Glens Falls Indemnity Co. v. Chase National Bank

Lehman, J. The plaintiff sues for the conversion of a check and its proceeds by a trust company whose liabilities have been assumed by the defendant. According to the allegations of the complaint, which we must assume to be true, the check was payable to the order of Adnaloy Realty Corporation and/or the plaintiff herein. It was delivered by the maker to the plaintiff. Thereafter the plaintiff delivered the check to the co-payee, Adnaloy Realty Corporation, with the indorsement upon it, “ Payment approved. Glens Falls Indemnity Company, by Sidney G. Barnett, Attorney.” The president of the Adnaloy Realty Corporation, Michael F. Longo, indorsed the check “ Adnaloy Realty Corp., by Michael F. Longo Pres.,” and “ Michael F. Longo,” and without authority from the plaintiff or the Adnaloy Realty Corporation deposited the check to his own credit and account with the trust company. The trust company collected the amount of the check from the bank on which it was drawn and applied the proceeds in part payment of a personal obligation owing to it by Michael F. Longo. Earlier doubt and conflict of authority as to whether an instrument drawn payable to the order of “ one or some of several payees ” is negotiable, has been resolved by the Negotiable Instruments Law (Cons. Laws, ch. 38, § 27); Daniel on Negotiable Instruments ([6th ed.] § 103). Rights arising under such an instrument are now determined by the provisions of the statute. The holder of an instrument drawn payable to the order of one or more of several payees may collect or negotiate it; but since a “ holder,” as defined by the statute, “ means the payee or indorsee of a bill or note, who is in possession of it, or the bearer thereof ” (Neg. Inst. Law, § 2), no one of the several payees to whose order the instrument is drawn is its holder unless he is also in possession of it. *444 The Glens Falls Indemnity Company became the holder of the check upon delivery to it. It is said that delivery of the check by the Glens Falls Indemnity Company, one of the payees and the holder of the check to the Adnaloy Realty Corporation, the other payee named in the check, with the indorsement “ Payment Authorized ” upon it, made the Adnaloy Realty Corporation an indorsee or bearer of the check. Nothing in the words indorsed on the check shows an intention to give these words so extraordinary an effect, but it is argued that section 113 of the statute gives the indorsement that effect regardless of the intention of the parties. The force of that argument may well be doubted; but the rights and obligations of the Adnaloy Realty Corporation and of the defendant remain the same whether ¡ve accept or reject that argument. The Adnaloy Realty Corporation became the holder of the check when possession of the check was delivered to it, because it was a payee of the check by its terms, even if it did not become an indorsee or bearer by the indorsement upon it. The trust company accepted the check from Michael F. Longo with notice that Longo’s title, if any, was derived from the holder, Adnaloy Realty Corporation, by indorsement which he himself had placed upon the note as president of the corporation. Since Longo had in fact no authority to indorse the check as agent of the Adnaloy Realty Corporation, title to the check and its proceeds never passed to him or from him to the trust company which had notice of the defect in Longo’s title. By the acts of the trust company the holder of the check has been deprived of possession of the check, and any rights of property it may have in the check have been invaded. It has right of action for conversion against the defendant (Wagner Trading Co. v. Battery Park Nat. Bank, 228 N. Y. 37), but it asserts no such right. The question here presented is whether the plaintiff, as one of several payees to whose order a check is drawn, may bring an action for *445 its conversion, though at the time of the alleged conversion it was not the holder of the instrument. The Negotiable Instruments Law deals with rights of parties under the instrument. It does not affect the rights of other parties or even the rights of parties, as between each other, arising outside of the instrument, bo possession of the instrument or its proceeds. Doubtless a party may have title to a negotiable instrument or right to its possession though not a holder of the instrument. Just as title to an instrument may be transferred without indorsement, though, in such case, the new owner is not a “ holder ” of the instrument (Neg. Inst. Law, § 79), so title to the instrument and its proceeds, or at least right to possession of the instrument, may be in one person though, for convenience in collecting or other reason, another person is the holder of the instrument. In such case, the holder can transfer to an innocent purchaser a perfect title to the instrument, though his own title be defective. Against a title so transferred no other person may assert superior rights of which the purchaser had no notice. That rule does not apply here, for the Adnaloy Realty Corporation has transferred no title to the trust company and the trust company has acquired no title of any kind. Therefore, even though the trust company had no notice at the time of the conversion that the plaintiff retained any title or right of property which it might assert against the Adnaloy Realty Corporation, the trust company by wrongfully talcing the check from the Adnaloy Realty Corporation can certainly not acquire a “ title ” or right of possession better than even the Adnaloy Realty Corporation had. If, therefore, the allegations of the complaint show that by the wrongful acts of the trust company, the plaintiff has been deprived of rights retained by it after the check was delivered to its co-payee, then the complaint is sufficient. The complaint fails to allege that the plaintiff had any right to possession of the instrument or any property *446 therein, except such right or property as it may have, as one of the payees to whose order the instrument was drawn. The only right arising under the instrument was a right to deal with the instrument as a “ holder ” while it was in its possession. It parted with its rights as holder by delivery of the instrument to a co-payee, even if it did not negotiate the instrument to the co-payee by indorsement and delivery. Therefore, the rights of the plaintiff are no greater if we deny to the indorsement the effect urged by the defendant, just as the liability of the trust company, which never acquired title to the instrument, is no less if we give it that effect. The defendant in either case would be hable to any party which has any title or right of property in the check which the trust company invaded by dealing with the check as the property of Longo, and the plaintiff in either case would not, so far as appears from the allegations of the complaint, have any property or right to possession which was invaded. What is said and decided here refers, of course, only to the rights of parties to an instrument drawn to the order of one or more of several payees. We do not pass upon the rights of the parties to an instrument which is drawn to the order of joint payees. Then, too, other questions might arise even as to the rights of one of several payees to whose order the instrument is drawn in the alternative, where there is allegation or proof that the possession of one payee is in fact possession as servant or agent of another payee. Here there are no allegations of such facts, but on the contrary, an allegation that the plaintiff “ delivered ” the note to the other payee. For these reasons the judgment should be affirmed, with costs.