Case Name: FIFTH NATIONAL BANK OF PROVIDENCE, RHODE ISLAND, Appellant, v. NAVASSA PHOSPHATE COMPANY, Respondent
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1889-06-28
Citations: 25 Jones & S. 168
Docket Number: 
Parties: FIFTH NATIONAL BANK OF PROVIDENCE, RHODE ISLAND, Appellant, v. NAVASSA PHOSPHATE COMPANY, Respondent.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 57
Pages: 168–174

Head Matter:
FIFTH NATIONAL BANK OF PROVIDENCE, RHODE ISLAND, Appellant, v. NAVASSA PHOSPHATE COMPANY, Respondent.
Corporation.—Authority topresident to endorse negotiable paper.
■ The question on the trial was, whether the endorsement on the note Navassa Phosphate Company, W. E. Lawton, Pres’t,” was the endorsement of the defendant. Prima facie this endorsement did not bind the company, although W. E. Lawton was its president, for the latter fact did not tend to prove that he was authorized to sign the company’s name as endorser.
Held, that the plaintiff was bound to furnish competent evidence that the president ■was, in fact, authorized to make the endorsement, or that the company had held him out as authorized to that extent, or that the defendant was estopped from denying his authority.
No testimony was given that authority had been given specifically to the president, and on a review of the evidence tending to show that the defendant had recognized its liability upon endorsements of this kind,—Held, that it did not establish that defendant had recognized that Lawton was authorized to sign the corporate name in endorsement.
Before Sedgwick, Oh. J., and Freedman, J.
Decided June 28, 1889.
Appeal by plaintiff from judgment dismissing the complaint, entered upon direction at trial term.
Abram Kling, attorney and of counsel, for appellant, argued :
I. It is a settled rule of law that if the endorsement of the notes of a corporation by one of its officers is within the scope of his authority, actual or apparent, the corporation is charged with liability, without reference to the question of authority in fact. Bank of Attica v. Pottier & Stymus Co., 1 N. Y. Supplement, 483. Second National Bank of Allentown v. The Same, 2 Ib. 644.
II. The plaintiff as a bona fide holder of the notes is not affected by any fraud of Lawton’s in exercising his power to indorse. In Olcott v. Tioga R. R. Co., 27 N. Y. 560,the court said : “ The limit of an agent’s authority may be determined by the power which he is allowed to exercise ; and the silent acquiescence of the principal may be equivalent to express authority ; in other words authority may be shown by circumstances.” In New York & New Haven R. R. v. Schuyler, 34 N. Y. 30, the court held that the doctrine of implied agency, when it arises out of negligence, has its basis in this principle of estoppel in pais. That principle is based on the injustice of allowing a party to be the author of its own misfortunes and then charging the consequences on others. If the directors of the company, no matter whether through inattention or otherwise, suffer its officers to pursue a particular line of conduct for a considerable period without objection, they are as much bound to those who are not aware of any want of authority as if the requisite power had been directly conferred. The company placed in Schuyler’s hands the very instrumentalities by which the injury was wrought. They imposed restrictions upon its use, but. omitted the safeguards which ordinary prudence would dictate to discover or prevent their abuse. Bank v. Clements, 6 Bosw., 166 ; Affirmed, 31 N. Y., 33 ; Farmers & Merchants’ Bank v. Bank, 16 N. Y; 125.
Alexander & Green, attorneys, and Eugene L. Richards, of counsel, for respondent, argued :
I. Plaintiff failed to show itself a bona fide holder, because it failed to prove that it had knowledge of the apparent authority of Lawton to make the endorsements in suit. Plaintiff failed to show that it had discounted similarly endorsed notes for defendant, and that such discounts and endorsements were known to and ratified by defendant ; or to show previous similar transactions with other persons, also ratified by defendant, and that these facts were known to plaintiff at the time it discounted the notes in suit. This defect was fatal to a recovery by plaintiff. Second National Bank v. Pottier, etc., Mfg. Co., 18 State Rep. 954 ; Dabney v. Stevens, 40 How. 341.
II. The alleged previous endorsements by Law-ton were not proven to be similar to the ones in suit and were not, therefore, proof of any implied authority upon which plaintiff can recover.. The introduction by defendant of by-law 4 in evidence, showing that Lawton had authority from defendant to make these endorsements only with the approval of two trustees, threw upon plaintiff the burden of proving one of two things, either, that the endorsements in suit were made with such approval, or, that the previous alleged endorsements were made without such approval.
III. The alleged previous endorsements by Lawton were not proven to have been ratified by or even known to defendant, and are therefore no basis of any implied authority.
IV. The mere proof of Lawton’s handwriting and official connection with defendant was not of itself proof either of express or implied authority, and the complaint was properly dismissed. The mere fact that Lawton was president of defendant, or treasurer, or both, gave him no authority to endorse notes for defendant. All authority of defendant to dispose of or pledge its assets, was vested in the board of defendant’s trustees, and Lawton, in any capacity, only had such express authority as they, acting as a board, delegated to him. The plaintiff failed to prove such authority, and the complaint should have been dismissed. People’s Bank v. St. Anthony’s Church, 109 N. Y. 512 ; Adriance v. Roomet 52 Barb. 399 ; Dabney v. Stevens, 40 How. 341; Affirmed 46 N. Y. 681 ; Marine Bank v. Clements, 3 Bosw. 600 ; Risley v. Railroad Co., 1 Hun, 204 ; Queen v. Second Ave R. R. Co., 35 Super. Ct. (J. & S.), 154 ; Jackson v. Campbell, 5 Wend. 572 ; Titus v. Cairo, etc., R. R. Co., 37 N. J. L. 98, 102 ; Fulton Bank v. Canal Company, 4 Paige, 127, 134 ; Blen v. Bear River Co., 20 Cal. 602.

Opinion:
By the Court.—Sedgwick, Ch. J.
The action was against the defendant as endorser of two promissory notes. On their face the notes were payable to the order of Navassa Phosphate Company. The endorsement was " Navassa Phosphate Company, W. E. Lawton, Pres't,"'and then the further endorsement " Lawton Brothers." W. E. Lawton represented Lawton Brothers, and there was no partner. The note was delivered to the plaintiff by W. E. Lawton, was discounted for him, and the proceeds remitted to him.
The question on the trial was, whether the endorsement, "NavassaPhosphate Company," was the endorsement of the defendant. Prima facie the endorsement did not bind the company, although W. E. Lawton was president of it. For that fact did not tend to prove that he was authorized to sign the company's name as endorser.
The plaintiff was, therefore, bound to give some competent evidence that the president was in fact authorized to endorse, or that the company held him out as authorized. No testimony was given that authority had been given specifically. The only other evidence on this point consisted of proof of many former endorsements of the company's name by Lawton, in which cases the paper had been transferred and the seeming obligation of the company, as endorser, had been satisfied.
The plaintiff, when it discounted the notes in action, did not know of these former endorsements excepting in a few instances in which they had discounted notes. These were but a few, and so' few that the jury could not find that they of themselves established the liability, and as to them there was no proof of ratification. Therefore, the plaintiff could not prevail on the ground of estoppel as if the defendant had given apparent authority to, or recognized authority in, Lawton to endorse for them, on which the plaintiff had acted.
The plaintiff must then resort to the inferences to be drawn from cases of former endorsements not known to it at the time. Necessarily the inferences must be drawn from the actual facts and not a part of the facts. The former endorsements must be examined in the light of the circumstances that would give them the real significance that should be duly attached to them.
The plaintiff gave many instances where notes payable to the defendant had been endorsed by Lawton, as president, and then discounted at his request, by the bank where the defendant kept its account, and the proceeds of the discount were deposited to the. credit of the account. In these in stances it would appear that an endorsement was a formal matter, so far as authority was concerned, for the receipt of the proceeds specifically ratified, and would, under all circumstances, ratify the endorsement whatever form it had.
The plaintiff would not be entitled from such cases to infer that the defendant had authorized its president to make it liable for endorsements to others, as transferring its 'cause of action on the paper to others.
There were proved, also, many other cases of notes which had been made by third parties to the order of the company and endorsed by Lawton in the name of the company, as its president or treasurer; and then Lawton procured the discounting of them, and they had been afterwards paid. This testimony was not effective for the plaintiff, because the transactions were all conducted by Lawton personally. There was no proof that, in his fraudulent conduct, he did anything which gave notice to the company, excepting himself, of what he personally had done, and which they must be held to know before they can be bound as if by a ratification. If, in fact, the payments were made from the funds of the company, there was no proof that there were on the books of the company, any entries that disclosed that such payments had been made upon a pretended liability of the company upon an endorsement made by Lawton for the company as president. These transactions, if they had been known by the plaintiff, as they were in actuality, would not have evinced any action of the company in view of an endorsement by Lawton as president.
The evidence as to the former endorsements were, at a first and insufficient glance, plausible from their number and their amount. A scrutiny shows that it was vague, and that it did not import consideration valuable to the plaintiff. Several witnesses relied on by the plaintiff spoke of masses of notes and gave general statements as to them. A part of those statements would be decisive for the defendant, and there was no certainty that they were not to be applied to all of the notes referred to, in mass.
I am of opinion that the earlier transactions did not show that the defendant had recognized that Lawton was authorized to sign the corporate name in endorsement.
The learned counsel for plaintiff argued that testimony was stricken out which would have shown that the defendant had recognized its liability upon , endorsements of this kind. The testimony on this point was extremely vague and insufficient. It referred to a mortgage which it was assumed had been received by the defendant as security against losses by the defendant from such endorsements. I cannot find that such was the purpose of the security. There was nothing testified which would be inconsistent with the defendant's denying liability on such endorsements, and properly refraining from enforcing the mortgage as to every case in which it appeared that, though endorsement was unauthorized, yet there was no loss excepting as to the costs and expenses of a defence.
I think the judgment should be affirmed with costs.
Fkeedman, J., concurred