Brown, Lancaster & Co. v. Howard Fire Insurance

Stewart, J., delivered the opinion of the Court. Brown, Lancaster & Co. loaned to one McGruder, as agent of the firm of Denson & Quincy, one thousand dollars, to he returned in thirty days, and took McGruder’s note therefor, and as collateral security for its payment, two hundred shares of the capital stock of the Howard Eire Insurance Company, belonging to Denson, whose name endorsed on the certificate thereof, was supposed by them to be genuine. Soon thereafter, they sent the certificate to the Insurance Co., and requested the stock to he transferred to them, and accordingly the certificates were cancelled, and others in lieu thereof were issued to them. In about a month afterwards Denson & Quincy failed, and notice was given to the Insurance Company and to Brown, Lancaster & Co. that Denson’s name on the certificates was a forgery. Brown, Lancaster & Co. sold the certificates, and requested the Company to issue new ones to the purchasers, which it declined. [390] Denson’s assignee in' bankruptcy filed the bill against the Insurance Company and Brown, Lancaster & Co., to compel the latter to deliver up the certificates issued to them, and that new ones should be issued by the Companjr to the complainant. Brown, Lancaster & Co. filed a cross-bill against their co-defendants. The Circuit Court decreed in favor of the complainant, and we think the decree must be affirmed. It was conceded, and there can be no doubt of the right of Denson’s assignee to have recovery of his certificates, or new certificates of his stock issued by the Insurance Company, in the place of those cancelled. Denson’s title to the stock could not be affected by the forgery practiced upon him, his right to the same was not divested by the fraud. The only question about which there can be any dispute, is, whether the Insurance Company or Brown, Lancaster & Co. shall sustain the loss. They are both innocent or unfortunate parties, and one or the other must lose; the latter having first advanced their money, without knowledge of the frauds ; and the former having cancelled the old certificates of stock and issued a.new one to Brown, Lancaster & Co., supposing Denson’s signature to be genuine. Brown, Lancaster & Co., for the fraud perpetrated upon them, still have their remedy against Quincy, or McGrruder, who gave his note and received their check. The Insurance Company have their remedy against Brown, Lancaster & Co., who have upon the forged name, and without consideration, received the certificate belonging to Denson, to whom, or his assignee, they are responsible. Brown, Lancaster & Co. have no right to withhold the certificates they obtained from the Insurance Company, unless they could prove that they had, in some way, lost through its negligence. If, ■ by the issue of certificates in [391] their name, Brown, Lancaster & Co. lost the opportunity of making the money out of Quincy, there might he some question, hut the evidence does not establish such fact. If the Insurance Company had been guilty of negligence, unless that was the occasion of the loss to Brown, Lancaster & Co., it would not be sufficient to shift the loss upon it. Negligence to operate as an estoppel must be the proximate cause of the loss. Swan vs. North British Australasian Co., 7 Hurlston & Norman, 603. The stock certificates were not negotiable paper, and Brown, Lancaster & Co. and the Insurance Company received notice of the forgery about the same time, and the issue of the certificates by the Company, through mistake, and the delay in the discovery of the fraud, cannot deprive the Insurance Company of the right to recover-the certificates. Brown, Lancaster & Co. first advanced their money at their own hazard. The Insurance Company having issued the stock upon the forged name, to Brown, Lancaster & Co., who had before treated it as a genuine paper, and to that extent misled the Insurance Company, Brown, Lancaster & Co. ought not to hold them accountable for the loss incurred by their own error, unless they could make it appear that they might have avoided the loss, but for the negligence or oversight of the Insurance Company. Any negligence on its part would not render it answerable, unless that were the proximate cause of the loss. If their equity were equal, it would not follow that the Insurance Company having issued the certificates to Brown, Lancaster & Co., they ought to be permitted to hold them. If they were equally free from fault, the fact that the certificates were obtained without equivalent, through mistake, would require their restitution. Canal Bank vs. Bank of Albany, 1 Hill, 287. The Insurance Co. is only bound by the same moral and legal obligations as Brown, Lancaster & Co., or other indi [392] viduals. If a subsequent bona-fide purchaser had been -registered as the owner of the stock, purchased from Brown, Lancaster & Co., and was claiming a right thereto, that would present a different question,, as between him and the Company, but that could not relieve them from the claim of the Insurance Company. (Decided 3rd June, 1875.) After they were aware of the fraud, to have passed them to an innocent party, would not have protected them against the claim of the Company. The established principles of equity require that the loss shall be borne by the party by whose negligence or misconduct it was occasioned. Lowry vs. Com. and Farm. Bank of Balt., Taney’s Civ. Court Rep., 310. There has been no loss by the negligent conduct of the Insurance Company. Brown, Lancaster & Co. had already incurred the loss through their inadvertence or negligence, in permitting themselves to be imposed upon by the forgery, and they have no right to throw it upon the Insurance Company, who have, through mistake, followed their lead. Decree affirmed.