Jarvis v. Manhattan Beach Co.

• Decision Date: 03 March 1896
• Citation: 148 N.Y. 652,43 N.E. 68
• Parties: JARVIS v. MANHATTAN BEACH CO.
• Court: New York Court of Appeals Court of Appeals

148 N.Y. 652

43 N.E. 68

JARVIS

v.MANHATTAN BEACH CO.

Court of Appeals of New York.

March 3, 1896.

Appeal from supreme court, general term, First department.

Action by Nathaniel Jarvis,Jr., against the Manhattan Beach Company. From a judgment of the general term (26 N. Y. Supp. 1061) affirming a judgment entered on a verdict in favor of the plaintiff, and an order denying a motion for a new trial, defendant appeals. Affirmed.

William J. Kelly, for appellant.

Charles Steele, for respondent.

O'BRIEN, J.

The plaintiff in this action recovered a judgment for damages sustained by his assignors in consequence of the defendant's refusal to transfer a certificate for 100 shares of its capital stock upon request, whereby the holders of the certificate were compelled to purchase other shares of equal amount. The defendant had a capital stock of $5,000,000 divided into 50,000 shares of $100 each. A large portion of the stock was issued, and the certificates were listed upon the New York Stock Exchange, and were the subject of purchase and sale by the public. The certificates were signed by the defendant's president and assistant treasurer, and, in order to guard against frauds, countersigned and registered by the Central Trust Company, which acted as registrar of transfers, in order to authenticate the genuineness of the certificates. The defendant had an office in the city of New York, where the transfers of its stock were made, and a transfer clerk was in attendance there to make the transfers. On the 30th of September, 1882, this transfer clerk delivered to a firm of brokers in New York, in the ordinary course of business, a certificate for 100 shares of the defendant's capital stock, to sell for his account. The certificate bore the genuine signatures of the defendant's president and assistant treasurer, and was countersigned by the Central Trust Company, with a certificate of its registration on the day of its date indorsed thereon. It was in all respects regular in form, and carried upon its face every assurance of genuineness, and certified that one B. Bignell was the owner of 100 shares of defendant's capital stock. What purported to be the signature of Bignell was indorsed thereon, under the blank form of transfer; and this signature was witnessed, or purported to be witnessed, by the transfer clerk, who presented it to the brokers. It appeared that this certificate was in fact spurious, fabricated by the transfer clerk over the genuine signatures of the president, assistant treasurer, and registrar, upon the blanks used by the defendant in issuing genuine certificates; that Bignell was not a holder of any stock; and that his name upon the paper was a mere fictitious and fraudulent device. It was shown that, by the rules of the stock exchange, certificates sold there must either stand in the name of some member, and be indorsed in blank by him, or, if standing in the name of some other person, and indorsed in blank by him, must be guarantied by a member of the exchange. The purpose of this rule is to give to the purchaser the security of the indorsement or guaranty of some member, and hence the selling broker becomes a surety for the validity and genuineness of the certificate. The defendant had knowledge of this rule or custom, but did not follow it in practice. When making transfers of stock, in case the signature of the holder was unknown to it, then it had to be attested by a witness whom it did know. In the present case the signature indorsed on the certificate was attested by its own transfer clerk, whose signature was well known; and so the certificate was apparently in a condition for transfer, under the practice adopted at the defendant's office. The brokers to whom the certificate was presented by the transfer clerk sold it in the open market for his account, but were, as already stated, obliged to guaranty its genuineness. In order to ascertain whether they could safely do so, they sent the certificate by a messenger, first to the office of the Central Trust Company, the registrar, and then to the defendant's office, to inquire whether it was genuine and acceptable for transfer. The Central Trust Company informed him that the certificate was properly registered, and the person in charge at the defendant's office informed him, as the plaintiff claims, that the certificate was all right for transfer. The brokers did not procure it to be transferred, but, being thus assured that it was in a condition for transfer at any time, they made the guaranty upon it, and sold it for the account of the transfer clerk, paying to him the proceeds, retaining only the regular commissions. Subsequently, and about two years after, when it was ascertained that the certificate was spurious and worthless, the brokers were obliged to make their guaranty good, and took it back from the purchaser; procuring and delivering to him a genuine certificate, which they purchased in the market. Upon the refusal of the defendant to recognize the certificate, or indemnify the brokers for their loss, they assigned the right of action to the plaintiff. In March, 1884, the transfer clerk, who had been in the defendant's employ for several years, absconded, and then the defendant, for the first time, ascertained from an examination of the books that for years he had been engaged in fraudulently issuing certificates of its stock, including the one in question. The evidence tended to show that prior to his departure he had sole charge of the business of transfers, and of the stock ledger and transfer books; that practically no supervision was exercised over his conduct, and no examination made of the books, though, if made, the fraud of the clerk would have appeared, as it did when the examination was made after the absconding. On these facts and circumstances the case was submitted to the jury, and a verdict was rendered in favor of the plaintiff for the amount which it cost the brokers...