Central Trust Co. v. Folsom

38 A.D. 295, 57 N.Y.S. 504

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: July 1, 1899
• Status: Published

Opinions

Rumsey, J. :

On the 18th of October, 1883, the defendant Daniel Morison was substituted -in the -pla.ee of another person as trustee under an ante-nuptial agreement for the benefit of Mrs. Isabel von Linden, and he occupied that position until some time in the year 1889. In the performance of his duties as-trustee lie'was accustomed to consult, as attorney, one Francis H. Weeks, who -was familiar with the trust. The securities, of- the trust were kept by Morigpn in a box- upon which his name was painted,-and the box was kept in Weeks’ safe, in his office,1 where Morison also had a desk, and he had no other place of business. , "• -

In the month of June, 1885, Morison received á sum of money belonging to the trust fund, which he deposited in a bank where he kept such funds to his credit as trustee. Being desirous to invest it, he consulted,W.eeks about a proper investment. Weeks, who was', also' the attorney for' other people, told"'him;that%e; had lhiffis «posses-sion a mortgage made on the loth of ..May, 1848,-.by, the trustees of Margaret C. Folsom, and by George.Folsom and Margaret "C.,‘ his wife, to Laight and Emmet as trustees, which'1 mtiftgá'gefaf it sfeem's, was long past due. By mesne assignments it had been transferred to and was then owned by Mrs. Ada L.' Saalfield, whose attorney Weeks was. Mrs. Saalfield desired to dispose of it, and Weeks recommended it to Morison as a desirable investment. Morison examined the property upon which the mortgage was a lien, and. relying on his own judgment after the examination, as well as on Weeks’ recommendation, told Weeks that he consented to the investment, and at the same time he. gave to Weeks his check as trustee for $7,000 upon the bank in which his account was kept, and desired him to purchase the mortgage and procure an assignment of it, which Weeks did. The bond and mortgage, .with all the assignments, including that to Morison as trustee, was put in Morison’s box in the safe. To that box Weeks had á key so that he could get to the securities and indorse upon them interest which was paid from time to time, which he had authority to receive. To that extent Weeks had the control and possession of the securities. The Saalfield mortgage-had- been in his possession, ever since it had been assigned to Mrs. Saalfield, and that fact was known to George W. Folsom, who was not the mortgagor, but was the person to whom the mortgaged premises belonged, and who was accustomed to make payments of interest upon the mortgage.

In the early part of May, 1886, Folsom, not having received any notice up to that time of the assignment of the mortgage to Morison as trustee, went to Weeks for the purpose of paying the interest on it, which was done, and' he obtained from Wéeks a receipt for the interest,- signed by Daniel Morison as trustee; and that, as he says, was the first information he had that the -mortgage - was not owned by Mrs. Saalfield, but was owned by Morison. At the same time he advised Weeks that he wanted to pay the principal, and it was arranged that he should do so on the first of June. On the second day of June Folsom came to Weeks again, paid him the interest on the security for a month, and at the sanie time gave to the order of “ Francis H. Weeks, Atty.,” a check for $7,000 to pay the principal of the bond and mortgage. Weeks received the check, produced the bond and mortgage, and the assignments, of which there were five,. and . delivered them to Folsom. Only three of these assignments had been recorded." "Folsom took "the bond and.-mortgage and" the assignments which had been recorded, and left the unrecorded ones; with Weeks, requesting him, at .the same time to ■obtain a satisfaction of the boncl and mortgage from Morison, and put that with the unrecorded assignments on record, which Weeks promised to do, but never did. Weeks cashed the check and used the money, and made no report of this transaction to Morison, but continued to pay him the interest tin the mortgage as though it were ■an outstanding investment of the trust, until 1889, .when Morison resigned as trustee, and W eeks was substituted in his place. After that substitution Weeks still continued to carry the mortgage on the hooks of the estate as an outstanding investment, paying the interest upon it from year to year, until the month of July, 1893, Weeks having been shown to bé a defaulter to a large amount, the plaintiff was substituted as the trustee of Mrs. von Linden-. It was then ■ascertained that Folsom had possession of this mortgage, having claimed that he had paid it. The plaintiff demanded that Folsom ■deliver the mortgage to it, which he refused to do, and thereupon . this action was brought, asking as relief that Folsom deliver the bond and mortgage to the plaintiff, and that Morison as trustee execute an assignment of it to the plaintiff. The only question presented is, whether the transaction between Weeks and Folsom on . the 2d of June, 1886, when Folsom delivered, the $J,000 check to Francis H. Weeks’ attorney, and received the bond and mortgage, •operated as a payment, so that - as between Folsom and Morison, as trustee, the mortgage was satisfied.

The learned justice before whom this case was tried, in a careful ■decision, in which all the facts are found substantially as above •stated, has determined that Weeks had the custody and possession •of the bond and mortgage as'attorney for Morison-, and had authority to. collect the interest and principal thereon, and that the mortgagors Were justified in relying upon his apparent authority and are to be protected in the payment which was made by George W- Folsom. In his., decision the learned judge found as a fact that George W. Folsom, who paid the principal upon the mortgage to Weeks, was ■one of the mortgagors. In this finding he is plainly mistaken. The name of the mortgagor was George Folsom, and not George W. Folsom-, and it is quite apparent that the two were different people, and that George W. Folsom was not one of the mortgagors, although it ■does not precisely appear what was his relation.either to the mortgage or to the mortgagors.

In the former appeal in this action (which is reported in 26 App. Div. 40) it was held that, upon the facts then proved, it did not appear that Weeks had any authority to receive the payment of the principal upon this security; and that, therefore, it was erroneous to hold that the bond and mortgage were satisfied by the payment by Folsom to him. It did not appear in that case how Morison came to have the assignment, nor did it appear that Weeks had any authority whatever to interfere with the security or to take possession of it for any purpose, and the holding in that case was based largely upon the lack of evidence in that regard.

The defendant claims that this defect is now remedied and that his case is brought within the rule that where an attorney has made an investment for a third person and is intrusted with the possession of the securities in which the investment is made, there arises an apparent authority on his part to receive payments of principal and interest upon the security as they are due; and that the maker- of the security has a right to rely upon that apparent authority and is to be protected in all payments which he makes in reliance upon it, while the defendant is in fact in possession of the security. This rule is well settled, and the only question is whether the facts which have been proved bring this case within the well-settled rule.

The rule took its rise-in England and has been imported into this country. It is based upon the well-known custom among many people in that country of intrusting to agents, who may or may not be attorneys, the entire management of investments, delivering to the agent the money to be invested, permitting him to seek out and make the investment upon his own judgment, without consultation with his principal, and expecting him, having made this investment, to retain possession of the securities and receive such payments of interest and principal as might fall due upon them. Under those circumstances it was undoubtedly proper to say that the agent, thus intrusted with the making and management of the investment and the custody of the securities for the purposes of collection, was invested with the apparent authority to receive whatever money might be due upon them from time to time. But the foundation of the rule was the fact of agency to make and control the security existing between the owner and the person who made the investment, to the knowledge of the debtor; and the apparent authority to receive the páyments was held to exist because the owner, having made the investor his agent to make the instrument at his discretion, and having intrusted him with the apparent right to collect the money, was held to be estopped from questioning the extent of the authority which had apparently been given to' one who was confessedly his agent in the original transaction. That this is the basis of the rule is apparent from what is said in the case of Doubleday v. Kress (50 N. Y. 410), in which it was held that mere possession of the security (which was a promissory note payable to the order of the owner), unindorsed, was not sufficient to authorize payment to him. Judge Peckham says (p. 413) that to give validity to the payment there must be some other fact than the mere possession by the agent of the security; “ that the agent took the security or negotiated and made the loan for which the security was taken and was thereafter intrusted by ’the owner with its possession, is sufficient to render the payment' valid.” The reason of the rule that one who has made the loan as agent and taken the security is authorized to receive the payment when he retains possession of the security, as he says, “isfounded upon human experience that the payer knows that the agent Has been trusted' by the payee about the same business, and he is thus given a credit with the payer.” It was held in that case that' the mere possession of the security, although with authority to «receive - the' interest,„ did. not”.,cany -with. it apparent authority to receive payment of the principal, although the principal was then due, and a judgment holding that a payment of the principal to such a person was good was reversed. In the former report of this case (26 App. Div. 40) it was held that the authority to receive payment of the principal is not to be inferred from the attorney having received the interest, nor from the mere possession of the security, but it must result from the whole control of the investment, from beginning to end, by the attorney or solicitor. The lender must part with his money to the solicitor for investment, and give him absolute control of the whole matter.

The same principle was adopted by the Court of Appeals in Crane v. Gruenewald (120 N. Y. 274). To the rule, as thus stated, there can .be.nO objection. The payer, to whom the loan has' been made, knows that the person, with whom he dealt)wás""'tlie ágéñt 'of the investor to take the security. The factv.of agency is, therefore, established to the knowledge of the debtor, and it is but just that the person who has-thus created his agent in the matter of the security should not be permitted to deny the existence of the agency, or the authority of the agent, as long as he has possession of the security, and thus has apparent control over it. All the cases hold that the agency arises from the fact of the investment having been made by the agent with the payer, and continues only so -long as he has the actual possession of the security. It is so stated in the text books. Judge Story says that if the agent made the loan and is intrusted with the security, an implication of authority to receive the money may be deduced from that fact in connection with the other. (Story Agency, 398, and cases cited.) In every case which I have been able to find, the agency has been held to depend upon the fact of the original investment having been made by the agent, and stress has been laid upon that fact in each of them.

The case of Williams v. Walker (2 Sandf. Ch. 325) is relied upon as constituting an exception to the rule. In that case Bancker, the alleged agent, had not made the original investment, but he had taken an assignment of it for Mrs. Williams, the plaintiff, and the securities were in his possession a large portion of the time. He was intrusted with the care of the plaintiff’s money, and made investments for her, and the security was delivered to him by the owner to receive payments on it while Mrs. Williams was in .Europe from 1835 to 1837 for about eighteen months, and at that time Bancker held a general power of attorney with one Pearsall to attend to Mrs. Williams’ business. As such attorney, and under that power, Bancker had possession of the bond and mortgage, and received four payments of principal upon it amounting to $356. After Mrs. Williams’ return, the bond and mortgage were delivered by Bancker to her, but he still continued to receive payments upon the principal until the whole mortgage had been satisfied, although the money thus paid was not delivered to the plaintiff, and she knew nothing about it. In an action brought by Mrs. Williams to foreclose the mortgage, the defendant claimed that she had fully paid it, and the question was whether the money paid to Bancker should be credited to her as a payment upon the mortgage. The assistant vice-chancellor examined the case in a learned opinion, and, laying down the rule as stated above, held that Bancker’s agency in this investment was the same as that of a scrivener in England, and that lie, having purchased the mortgage and having had possession of the security, had apparent authority to receive payments, of the principal and interest- upon it while it was in his possession ; and that consequently Mrs. Williams was chargeable with the four payments made while the mortgage was in his possession, but that she was not chargeable with the payments made after the security had passed out of his possession by delivery to the true owner. .There is no question that the case was well decided,-because there is no dispute as to the general agency of Bancker to receive the money upon this in vestment which was known to' the mortgagor. It is quite true that his general agency only existed in connection with that of Pearsall,- and, undoubtedly, he would have no authority alone under that general power of attorney with Pearsall to -make any investments; but it is equally true that, having the security in his possession, he was authorized to receive the money upon it, although Pearsall was attorney with him, because, although the principal, when he makes two persons his attorney^ jointly, is entitled to the exercise of the discretion of both of them, yet, when the business intrusted to them is simply a matter of- detail, such as receiving payment already due upon a security, that one of the attorneys who has the custody of the security may undoubtedly receive it, and the payment thus' made to him would be good. For this reason a payment to Bancker, while he was one of two attorneys and intrusted with the security, was, undoubtedly, binding upon Mrs. "Williams,' and, therefore, it was proper to charge her with those payments. But the case has never been cited, so far as I can discover, to extend the scrivener’s rule, so called, to a case in which the attorney did not make the original investment; but it has always been cited to the point that where the agent had possession of the security, with apparent authority to receive the payments, payment of the principal was good. In Hatfield v. Reynolds (34 Barb. 612), Smith v. Kidd (§8 N. Y. 130), and Crane v. Gruenewald (120 id. 274) the fact was that the attorney had been intrusted with the money and authorized to make the original loan, and left -in possession of the security; ■ and because of' that fact it was held that,- so-long as he was in possession of the security, he -had apparent authority to receive the money, principal and interest, and the case of Williams v. Walker (supra) was cited as - to the effect of permitting the attorney to have the custody of the security. But in this case Weeks did not make the original loan, and there was no reason on the part of the mortgagor to believe that he had any authority to receive any payments whatever upon the security, nor. was there any reason to believe that he was an agent of the trustee for any purpose except to receive payment of .the interest.

But authority to receive payment of the interest does not authorize the agent to receive payment of the principal. (Brewster v. Carnes, 103 N. Y. 556.) Therefore, the rule of the Scriveners’ Act cannot be extended to protect the payment of the principal in this case, unless it shall be held that the part taken by Weeks in the transfer of the mortgage from Mrs. Saalffeld to Morison as trustee was the making of the investment within the scriveners’ rule. It is apparent that Weeks did not make this investment in any other sense than any attorney makes an investment for his client. It is. quite true that he had the bond and mortgage in his possession, and that he called the attention of Morison to it; but he never had vested in him any authority to take that mortgage, or to pay the money of the trustee for it, and he never had any- communication with the mortgagor or the person by whom payment was to be made, so that he might infer from Weeks’ connection with the security that he had authority to act for' Morison in any way. No money was ever given to Weeks to invest at his discretion, and all the power he had with reference to this mortgage was to receive the check made to his order, transfer it to the credit of Mrs. Saalffeld, and procure an assignment to Morison as trustee.- In all that no discretion whatever was vested in him. He cannot be said, therefore, to have made this investment in any sense whatever.

Folsom, who made this payment, had no knowledge whatever of Weeks’ agency, and no reason to believe that Weeks was an agent of Morison for any other purpose than to receive the interest. He did not know what part, if any, Weeks had taken in the purchase of this mortgage. So far as appeared to him, Morison had done nothing to warrant the inference that Weeks was his attorney for any other purpose than to receive the interest on that mortgage. He made no inquiry of anybody, not even of Weeks, as to the extent of "his authority, although he knew that Morison, as trustee, was the. ■owner of. this bond and mortgage. It seems to us, therefore, that .this is not a case where the scriveners’ rule-should be applied to the full extent; and for that reason the learned justice at the Special Term was in error in the conclusion'which he reached, and the judgment should be reversed and a.-new trial ordered, with costs to the appellant to abide the event.

Van Brunt, P. J., and Ingraham, J., concurred; Barrett and-O’Brien, JJ., dissented.