Whitney v. State Bank

By the Court, Cole J. The only question we have to consider in this case is, the correctness of the order of the circuit court sustaining the demurrer to the complaint. The objection taken to the complaint in the demurrer, is the general one, that it does not state facts sufficient to constitute a cause of action. If, therefore, the complaint is found to be bad, in substance, the order sustaining the demurrer must be affirmed. The complaint alleges substantially, that Whitney, the plain-tiffin error and plaintiff below, is the true owner and lawfully entitled to the possession of eight school land certificates, which had been left by him with one Reuel Noyes, a real estate dealer and agent in Madison for the sole purpose of being sold on commission, and for the benefit of the plaintiff; and that Noyes, without his authority, knowledge, or consent, pledged the certificates to the State bank as collateral security for the payment of his own private indebtedness to the bank; and that the bank insisted upon holding them as security for the payment of such debt. These are the material facts averred in the complaint, and the question is, do they state a cause of action ? It cannot be necessary to cite authorities in support of such elementary propositions of law as these; that a principal is bound only by the authorized acts of his agent; and that an authority to an agent to sell property, does not authorize him to pledge or transfer that property as a security for his own private debt. The books abound in cases where these fundamental principles of agency and bailment are discussed, applied and determined. The complaint in this case alleges that Whitney was the true owner of the certificates, that they were left with Noyes to sell, and that the agent had pledged them [625] to the bank as security for the payment of his own private debt. This act of Noyes was entirely unauthorized, and could not bind the principal. To pledge the certificates was beyond the scope of his authority, and his attempt to pledge them as security for the payment of his own debt, was a tor-tious act, and conveyed to the pledgee no title. It is to be observed that these school land certificates are not like negotiable paper, which the party having the lawful possession of, although he may not be the owner, may, as a general rule, pledge or sell absolutely, so as to bind the rights of the true owners. These certificates are, properly speaking, contracts for the sale of real estate, creating an interest in land, and can only be sold and transferred like any real estate contract. R. S., ch. 20, passim; Smith vs. Mariner, 5 Wis., 551. Not being negotiable instruments, in any proper sense of the word, we know of nothing in the nature and use of this kind of property which requires an application to it of rules which belong to commercial securities. It was suggested by the counsel for the bank, that it was fair to assume that these certificates were assigned according to the universal custom in blank; and that Noyes, having them in his possession, was clothed with the usual insignia of title, and that the bank was not bound to inquire whether he was the real owner or not. It is true that when an agent is intrusted with’the disposal of negotiable securities, and he disposes of them by sale, pledge, or otherwise, contrary to the orders of the principal, to a bona fide holder, without notice, the principal cannot reclaim them, for the reason that in such cases the principal holds out the agent as having an unlimited authority to dispose of such instruments as he may please. But a wide distinction must and does exist between such securities and a real estate contract. The complaint in this case is silent as to whom these certificates were assigned. It alleges that the plaintiff was the [626] real and actual owner of them, and that they had been left with Noyes to sell. It is not pretended that they were assigned to Noyes. He held them as a real estate agent to sell for the benefit of Whitney. The hank was hound to know that as a general agent he had no authority to pledge or transfer the property of his principal as security for his own debts, and if it received the certificates for such a purpose, the title did not pass, and the certificates may be reclaimed by the owner. The bank undoubtedly knew that N oyes was acting as h general real estate agent, and it dealt with him at its peril. He was not authorized to pledge these certificates, but to sell them. Had he sold them to the bank, the sale - might have bound Whitney, even though Noyes had failed to pay over the money. But as the case stands the bank cannot hold them against the true owner. The demurrer, therefore, was improperly sustained. The order of the circuit court, sustaining the demurrer, is reversed, and the cause remanded for further proceedings according to law.