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STANDARD STEAM S. CO. v. CORN EXCHANGE BANK
Factual and Procedural Background
The plaintiff, Standard Steam Specialty Company, brought an action to recover the amount of eleven checks totaling $329.79. These checks were drawn to the plaintiff's order by various customers, but the plaintiff alleged that its endorsements on these checks were forged. After the endorsements, the checks were deposited with the defendant, Corn Exchange Bank, which collected the amounts for its depositors. The defendant denied the endorsements were forged, asserting that an employee of the plaintiff, Harriet Cohen, was authorized to endorse the checks. It was stipulated that Harriet Cohen was authorized only to endorse the checks in a specifically restricted manner using a rubber stamp and adding a handwritten signature of the treasurer. Instead, she endorsed the checks in blank, in her own handwriting, and then delivered the checks to third parties who paid her in good faith. The plaintiff claimed these endorsements were unauthorized and thus forged.
Legal Issues Presented
- Whether the endorsements made by Harriet Cohen, which deviated from her limited authority, constitute forgeries under the Negotiable Instruments Law.
- Whether the defendant bank can retain the funds collected from checks bearing unauthorized endorsements.
- Whether the plaintiff is estopped or precluded from denying the authority of its agent to endorse the checks in the manner done.
- Whether the defendant bank’s position is affected by the fact that it did not deal directly with the wrongdoer.
Arguments of the Parties
Appellant's Arguments
- The endorsements made by Harriet Cohen were unauthorized and thus constitute forgeries.
- Harriet Cohen’s authority was strictly limited to endorsing checks with a specific rubber stamp and adding the treasurer's handwritten signature; any other form of endorsement was unauthorized.
- The defendant bank had no title to the checks because the endorsements were forged and therefore must refund the amount collected.
- The plaintiff is not estopped from denying the authority of its agent to endorse the checks outside the prescribed manner.
Respondent's Arguments
- The defendant bank acted in good faith and in the due course of business.
- The plaintiff’s employee, Harriet Cohen, was authorized to endorse the checks.
- The defendant bank contended it was in a different position because it did not deal directly with the wrongdoer, implying it should not be liable.
- The respondent relied on Salen v. Bank of State of New York to argue that the plaintiff is precluded from denying the agent's authority.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Seaboard Nat. Bank v. Bank of America, 193 N.Y. 26, 30-31 | A bank cannot retain money collected on a check with a forged endorsement unless estoppel applies; bank's endorsement is a warranty of genuineness of prior endorsements. | Used to establish that the defendant bank had no title because the endorsements were forged and must repay the amount collected. |
| Oriental Bank v. Gallo, 112 A.D. 360, 362; affd. 188 N.Y. 610 | Similar principle that forged endorsements invalidate title and impose liability on the collecting bank. | Supported the court’s conclusion that the defendant bank could not retain funds from forged endorsements. |
| Stein v. Empire Trust Co., 148 A.D. 850, 853 | Bank’s liability upon discovery of forged endorsement. | Reinforced the bank’s immediate liability upon discovering the forgery. |
| Schmidt v. Garfield Nat. Bank, 64 Hun 298; affd. 138 N.Y. 631 | Authority limited to restricted endorsement; unauthorized endorsement without use of prescribed stamp is forgery. | Analogous facts used to confirm that authority to endorse in a restricted manner does not permit blank endorsements. |
| Cluett v. Couture, 140 A.D. 830 | Approval of the principle that restricted endorsement authority does not permit other forms of endorsement. | Supported the court’s reliance on Schmidt to restrict agent’s authority. |
| Salen v. Bank of State of New York, 110 A.D. 636 | Agent with general authority to endorse checks may bind principal; authority not restricted. | Distinguished by the court as not applicable because the agent’s authority in this case was strictly limited. |
| Niagara Woolen Co. v. Pacific Bank, 141 A.D. 265, 267-269 | Bank receiving checks endorsed in blank or to agent’s own order must inquire. | Used to emphasize that blank endorsements put banks on notice and require inquiry. |
| Ward v. City Trust Co., 192 N.Y. 61, 69 | Same principle regarding inquiry required upon blank endorsements. | Supported the court’s conclusion that the defendant bank should have been alerted by the endorsements. |
| Squire v. Ordemann, 194 N.Y. 394, 396-397 | Similar principle on bank’s duty to inquire upon suspicious endorsements. | Further reinforced the court’s reasoning on the bank’s responsibility. |
Court's Reasoning and Analysis
The court analyzed the nature of Harriet Cohen's authority to endorse the checks. It found that her authority was strictly limited to using a specific rubber stamp endorsement and adding the treasurer’s handwritten signature. Her endorsement in blank, entirely in her handwriting, was unauthorized and constituted a forgery under the Negotiable Instruments Law, section 42. The court emphasized that authority limited to a specific form of endorsement does not permit other types of endorsements. It relied on precedents, notably Schmidt v. Garfield Nat. Bank, which involved nearly identical facts, to conclude that such unauthorized endorsements are forgeries and convey no title.
The court rejected the respondent’s reliance on Salen v. Bank of State of New York, distinguishing it on the ground that in Salen the agent had general authority without prescribed restrictions, unlike the present case. The court also noted that the defendant bank, having received checks with forged endorsements, had no title and therefore could not retain the funds collected. The fact that the defendant bank did not deal directly with the wrongdoer did not alter its liability. Furthermore, the court held that no estoppel arose from the plaintiff’s conduct to prevent it from denying the endorsements’ validity.
The court also highlighted that banks are put on inquiry when receiving checks endorsed in blank or to the agent’s own order, which applied here and imposed a duty on the defendant bank to investigate.
Holding and Implications
The judgment of the lower court is reversed. Judgment is directed in favor of the plaintiff for the full amount claimed, with costs.
The direct effect of this decision is that the defendant bank is held liable to repay the plaintiff for the amount collected on the checks bearing unauthorized endorsements. The opinion clarifies that an agent’s endorsement authority strictly limited to a prescribed form cannot be expanded by the agent’s conduct, and unauthorized endorsements constitute forgery under the law. No broader precedent beyond the immediate parties was established.
GUY, J.
This action is brought to recover the amount of eleven checks aggregating $329.79, drawn to plaintiff's order by various customers, the endorsement of plaintiff's name on each of which is alleged to have been forged. These checks were, after such endorsement, deposited with the defendant bank and collected by it for its depositors.
The answer denies that the endorsements were forgeries, and alleges that plaintiff's employee who endorsed said checks in plaintiff's name was authorized so to do, and that defendant acted in good faith and in due course of business.
It was stipulated that the plaintiff owned the checks in question; that its only officers were Norman C. Brizse, President, and Percy H. Pinder, Secretary and Treasurer; that it employed as a stenographer one Harriet Cohen, who was accustomed to make its deposits in the Greenwich Bank, and who was authorized to endorse its checks with a rubber stamp as follows: "Pay to the order of the Greenwich Bank. The Standard Steam Specialty Co.," and to affix at the end of the stamp endorsement, in her handwriting, the words "Percy H. Pinder, Treasurer," and that "Harriet Cohen was not verbally or in writing instructed or authorized by the officers of the Standard Steam Specialty Company to endorse checks, except in the manner above set forth"; also that Harriet Cohen either took the eleven checks in question from the mail, or they were delivered to her for endorsement for deposit in the Greenwich Bank, and instead of endorsing the checks in question with the rubber stamp "Pay to the order of the Greenwich Bank. The Standard Steam Specialty Company," and adding in her own writing "Percy H. Pinder, Treasurer," as she was alone authorized to do, she endorsed them with the blank endorsement, wholly in her handwriting, "Standard Steam Specialty Company, Percy H. Pinder, Treasurer," "Harriet Cohen" or "H. Cohen"; that she then delivered the eleven checks, nine to one reputable business man and two to another reputable business man, who in good faith paid her the full amount thereof in cash, without knowledge of any wrongdoing.
Where a bank has collected a check upon which the payee's endorsement "is forged or made without authority of the person whose signature it purports to be" (Neg. Inst. Law, § 42), it cannot retain the money, since it had no title to the instrument upon which the money was paid, "unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." Its endorsement is a warranty of the genuineness of prior endorsements, and, upon the discovery that any endorsement is a forgery, it becomes immediately liable to make good the amount it has received. Seaboard Nat. Bank v. Bank of America, 193 N.Y. 26, 30, 31; Oriental Bank v. Gallo, 112 A.D. 360, 362, affd., 188 N.Y. 610; Stein v. Empire Trust Co., 148 A.D. 850, 853.
Authority to an agent to endorse checks in a specifically restricted manner, in order that they may be deposited to the account of the principal, does not confer upon the agent authority to endorse in any other manner or for any other purpose.
In Schmidt v. Garfield Nat. Bank, 64 Hun, 298, affd. without opinion, 138 N.Y. 631, upon a state of facts practically identical with the case at bar, the learned court said: "Lingard had authority to use the stamp and to sign the plaintiff's name under the stamping upon the checks and drafts, adding his own initials thereto, and thereupon to cause the checks and drafts bearing such restricted endorsement to be deposited in the Chemical National Bank, to the credit of the plaintiff. But such authority gave Lingard no right to endorse the plaintiff's name, except in connection with a restricted endorsement made by stamping the checks and drafts with the stamp provided for that purpose by the plaintiff. * * * Assuming that he had authority to use the stamp and sign the plaintiff's name in connection with the use thereof, and then cause the checks and drafts to be deposited to the plaintiff's account in the Chemical Bank, his action in endorsing the checks with the plaintiff's name without using the stamp, and depositing such checks and drafts to his own account in the Garfield National Bank, was absolutely without any authority or justification whatever. There was, therefore, not only no testimony which would justify the court in holding that Lingard had authority to endorse the checks and drafts in the manner in which he did, but there was no conflict in the testimony which required the court to submit, or would have justified it in submitting, the question to the jury, as to whether Lingard had authority to endorse the checks in the manner in which he did." See, also, Cluett v. Couture, 140 A.D. 830, citing this case with approval.
The case of Salen v. Bank of State of New York, 110 A.D. 636, relied upon by respondent as authority for the proposition that plaintiff is precluded herein from denying the authority of its agent, Harriet Cohen, is not on all fours with the case at bar. In the case cited the agent had general authority to endorse checks for the purpose of depositing them to the credit of his principal; but the exact method of endorsement was not prescribed and restricted as in the case at bar. In this case the sole authority reposed in Harriet Cohen, as to endorsement, was to perform the physical act of affixing the stamp endorsement on the backs of checks "Pay to the order of the Greenwich Bank. The Standard Steam Specialty Company" and adding thereto in her own handwriting the words "Percy H. Pinder, Treasurer." Had she performed this sole act she was authorized to perform in the restricted manner prescribed, defendant bank could not have been misled thereby. The endorsement of the plaintiff's name by her in any other form whatever was an act of forgery and could convey no title either to the persons to whom she transferred the checks or through them to the defendant bank.
It is also to be noted that in the Salen case the agent had general authority to draw checks against deposits which he was authorized to make and to use the proceeds thereof, thus indicating that there was no intent to limit his authority to the performing of a mere carefully restricted physical act.
No act of the plaintiff herein would work as an estoppel under section 42 of the Negotiable Instruments Law.
The fact that a check of a corporation is endorsed by an officer or agent thereof in blank, or to his own order, puts a bank upon receiving such checks on inquiry. Niagara Woolen Co. v. Pacific Bank, 141 A.D. 265, 267-269; Ward v. City Trust Co., 192 N.Y. 61, 69; Squire v. Ordemann, 194 id. 394, 396, 397.
It is urged by the respondent that the defendant bank is in a different position because it did not deal directly with the wrong-doer. We are unable to see that its position is altered in any respect by reason of this fact. The endorsement being a forgery, it could convey no title to the transferee thereof, and the invalidity of the endorsements could not be cured by subsequent transfer to others. Defendant's depositor having no title could convey none to the defendant, and defendant having no title and having wrongfully collected the moneys represented by the checks is liable for the amounts thus wrongfully received.
For this reason the judgment must be reversed, with costs, and judgment directed in favor of the plaintiff for the full amount claimed with costs.
DELANY, J., concurs; SEABURY, J., taking no part.
Judgment reversed, with costs and judgment directed in favor of plaintiff for full amount claimed, with costs.
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