Court Opinion

ID: 3576663
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:28:37.31228+00
Date Added: 2024-06-11T07:41:09.492645
License: Public Domain

Moses Silverman was the president of the plaintiff corporation and the active manager of its affairs. He negotiated a loan for the corporation from David Abrams, who delivered to him a check for $15,000, representing a part of the moneys advanced, which was made payable to the corporation. Silverman wrote the corporate name on the back of the check and signed his own name as president thereunder. He also procured his son, David Silverman, to sign his name as secretary beneath his own, although David held no such office. Silverman then indorsed the check "Silfo Amusement Co.," that being the name of a corporation of which he was likewise the president and active manager, and delivered the check to the defendant bank for deposit to the account of Silfo Amusement Company, which was a depositor therein. The defendant collected the check and placed the amount to the *Page 94 
credit of such depositor, which disbursed the moneys for its own purposes by checks subsequently drawn. The plaintiff sues the bank to recover the sum represented by the check which the defendant collected. It has been held that Silverman, as president, had no power to indorse the check for other than corporate purposes; that no title to the check passed through the indorsement; that the defendant, therefore, converted the check and must make restoration to the plaintiff.
The by-laws of the plaintiff conferred upon Silverman, as president, the power to "perform all duties incident to the office of president which are authorized and required by law." They did not express in words the gift of a power to indorse negotiable instruments made payable to the corporation. On the other hand, they imposed no restrictions upon that power, if such existed. Indeed, upon the trial, counsel for the plaintiff remarked, "Oh, yes, it is conceded there are no restrictions." If Silverman was possessed of the power to make the indorsement, that power existed by implication, as an attribute of the office of president which he held.
"The president or other general officer of a corporation has power, prima facie, to do any act which the directors could authorize or ratify." (Hastings v. Brooklyn Life Ins. Co.,138 N.Y. 473, 479.) The secretary of an insurance corporation, by virtue of his office and his permitted practice, has power to execute a written consent permitting a policyholder to mortgage the insured property, and to transfer the policy of insurance thereupon to the mortgagee. This is so, although the policy requires a written consent of the company to that end, and the by-laws of the corporation provide that insured property may not be mortgaged except by the consent of the board of directors. The company is not at liberty "to dispute or deny the authority of their secretary to indorse the consent in question." (Conover
v. Mutual Ins. Co., 1 N.Y. 290, 293.) The president of a *Page 95 
creditor bank, by virtue of his office, may satisfy a judgment in favor of his bank, although the judgment has been previously transferred, and this whether the satisfaction was with or without consideration paid to the bank. (Booth v. Farmers' Mechanics' Nat. Bank, 50 N.Y. 396.) The president of a corporation, such as a bank, "Has an implied power to indorse and transfer its negotiable paper." (Daniel on Negotiable Instruments, § 394.)
Since by implication from the nature of the office which he holds, a corporate president has power to indorse checks payable to the corporation, the case must be the same as if the power of making a general indorsement were conferred upon him by express words. The well-known doctrine of the law of agency would, therefore, apply, that the act of a corporate officer, performed within the scope of his general authority, although a violation of his duty to his corporation, nevertheless, in respect to strangers dealing with the officer innocently for a consideration paid, is a valid corporate act. (Booth v. Farmers' Mechanics' Nat. Bank, supra.) An agent in charge of a branch store, having been granted power to make a general indorsement of checks due the principal, although instructed to deposit all proceeds of the same in a particular bank, who indorses and transfers a check to an innocent purchaser and uses the proceeds of the check for his own purposes, nevertheless transfers good title to the check. "Any departure by the agent from such authority and instructions was a mere diverting of a negotiable instrument from an authorized use, in which case it is not disputed the loss, if any, must fall on the principals of the agent guilty of the diversion rather than on a bona fide holder for value without notice." (Cluett v. Couture, 140 App. Div. 830,833; 206 N.Y. 668.) Where a clerk in the office of a corporation is expressly authorized to use a stamp expressing a transfer for deposit only and to indorse the corporate name there-under, *Page 96 
a general indorsement of a check, for the purpose of securing the proceeds for herself, will not carry title; on the other hand, if her authority is to indorse generally, title will pass. (Standard Steam Specialty Co. v. Corn Exchange Bank, 220 N.Y. 478,481.) In that case Judge POUND said: "One authorized to make a restrictive indorsement is not authorized to make a general indorsement." Again, he said: "Cohen [the clerk] had no authority to indorse checks in blank. If plaintiff had given such authority to her with the intention that the checks when so indorsed might be used for a specific purpose only, such as deposit in the Greenwich Bank, the indorsement would not be made `without the authority of the person whose signature it purports to be.' (Neg. Inst. Law, § 42.)"
The American Law Institute defines "Authority," possessed by an agent, to be "the ability of the agent, resulting from the manifestation by the principal to him of the principal's consent that he shall act for the principal, to create rights in favor of, and impose liability upon, the principal, in accordance with such manifestation." (Re-statement of the Law of Agency, § 9.) It defines "apparent authority" as the "ability" of a person, "resulting from the manifestation by the purported principal to a third person of consent" that such first person shall "act as his agent" to create rights in favor of and impose liability upon such purported principal with respect to such third person in accordance with the manifestation, "where such manifestation, at the time in question, differs from that then made to the purported agent." (§ 10.) It states: "A manifestation of consent to third persons coinciding with the manifestation to the agent does not result in apparent authority. It is only where the manifestation to third persons differs from the manifestation to the agent, that there can be apparent authority." (Id.) Obviously, where the sole manifestation by a corporation of its consent that the *Page 97 
president should act for it, in the indorsement of its checks, consists in its appointment of the president to that office, or in express words to that very effect, the manifestation, "at the time in question," is the same whether to the president or to a third person. This being so, it would logically follow that the president would have "ability" or power, which was actual rather than apparent, to indorse and pass title to a check, for the purposes of self-enrichment, whether to an innocent or guilty third person. Of course, neither the president nor the third person could assume from the manifestation that the corporation would actually approve of a diversion of its funds. Yet the corporation having manifested the bestowal of a general power of indorsement, that power would actually exist to effectuate the passage of legal title to the third person, whether aware or innocent of the wrong. Of course, to the purchaser having notice it would pass subject to equities, while to the innocent purchaser it would be free therefrom. This would not derogate from the fact that an actual and legal transfer had been made in either case, and that neither a forgery nor a conversion had been committed. This view, however, does not appear to find sanction in our recent decisions.
In Wagner Trading Co. v. Battery Park Nat. Bank (228 N.Y. 37,43) this court said through ELKUS, J.: "Assuming as we do that Wagner [the president] had general authority to indorse checks for the plaintiff's corporate purposes, clearly this does not authorize him to indorse checks to his own order and appropriate the money to his own personal use, and the nature of this transaction was such as to warn defendant that the checks were being diverted from usual business channels." This may not be taken to mean that a corporate president, deriving power to indorse by implication from the nature of his office, may not transfer title to an instrument, by an indorsement for purposes other than corporate. So *Page 98 
to hold would violate well-established principles of law, and particularly the principle that an agent's acts, performed within the general scope of his authority, although offending against his duty, may nevertheless constitute valid corporate action. That the court intended to express no such thought is shown by the concluding clause of the citation, which limits its application to cases where "the nature of [the] transaction was such as to warn defendant that the checks were being diverted from usual business channels." The principle announced is this: The indorsement of a negotiable instrument by the president of a corporation passes title to an innocent purchaser for value; it passes no title to a person having notice that the president thereby intends to accomplish a diversion of the corporate funds to his own use. Thus, there may be an apparent power to indorse, as well as an actual power, confided to a corporate president, through the same manifestation of corporate consent, having the identical meaning whether to the president or to a third person. This appears to be in conflict with the views of the Institute. Nevertheless, in this case, it does not militate against the validity of the transfer, if we consider that the transferee, the defendant, was an innocent third person.
It has been held that the face of a check, made payable to a corporation, showing an indorsement by the president to himself individually, sufficiently warns an indorsee of an impending diversion to rob him of the character of an innocent purchaser. (Ward v. City Trust Co., 192 N.Y. 61; Wagner Trading Co. v.Battery Park Nat. Bank, supra.) We do not think that this principle has application to this case. Silverman, in placing the corporate indorsement upon the check, made the check payable, not to himself, as did the president in the Wagner case, but to "Silfo Amusement Co.," a corporation of which he was also president. In Cheever v. Pittsburg, S.  L.E.R.R. Co.
(150 N.Y. 59) M.S. Frost, the *Page 99 
president of a corporation, was authorized by resolution to execute a corporate note for $10,000, and obtain money thereon for the purpose of buying railroad cars for the corporation. He executed two notes for $5,000, and made them payable to his own clerk. The clerk indorsed the notes, making them payable to M.S. Frost  Son, a partnership of which M.S. Frost was senior member. Frost then negotiated a loan for M.S. Frost  Son, and indorsed the corporate note with the firm name, making it payable to the lender, in order to secure the loan. It was held that the form of the note was not sufficient to warn the lender that the note was being used to divert corporate funds to the uses of the president, and that the note was a binding obligation. We think that, in our case, the form of the check gave no notice to the defendant bank, which purchased the check indorsed by Silverman, that he intended personally to appropriate its proceeds, and that the defendant took title in good faith and for value.
Judge LEHMAN, in his opinion herein, seems to agree that Silverman was vested with apparent power, as president, to indorse and transfer good title to the defendant, but that he did not in fact exercise that power. His point seems to be that, as Silverman caused his son to indorse his name upon the check as secretary, therefore, he did not represent that he alone had power to indorse nor did the defendant place reliance upon such a representation. This is sufficiently answered by the following quotation from the Re-statement: "If the facts justify the inference that the act was authorized, it is authorized. The person acting and now relying upon the inference, need not have known the facts at the time of acting. The result does not depend upon estoppel." (§ 44.) It is a question of power, and power only. Silverman having the power to indorse for the corporation, indorsed its name to the check and signed his name thereunder. That was a sufficient *Page 100 
execution of the power to pass title when delivery was made. It matters not what Silverman thought; it matters not what the defendant thought. The power existed and the power was executed. That another signed his name, who had no authority in the premises, did not derogate from the validity of a transfer made by one vested with full power to make it.
The judgment should be reversed and the complaint dismissed, with costs.
POUND, Ch. J., CRANE, O'BRIEN and CROUCH, JJ., concur with LEHMAN, J.; KELLOGG, J., dissents in opinion in which HUBBS, J., concurs.
Judgment affirmed.