64 N.J. Eq. 480 | New York Court of Chancery | 1897
The litigation in these cases arises out of the failure of two corporations of this state, the Domestic Sewing Machine Company and the Domestic Manufacturing Company, which were declared insolvent on June 2d, 1893, on separate bills, the defendant Andrew Kirkpatrick being appointed the receiver of each corporation. These two companies had been connected in the manufacture and sale of sewing machines on a large scale since the organization of the sewing machine company, in April, 1891. Previous to this date, and since the organization of the manufacturing company, in 1881, a similar business connection existed between the manufacturing company and the Domestic Sewing Machine Company, a corporation organized in 1870 under the laws of the State of Ohio. The sewing machine company of New Jersey was organized to take over the assets and continue the business of the Ohio company, and by»deed dated April 22d, 1891, the New Jersey company purchased the assets of the Ohio company' and assumed its indebtedness, and also that of the Domestic Manufacturing Company, and to carry out and fulfill all existing obligations and contracts. The deed further declared that the New Jersey, company “hereby pledges all the property and assets above conveyed and transferred to it for the payment of the obligations so assumed.” At the time of this transfer of its assets from the Ohio company to the New Jersey company’ the Ohio company had an outstanding bonded indebtedness of about <$300,000, which remained unpaid at the failure of the company. This same bonded indebtedness also existed on the part of the Ohio company in 1881, at the túne of the organization of the manufacturing company, having been created as early as 1875. The Ohio company owned one thousand nine hundred and eighty •shares of the entire two thousand shares of the capital stock of the manufacturing company, and upon the organization of the latter companjr, in 1881, and by deed of trust, dated April 21st, 1881, the Ohio company conveyed to Eli J. Blake and John Dane, Jr., as trustees, this one thousand nine hundred and eighty shares of stock to secure these bonds and other obligations specified. The disputes now to be settled arise out of a twofold claim made by the complainants, who are the holders of $291,000 of these'
A preliminary motion to dismiss the appeals was made upon the ground that the complainants had no interest in the allowance of the claims. This was overruled, on the ground that, as the complainants were certainly creditors of the sewing machine company, even if their claim to a lien was invalid, and the sewing machine company, as part of its assets, owned the manufacturing company stock, the complainants were directly interested in protecting this latter company against unfounded claims, and inasmuch as the same receiver represented both companies and had allowed the claims, the equitable situation was one where the greatest possible latitude should be given to the other creditors of either company in contesting claims against the manufacturing company supposed to be invalid.
The other claim of the complainants is the one upon which their bill in equity is based, and, briefly stated, the nature of this claim is that, at the time of the transfer by the Ohio company of its assets to the Few Jersey company, the Ohio company was insolvent; that the transfer to the Few Jersey company was void, under the laws of Ohio, and that it was in fraud of the complainants as creditors of the Ohio company, and that complainants
All the notes in question purporting to bear the endorsements of the manufacturing company are similar in character, and are
Thus endorsed the notes were received by five of the banks— the Phoenix National, the Garfield National, the National Broadway, the National Park and the Chemical National—for discount to the credit of the manufacturing company, in its account with these banks, respectively, and the proceeds of the discounts were, by these banks, respectively, passed to the credit of the manufacturing company. The Second National Bank’of Cooperstown purchased in the open market two of the notes, similarly made and endorsed, for full value, before maturity. The First National Bank holds five of the notes (similar in form), amounting to $29,714, as collateral to demand notes of the sewing machine company, and these notes held by the First National Bank appear to have been so received as collateral, in substitution for other notes, to which the manufacturing company were not parties, and which were held as collateral to this loan made by the First National Bank to the sewing machine company. The original loan by the First National Bank to the sewing machine company of Ohio was made in 1890, and the notes endorsed by the manufacturing company were received by it, in substitution for the other collateral, in April, 1893. All of the notes held by each bank were duly protested for non-payment. The purchase of the notes by the Cooperstown bank in open market, and the receipt of them by the First National as collateral for the sewing-machine company’s debt, involve questions not raised in reference to the notes received by the banks discounting for the credit and account of the manufacturing company; but the preliminary question in all of the cases-is as to the authority of David Blake to impose the liability of endorser upon the manufacturing- company, and this question will therefore be first considered.
First. Was David Blake, the treasurer, authorized to endorse the notes to the banks ?
Second. Were the notes accommodation paper of the manufacturing company, and to 'be so treated as invalid on that account in the hands of the banks ?
Third. Did the proceeds of the notes, or of any of them, come to the use of the manufacturing company in such manner as to charge it with liability, either for the notes or the money received thereon ?
As to the authority of David Blake, as treasurer, to endorse the commercial paper of the company, it is not disputed that such authority was not directly conferred upon the treasurer, either by the by-laws of the company or by any formal resolution of the board of directors. The only provision of the by-laws relating directly to the treasurer is a section providing for his giving bond for the faithful discharge of his duties. These duties were not specified, nor was there, either from the by-laws or from any resolution of the board of directors, any direct authority to any officer of the company either to make or to endorse its commercial paper in the course of business. Counsel for the banks claim that the treasurer of a manufacturing and trading corporation of this character has the right, by virtue of his office, to endorse the business paper of the corporation and to bind the corporation thereby, and the decisions in some states relating to the implied powers of cashiers and treasurers are cited as supporting this contention. But, in my judgment, they do not reach to the extent claimed, and, in view of the general provisions of our statute laws, that the business of the corporation is. to be managed by the directors, and the numerous decisions of our courts that the powers of the officers of a corporation are simply the powers of agents delegated to them by the board of directors, I am of opinion that the treasurer of a manufacturing corporation is not, merely by virtue of his office, and in the absence of any
[After examination of facts in case, reported in full in 38 Atl. Rep. 245, 255, the opinion proceeds.].
I find, therefore, as facts in the case, that from July, 1890, to the failure of the manufacturing company, David Blake, as its treasurer, in fact acted as the agent of the company in the endorsement aird discount for its own credit of notes received by it from the sewing machine company to the credit of its current accounts with that company, and that these endorsements and discounts by David Blake were made in such a multitude of instances and to such an extent as to be sufficient to make him the agent of the company for the purpose of endorsing and discounting paper of this character, if an agency for such purpose could be constituted by the directors negligently permitting the agent to hold himself out to the world or public.
I also find, for the reasons above given, that the directors of the’ company did not, in fact, know of these endorsements in the Newark banks or the New York banks, which are relied on as establishing this agency to endorse, but that they might have known them, and by the exercise of a slight degree of diligence. The further relevant fact to be noted is that it does not appear that the New York banks, or any of them, knew, at the time of making their discounts or purchasing the notes, that David Blake
It is contended, on the other hand, by the complainants that where, as here, no actual authority to endorse for the company was given, and the liability of the company is based upon the apparent or implied authority which arises from a holding out of the agent to the public, then the liability does not arise unless, in the first place, the directors had actual knowledge that the agent was so holding himself out, and unless, secondly, the endorsements and discounts in question were made by the banks in reliance upon such holding out or previous endorsements.
'These contentions are based upon the view that the liability in such cases of ostensible authority rests upon the theory of ratification, which admittedly presupposes and requires previous knowledge on the part of the directors; and also, in addition, upon that of estoppel, which also requires knowledge of the course of dealing upon the part of the creditors and reliance upon the course of dealing.
And in reference to the creation of these general agencies, either for a particular class of acts or the transaction of a business, the principle established is that such general agencies are, in fact, created against the principal by reason of his conduct in permitting the agent to hold himself out to the public as having the authority. In Whitehead v. Tuckett, 15 East 400 (1812), Lord Ellenborough, in reference to the distinction between a particular and a general authority (for a particular class of acts, as to sell sugar), says (at p. 408) “that a general authority does not import an unqualified authority, but that which is derived from a multitude of instances.”
This distinction between a general and special agency or authority as thus stated by Lord Ellenborough has been adopted
In Smith v. McGuire, 3 Hurlst. & N. 554 (1858), the question of the effect toward the public of permitting another to act as a general agent was directly involved, and the particular question involved was whether the agent, who, in the transaction of the business of the principal, had constantly chartered vessels, but always or usually under special instructions, had a right to charter a vessel without such instructions, so as to impose a liability upon the principal for not taking a cargo. Chief-Baron Pollock says (at p. 560) : “I think that questions of this kind, whether arising on a charter party, a bill of exchange or any other commercial instrument, or on a verbal contract, should be decided on this principle. Has the party who is charged with liability under the instrument or contract authorized and permitted the person who has professed to act as his agent to act in such a manner and to such an extent that, from what has occurred publicly, the public in general would have a right to reasonably conclude, and persons dealing with him would naturally draw the inference, that he was a general agent? If so, in my judgment, the principal is bound, although, as between him and the agent, he takes care on every occasion to give special instruction.” In this case the holding out to the public, by permitting the continued and general acts, itself, as to the public, created the general agency to bind the principal by the act in question, although the actual authority as created between the principal and agent would not have permitted the act. The same principle, that a general agency to do a particular aót (e. g., to endorse paper and make loans) may be created by a holding out to the world, is also recognized in our own decisions. In Fifth Ward Savings Bank v. First National Bank, 18 Vr. 357 (New Jersey Supreme Court, 1885), the treasurer of the plaintiff, a savings bank, obtained a loan of the defendants in the name of the plaintiff and ostensibly for its use, pledging securities of the savings bank for its repayment. The treasurer fraudulently misappropriated the funds to his own use, and the savings bank brought an action of trover for the value of the securities. On
The careful and precise statement in the above case by the learned chief-justice of the question to be left to the jury in such cases distinguishes, it will be noticed, between the holding out to the world and the holding out to the defendant, and this distinction, as it seems to me, touches directly one of the questions now involved, viz., whether the general agency in such cases arises from estoppel. If there was a holding out to the defendant, but not a holding out to others or to the public as well, then the agency in such case might well be said to depend upon the estoppel of the principal to deny the agency which he had held out to the creditor and which the creditor had relied on. But it is clear, I think, that in commercial transactions, which must be carried on largely by means of general agencies to do particular acts, there is an agency which is created by the general and public exercise of an authority with the permission of the principal, and where this general agency, in fact, exists as arising from this source, it is not necessary for the creditor to show further that it was previously known to him and that he acted in reliance on it. Where the agency is a general agency provided by the continued exercise of the authority toward the public by
The principle of technical estoppel as between parties is not at all involved in such cases, and, as it seems to me, could not be, for the reason that an estoppel of the principal toward the third person dealing with the agent must depend upon the representation by the principal made to the creditor. A representation to others could not, generally speaking, give rise to a technical estoppel at all, and the holding out to others or to the public, if it is to have any legal basis at all, must be by creating of itself and wherever it is proved to exist a general authority as to the public for the particular act. For this reason, as it seems to me, the distinction as stated by the chief-justice must be taken as the true one, viz., whether the holding out as general agent is to the public or to the particular dealer only. If the latter only, estoppel is the basis, hut not in the former cases. The distinction is expressly made in a late case. Fifth National Bank v. Navassa Phosphate Co., 119 N. Y. 256 (1890). Here a company’s note was endorsed by its president. There was no proof of direct authority, and the onty evidence from which authority could be inferred were numerous former endorsements and that.the company’s apparent obligations were satisfied. The plaintiff know nothing of these former endorsements in discounting the note. Some of the former notes were endorsed to plaintiff, hut in so few instances that no estoppel between the parties was created. In the court below the complaint was dismissed upon the ground that the endorsement in question was not made in reliance on the former endorsements.
On appeal the point was distinctly raised that knowledge of the previous endorsements to others was not necessary to be proved, and the court of appeals, reversing the judgment below, held (Finch, J., at p. 260) that the question whether the directors knew that the president was creating obligations against the company, and gave him authority by acquiescing in its exercise, should have been submitted to a jury, and that it was not necessary in such cases for the plaintiff to show, in addition, that its officers knew in advance of this exercise and ratification (by
I refer to a few of the leading authorities on this point, stating the rule without any such limitation. 17 Am. &. Eng. Encycl. L. 139; Abb. Tr. Brief (on Facts) §§ 107, 108, citing cases.
In Olcott v. Tioga Railroad Co., 27 N. Y. 546 (1863), Seldon, J., said (at p. 558) : “The powers of the agent of a corporation are such as he is allowed, by the directors or managers of the corporation, to exercise within the limits of the charter, and the silent acquiescence of the directors or managers may be as effectual to dothe the agent with power as an express letter of attorney,” citing numerous cases. Lester v. Webb, 1 Allen 34 (at p. 36, Chief-Justice Bigelow, 1861); Prescott v. Flinn, 9 Bing. 19, where general authority of clerk to endorse was inferred from previous endorsements, and no limitation was made that plaintiff should have knowledge.
■ In the New Jersey cases, above' referred to, no such limitation was attached tojlie statement of the rule, and the eases relied on by complainant are mainly cases where the liability depended upon an estoppel by holding out to the party, rather than on a general agency arising from a holding out to the public.
Upon these considerations I reach the conclusion that the previous endorsements of David Blake of the business paper of the company for discount to its credit, if made with the permission or consent of the directors, were of such a character as to entitle the banks discounting the paper in question to hold the corporation liable on the endorsements, as made by the general agent for that purpose, although the paper was not received or discounted by them on the faith of such previous endorsements, but simply on the belief that he was the agent of the company for the purpose of endorsement and discount; and the next question of law to be decided is whether the permission and acquiescence of the directors in relation to these endorsements of David Blake in the Newark and New York banks is sufficiently established by showing that, although the directors may not, in fact, have known
In Conover v. National Mutual Insurance Co., 1 N. Y. 290 (1848), the policy issued by the company prohibited an assignment “unless by the consent of the company manifested in writing.” A consent was signed by the secretary. Ho express
The same doctrine of imputing to a company knowledge of, and acquiescence in, acts of an officer acting as a general agent was applied in the late case of Hanover Bank v. American Dock and Trust Co., 148 N. Y. 612 (1896). In this case negotiable merchandise certificates were issued by an officer to himself without express authority. The fact that he had several times issued these to himself was, with other facts, relied on as establishing a general authority to issue to himself. The directors did not actually know of these issues. Vann, J., says (at p. 623) : “While it does not appear that the directors actually knew of these transactions, it was a question of fact for the jury to say
The doctrine of these cases imputing' to the directors actual knowledge of a fact which, in the reasonable performance of their duty, they ought to have known, and establishing the rights of third persons against the company, the principal, upon the same basis as if actually known and assented to, is in harmony with the rules applied in other cases, both at law and in equity, as to the means of knowledge being equivalent to actual knowledge. The general rule as to charging notice or knowledge of a fact is “that whatever puts a party upon inquiry amounts, in judgment of law, to notice, provided it becomes a duty, as in the case of purchasers and creditors, and would lead to the knowledge of the requisite fact by the exercise of ordinary diligence and understanding.” 4 Kent Com. § 179; Hoy v. Bramhall, 4 C. E. Gr. 563, 572 (Errors and Appeals, 1868). The decisions cited above seem to be an application of this general principle, and in cases like the present the rule should be applied strictly, rather than relaxed; and, in my judgment, the directors of the manufacturing company must, on the facts of this case, be charged with knowledge that David Blahe, as their 'treasurer, was endorsing the paper received by the company from the sewing machine company for credit to its current account, and with the tacit or implied consent to these endorsements. With these views as to the legal rules applicable to the case, I hold, therefore, as the result of the evidence, that the banks have established, by sufficient proof, a general authority in David Blake, as treasurer of the manufacturing company, to endorse and discount the
I have, in my above conclusions, limited the finding of authority to endorse to the business paper of the manufacturing company received from tire-sewing machine company in the regular course of business; for if the paper was accommodation paper, and so known to be by the banks receiving it, then the authority to bind the corporation does not exist, for, as is well settled, the corporation has no authority to give accommodation paper. National Bank of the Republic v. Young, Receiver, 14 Stew Eq. 531, 538 (Errors and Appeals, 1896).
But in reference to the liability of a trading or business corporation, such as the manufacturing company, on accommodation paper, the rule, as settled by this case (at p. 538), is that the title of the holder for value before maturity can only be defeated by proof of such circumstances as show that he took the paper with knowledge of some infirmity on it, or with such suspicion with regard to its validity as that lii-s conduct in taking it was fraudulent. It was not claimed by the complainants at the hearing that such proof had been made in this case as to any of the banks, and the whole defence against the notes was put upon the ground of want of authority to endorse. But, in order to rely on or rebut a claim of liability -imposed by reason of the actual receipt by the manufacturing company of the benefit of the proceeds of discount by the manufacturing company, a large amount of testimony has been taken for the purpose of showing whether the proceeds of discount went ultimately to the benefit of the sewing machine company and not of the manufacturing company. There is no dispute that the proceeds of discount of the notes in suit were, in the first instance, deposited in the respective banks to the credit of the manufacturing company, and that all of the payments out were made by the banks on the checks of the manufacturing company, but the complainants claim that, with the exception of about $10,000, which went directly to the manu-^ facturing company, the entire balance of the proceeds of discount was for the benefit of the sewing machine company. Complain
[Examining in detail the facts proved in relation to the notes held by each of the six banks, whose claims are excepted to by the complainants, the conclusion is reached, as to the notes held by live of the banks, viz., the Broadway Bank (except as to three notes hereafter mentioned), the Rational Park Bank, the Garfield Rational Bank, the Phoenix Bank and the Cooperstown Bank—(1) that the notes discounted by them were not accommodation paper, and (2) that the notes were not taken under such circumstances as to show either knowledge of infirmity in the paper or fraudulent conduct, within the rule laid down in National Bank of the Republic v. Young, supra. The opinion in full on these points is printed in 38 Atl. Rep. 260, 262.].
But these conclusions do not cover the'case of the First Rational Bank. The notes, amounting to $29,714, held by this bank, as
Nor do the above conclusions apply to three notes included in the claim of the National Broadway Bank, and which were endorsed, not by David Blake, as treasurer, but by George A. Blake, as assistant treasurer of the manufacturing company. These notes were also notes of the agents of the sewing machine company, payable to the order of the sewing machine company, at its New York office, and after the endorsements by the sewing machine company were endorsed by George Blake, as assistant treasurer of the manufacturing company, for discount to the credit of that company in the National Broadway Bank. They were of the following amounts and dates: April, 24th, 1893,-one for $2,786; one April 29th, 1893, for $3,886, and one May 1st, 1893, for $2,630. The total of the notes was $9,302, and on May 9th, 1893, they were discounted together as a single transaction, the proceeds of discount ($9,115.09) being placed to the credit of the manufacturing company. The balance to the credit of the manufacturing company before this discount was $1,861.06, and on the day following-_ (May 10th) the manu
The appeals from the allowance of toe claim by the receiver are therefore dismissed, except toe appeal from toe claim of the First National Bank, which will bo reserved for further argument, if counsel desire.
In toe equity case I will, at the present time, state toe conclusions reached, leaving a further statement and opinion to be filed hereafter, if desired.
First. The bonds held by complainants are still secured by the trust deed of April, 1881, conveying the one thousand nine hundred and-eighty shares of the Domestic Manufacturing Company stock, and have not lost toe security of this deed by reason of the agreements of July 7th, 1890, and July 9th, 1890, and the action of their trustees thereunder.
Second. The conveyance, by toe Ohio company to the New Jersey company, in April, 1891, of the assets of the former company must be held valid as against the complainants and their trustee, George Chapin, under whom they claim.
Third. The complainants, as bondholders, are creditors of the New Jersey company, 'but they have no equitable lien which can now be enforced against toe assets of the New Jersey company in preference to its other creditors, except as to the lien on the Domestic Manufacturing Company stock, under the trust deed of 1881.
Fourth. The bill of the receiver for specific performance of the agreement of July 9th,'1890, by conveyance of the stock to him, must be dismissed.