Court Opinion

ID: 5355659
Source: CourtListenerOpinion
Date Created: 2022-01-08 07:00:26.649268+00
Date Added: 2024-06-11T08:29:47.604803
License: Public Domain

Cohn, J.
As to the transactions set forth in the first and second causes of action of the complaint, appellant Merchants Refrigerating Company (hereinafter referred to as “ Merchants ”) was protected in its dealings with Eldredge, then the vice-president and general manager of respondent Alex Grossmann & Co., Inc. (hereinafter referred to as “ Grossmann ”) in New York, by reason of bis apparent and implied authority. (Wen Kroy R. Co. v. Public National Bank & T. Co., 260 N. Y. 84, 91; Angerosa v. White Company, 248 App. Div. 425, 427; affd., 275 N. Y. 524; 3 Thompson on Corporations [3d ed.], § 1800.) The transactions involved here were respectively consummated on December 30, 1932, and December 31, 1932. Up to that time, in the light of the facts then known to Merchants, there was an insufficient basis for a finding that Merchants knew or should have known that Eldredge was acting without authority. Upon these two causes of action the judgment should have been directed in favor of Merchants.
As to the third, fourth and fifth causes of action, the trial court correctly found that Grossmann was entitled to recover because it was established that Merchants had converted Grossmann’s merchandise.
The third cause of action is based upon the alleged conversion of 1,195 cases of eggs delivered to Merchants by Eldredge on January 12, 1933, and the fourth cause of action is predicated upon the conversion of 1,180 cases of eggs delivered by him to Merchants on January 13, 1933. This merchandise of Grossmann’s was sent by Eldredge to Merchants in order to raise moneys to supply Droste-Snyder Produce Corporation (hereinafter referred to as “ Droste-Snyder ”) with funds which were to be used to pay for carload lots of eggs bought in a joint venture upon which Eldredge had embarked purportedly on behalf of Grossmann with DrosteSnyder. In each of these two instances, eggs belonging to Grossmann were delivered as collateral for loans made in the name of Grossmann and evidenced by collateral promissory notes which were executed by Eldredge under the name of Grossmann. The proceeds of the loans on each of these two shipments were paid by check of Merchants direct to Droste-Snyder. This was all done pursuant to directions from Eldredge. In the January twelfth *148transaction the loan obtained was in the sum of $7,170, and in the January thirteenth transaction it amounted to $7,080. The evidence is clear that Eldredge had no express or actual authority to conduct these two transactions on behalf of Grossmann. Grossmann was a wholly owned subsidiary of National Dairy Products Corporation. Eldredge’s express instructions were not to borrow, and he was wholly without authority to execute a promissory note on behalf of Grossmann. In conducting these two transactions Eldredge had no entry made in the books of Grossmann showing that loans had been obtained from Merchants or that promissory notes had been given or that merchandise had been pledged, or that the proceeds of the loans had been delivered to Droste-Snyder. Eldredge concealed these facts from his employer because he knew he was acting without authority.
It is equally clear that Eldredge had no apparent authority to borrow money upon collateral notes of his principal executed solely by himself. Checks which were received by Merchants from Grossmann during the year 1932 and up to the time the last transaction involved had been consummated bore two signatures, that of Eldredge and of another employee, whereas the two collateral promissory notes delivered by Eldredge to Merchants were in each instance signed by him alone. Though we assume that Eldredge had not resigned as vice-president and director of Grossmann until after January 23, 1933, and that Merchants still believed he was acting as an officer of the corporation throughout, there was still absent proof that Eldredge was acting under apparent authority. An officer of a corporation has no actual or apparent authority by virtue of his office alone to issue negotiable paper in the name of the corporation. (Jacobus v. Jamestown Mantel Co., 211 N. Y. 154, 161; Emmet v. Northern Bank of New York, 173 App. Div. 840; affd., 221 N. Y. 506; 3 Thompson on Corporations [3d ed.], §§ 1679, 1681.) Mr. Harry Lewis, secretary and treasurer of Merchants, who authorized the loans which formed the basis of the third and fourth causes of action, concededly knew that Grossmann was a subsidiary of National Dairy Products Corporation, and that though his concern had done business with many other subsidiaries of that company, he never heard of any loan made to any of them except the loans made at the request of Eldredge. Moreover, instructions by Eldredge that the proceeds of the loans on the collateral notes of January 12 and January 13, 1933, bearing only Eldredge’s signature, be paid direct to Droste-Snyder were most unusual and obviously called for inquiry on the part of Merchants as to the authority of Eldredge to issue such directions or to pledge the property of his principal for such a purpose. Significantly enough, *149too, the treasurer of Droste-Snyder, Arthur H. Lewis, and the secretary and treasurer of Merchants, Harry Lewis, were brothers who were frequently in touch with each other. Furthermore, Merchants knew that Droste-Snyder had a very small capital and had only been formed in October, 1932, and that its predecessor had had considerable financial difficulty and was practically defunct. In view of all these facts Merchants must have known that Grossmann, a subsidiary of the strong and well-knowm company, National Dairy Products Corporation, would not make repeated loans of this size and character and in this manner and that it would not sanction the issuance of promissory notes signed only by the general manager of a subsidiary with directions that the proceeds of these loans be paid direct to another company of doubtful financial standing. In these circumstances Merchants was clearly chargeable with knowledge that Eldredge was exceeding his authority and that he was wrongfully disposing of the property of his corporation. Merchants knew or should have known that it was wrongfully receiving Grossmann’s merchandise. It was clearly liable in conversion to Grossmann for these transactions.
As to the prior occasion when a loan was made at the instance of Eldredge, namely, in July, 1932, no inquiry had then been made by Merchants as to Eldredge’s authority to borrow money on a promissory note in the name of Grossmann. It is important to note that the books of Grossmann did not show that a loan had then been obtained or that a note had then been given.
The claim that Grossmann had sanctioned the joint venture previously conducted by Eldredge with Droste-Snyder in November, 1932, covering the purchase of twenty-five cars of storage eggs, is without basis. No entries appeared on the books of Grossmann showing that there was such a joint venture and the check for half the profits, amounting to $947.47, was not recorded on the books of Grossmann until December thirty-first, when it was entered to “ Cost tif Produce.” The books of Grossmann thus entirely concealed what Eldredge had been doing and supply no ground for any argument that such a method of doing business by Eldredge on behalf of his employer was either authorized or encouraged. Upon the whole record it is difficult to escape the conclusion that Eldredge was acting wdth selfish and dishonest motives in the November joint venture as well as in the one involved in the case at bar.
As to the fifth cause of action in which Eldredge put up 1,461 cases of eggs belonging to Grossmann on January 20, 1933, as collateral with Merchants for loans previously made by Merchants to Droste-Snyder, Merchants admittedly was informed that Gross*150mann was interested in furnishing the collateral because it was engaged in a. joint venture with Droste-Snyder. Eldredge had no actual authority to enter into a joint venture with another corporation. Such an enterprise was clearly beyond the scope of the administrative functions of Eldredge, who had no authority, actual, apparent or implied, to use Grossmarm/s merchandise for such a purpose. It is to be noted that this transaction followed in point of time the loans on the promissory notes. Obviously all of the facts taken together were more than sufficient to cause Merchants to investigate the authority of Eldredge to engage in these extraordinary deals for the National Dairy Products Corporation.
The claim that Grossmann ratified the joint venture with DrosteSnyder because the merchandise involved in the third, fourth and fifth causes of action was part of the entire consignment purchased from Bennett & Co. is not tenable. There is no dispute that Eldredge had full authority to purchase eggs on behalf of Grossmann. The eggs involved in the third, fourth and fifth causes of action were purchased by Eldredge from Bennett & Co. of Chicago, who were ignorant of any joint venture. This merchandise was paid for in full by Grossmann. There is no reason why Grossmann should be prevented from claiming title to these eggs without thereby affirming the unauthorized joint venture with DrosteSnyder and the unwarranted and the unauthorized loans to DrosteSnyder by Merchants on Grossmann’s wares solely at the behest of Eldredge.
The counterclaims by Merchants were properly dismissed after the court had found that Eldredge was without actual or apparent authority to pledge the merchandise involved in the third, fourth and fifth causes of action to obtain loans, the proceeds of which were to be delivered to Droste-Snyder. These counterclaims represented balances remaining unpaid on the promissory notes executed by Eldredge allegedly on behalf of- Grossmann and also for a balance claimed to be due from the deficit arising upon the sale of the collateral held for the loan which is the basis for the fifth cause of action.
The judgment should, accordingly, be modified by eliminating therefrom the sum of $9,207, with interest from December 30, 1932 (first cause of action), and the sum of $5,733, with interest from December 31, 1932 (second cause of action), and, as so modified, affirmed, with costs to the appellant Merchants Refrigerating Company.
Martin, P. J., and Callahan, J., concur; Untermyer and Dore, JJ., dissent and vote to reverse.