Hanover National Bank v. American Dock & Trust Co.

PARKER, J. The defendant is a corporation created by chapter 881 of the Laws of 1872 to act as a storage warehouse for cotton and other merchandise, and to issue receipts certifying the amount of the merchandise so deposited, which are negotiable and transferable by indorsement and delivery, so that the transferee is deemed to be the owner of the merchandise specified, either absolutely or as a pledge for any advances or credits, subject to the payment of the company’s charges accrued upon it. The plaintiff is a national bank engaged in general banking business in the city of New York, [1056] and has for a number of years been accustomed to loan money upon such receipts issued by the defendant, or upon notes with receipts as collateral security; and for about seven years prior to 1891 it had frequently loaned money to Mr. Stone, the president of the defendant corporation, taking therefor his notes, with warehouse receipts of the defendant as collateral. About March 17, 1891, Stone applied to the plaintiff to discount his promissory note, payable to plaintiff’s order in 90 days, for $5,000, and offered to the plaintiff, as collateral for said note, a paper writing in the form of the warehouse receipts issued by the defendant. It reads as follows: M. W. Stone, Pres’t. A. J. Pouch, Vice Pres't. F. H. Pouch, Treas. A. C. Hasey, Sec’y. American Dock & Trust Co. Number of certificate, Office, Cotton Exchange, 36,573. Rooms 50 and 51, New York. New York, Mar. 11, 1891. Received on storage at “The American Docks," for account of M. W. Stone, one hundred and seventy-two bales cotton. 151 S. Y. E. 31 C. U. V. subject to the order of themselves on payment of the charges accrued thereon and surrender of this receipt. ' Weight or grade not guaranteed. Labor, 10c. Storage per month, 10. Bales, 172. Store, 7. M. W. Stone, Pres’t. (On left-hand margin.) This receipt is valid only when signed by either the President or Treasurer. [Indorsed.] M. W. Stone. The plaintiff discounted the note, paying the full amount thereof, less legal discount. After the maturity of the note, the plaintiff demanded from defendant the cotton, which the receipt acknowledged possession of. As the cotton was not, and never had been, in defendant’s possession, plaintiff’s demand was refused, and this action was thereupon instituted to recover its possession or value. The question which the facts so far stated present was before this court in Bank of New York v. This Defendant, 70 Hun, 152, 24 N. Y. Supp. 406. It was there held that, as plaintiff knew that the Stone named in the receipt was the same person who, as president, had signed it, and that he was making use of it for his own personal benefit, it was thereby put upon inquiry touching Stone’s authority. Plaintiff’s right of recovery was denied, and, without further discussion, the position then taken is reasserted. It is true that the plaintiff made no inquiry except of Stone, but, if Stone did have authority to sign receipts as president, acknowledging that cotton had been stored by him with defendant, that fact would have been ascertained had inquiry been made, and would have protected plaintiff. Whether the result is the same when the facts exist, and [1057] insufficient or no inquiry is made, was considered in Wilson v. Railroad Co., 120 N. Y. 145-153, 24 N. E. 384; the court saying: “He assumed that the issue and proposed disposition of the notes had been duly authorized. He trusted to the fact of authority, and not to the evidence of it. And can' it be said that the resolution which would have protected him if he had been informed of it cannot be invoked to aid him now? Does a purchaser of a note under circumstances which devolve upon him the duty of inquiry, assume a greater risk than the burden of proving that which would have protected him had he diligently inquired before making the investment? We think not.” So here, if at the time when inquiry should have been made there existed facts establishing the authority of Stone, as president of the defendant, to sign receipts evidencing a contract between that corporation and himself, they are as available to protect the plaintiff as if it had inquired at first. Had it made inquiry resulting in an ascertainment of the facts which it now proves, assuming that they are sufficient to have authorized Stone, as president, to make such contracts with himself, still plaintiff would have been burdened with the necessity of proving them. Instead it believed Stone’s assertion of authority, but his representations under the circumstances surrounding their making were not binding upon defendant, because the occasion and the situation made them personal and not official. But, if their truthfulness should be established by other evidence, the fact would protect plaintiff as fully as if it had the best evidence of it in its possession at the time of mailing the loan. In other words, when a situation is presented which the law declares should put a person of ordinary prudence on inquiry, he is chargeable with constructive notice of everything to which that inquiry would reasonably have led and nothing more. Cheever v. Railroad Co., 72 Hun, 380, 25 N. Y. Supp. 449; Shaw v. Spencer, 100 Mass. 382. This leads us to inquire what plaintiff would have found had it, instead of relying upon the individual assertion of Stone, made inquiry at the office of the corporation. It would have found there the president, Stone, who has asserted over his official signature in this receipt that he personally had on storage 172 bales of cotton, and who it is but fair to assume would not have denied his authority to issue the certificate. An examination of the books would not have disclosed any authority given by resolution of the directors to the president to thus evidence contracts between himself and the corporation, nor discovered any resolution forbidding it. Further examination would have caused it to appear that on March 16, 1886, a certificate for 41 bales of cotton was issued by N. W. Stone, vice president, to N. W. Stone, which was subsequently used, returned, and canceled in the regular course of business, and a stub corresponding with the certificate, made out at the time of the issuing of the certificate, and thereafter continuing among the records of the company, to which is attached a receipt signed by Stone, acknowledging the receipt of the negotiable certificate. April 14, 1886, another certificate for 85 bales of cotton was issued by Stone, as vice president, to himself. The stub is made out to correspond, and to it is attached a receipt for the negotiable certificate signed by [1058] Stone. Under date of May 24, 1886, is a certificate signed by Stone, vice president, to himself, for 261 bales of cotton. The stub ia made out in the usual form, and to it is attached a receipt from Stone for the negotiable certificate. June 15, 1881, a certificate for 100 bales of cotton was issued by Stone, as vice president, to himself. A stub was made out to correspond, to which was attached a receipt in the usual form, signed by Stone, acknowledging the delivery of the certificate to him. Under date of November 29, 1881, a certificate for 83 bales of cotton was issued by Stone, vice president, to himself, and he signed a receipt for it, which was thereupon attached to the stub corresponding to the certificate issued. All of the certificates referred to were used, returned, and canceled in the regular course of business like the others. The receipts were signed and stubs made out in accordance with the general custom. Under the practice of the defendant, if a man, having a receipt for 50 bales of cotton, calls for. 1 bale, instead of making out a new receipt for 49 bales, 1 is indorsed off on the back, so that such indorsement represents the deliveries as made. Upon the back of the receipt of April 14, 1886, the following indorsements for delivery appear: “Indorsement for Delivery. “The property mentioned below is hereby released from this receipt for delivery from warehouse. These indorsements were made by the bookkeeper, who signed his name underneath the entries in each instance. No effort appears to have been made to prevent these transactions from coming to the knowledge of all interested. They were openly done, and the record of each of them is, and from the time when they severally occurred has been, contained in and formed a part of the regular books and records of the company. Certainly, plaintiff, or the officer representing it, would have been justified in reaching the conclusion, after a review of the transactions referred to, that they tended to show at least that the assumption of authority by the leading executive officer has been assented to and ratified by the company. Inquiry of the agent in charge of the defendant’s warehouse would have disclosed the fact that cotton had been stored there from time to time by Stone; that he was accustomed to report it regularly as it came in, and did not try to conceal from anybody the fact that Stone had cotton stored there. But one other [1059] officer of the company was regularly in attendance, and he was the secretary of the company, Mr. Hascy. Of such an officer generally the court of appeals recently said, (Hastings v. Insurance Co., 138 N. Y. 473-479, 34 N. E. 289:) “The secretary is one of the general managing agents of a corporation, and, when in the discharge of the duties of his office, he represents the corporation itself.” The representations made by him in the course of the business of the company are binding upon it, and how could there be a stronger representation of authority on the part of Stone to sign receipts evidencing the contract between himself and the corporation of which he is the executive officer than is furnished by the fact that the ■certificates to which we have already referred as executed by Stone to himself, and the corresponding stubs, are in the handwriting of Hascy, the general secretary. Had plaintiff, with these facts in its possession, reached the conclusion that the president’s representations as to his authority were true, and then made the discount, Its right to have a jury pass upon the question whether the evidence upon which it relied was not sufficient to amount to assent-by the -corporation to the president’s assumption of authority in making such certificates, could not well be denied. As has already been observed, if the facts tending to show an assent on the part of the officers of the corporation to the acts of its president in signing certificates in behalf of the corporation representing that it had stored for him cotton are of such a character as would have entitled the plaintiff to a submission of the question to a jury, had it on inquiry ascertained such facts, they are equally available to it for that purpose when it did not inquire, or rather when the inquiry which it did make was of one who was then acting for himself, and could not bind the company in what he said. It is a wholesome rule which charges those who are invited to deal with the officers of corporations, in respect to securities or other obligations of the corporation, for the personal benefit of such officers, with the necessity of inquiring as to the authority of the officer to make the contract which he proposes. But it should not be carried to ■such an extent as will, under all circumstances, shift the misfortunes almost inevitably resulting from lax administration on the part of the officers and directors of a corporation from its shoulders to that of the individual or corporation having dealings with one of its officers. The dividing line between the two extremes will, in the end, be located more nearly central, and therefore with greater fairness, if, where the facts tend strongly to show an acquiescence in the wrong-doing officer’s assertion of a right to thus act for it, a jury be permitted to pass upon the question of authority. This question is presented by the request of the plaintiff at the close of ■defendant’s testimony to go to the jury, its denial, and the exception taken. The judgment should be reversed, and a new trial granted, with costs to the appellant to abide the event. VAN BRUNT, P. J., concurs.