McClure v. Central Trust Co.

The Central Trust Company, henceforth called the defendant, did not sell the stock as its own, hut only as agent for an undisclosed principal. The prospectus did not purport to have been issued by it, but by S. V. White & Company, who, as bankers, announced that they were authorized to offer the stock for subscription, which, in view of what followed, meant for sale by subscription. The necessary inference is that they were thus authorized, not by themselves, which would be absurd, but by an undisclosed owner. This is confirmed by Warner’s letter to them, which was part of the prospectus, wherein he said, “ I have seen a copy of your proposed circular, in which you are about' to offer for sale some of the preferred and common stock of said corporation.”

According to the statements of the prospectus the shares of stock thus offered for sale could not have been shares not yet issued by the English company, as claimed by the plaintiff, for they are not only described as “fullpaid and nonassessable,” but are declared to comprise “all stock held in this country for sale.”

The prospectus contained no representation that the defendant was the transfer agent of stock, as is further claimed by the plaintiff, for there is no express statement as to what it was an agent to transfer, while the context shows that the agency was for the transfer of certificates, the- same as the Union Trust Company was in terms and in the same connection, stated to be the “ registrar of certificates.” Moreover, it was distinctly announced that trust company certificates had been issued by the defendant “ to comply with the requirements of this market,” and that the shares offered were represented by such certificates, against which a like number of shares had been deposited. The certificates stated that they were transferable at the office of the defendant. “ The

Thus the position of the defendant, according to the prospectus, was as follows: It was the depositary of certain shares of stock in the English corporation offered for sale by S. Y. White & Company for an undisclosed owner, against which it was to issue certificates for the purpose of making the stock marketable in this country, and was to act as agent for the transfer of the same, as well as to receive applications for the sale of stock. This was all that the defendant represented to the plaintiff, for he asked no questions and it made no statements, except those which appeared in the various writings. When he first dealt with the defendant he knew all that it knew, except that Warner owned the stock, which Avas an immaterial fact, and the form of the deed of transfer and of the shares of stock as issued by the English company._ Under these circumstances, on the 21st of May, 1891, he entered the office of the defendant and subscribed for 100 shares of stock, made the payment required in advance and accepted the temporary receipt, Avliicli became the first contract between the parties. By that instrument the defendant agreed that, upon payment of the last installment and the surrender of the receipt, the plaintiff should receive a certificate issued by it, representing the number of shares on deposit with it in trust, which he subscribed and paid for under the application. He made no inquiry either as to the form of the certificate or upon any other subject.

The next step was Avhen he completed his payments on the 23rd of June, 1891, and the preliminary contract Avas per

Upon the delivery and acceptance of the certificate the transaction between the parties was complete, except that performance was still due from the defendant of its promise as contained in the certificate. If that promise was satisfied by the delivery or tender of the deed of transfer signed by Warner and attached to a certificate issued by the English company for the number of shares required, no breach thereof by the defendant has been shown. If, on the other hand, it was the duty of the defendant, under all the circumstances, to deliver an effective deed of transfer of marketable stock, free from lien, then the contract has not been performed. While the complaint may be multifarious, if the evidence established a cause of action of any kind, the motion to nonsuit should not have been granted.

We thus reach the question whether the defendant tendered to the plaintiff what it agreed to sell him. Disregarding the mere form of the transaction, the thing sold was stock, and did the stock tendered answer the description of the stock sold ? Did the minds of the parties meet simply upon shares of stock that were marketable, or upon any shares of stock whether marketable or not ? Did the defendant understand that shares of stock lawfully issued in proper form, with genuine signatures, was all that was required, regardless of whether they were worthless owing to a lien thereon or not?

In answer to these questions the defendant invokes the venerable rule of caveat emptor, and holds it up as a shield to protect it from liability to the plaintiff. That rule was rigidly enforced for many years, but as it was found at times to promote injustice, its severity was, to some extent, gradually but cautiously relaxed. Thus, if one sold as his own, goods belonging toa stranger, it was at first held that the purchaser had no remedy unless the seller affirmed that the goods were his.

While the obligation of the vendor is described by some courts as arising from an implied warranty, by others from a' duty imputed by law, and by others still as an implied condition of existence or identity of the thing sold, all mean that the law imputes a duty to the seller, under certain circumstances, whether he actually intended to assume it or not. The modern tendency is to impute a duty whenever it is required by good faith in commercial dealings, fides servanda est. When, from the nature of the transaction or the relative situation or circumstances of the parties, a legal duty should reasonably be imputed to the seller of personal property, in the interest of commerce and to enable the purchaser to get what he paid for, the law will generally impute one, although progress in that direction has been slow and cautious in view of the ancient rule of caveat emptor.

In Delaware Bank, v. Jarvis ( 20 N. Y. 226 ) the defendant had transferred to the plaintiff, without indorsement, a promissory note which had been taken at a usurious premium. The court held that whether the defendant. had knowledge of the usury was not a material circumstance, and “ that the vendor of a chose in action, in the absence of express stipulations, impliedly warrants its' legal soxmdness and validity.” Ten years later this case was followed and made the basis of judgment in Fake v. Smith ( 2 Abb. Ct. App. Dec. 76 .)

Webb v. Odell ( 49 N. Y. 583 ) was a similar case, and the same result was reached, but upon a somewhat different ground. The court said : “ It is a general rule that, upon the sale and delivery of personal property, without fraud or warranty, no action will lie against the vendor to recover damages for any defects which may exist, and this rule applies when the article differs from the representations of the seller as to quality, unless said representations were fraudulent. But when the thing sold differs in substance from what the purchaser was led by the vendor to believe he was buying and the difference in subject-matter is so substantial and essential in character as to amount to a failure of consideration, there is -no contract, and the purchaser may recover hack the money paid. (Kerr on Fraud & Mistake, 58 et seq.) ”

In Ledwieh v. McKim ( 53 N. Y. 307 ) some railroad bonds turned out to he worthless because they were not perfect when they passed from the possession of the defendants to that of the plaintiff’s assignor for the want of an indorsement by the company as to where they were to be paid. It was held that there was an .implied warranty of title in the assignor, and that upon failure of title he was liable. In the course of its

In Ross v. Terry ( 63 N. Y. 613 ) the rule of implied warranty on the part of the vendor was applied to the sale of a bond and mortgage, which were usurious and void, but the defendant knew it at the time of the sale.

There was no question of usury in People's Bank v. Bogart ( 81 N. Y. 101 ), where it was held that there was no implied warranty or representation on the part of the vendor of a bill, valid in the hands of an indorsee, that it was drawn against funds or that it was not accommodation paper, because accommodation acceptances “are certainly not unusual commercial transactions,” and are not necessarily “ inconsistent with good faith or solvency.”

So in Mandeville v. Newton ( 119 N. Y. 10 ), where a party held certain notes and other indebtedness against the maker of the notes, and also held certain claims as collateral security therefor, but after making various collections on the collaterals sufficient to pay the notes, no application having been made in payment of any specific items of indebtedness, at the instance of the debtor and on payment of the balance due him, the holder assigned his claims and transferred the notes, with the collaterals, to another creditor, without any express warranty that the notes were valid outstanding obligations, it was held that no warranty could be implied because it was not in any proper sense a purchase of the notes, except in so far as they, with the other claims transferred at the same time, represented the balance which, after the application of what had been collected, would remain due on the claims transferred.

In Meyer v. Richards it was held that in a sale of commercial paper without indorsement, the obligation of the ven

In view of the latest case in this court upon the subject of implied warranty, Littauer v. Goldman may properly be limited to commercial paper, as it is the policy of the law to throw special safeguards around the- transfer of such property. Although cited in the case of Flandrow v. Hammond ( 148 N. Y. 129 ), it was not allowed to control the decision. In the Fland-row case, on the sale of a judgment by a party who had levied upon it and bought it on execution sale, in pursuance of an agreement to bid it off in satisfaction of the execution and transfer it to the other party, who advanced the money for the expenses of the proceedings, it was held that there was an implied warranty not only of the existence of a valid judgment, but that a valid lien had been acquired thereon by the levy, under which title could be acquired by sale upon execution. This case rests upon the principle that where one sells as his own an incorporeal chattel, a warranty will be implied whenever and to the extent required by good faith. (See, also, Stone v. Frost, 61 N. Y. 614 ; Roberts v. Fisher, 43 N. Y. 159 ; McCoy v. Artcher, 3 Barb. 323 ; Dresser v. Ainsworth, 9 Barb. 619 ; Carman v. Trude, 25 How. Pr. 440 .)

The cases in other states, with few exceptions, hold that upon the sale of stock, bonds, etc., there is an implied warranty that the thing sold is what it purports to be. (Wood v. Sheldon, 42 N. J. Law, 421 ; Thrall v. Newell, 19 Vt. 208 ; Allen v. Clark, 49 Vt. 390 ; Flynn v. Allen, 57 Pa. St. 482 ; Brown v. Ames, 59 Minn. 476 ; Ware v. McCormack, 96 Ky. 139 ; Bell v. Cafferty, 21 Ind. 411 ; Lyons v. Miller, 6 Grat. 427; Aldrich v. Jackson, 5 R. I. 218 ; Merriam v. Wolcott, 85 Mass. 258 ; Lobdell v. Baker, 3 Metc. 472 ; Giffert v. West, 33 Wis. 617 ; 37 Wis. 115 ; Daskam v. Ullman, 74

Story, in his work on Promissory Notes (§ 118 et seq.), says that the seller of a note warrants by implication, unless otherwise agreed, that he is the lawful holder and has a just and valid title to the instrument and a right to transfer it by delivery; that the instrument is genuine, and not forged or fictitious; that it is of the kind and description it purports on its face to be, and that he has no knowledge of any facts which prove the instrument, if originally valid, to be worthless, either by failure of the maker or by its being already paid, or otherwise to have become void or defunct. He further says, however, that the authorities are in conflict when a fact exists which makes the note of no value, but both parties are equally ignorant and equally innocent. Under these circumstances, the learned author declares that the weight of reasoning and the weight of authority seem to be in favor of holding that the seller in such cases must bear the loss. (See, also, Schouler’s Per. Prop. § 318; Daniel’s Neg. Inst. § 730; Byles on Bills, 278; Biddle on Stockbrokers, 265; 2 Randolph Com. Paper, § 757.)

We think it was a condition of the sale, w’hether called an implied warranty or any other name, that the defendant was to deliver marketable stock free from lien, for that alone would meet the description of the thing sold, under the circumstances

The defendant cannot escape liability by claiming that it -sold as agent, for it did not disclose the.name of its principal. The same claim was made in Holt v. Ross ( 541 N. Y. 472 ,474), but the court said: "The express company, when it presented the draft to the plaintiffs for payment and received payment, did not disclose its agency ; therefore, it is liable as if an actual principal in the transaction. It was so decided in Canal Bank v. Bank of Albany ( 1 Hill, 287 ). It was not sufficient that the defendant acted as agent; to shield itself from liability it should-have disclosed its agency. Such is tlie rule as to all agents. To shield themselves from liability for their acts they must give the names of their principals.” This is true even if the plaintiff knew that the defendant was acting as agent for some one," hut did not know for whom (Cobb v. Knapp, 71 N. Y. 348 ; Argersinger v. Macnaughton, 114 N. Y. 535 ; Cabot Bank v. Morton, 4 Gray, 156 .)

The defendant was the central figure in a plan to make shares issued by an English corporation readily marketable in this country. For that purpose it issued the certificates of transfer and accepted the position of agent to transfer certificates in consideration of an annual salary. It held out the shares' in its possession for sale as marketable. The acts of

Whether the lien has been waived by the English company, or discharged according to the terms of the instrument which created it, were matters of defense which were not entered

(dissenting). I dissent, and for these reasons, briefly. Assuming that the plaintiff can recover as for a breach of contract, notwithstanding that his complaint is based solely upon fraud and deceit, I think that he failed to make out any case against the respondent, the trust company'. The latter did not sell the stock, either as its own, or as agent for an undisclosed principal. It was not in any strict sense Warner’s agent. It was merely an agency selected by him for the safe deposit and custody of the English stock and of the moneys, and for the convenient transferring of the interests of those who might deal in the stock. It made no representations as to the value or character of the stock. Its undertaking was' contained in the “ trust receipts ” which it issued, and that was to act as the agent for their transfer and, upon their surrender, to deliver the shares theretofore deposited with it, to the amount called for by the trust receipts, with the deeds of transfer thereof. Whatever material representations were made concerning the stock were contained in the prospectus issued by S. V. White & Co. It behooved the plaintiff, if he desired to satisfy himself further upon the subject of - the shares as issued by the English corporation, to make proper inquiries.- He knew he was buying the stock of a foreign corporation and that he was to receive it under a deed of transfer;-which accompanied the deposit of the stock. In such a case) prudence would seem to dictate the duty of

I not only doubt the soundness of the doctrine, upon which it is sought to impute to the trust company a liability akin to that which it would he under as a vendor; but I doubt its wisdom. The trust company is one of a number of like insti

I think that the judgment should be affirmed.

Parker, Ch. J., Bartlett, Martin, Cullen and Werner, JJ., concur with Vann, J., for reversal; Gray, J., dissents.

Judgment reversed, etc.