Chemical Bank of Rochester v. Haskell, No. 1

• Court: New York Court of Appeals
• Writing for the Court: WACHTLER; COOK
• Citation: 432 N.Y.S.2d 478,411 N.E.2d 1339,51 N.Y.2d 85
• Docket Number: No. 3,No. 2,No. 1
• Decision Date: 09 October 1980
• Parties: , 411 N.E.2d 1339, 29 UCC Rep.Serv. 1529 CHEMICAL BANK OF ROCHESTER, Appellant, v. John HASKELL, Respondent. (Action) Paddy CHAYEFSKY, as a Limited Partner in Quarry Square Associates, Individually and on Behalf of All Others Similarly Situated, Respondent, v. CHEMICAL BANK OF ROCHESTER, Appellant. (Action) Halsey F. SHERWOOD et al., as Limited Partners in Quarry Square Associates, Individually and on Behalf of All Others Similarly Situated, Respondents, v. CHEMICAL BANK OF ROCHESTER, Appellant. (Action)

Page 478

432 N.Y.S.2d 478 51 N.Y.2d 85, 411 N.E.2d 1339, 29 UCC
Rep.Serv. 1529 CHEMICAL BANK OF ROCHESTER, Appellant,
v.
John HASKELL, Respondent. (Action No. 1.)
Paddy CHAYEFSKY, as a Limited Partner in Quarry Square
Associates, Individually and on Behalf of All
Others Similarly Situated, Respondent,
v.
CHEMICAL BANK OF ROCHESTER, Appellant. (Action No. 2.)
Halsey F. SHERWOOD et al., as Limited Partners in Quarry
Square Associates, Individually and on Behalf of
All Others Similarly Situated, Respondents,
v.
CHEMICAL BANK OF ROCHESTER, Appellant. (Action No. 3.) Court of Appeals of New York. Oct. 9, 1980.

Page 479

Richard B. Callen, Rochester, for appellant.

Frank A. Aloi, Rochester, for respondents.

OPINION OF THE COURT

WACHTLER, Judge.

The issue on this appeal is whether the plaintiff Chemical Bank of Rochester (Chemical) acquired the status of a holder in due course as to several notes executed by defendants Paddy Chayefsky, John Haskell, Halsey F. Sherwood and Arthur Giliotti. The trial court held in these three related cases, that Chemical was a holder in due course and in that capacity took the notes free of all defenses raised by the makers. The Appellate Division reversed, 68 A.D.2d 347, 417 N.Y.S.2d 541, based on its conclusion that Chemical did not act in good faith in purchasing the notes. Chemical appeals.

In 1972 defendants became involved in the organization of a limited partnership, Quarry Square Associates (Quarry), for the purpose of developing an apartment complex in Buffalo, New York. Stanndco Developer's, Inc. (Stanndco), and David J. Quigley, among others, were general partners in the enterprise. The defendants, among others, were limited partners who made capital contributions to the partnership by execution of the notes in issue on this appeal.

In 1973 Quigley approached T. Richard Olney in an attempt to borrow money using the notes as collateral. Olney, who at the time was an officer of Chemical's predecessor, the State Bank of Hilton (State Bank), declined to enter a debtor-creditor relationship with Stanndco, but offered instead to buy the notes outright. Stanndco agreed to the transfer for a discount on their face value. On May 25, 1973, the transaction was consummated by Stanndco, through its agent Quigley, and acting as general partner of Quarry, indorsing the notes to itself as an individual, and then indorsing the notes to the State Bank of Hilton. In return, State Bank drew a check for $274,390 to the order of Stanndco. It is noteworthy that this check was not drawn to the order of Stanndco as general partner of Quarry, nor did it otherwise indicate that Stanndco was to be handling the funds in a representative capacity. On July 26, 1973, Chemical notified the makers that it had become a holder of the notes. The makers did not respond, and the first payments under the notes were made on schedule by all except Haskell during December, 1973. By February, 1974, however, Quigley and Stanndco had filed in bankruptcy. Chemical then sued Haskell on his notes and Chayefsky sued Chemical on behalf of himself and the other limited partners seeking, inter alia, to prevent Chemical from attempting to collect on the paper. Sherwood and Giliotti brought an action similar to Chayefsky's and seeking the same relief. The bank counterclaimed in the suits by the makers, and, because the three cases presented similar issues, they were tried together.

In order for Chemical to recover it first had to establish its status as a holder of the notes. This it did by production of the notes in its possession, which had been transferred to Chemical by another holder with all necessary indorsements (Uniform Commercial Code, § 1-201, subd. (20); § 3-202, subd. (1)). There is no merit to the argument by defendants that Chemical cannot be a holder because Stanndco had no actual authority to indorse the instruments for nonpartnership purposes (cf. Uniform Commercial Code, § 3-404). The code contemplates that it is possible for a person to have the power to indorse an instrument even though the signing is beyond actual authority, if the signer is clothed with apparent

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authority (see Uniform Commercial Code, § 3-207;...