Case Name: CHESTER COUNTY GUARANTEE & SAFE DEPOSIT CO. et al. v. SECURITIES CO. et al. (TOLANO et al., Interveners)
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1914-12-31
Citations: 150 N.Y.S. 1010
Docket Number: No. 6370
Parties: CHESTER COUNTY GUARANTEE & SAFE DEPOSIT CO. et al. v. SECURITIES CO. et al. (TOLANO et al., Interveners).
Judges: 
Reporter: West's New York Supplement
Volume: 150
Pages: 1010–1020

Head Matter:
CHESTER COUNTY GUARANTEE & SAFE DEPOSIT CO. et al. v. SECURITIES CO. et al. (TOLANO et al., Interveners).
(No. 6370.)
(Supreme Court, Appellate Division, First Department.
December 31, 1914.)
1. Bonds (§ 102 )—Negotiability—Transfers—Validity.
An owner of bonds which have been stolen, and transferred by the thief by means of a forged indorsement, may reclaim them in the hands of the transferee, though new securities have been issued to him in his own name in place of the stolen bonds.
[Ed. Note.—For other cases, see Bonds, Cent. Dig. § 110 ; Dec. Dig. § 102.*]
2. Bonds (§ 102*)—Negotiability—Transfers—Validity.
Where bonds, nonnegotiable and transferable only by indorsement, duly authenticated, on surrender to the corporation, were stolen from the registered owners, designated as executors, and the thief forged an indorsement thereon, which the corporation accepted, persons deriving title through the larceny and forgery must account to the owners, though they acted in good faith, and though new bonds were issued in place of the stolen ones.
[Ed. Note.—For other cases, see Bonds, Cent. Dig. § 110; Dec. Dig. § 102.*]
3. Bonds (§ 102*)—Negotiability—Transfers—Validity.
Where bonds, nonnegotiable and transferable only by indorsement, duly authenticated, on surrender to the corporation, were owned by executors as registered owners, and the bonds were stolen, and the corporation transferred them on a forged indorsement, by the thief indorsing the name of one of the executors individually by means of a rubber stamp, the corporation was negligent, and liable to persons receiving the bonds in good faith, and required to account to the executors therefor.
[Ed. Note.—For other cases, see Bonds, Cent. Dig. § 110 ; Dec. Dig. § 102.*]
4. Guaranty (§ 36*)—Transfr of Bonds—Forged Indorsement—Guaranty of Genuineness—Liability of Stockbrokers.
Where a corporation negligently issued bonds in lieu of bonds stolen from the registered owner, on which the thief forged indorsements, and indorsements were also forged on the new bonds, stockbrokers, ignorant of either forgery, guaranteeing in good faith the genuineness of the indorsements on the new bonds were not liable to the corporation, or to subsequent holders required to account to the registered owner therefor.
[Ed. Note.—For other cases, see Guaranty, Cent. Dig. §§ 38-45; Deo. Dig. § 36.*]
Ingraham, P. J., and Laughlin, J., dissenting.
Appeal from Special Term, New York County.
Action by the Chester County Guarantee & Safe Deposit Company and another, as executors of Ann W. Roberts, deceased, against the Securities Company and another, in which-Edward D. Toland and others intervene. From a judgement for plaintiffs, and adjudging the rights of defendants as between themselves, the Securities Company and the Equitable Securities Companv appeal. Modified and affirmed.
Argued before INGRAHAM, P. J. and McLAUGHLIN, LAUGHLIN, CLARKE, and SCOTT, JJ.
Carl M. Owen, of New York City, for appellants.
Marvin W. Wynne, of New York City, for respondents.
Yorke Allen, of New York City, and Reynolds D. Brown, of Philadelphia, Pa., for interveners.
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
McLAUGHLIN, J.
The plaintiffs, as executors of the estate of Ann W. Roberts, deceased, were, prior to March 28, 1908, the registered owners and holders of $25,400 consols, hereafter called bonds, of the defendant Securities Company. These bonds were nonnegotiable, and transferable only by indorsement, duly authenticated, upon surrender to the company.' They were kept by the plaintiffs in a tin box in a vault of the First National Bank of West Chester, Pa. On or about the date named, Gibbons G. Cornwell, a son of the plaintiff R. T. Cornwell, in some way not clearly explained in the record, gained access to the vault, broke open the box, and stole $23,000 of the bonds. He then forged the names of the executors to the blank form of assignment for transfer on the back of each bond. The signature of his father was affixed by the use of a rubber -stamp, and that of the Chester County Guarantee & Safe Deposit Company by a rubber stamp, and forging with a pen the name of B. S. Walton, its president. - The corporate seal of the company was affixed to the assignment, and Gibbons G. Cornwell attached to each his false certificate of acknowledgment as notary public, certifying that R. T. Cornwell, individually, and B. S. Walton, in his capacity as president, had personally appeared before him and duly acknowledged their respective signatures. Thereafter he obtained and attached to one of the bonds a genuine certificate of the county prothonotary, certifying his authority to take acknowledgments. He then mailed the bonds to the defendant Securities Company with a letter written by him on the stationery of Cornwell & Cornwell, the law firm in which he and his father were partners, requesting that the bonds be transferred to the name of his father. The Securities Company, notwithstanding the fact that it noticed the signature of R. T. Cornwell had been made with a rubber stamp, and that the transfer was to be made to one of the executors individually, made no investigation, but did as requested, and mailed the 23 new bonds in a letter addressed to Cornwell & Cornwell. The letter was opened by Gibbons G. Cornwell, who forged the name of his father to the indorsement on each of the new bonds and deposited them with Jamison Bros. & Co., brokers, as security for a speculative account carried by that firm for him. On the same day Jamison Bros. & Co. indorsed a guaranty of the genuineness of the signature of R. T. Cornwell on the back of each bond and repledged them with Edward D. Toland, one of the interveners in this action. The bonds subsequently passed through the hands of other brokers, who have intervened in the action, each time the signature being guaranteed, and in June, 1911, were purchased by the defendant Equitable Securities Company. The transfer of the bonds by Jamison Bros. & Co., and all subsequent transfers, were made in good faith and without any knowledge of the forgery of the signature of R. T. Cornwell. The Equitable Securities Company, after it obtained the bonds, presented them to the Securities Company and had them transferred and new bonds issued to it in their place.
The loss of the original bonds was not discovered by the plaintiffs until the early part of August, 1912, when notice was at once given to the appellants, and a demand made that they deliver to the plaintiffs bonds of the' same kind and issue, and of the same face amount, as originally issued to them, or that the plaintiffs be paid the value of the same. They neglected and refused to comply with demand, and thereupon this action was brought to procure a judgment decreeing that the plaintiffs were the owners and entitled to the immediate possession of the bonds issued by the Securities Company to the Equitable Securities Company, that the latter company be directed to deliver such bonds to the plaintiffs, properly indorsed, that the Securities Company be directed to transfer the same to the plaintiffs, and that an accounting be had for the interest paid on said bonds from March 1, 1912. The appellants separately answered,, and put in issue the material allegations of the complaint upon which a recovery was asked. The Securities Company asked that the complaint be dismissed, and, in case judgment were recovered by the plaintiffs against it, that it have judgment against the Equitable Securities Company, indemnifying it against any damage it might sustain by reason thereof, and against the interveners to the extent of $18,000. The Equitable Securities Company asked that the complaint be dismissed, and, in the event that the plaintiffs have a judgment against it for the cancellation of the bonds in its possession, that it have judgment against the Securities .Company" for the amount of its loss, and against the interveners to the extent of $18,000—that being the amount of bonds received from them. The interveners jointly answered, and asked that the complaint be dismissed, and in case judgment were rendered in favor of the plaintiffs against the Equitable Securities Company, directing the surrender and cancellation of the bonds held by it, that then judgment be awarded against the Securities Company in favor of the Equitable Securities Company for the amount of the damages which it might sustain by reason of such surrender.
At the conclusion of the trial the court rendered a judgment to the effect that the plaintiffs, as executors and trustees of the Roberts' estate, were entitled to the possession of $23,000 of bonds issued by the Securities Company; that the Equitable Securities Company held $23,000 of bonds as trustee for the benefit of the plaintiffs, which it was directed to deliver to them, properly indorsed; for immediate transfer on the books of the Securities Company; that the Securities Company was directed to cancel the bonds issued to the Equitable Securities Company, and in place thereof issue to the plaintiffs 23 new bonds, of the face val ue of $1,000 each, registering the same in the names of the plaintiff; and that plaintiffs have judgment against both the Securities and Equitable Companies for $1,840, being the accrued interest on the $23,000 of bonds from March 1, 1912. The judgment also directed that the claims of the appellants against the interveners be dismissed on the merits. It is from this judgment that the appeal is taken.
Three questions are presented by the appeal: (a) The right of the plaintiffs to recover the bonds from the Equitable' Securities^ Company ; (b) the liability of the Securities Company; and (c) the liability of the Equitable Company and the interveners.
I am of the opinion that the judgment, in so far as it directs the Equitable Securities Company to deliver to the plaintiff the bonds held by it, properly indorsed, and to pay the interest thereon from March, 1912, is right, and should be affirmed. The principal relief sought by the plaintiffs is the recovery of the bonds themselves from the Equitable Securities Company and their registration by the Securities Company in the names of the plaintiffs.
It is strenuously urged by the interveners, on behalf of themselves and the Equitable Securities Company, that the plaintiffs have no right to these bonds, that their rights attached only to the bonds originally issued to them, and that they acquired no interest whatever in the bonds issued in their place in the name of R T. Cornwell, subsequently transferred in the name of the Equitable Securities Company. I am unable to find any authority to support this contention. As I understand it, the owner of securities which have been stolen and transferred by means of forged indorsements may reclaim them in the hands of the transferee, and this even though new securities have been issued to the transferee in his own name, in place of the stolen ones. Clarkson Home v. Missouri, Kansas & Texas Ry. Co., 182 N. Y. 47, 74 N. E. 571; Comstock v. Buchanan, 57 Barb. 146; Cottam v. Eastern Counties Ry. Co., 3 L. T. 465; Johnston v. Renton, L. R. 9 Eq. 181; 26 Arti. Eng. Enc. of Law (2d Ed.) 889; Cook on Corporations (2d Ed.) § 366.
If the theft and forgery had been discovered while the bonds were in the hands of Gibbons G. Corrfwell, I take it no one would doubt but what they could be recovered from him by the plaintiffs. The Equitable Securities Company and the interveners derived their title through his theft and forgery, and, this being so, they took the bonds with the same infirmities in title to which they were subject in his hands. The subsequent surrender of the bonds by the Equitable Securities Company and the registration and issue of new bonds in its name did not better its position. The trust in favor of the plaintiffs was impressed upon the new bonds, as it had been upon the old, because the new bonds simply took the place of the old. The right of the plaintiffs to secure the delivery of these bonds either to themselves or to the Securities Company for cancellation is sustained by the authorities cited. The bonds issued to the plaintiffs had been registered by the Securities Company in their name, and by reason thereof the Securities Company, in legal effect, agreed not to transfer them or change such registration, except at their direction. It undertook to pay the interest and principal only to such registered owners. One of the purposes of registration was to guard the owners against loss resulting from larceny. Being registered, they were nonnegotiable, and could not be sold, except by direction of the registered owners, in whose hands alone they were of value. The bonds having been stolen from the plaintiffs, they had a right to follow, them, or the proceeds derived therefrom, and recover the same, wherever found. If they could not be found, they had the right to recover their value from those who had been instrumental in changing them from registered to negotiable bonds. Pollock v. National Bank, 7 N. Y. 274, 57 Am. Dec. 520; Clarkson Home v. Missouri, Kansas & Texas Ry. Co., supra; Knox v. Eden Musee Am. Co., 148 N. Y. 441, 42 N. E. 988, 31 L. R. A. 779, 51 Am. St. Rep. 700.
The Equitable Company having received the interest upon the bonds since March 1, 1912, judgment was also properly directed against it and the Securities Company for that amount.
The trial court found that the Securities Company was grossly negligent in making a transfer from the plaintiffs to R. T. Cornwell. His name was indorsed upon each bond by a rubber stamp. This, in and of itself, was so unusual that every precaution ought to have been taken to determine that the use of such stamp was authorized. But no precaution whatever seems to have been taken; the Securities Company relying solely upon the assurances of the thief, who requested the transfer to be made, that R. T. Cornwell usually signed his name in that way. Not only this, but the transfer of the bonds from the plaintiffs as executors of the Roberts' estate to R. T. Corn-well was a transfer from one of the executors to himself individually. This, also, should have been sufficient notice to require the Securities Company to ascertain, before making the transfer, that the proper persons had directed it. . Cooper v. Illinois Central R. R. Co., 38 App. Div. 22, 57 N. Y. Supp. 925. Had the Securities Company made the slightest investigation at this time, it would have ascertained that the request- was unauthorized and the bonds had been stolen. Its failure and neglect in this respect was the primary and proximate cause of the loss, which now must be borne by the Securities Company, the Equitable Company, or the interveners. Under such circumstances, it seems to me the loss should be borne by the Securities Company, and this under the well-recognized rule in equity that, whenever, one of two innocent persons -must suffer by the act of a third, he who has made the loss possible must sustain it. Hertell v. Bogert, 9 Paige, 52; Follett Wool Co. v. Utica Trust & Deposit Co., 84 App. Div. 151, 82 N. Y. Supp. 597; Downey v. Finucane, 146 App. Div. 209, 130 N. Y. Supp. 988, affirmed 205 N. Y. 251, 98 N. E. 391, 40 L. R. A. (N. S.) 307; Brown v. Howard Fire Ins. Co., 42 Md. 384, 20 Am. Rep. 90. All the parties, as above indicated, acted in entire good faith; but the fact cannot be overlooked that it was the omission on the part of the Securities Company to properly perform its duty which enabled the thief to make any use whatever of the bonds. Had the Securities Company made the proper investigation, it would have refused to transfer the bonds, and in that case the title still would be in the plaintiffs, and a loss would not have been sustained.
I think, therefore, that the court was right in holding that the interveners were not liable to either company; but I think it erred in not giving the Equitable Company a judgment against the Securities Company for the value of the bonds directed to be surrendered to the plaintiffs.
The decision and judgment appealed from, therefore, should be modified to this extent, and, as thus modified, the judgment should be affirmed, with costs to the plaintiffs.
CLARICE and SCOTT, JJ" concur.