Hanover National Bank v. American Dock & Trust Co.

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] As a verdict was directed against the plaintiff, it is entitled to the most favorable inferences that can fairly be drawn from the evidence. (Raabe v. Squier, 148 N.Y. 81.) The jury, therefore, might have found the facts as they appear in the foregoing statement, and might have drawn such inferences from those facts as any reasonable view thereof would permit.

A certificate issued by the defendant was negotiable, and a purchaser thereof, for value and without notice of any fact to put him on inquiry, was entitled to receive from the defendant the property described therein on payment of the lawful charges. (Bank of New York v. This Defendant, 143 N.Y. 559; Laws 1872, ch. 881, sec. 6.) As the defendant failed to produce the goods when called for, the burden was cast upon it, prima facie, of either accounting for them or paying for them. (Schwerin v. McKie, 51 N.Y. 180.) It did neither, but when this action was commenced, alleged as a defense that said certificate was issued by Medad W. Stone, its president, to his own order, without any authority from the board of directors. While Stone had express authority to sign and issue warehouse receipts for cotton deposited with the defendant by persons other than himself, he had no such authority to sign or issue warehouse receipts in his own favor, even for cotton that had actually been deposited by him. (Bank of New York v. This Defendant,supra.)

As the certificate on its face gave a purchaser such notice as should put a prudent person upon inquiry in regard to Stone's authority, the plaintiff, in order to succeed, was required to show that implied authority had been conferred upon him to issue certificates to himself for cotton that he had actually deposited. If he was authorized, either expressly or impliedly, to issue certificates to himself for his own cotton on deposit, and he issued a receipt, on his personal account, for cotton not on deposit, in the language of the case last cited "the defendant would be liable to respond to a bona fide holder for value of such receipt." (Id. 563.) This is upon the ground that an agent may bind his principal within the limits of the authority with which he has apparently been clothed in respect to the subject-matter. Thus the authority of an agent is enlarged, as to third persons, by implication, when the principal permits him to do acts not expressly authorized. For the protection of innocent persons the law will imply authority in an agent to do acts which, although forbidden by the principal before they are done, are, nevertheless, recognized by him as valid after they are done. If, through inattention or otherwise, the principal suffers his agent to act beyond his authority without objection, he is bound to those who are not aware of any want of authority to the same extent as if the requisite power had been directly conferred. (New York New Haven R.R. Co. v. Schuyler,34 N.Y. 30, 58.) Under such circumstances the principal is estopped from asserting the truth, by his own conduct in inducing third persons to believe that the agent had due authority to act in the given case. (Id. 60.)

If, therefore, Stone issued certificates to himself for cotton, to the knowledge, express or implied, of defendant's directors, their acquiescence in such acts, after allowing them a reasonable time to put an end to action of that nature, would estop them from denying, as to purchasers for value, that the power to so certify in fact existed. Acquiescence, under such circumstances, would permit the inference that the act of certifying in his own favor was within his actual authority (Martin v. NiagaraFalls, c., Co., 122 N.Y. 165), and with that power in existence, or by implication presumed to exist, the issuance of the certificate in question would come within the scope of his authority, and the presence of the cotton in storage was an extrinsic fact in regard to which his representations as agent would bind the defendant. (Bank of Batavia v. New York, LakeErie W.R.R. Co., 106 N.Y. 195.) The act of certifying would thus become a representation by Stone that the cotton was on deposit, since that fact would "necessarily and peculiarly" be within his knowledge as the defendant's agent. (Fifth AvenueBank v. Forty-second Street, c., R.R. Co., 137 N.Y. 231.)

It appeared upon the trial that, out of more than 26,000 certificates issued by the defendant, substantially all were signed by Stone. Mr. A.J. Pouch, the secretary and treasurer for two years, and treasurer alone for eleven years more, when on the witness stand, would not say that he, himself, had signed as many as six, and he thought that Mr. Hascy, who was secretary for twelve years and until he died in 1891, might have signed some. Mr. F.H. Pouch, who succeeded A.J. Pouch as treasurer, and continued in that capacity until Stone's death, would not swear that he had signed more than two. On several occasions, while the plaintiff was lending Stone money on the faith of these certificates, inquiry was made by the bank, through one of its officers, of the defendant's secretary "as to whether any other officer of the company than Mr. Stone was authorized to sign certificates," and each time Mr. Hascy said in substance that the exclusive authority to sign receipts had been conferred on Mr. Stone.

Whether or not this was enough to carry the case to the jury we are not required to decide, for the purchaser of a negotiable instrument, who purchases under circumstances that throw upon him the duty of making inquiry as to its validity, assumes no greater risk by his failure to inquire than the burden of proving that the facts which he could have discovered, had he inquired, would have protected him. (Wilson v. Met. El. R'way Co., 120 N.Y. 145;Cowing v. Altman, 71 N.Y. 435, 442.) Therefore, if the plaintiff when charged with the duty of making inquiry had actually done so, whatever its officers prosecuting the investigation would naturally have discovered, according to any permissible inference from the evidence, it can now invoke to establish the implied authority of Mr. Stone. What could the jury have found in this regard, within the rules governing their powers, if the case had been submitted to them for decision? They could have found, in addition to facts already mentioned, that cotton had been stored from time to time by Stone and that this was regularly reported to the company; that he had issued to himself two certificates as early as 1881, and three more in 1886; that they were made out by the secretary of the company, and that one of these certificates, indorsed by Stone, individually, was promptly returned and placed among the records of the defendant as a completed transaction. Moreover, as all of these certificates were issued for a current commodity, which in the usual course of business does not remain on storage but a short time, the jury could further have found that they were, within a reason the time, indorsed, returned, and put in the books of the company, the same as those given to other patrons. Furthermore, one of these certificates would have shown that five partial deliveries were made before final surrender of the receipt, each indorsed by the bookkeeper in the employ of the defendant, in the usual course of business. Thus it would have appeared that Stone had openly assumed to issue certificates to himself for deposits of cotton, with no evidence that any objection had been made by the directors, or in their behalf. The number of times that he did so is mainly important in its bearing upon the probability that the directors knew that he did it at all. While it does not appear that they actually knew of these transactions, it was a question of fact for the jury to say whether they ought not to have known, under all the circumstances, as their ignorance was no excuse, unless they were reasonably diligent in supervising the method and details of conducting the business under their control.

The language used by the Supreme Court of the United States with reference to a bank, may be repeated here as applicable to the defendant: "Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. It is their duty to use ordinary diligence in ascertaining the condition of its business and to exercise reasonable control and supervision of its officers. They have something more to do than, from time to time, to elect officers of the bank and to make declarations of dividends. That which they ought, by proper diligence, to have known as to the general course of business in the bank, they may be presumed to have known in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business." (Martin v. Webb, 110 U.S. 7, 15.)

Whatever the entries in the books of the defendant, made in the ordinary conduct of its business, would have disclosed, the jury would have been warranted in finding had come to the knowledge of the directors, who were charged with the duty of reasonable inspection of the books and reasonable supervision of the conduct of the officers.

They might have been satisfied that the directors knew that Stone was occasionally creating obligations against the company in his own favor and that the directors "gave him authority by acquiescing in its exercise." (Fifth National Bank v. NavassaPhosphate Co., 119 N.Y. 256, 261.) While the evidence is not conclusive, it tends to establish that fact, and we think presented a question that should have been submitted to the jury. They could reasonably have believed from all the evidence that these acts of Stone, and the authority assumed by him, were approved by the company, and that he, therefore, possessed actual authority to issue certificates in his own favor. Upon this basis, as we have already seen, the defendant would be estopped from denying the validity of the certificate in question, and the plaintiff would be entitled to recover.

We think that the learned General Term was correct in its conclusion, and that its judgment should be affirmed, and judgment absolute directed against the defendant, in accordance with the stipulation contained in the notice of appeal.

All concur.

Judgment accordingly.