Wen Kroy Realty Co. v. Public National Bank & Trust Co.

183 N.E. 73, 260 N.Y. 84, 1932 N.Y. LEXIS 662

• Court: New York Court of Appeals
• Decided: October 18, 1932
• Status: Published

Opinions

Lehman, J.

Moses Silverman, the president of the plaintiff corporation, was authorized by it to manage its business. He was also the president of Silfo Amusement Company, authorized by that corporation to manage its business and to draw checks upon its deposit account in the defendant bank. The plaintiff corporation was the owner of a check, payable to its order. Silverman deposited the check in the deposit account of Silfo Amusement Company. The defendant bank collected the check and permitted Silverman, as president of Silfo Amusement Company, to withdraw its proceeds. In that manner Silverman appropriated the check and its proceeds to his own use or the use of Silfo Amusement Company, and deprived the plaintiff corporation of its property. Concededly the defendant bank is hable for the conversion of the check and its proceeds unless the plaintiff corporation by an indorsement upon which the bank might rely transferred to Silfo Amusement Company title to the check.

Before depositing the check, Silverman, for the purpose of indorsing the check, placed upon its back the name of the plaintiff corporation and .signed his own name as president thereunder. Then he induced his son, David Silverman,.to sign his name as secretary, though in fact the son was not the secretary and had no authority from the plaintiff corporation, actual or apparent, to act as its agent. The problem presented is whether the genuine signature of the president of the corporation, under these circumstances, binds the corporation.

The plaintiff corporation did not by any by-law or resolution of its board expressly restrict the broad power, conferred upon its president, to manage its affairs. If, by fair implication, that power included authority to indorse and transfer negotiable instruments payable to it, then the co-operation of no other officer or agent would be necessary where the president assumed to exercise that power. The additional signature of an unauthorized person would not bind the corporation nor would it detract from the binding effect of the signature by an authorized agent. The difficulty in this case is that the president in signing the name of the corpora tion, was not acting in behalf of his principal, but was stealing its property. Here there was not merely disregard of instructions but an abandonment by the agent of his agency. The power of the agent results from the manifestation of the principal’s consent, and extends no further than such manifestation. We assume, without further consideration, that the corporation, by empowering its president to manage its affairs, has manifested its consent that he shall, as its agent, transact its ordinary business, including the transfer of negotiable instruments. It has not manifested any consent that he shall appropriate its property. “A power to act for another, however general its terms, or wide its scope, presupposes integrity and faithfulness in its exercise and cannot be enlarged by implication or construction to the justification of a diversion to the use of the agent of moneys or property subject to the agency.” (Porges v. United States Mortgage & Trust Co., 203 N. Y. 181, 190.) We do not say that in this case the facts would support an inference of an implied power to indorse and transfer negotiable instruments in the course of the transaction of corporate business. There is, indeed, a contrary finding, and the by-laws seem to show that only the treasurer had the right of custody of corporate funds and that without specific authority otherwise conferred, the president had no power to hold or transfer any negotiable instruments. We do say that even assuming that such power exists, it is limited to transfers made on behalf of the corporation in the course of its business.

The scope of an agent’s actual authority is determined by the intention of the principal or, at least, by the manifestation of that intention to the agent. However wide the authority vested in the president of the corporation may have been, it certainly did not extend beyond the corporate business. “ The general rule is that an agent employed to do an act is deemed authorized to do it in the manner in which the business entrusted to him is usually done.” (Argersinger v. Macnaughton, 114 N. Y. 535, 537.) Thus the fact that a corporate principal grants to its president unrestricted authority to manage its business may, in some circumstances, properly justify an inference that, in managing the business, the agent is authorized to transfer and indorse negotiable instruments payable to the order of the corporation. Certainly no inference can be drawn that the corporate principal in authorizing its president to manage its affairs intended to give the president authority to transfer and indorse its negotiable instruments when not managing the business of the corporation and when despoiling it of its property.

In a multitude of cases in all jurisdictions, a principal despoiled, in that way, by a general agent, to whom its property has been intrusted with power to transfer it in behalf of the principal, has been allowed to reclaim its property or to recover damages for its conversion, either from the agent or from any person claiming title through the agent with knowledge or notice that by the transfer the agent deprived his principal of its property. Such recovery has not been permitted upon any theory that a party having notice of the agent’s breach of trust takes subject to all equities in favor of the principal. In a long line of cases the courts of this State have consistently held that a general agent of a corporation intrusted by the corporation with the management of the corporate affairs, has no actual authority, though he may in some circumstances have apparent power, to appropriate the corporate property to his own use by transfer to himself directly or indirectly, and that is true as well of negotiable instruments as other property. Because the attempted transfer is made without actual authority, it constitutes a conversion, and passes no title to any one who is not entitled to rely on the apparent authority. So we said and decided in Wagner Trading Co. v. Battery Park Nat. Bank (228 N. Y. 37, opinion by Elkus, J.). That decision was founded on no novel doctrine, and in Whiting v. Hudson Trust Co. (234 N. Y. 394, 405, opinion by Cardozo, J.) this court so pointed out. “ We held that such an indorsement was not within the power of the agent (Cf. Bank of N. Y. N. B. Assn. v. Am. D. & T. Co., 143 N. Y. 559, 563; Manh. L. Insurance v. F. S. S. & G. S. F. R. R. Co., 139 N. Y. 146, 151; Ward v. City Trust Co. of N. Y., 192 N. Y. 61, 71; Porges v. U. S. Mortgage & Trust Co., 203 N. Y. 181, 190), and that the consequences were those that follow where an indorsement has been forged. (Standard S. S. Co. v. Corn Ex. Bank, 220 N. Y. 478, 481.) ” The rule everywhere applied, that such transfer constitutes a conversion of the corporate property, is the conclusion drawn from the premise that the transfer is made without actual authority. “It is an acknowledged principle of the law of agency that a general power or authority given to the agent to do an act in behalf of the principal, does not extend to a case where it appears that the agent himself is the person interested on the other side.” (Bank of New York Nat. Banking Assn. v. A. D. & T. Co., 143 N. Y. 559, 564.)

It is true that “ the principal is often bound by the act of his agent in excess or abuse of his actual authority, but this is only true between the principal and third persons, who believing and having a right to believe that the agent was acting within and not exceeding his authority, would sustain loss if the act was not considered that of the principal.” (Welsh v. Hartford Ins. Co., 73 N. Y. 5, 10.) Though actual authority is the result of the principal’s consent manifested to the agent, apparent authority is the result of consent manifested to the third party. In Whiting v. Hudson Trust Co. (supra) we indicated caution against a restriction of the rule of apparent authority beyond the point where a third party fails to make reasonable inquiry. We indicated no doubt that an action for conversion lies where there was no apparent authority. Whether apparent authority is based upon the principle of estoppel or not, it “ implies a transaction itself invalid, and a person who is forbidden for equitable reasons to set up that invalidity.” (Swan v. North British Australasian Co., 7 Hurls. & Norm. 603, 634, cited in N. Y. & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30, at 53.) It has been defined as the “ authority which the principal holds the agent out as possessing or which he permits the agent to represent that he possesses and which the principal is estopped to deny.” (2 Corpus Juris, 570. Cf. Small v. Housman, 208 N. Y. 115, 123.)

Whether an indorsement of a check payable to a corporation is an act performed in the course of the corporate business or the conversion of the property of the corporation, is an extrinsic fact particularly within the knowledge of the person authorized to transact that business. In such circumstances an innocent third party may ordinarily rely upon the representations of the agent. (Farmers & Mechanics Bank v. Butchers & Drovers Bank, 16 N. Y. 125.) Even if we were to assume that the president of the corporation had actual or apparent authority to indorse checks in the course of the corporate business that rule would have no application here, for the president of the corporation authorized to transact its business did not represent that he, acting alone, had authority to indorse this check, nor did he assume to act as sole agent. The check purported to be indorsed by the corporation acting through its president and one who falsely represented that he was its secretary. If the corporation, though authorizing its president to transact its business, had restricted his authority by requiring the addition of the signature of another officer for the indorsement of any check, then a person receiving a check which purported to be indorsed by two officers would have notice of the limitation of the president’s authority, even if such notice were otherwise necessary, and the corporation would not.be bound by the signature of its president alone. So, here, the defendant bank receiving a check purporting to be indorsed by two officers could not rely upon an apparent power of the president which the president did not represent that he was exercising. The basis for a finding of apparent authority is completely lacking; for there was no assumption of apparent power by the president to bind the corporation by'his sole signature; no representation of any authority to so act and no reliance by the bank upon the existence of such power. The check in question having, therefore, been indorsed or transferred without authority, even colorable, the question of the defendant’s good faith or want of notice does not enter into the case, any more than it would if the check had been indorsed only by the secretary. Lacking authority at inception, the defendant acquired no title to the money and must pay it back to the plaintiff, the rightful owner. (Standard Steam Specialty Co. v. Corn Exchange Bank, 220 N. Y. 478.)

The judgment of the Appellate Division should be affirmed, with costs.