National Bank of Commonwealth v. Law

Since the St. of 1874, c. 404, the liability of a person who puts his name on the back oí a promissory note above the name of the payee is conditional on the failure of the maker to pay, and not absolute. Since the St. of 1874, c. 404, if one partner signs as maker a promissory note, in his individual name, payable to a third person, and, in fraud of his partners, signs the firm name on the back of the note, above the name of the payee, a person who buys the note before maturity has notice from the form of the note of the conditional liability of the other members of the firm, and cannot maintain an action against them upon the note.

Contbact against the first-named defendant as maker, and the other defendants as indorsers, on the following promissory note: “$3000. New York, January 20,1877. Four months alter date I promise to pay to the order of Charles F. Parker & Co. three thousand dollars at the National Bank of Commerce, Boston, Mass. Value Received. Alexander Law.” On the back of the note was the name “ John Savery’s Sons,” and under it “ Charles F. Parker & Co.” Trial in the Superior Court before Rockwell, J., who reported the case for the determination of this court, in substance as follows: The note in suit was signed by Alexander Law, indorsed by him in the firm name of John Savery’s Sons, and by Charles H. Demerritt in the name of Charles F. Parker & Co., a firm doing business in Boston, of which firm he was a member; at maturity thereof due demand was made and notice given, and no part of the note has been paid. Law, at the time the note was made and negotiated, was a member of the firm of Charles F. Parker & Co., and he and the other defendants were members of the firm of John Savery’s Sons. The sole business of this firm was the manufacture of hollow iron ware in Jersey City, and the sale thereof at its place of business in the city of New York. Law had for many years been the manager and head of the firm, and had signed its name in the ordinary course of its business; but the firm had never, during all that time, made or issued any promissory notes or other negotiable paper, nor indorsed any notes, except that it indorsed for collection such notes as it received from its customers; and, since May 1876, Law, by arrangement among the partners of the firm, had been deprived of the right to sign checks upon the bank in New York in which the funds of the firm had been deposited, and the bank had been notified to that effect; but the plaintiff had no knowledge of this fact, and no notice or ground of suspicion of any want of authority in Law to use the name of the firm in the ordinary course of business. The note, in suit was brought to the banking-house of the plaintiff on February 3, 1877, before its maturity, by John Demerritt, who procured at the time a loan from the plaintiff of $2200 upon his own note for that amount, payable on demand to the bank, and deposited the note in suit as collateral security therefor. No part of the loan to Demerritt has been paid. The plaintiff had previously discounted negotiable paper bearing the name of John Savery’s Sons, which had been paid in due course of business, but which had been in fact issued by Law without the knowledge or authority of any of his partners, and paid without their knowledge that it ever existed; and the plaintiff had inquired into the standing of the firm of John Savery’s Sons, and found it to be unquestioned. The note in suit was, in fact, made, indorsed and issued by Law without the knowledge, consent or authority of any other member of the firm of John Savery’s Sons, and in fraud of the firm, and not in the course of its business or for its benefit or for any consideration moving to the firm; but the plaintiff had no knowledge, notice, suspicion or ground of suspicion of this fact, or of any infirmity in the note or the negotiation thereof, unless the same is to be inferred from the form of the note, and from the facts and circumstances above stated. Upon these facts, the judge ruled that, from the form of the note itself, the plaintiff was, as matter of law, affected with notice of the defence existing to the note on the part of the defendants other than Law, and directed a verdict for them. If this ruling was incorrect, a new trial was to be ordered; otherwise, judgment on the verdict. The case was argued at the bar, and was afterwards submitted on briefs to all the judges.