable note for value before maturity, and the only thing that can defeat his recovery will be bad faith on his part, and the burden to prove this bad faith is on the defendants, and they have not done it in this case. And even though it should be shown that the plaintiff took the note under circumstances which ought to have excited the suspicion of a prudent man, it would not prevent recovery: Phelan v. Moss, 67 Pa. 59; McSparran v. Neeley, 91 Pa. 17; Bank v. Morgan, 165 Pa. 199; Richards v. Monroe, 85 Iowa 359; Kitchen v. Loudenback, 48 Ohio 177; Breckenridge v. Lewis, 84 Me. 349; Farrell v. Lovett, 68 Me. 326; Ihmsen v. Negley, Mohan & Co., 25 Pa. 297; Miller v. Consolidated Bank, 48 Pa. 514; 1 Cook on Stock and Stockholders, 442; Goodwin v. Am. Nat. Bank, 48 Conn. 550; Moorehead v. Gilmore, 77 Pa. 118; Potts v. Taylor, 140 Pa. 601.

Before STERRETT, C.J., GREEN, WILLIAMS, MITCHELL and DEAN, JJ.

OPINION

MR. JUSTICE GREEN:

In this case the undisputed facts were that Webb Evans was the maker of the note in his own name, made it payable to the order of his firm, Davis & Evans, indorsed the name of the firm on the note and requested the plaintiff to place the proceeds of the discount to his personal credit on the books of the bank. As between Webb Evans and the firm of Davis & Evans, on the face of the paper, disregarding the forged indorsement of Joshua Davis, the proceeds of the discount should have been placed to the credit of Davis & Evans. That firm as well as Webb Evans had an account on the books of the bank and in ordinary course should have had credit for the proceeds. Had Webb Evans indorsed the note in his own name after the indorsement of Davis & Evans, then the face of the paper would have presented an apparent title in Webb Evans, and in its ordinary commercial aspect, the paper with the personal request of Webb Evans to have the proceeds placed to his credit would not have been out of the usual course. But with the apparent title to the note being in Davis & Evans, a request by the maker to have the proceeds placed to his individual credit was out of the usual course, and we think, under the authorities, the bank became subject to a duty of inquiry.

It seems to us that these facts bring the case within the ruling in Cooper v. McClurkan, 22 Pa. 80, and Tanner v. Hall & Easton, 1 Pa. 417, and distinguish it from the other cases cited for the appellee. In Cooper v. McClurkan the facts are briefly stated in the opinion thus, "McClurkan and Fleming were partners in trade and Fleming drew a bill of exchange of the partnership on himself, and negotiated it to the plaintiff, and now in a suit upon it McClurkan defends on the ground that it was not a partnership transaction. This appears to be well taken, for the case without other evidence stands just as if Fleming had given the indorsement of his partnership on his own note as security for his own debt, which he could not do: Tanner v. Hall & Easton, 1 Pa. 417." This is precisely what was done by Webb Evans. He gave his own note to his firm for the amount of the debt. He then indorsed the firm name on the note, and therefore pledged the liability of the firm for his own debt, and this he could not do. The proper thing for him to do in ordinary commercial usage would have been to deposit the note, or its proceeds if discounted, to the credit of the firm. When he did not do that he departed from the usual course in requesting the bank to place the proceeds to the credit of his private account, and thereby made a manifest misappropriation of the firm's money to his own use. The responsibility of the bank in such circumstances is thus shown in the opinion of LOWRIE, J., in the case just cited. He says, "The plaintiff says he is a bona fide holder without notice of the character of the paper. Is he without notice? He is not if the proper inquiries usually made by a prudent man would have led him to the knowledge of the fact that the acceptor, or principal debtor, had himself drawn the bill, or, in other words, made the contract that is intended to pledge the partnership as surety for himself.

"Common prudence demanded that the authenticity of the signature of the drawers should be ascertained, and this led directly to the fact that it was made by Fleming himself, and common sense would indicate that Fleming had no right to bind his partner as his surety. It is urged that in borrowing money copartners may give to their negotiable paper what form they please, and that therefore ...