Court Opinion

ID: 5256055
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:28:14.190838+00
Date Added: 2024-06-11T08:28:00.780756
License: Public Domain

Philbin, J. (dissenting):
The plaintiff sues to recover damages from the defendant because of its alleged negligence in so conducting itself as to permit the fraudulent issue of a certificate for 100 shares of defendant’s preferred stock. The certificate was received by-plaintiff as security for a loan in good faith in the regular and ordinary course of business. As plaintiff’s complaint was dismissed on motion of the defendant at the close of the case, the plaintiff is now entitled to the benefit of the rule as to favorable inferences.
In September, 1910, one George W. Corwin applied to the plaintiff for a loan of $1,500, offering the certificate as security. The loan was made and later increased on the same collateral to $2,000. Corwin had been a customer of plaintiff for some years preceding September, 1910. On November 6, 1913, the note held by the plaintiff was further renewed by a demand note given by Corwin. Demand for payment was later made and refused. Thereafter on December 6, 1914, the collateral was sold at public auction to one Jacobson for a net sum of $2,017. The stock was transferred on December 19, 1914, and application was then made by the holders to have a new certificate issued to them. The old certificate was canceled by defendant and a new one made and sent by defendant to the Central Trust Company, the registrar, for counter-signature. The registrar refused to sign the certificate, stating that the canceled one had never been validly issued. The forgery of the signature of the registrar was then discovered. It is conceded that the signatures of defendant’s officers on the certificate are genuine.
It appears that one Schuyler was at the head of defendant’s transfer department as transfer agent from 1899 to August, 1901. His desk was in a large room in which fifteen or twenty persons worked, and among them was said Corwin. He was *299a sort of general clerk, helping particularly in other departments. He was called upon by Schuyler at times to assist him in the transfer department. Corwin left the defendant some years before he pledged the certificate with the plaintiff. Schuyler as transfer agent had in his possession, while Corwin was so employed by defendant, a number of preferred stock certificates signed in blank by the president and treasurer. They were kept in bound books in a vault or upon Schuyler’s desk when he was filling out certificates. The vault opened into the large room where Schuyler had his desk.
The numerous cases holding a corporation liable, where its' certificates of stock have been issued fraudulently, are based on some form of estoppel. They may be divided generally into two classes: First, cases involving implied agency; secondly, those involving negligence. (Knox v. Eden Musee Co., 148 N. Y. 441; 7 R. C. L. 218-220.)
If the plaintiff is entitled to recover in this case, it must be on the theory of negligence, because the evidence in the record does not justify á finding that Corwin had implied authority to issue certificates. It is true that, in a general way, he at times assisted Schuyler, the transfer agent, but there is no evidence that when Corwin did so he in any instance wrote in the name of a shareholder on a certificate of stock. In fact, the inference is to the contrary, and that the only time he did write a name on a certificate was when he wrote in his own name on the certificate involved in this action. Moreover, the plaintiff proceeded at the trial on the theory of negligence and the same attitude is taken on this appeal. At more than one place in plaintiff’s brief it is specifically stated that the action is grounded in negligence. The gravamen of this action is tort and it was incumbent on the plaintiff to show that the defendant failed to perform some duty which it should have performed and that in consequence of the omission the plaintiff was damaged. It follows that the only question before the court on this appeal is whether the trial court erred in holding that the theory of action advanced by the plaintiff was not sustained by the proof.
Plaintiff asserts that defendant was negligent, first, in intrusting certificates, signed in blank by the president and the treasurer, to the transfer agent Schuyler and his assistant *300Corwin; secondly, in failing to discover and advertise the theft of the certificate.
The first ground is untenable. Honesty is the general rule of human conduct. An employer may certainly deal with his employees on the assumption that they will be faithful in the performance of their duties. At least he may take that position, without the risk of being deemed negligent, until such time as the employee shows himself unworthy of confidence. And certainly no one is bound to assume that an employee will commit a willful and criminal act of forgery and larceny. If any authority be needed for such self-evident propositions, it may be found in Knox v. Eden Musee Co. (supra). In the case at bar there is no evidence connecting Schuyler with the fraud and no evidence that Corwin was guilty of more than the one transgression. In having the certificates signed in blank by the president and the treasurer, the defendant was following a practice customary with large corporations, as the plaintiff admits. The attendant risk is generally minimized by the device of having some outside agency countersign the certificates as registrar. In this case the Central Trust Company was employed. The face of the certificate carried a printed form of counter-signature with a blank for the name of an officer of the registrar. This was notice to the public that a counter-signature was necessary to give validity to the certificate, and was a step taken by the defendant as a protection against fraudulent issues. The situation is this: Is the defendant corporation liable on the theory of negligence where its certificates are required to be signed by three persons and where a certificate is signed in blank by two of those persons and then stolen by a clerk into whose custody it has come, the clerk not being authorized, expressly or impliedly, to fill in names of stockholders on the certificates or actually issue them? I am of the opinion that the answer must be in the negative. A search of the cases reveals but one directly in point. In Dollar Savings Fund & Trust Co. v. Pittsburgh Plate Glass Co. (213 Penn. St. 307) the court had before it a case on all fours with this, and the result reached was that the defendant corporation was not liable. There the certificate carried on its face an express declaration that the certificate would not be valid unless countersigned by *301the registrar, but I think that the printing on the certificate now before this court of a form for the signature of an officer of the Central Trust Company was equally effective as a declaration of the necessity of a signature by the registrar. This Pennsylvania decision contains a dictum that until the plaintiff shows a certificate, to which are attached the genuine signatures of all the parties whose signatures are necessary to its validity, he is not entitled to enter the lists where the contest as to the negligence of the company is to be fought out. I am not prepared to go to such extreme.. However, I believe that the result reached was sound and that the principle should be applied here.
The remaining specification of alleged negligence may be disposed of briefly. The failure to advertise the theft by Cor-win is, of course, of no importance if defendant was under no duty to ascertain the fact of the theft by a checking up process. In 1899 the new president gave instructions to destroy all certificates bearing the signature of his predecessor. Plaintiff does not now claim that such instructions were not carried out. The inference is, that prior to such destruction, Corwin secretly abstracted the certificate in question. I do not think that there was negligence in not anticipating the theft and examining each certificate separately to see if any was missing. This point was also before the court in the Pennsylvania case, supra, and was decided adversely to the contention of the plaintiff.
The judgment and order should be affirmed, with costs.
Dowling, J., concurs.
Judgment and order reversed and new trial ordered, with costs to appellant to abide event.