
    Edmund Cluett and Others, Respondents, v. Arthur Couture, Appellant.
    Third Department,
    November 16, 1910.
    Bills and notes —principal and agent — diversion of note by agent having authority to indorse in blank—rights of bona fide purchaser — when loss falls on principal.
    Where an agent, acting for his principal as manager of a branch store and authorized to indorse checks drawn to his principal’s order with his principal’s name without other words restricting the indorsement and under instructions to use such checks for deposit only, after indorsing a check with his principal’s name, obtained money on it from a transferee who took it without knowledge of the principal’s instructions, the principal cannot recover of the transferee.
    Under such circumstances the departure of the agent from his instructions was a mere diversion of a negotiable instrument from the authorized use, in which case the loss, if any, must fall upon the principal of the agent guilty of the diversion rather than upon a bona fide purchaser for value without notice.
    Where the check was for a small amount, and the purchaser owned a hotel at which the agent stopped in the course of his employment and the indorsement was not made in his presence, he was not put upon inquiry as to the agent’s authority.
    Smith, P. J., dissented.
    Appeal by the defendant, Arthur Oouture, from a judgment of the Supreme Court in favor of the plaintiffs, entered in the office i the clerk of the county of Clinton on the 23d day of February, 1910, upon the decision of the court rendered after a trial at the Clinton Trial Term, a jury having been waived.
    
      J. S. Shedden, for the appellant.
    
      C. J. Vert, for the respondents.
   Houghton, J.:

The plaintiffs carry. on the business of selling musical instruments, under the style of Cluett & Sons, and have a number of branch stores throughout the country. One Poche was manager of the branch store at Plattsburgh, and his territory extended from Ticonderoga to Rouses Point. He had general charge of the store and the making of the contracts for the selling of musical instruments and was authorized to collect payments therefor in cash or checks. He was paid a salary and had the right to deduct the expenses which he incurred while traveling in his territory upon the business of the firm from collections of money which he made. He also had authority to indorse checks payable to the firm for" deposit in the First Rational Bank of Plattsburgh. In granting to him this authority no particular form of indorsement was prescribed, and it appears to have been his custom to simply write “ Cluett & Sons ” across the back.

The defendant is a hotelkeeper at Rouses Point, and in May, 1908, Poche, the agent, while on business of his firm, stopped at the defendant’s hotel over night, and in the morning, when he was about to pay his bill, asked the defendant if he could cash a check of sixty dollars as he was short of money. On the defendant assenting he produced a check for that amount which he had taken in payment of a claim due the plaintiffs, payable to Cluett & Sons, which name he had indorsed on the back in blank. The defendant deducted the amount of the hotel bill and gave the balance to the agent in money. The defendant knew that the plaintiffs were dealers in musical instruments, with their main store at Troy and a branch store at Plattsburgh, and that Poche was their manager, but did not know his general or special authority and made no inquiry in that respect.

This action is brought for conversion of the check and judgment has been awarded to the plaintiffs, from which the defendant appeals.

The learned trial court before wh m the case was tried without a jury, found that Poche had no authority to indorse the name of duett & Sons on the check, or on any check or other negotiable paper payable to them or their order except for the purpose of deposit, and that all of the plaintiffs’ banking business was done at the First National Bank of Plattsburgh, N. Y., where such deposits were to be made. At the request of the defendant he further found that in taking the check and paying the money to the plaintiffs’ agent the defendant acted in good faith and without any information or knowledge that the agent did not have authority to use the check for the purpose and in the manner in which he used the same.

The theory upon which judgment was rendered against the defendant was that the agent had no implied authority to transfer title to the check and that his actual authority was confined to the indorsing of checks for the purpose of deposit, and that, therefore, he could not pass title by simple indorsement and delivery even to a bona fide holder.

' I concur with the learned trial court in his conclusion that the facts "would not warrant a finding of implied authority on the part of the agent, but it seems to me that the agent did have actual authority to indorse and thereby transfer title to the check to a bpnafide purchaser without notice of any restrictions or knowledge of any facts putting him upon inquiry. The question is not whether the agent had general authority to transfer .title to property belonging to his principals, but whether he had such authority as protects a bona fide purchaser of a negotiable instrument.

Concededly the indorsement was not forged. There was no restriction upon the manner in which the agent should make the indorsement. He was given power to indorse and his customary way was to write the name of Cluett & Sons on the back without further words, and this he had authority to do. If he had indorsed the check as he did and had done the further thing of depositing it in the bank to plaintiffs’ credit he would have been strictly within his authority and have carried out his instructions to the letter. But after he had indorsed precisely as he was authorized ■ to do, he departed from his instructions with respect to depositing and delivered the check to the defendant for full value.

While plaintiffs granted full power to their agent to indorse checks in blank by writing their firm name on the back without any restrictive words, they restricted the use which he should make of the check after he had indorsed it, by requiring him to deposit it in the bank to their credit. 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.

In Schmidt v. Garfield National Bank (64 Hun, 298; affd., 138 ,N. Y. 631) the authority given to the agent was not to indorse, but to use a rubber stamp which when filled out made it impossible to do other than deposit, and it was very properly held that such authority gave no right to indorse in blank by writing the name of the payee.

Lack of authority, express or implied, to indorse was the basis of the decisions in People v. Bank of North America (75 N. Y. 547) and in Robinson v. Chemical National Bank (86 id. 404). In Morris v. Hofferberth (81 App. Div. 512) and in Burstein v. Sullivan (134 id. 623) the effect of payment of an indebtedness by check to a general manager was under discussion, and not simply the question of title to checks which they had transferred.

The rule laid down in Salen v. Bank of State of New York (110 App. Div. 636) seems to me to be particularly applicable to the question involved. In that case the agent was manager for a foreign commission house, and was given power in writing to indorse their names to checks and drafts in blank for deposit in a specified bank. Instead of depositing in the bank the agent indorsed the firm name, followed by his own, and delivered them to a stock brokerage firm,' with whom he had an individual speculative account. The brokers ■ deposited such checks with the defendant which was sued for conversion. In an exhaustive and careful opinion Mr. Justice Clarke points out the fact that the agent having authority to indorse, although coupled with a direction to make deposit in a particular bank, could by such indorsement transfer good title to a purchaser for value without notice, and held that no action would lie against the bank, although it received title through the brokers against whom an action would lie because of the notice which was necessarily imputable to them arising from the circumstances under which they received the checks. The-decision was concurred in by the entire court, and has neither been overthrown nor criticized, and would be identical with the case at bar if the action were against the Champlain Bank, in which defendant deposited the check in question.

If the view that Poehe, the agent, had authority to indorse the plaintiffs’, firm name in blank, and that his selling the check to the defendant instead of depositing it in the bank was a mere diversion, be correct, then the only further question for consideration is whether the defendant had such notice as put him on inquiry respecting the agent’s precise authority.

While conceding that the defendant paid full value for the check, and that he had no actual notice of the limitation of the agent’s authority, the respondents’ counsel insists that the'defendant was guilty of what is aptly termed “commercial bad faith” in not making further inquiry, because he knew that Poche was only manager of the Plattsburgh store and was not a member of the firm of Cluett & Sons, to whom the cheek was payable, and had knowledge that their main store was at Troy.

, It does not seem to me that these facts were sufficient to put the defendant upon inquiry. The agent was confessedly upon the business of the firm. He was a guest at the defendant’s hotel and away from home. Presumptively, and as it turned out in fact, his employers were paying his traveling expenses and hotel bills. He produced a check, moderate in amount, payable to his firm, whose name was not indorsed in defendant’s presence, but had been previously written, and stated that he was short of funds and desired it cashed. There was nothing on the face of the "transaction indicating that the agent desired the currency on the check for the purpose of appropriating it to his own use. The check was not used to pay his individual debt, as was the case in Rochester & C. T. R. Co. v. Paviour (164 N. Y. 281) and in Ward v. City Trust Co. (192 id. 61). One who takes negotiable paper for value before due, without actual notice of any defect, has the right to assume that the relations to the paper of every party whose name appears on it are precisely what they appear to be. (Cheever v. Pittsburgh, etc., R. R. Co., 150 N. Y. 59; Goshen Nat. Bank v. State, 141 id. 379; Dike v. Drexel, 11 App. Div. 77.) It is true that the check was payable to duett & Sons, and was dated the thirteenth day of Hay, and defendant purchased it the next morning before it could have been sent to Troy for indorsement by some member of the firm. This fact cannot defeat defendant, because, as matter of fact, the agent did have authority to indorse the name of the payees on the back. While the defendant did not have the right to assume that Poche, as manager of the branch store, had implied authority to indorse checks payable to the firm and transfer them, he had no reason to suspect that his actual authority was limited by the requirement that after indorsement he should deposit them in the bank. ' The plaintiffs placed a large and important business in the hands of their agent, and chose to give him power to indorse checks, with a special restriction as to depositing after indorsement. For any dereliction on the part of the agent, they should suffer rather than an innocent third party having no notice and not being bound by law to make inquiry. ■

I think the defendant obtained good title to the check, and, therefore, was not guilty of conversion, and that the judgment should be reversed and a new trial granted, with costs to the appellant to abide the event.

. All concurred, except Smith, P. J., dissenting.

Judgment reversed and new trial granted, with costs to appellant to abide event.  