New York County NyArchives Court.....Sheridan, Electric Light Co Vs. Chatham National Bank 1889
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Source: Reports Of Cases - New York
Written: 1889

First Department, May Term, 1889.

THE SHERIDAN ELECTRIC-LIGHT COMPANY OF NEW YORK, Appellant, v. THE CHATHAM 
NATIONAL BANK, Respondent.

Principal and agent — powers of an executive committee of a board of trustees of 
a corporation to authorize one of its members to indorse negotiable paper 
belonging to the corporation — such authority is not invalid, although coupled 
with an unlawful direction as to the disposition of the proceeds — power of a 
corporation, all of the stock of which is owned by four or five trustees 
thereof, to transact business by informal conversations — estoppel.

A corporation, created under the manufacturing laws of the State of New York to 
organize electric-light companies in other States, the plaintiff in this action 
authorized two of its agents to organize such a company at Cleveland, in the 
State of Ohio, upon condition that the company so organized should purchase 
treasury stock of the plaintiff to the amount of five per cent of the capital of 
such company so organized, and should pay to the plaintiff twenty-five per cent 
of its full paid non-assessable stock; that, should the capital of the company, 
organized under such authority, be $100,000, then it should purchase of the 
plaintiff, at its par value, $5,000 of its treasury stock; "and in the same 
proportion, be the capital stock more or less, provided, however, that no single 
company shall be obliged to purchase more than $10,000 worth of the 
aforementioned stock." The agents so employed having received from the Cleveland 
company a sum in excess of $10,000, claimed to be entitled to such excess, under 
an alleged agreement made with the plaintiff, which stated: 

"The contract made with you on the eighth of February specifies the amount to be 
paid this company; any excess, whether in stock of this company, or in cash or 
stock of branch companies, belongs to you, and should the same be received by us 
it will be immediately transferred to you." 

It appeared upon the trial of an action, brought to recover such excess, over 
$10,000, paid by the Cleveland company, that this claim on behalf of the agents 
had been presented to three of the trustees of the plaintiff, who constituted an 
executive committee thereof, and that they empowered one of their number, by a 
written power of attorney executed by them, to settle and adjust the business 
with the agents, obtaining for the plaintiff the sum of $10,000; that the 
trustee, to whom such power of attorney was given, settled the matter with the 
agents, in accordance with the authority thereof, and indorsed certain checks 
and drafts, upon the security of which the defendant in this action paid over 
such excess of the proceeds thereof, above $10,000, to the said agents, to 
recover which sum so paid by the bank this action was brought by the corporation 
against it.

Held, that the bank was protected in making such payment by the plain language 
of the power of attorney, although the trustees subscribing the same might have 
exceeded, in the disposition of the money received from the bank, the power 
which they could lawfully exercise on behalf of the company.

That, if specific authority to indorse such checks and drafts was legally 
delegated by the instrument, the fact that the executive committee conferred 
upon its member further authority, upon which the power to make such indorsement 
was in no manner dependent, would not invalidate the action of the attorney in 
making such indorsement.

The trustees of the plaintiff were five in number, one of whom never qualified 
or acted, and another of whom had been present at only one of the earlier 
meetings of the board. The three trustees who had executed the power of attorney 
had been appointed an executive committee of the company, with authority to 
transact the ordinary and usual business of the plaintiff.

Held, that, in view of the object and purpose of the plaintiff's organization, 
the indorsement of commercial paper was within the scope of the authority of the 
executive committee.

The stock of the company was substantially owned by the three members of the 
executive committee, and by a Mr. Sheridan, for the employment of whose 
inventions it was incorporated.

Held, that where the circumstances and condition of the corporation were such, 
it was not essential that the selection of the executive committee should be by 
a formal resolution of the board of trustees, entered in their minutes, as where 
a corporation consists of a small number of persons like a partnership they may 
transact all their business by conversation without formal votes, and parties 
who deal with them will not be required to sustain all their acts by showing 
that they were directed by a formal vote taken at a meeting of the board of 
trustees.

That the committee in this action, which had full power to sell and negotiate 
paper, payable to the order of the company, could delegate such power to one of 
its members, where its execution involved the exercise of no judgment or 
discretion on his part and was merely ministerial.

It appeared that, after this transaction with the agents, the matter was brought 
to the attention of the board of trustees, and discussed at a meeting thereof, 
at which the executive committee, constituting a majority of the trustees, were 
present.

Held, that, although such disposition of the money in question might have been 
in violation of the rights of the corporation, and could not have been confirmed 
or ratified by the action of the persons, through whose conduct it was disposed 
of, and although such trustees might be accountable and liable to the 
corporation, for having acted in violation of their duties, yet that it was 
within the power of the board of trustees to ratify and confirm the indorsement 
of such paper, even though, by their further action, the trustees might have 
rendered themselves liable for the misuse or misappropriation of the proceeds 
thereof.

That the fact that the company, through such indorsement, received the sum of 
$10,000 and appropriated it to its own use, knowing generally, as the trustees 
and executive committee did, that it was obtained in this manner, precluded the 
company from afterwards disaffirming the transaction through which the money had 
been received.

Appeal by the plaintiff from a judgment rendered at the New York Circuit on a 
trial before the court, without a jury, and entered in the office of the clerk 
of the county of New York on the 7th day of December, 1887, by which judgment 
the plaintiff's complaint was dismissed upon the merits, with costs, and from an 
order denying a motion for a new trial, entered in the same office.

The action was brought to recover the proceeds of certain negotiable paper 
discounted by the defendant, which acted in making such discount upon the faith 
of the following power of attorney:

"Know all men by these presents, That the executive committee of the board of 
trustees of the Sheridan Electric Light Company of New York, acting with full 
authority by virtue of a resolution of the board of trustees of said company, 
have made, constituted and appointed, and by these presents do make, constitute 
and appoint William A. Shepard, of New York, their true and lawful attorney for 
them, and, in their name place and stead, to close and consummate all 
transactions with Dr. Oscar C. Kendrick and Earl L. Shepard, managers, in the 
matter of the sale of the right to use and sell and to form companies to use and 
sell the lights and dynamo machines made under said Sheridan patents, in and for 
the State of Ohio, and to receive all moneys and checks paid by said Kendrick or 
Shepard, and to sign all papers and checks, or indorse the same, necessary to 
carry out transactions^ giving and granting unto the said attorney full power 
and authority to do and perform all and every act and thing whatsoever requisite 
and necessary to be done in and about the premises, as fully to all intents and 
purposes as we might or could do if personally present, with full power of 
substitution and revocation, hereby ratifying and confirming all that he, the 
said attorney or his substitute, shall lawfully do or cause to be done by virtue 
hereof."

Edward D. McCarthy, for the appellant.

Sanford H. Steele, for the respondent.

Daniels, J.:

The claim made by the plaintiff was for the conversion of checks and drafts 
amounting to the sum of about $57,358.36. The plaintiff is a corporation created 
under the manufacturing laws of this State. A prominent object of its creation 
was the organization under its authority of electric light companies in other 
States and territories.
 
It authorized two persons to organize such a company at Cleveland, in the State 
of Ohio. They succeeded in organizing the company there, with a capital of $ 
1,000,000. By the authority conferred upon these two persons it was provided 
that each company organized under the authority of the plaintiff must purchase 
treasury stock of it to the amount of five per cent of the capital of the 
company organized, before licenses would be granted to use and employ the 
inventions owned by the plaintiff. And that the company so organized should also 
pay to the plaintiff twenty-five per cent of its full paid non-assessable stock. 
It was provided, further, that in case the capital of the company organized 
under this authority should be $100,000, then it should purchase of the 
plaintiff, at its par value, $5,000 of its treasury stock, "and in the same 
proportion, be the capital more or less, provided, however, that no single 
company shall be obliged to purchase more than ten thousand dollars worth of the 
aforementioned stock."

In organizing the company at Cleveland the two persons to whom the authority was 
committed obtained the drafts and checks now in dispute. They were made payable 
to the plaintiff, and these two individuals claimed the entire excess over 
$10,000, under an agreement with them declaratory of the effect of the contract 
empowering them to act in the organization of the company in the city of 
Cleveland. This final agreement declared, that the contract made with you on the 
8th of February specifies the amount to be paid this company. Any excess, 
whether in stock of this company or in cash, or stock of branch companies, 
belongs to you, and should the same be received by us, it will be immediately 
transferred to you." And it was under this stipulation that the agents claimed 
the entire amount of the checks and drafts which had been obtained in Cleveland 
on the organization of the company there exceeding the sum of $10,000. This 
claim was disaffirmed by this action, the plaintiff asserting that the 
securities obtained in this manner were its own "property under the provision of 
the agreement already referred to; that the company organized should purchase 
five thousand dollars of the treasury stock of the defendant for every one 
hundred thousand dollars of its capital, subject, however, to the proviso 
already mentioned, that the company itself should not be obliged to purchase 
more than ten thousand dollars of the treasury stock." Where the company 
organized did not avail itself of the privilege secured by this proviso, but 
actually extended its purchase so far as to include $5,000 for every $100,000 of 
the capital of the new company, there the plaintiff insisted that the securities 
obtained in that manner were its own property. And that was considered to be the 
effect of the agreement entered into when the drafts and notes were obtained in 
its name, and for it, from the persons interested in the organization of the new 
company, in Sheridan v. Sheridan Electric Light Company (38 Hun, 396).

But when these checks and drafts were obtained in this manner, and taken by the 
two agents to the city of New York to obtain a settlement with the plaintiff, 
these agents were unwilling to pay to the plaintiff more than the sum of $10,000 
mentioned in the proviso. They had, at that place, on the 8th of May, 1882, 
upwards of $30,000 in amount of these checks and drafts, payable to the order of 
the plaintiff. And, prior to any disposition of them, these two agents met 
William A. Shepard, who was a witness on behalf of the defendant in the action, 
and one of the trustees of the plaintiff. And in the interview which took place 
between them the two agents made this claim to the witness, insisting that they 
were entitled to the benefit of all the securities over and above the $10,000, 
and that they desired to settle with the plaintiff upon that understanding. His 
testimony is that he laid the subject before the two other trustees, who, with 
himself, had been constituted an executive committee of the plaintiff. And that 
he explained to them the position taken by these persons who had been 
instrumental in the organization of the company at Cleveland. And that they then 
empowered him, by a written power of attorney, executed by themselves, to settle 
and adjust the business with these other persons, obtaining for the company in 
the adjustment only this sum of $10,000. For that object they joined in a power 
of attorney to the witness authorizing him to sign all papers and checks, or 
indorse the same, necessary to carry out the transactions which it was the 
object of the parties to consummate. 

This trustee, empowered to act in this manner, met the two persons from 
Cleveland at the defendant's banking office, and the power of attorney was 
produced and exhibited to the president and cashier of the bank, and they, 
considering it to be sufficient for the purpose, received and discounted the 
checks and drafts upon the indorsements made by this attorney thereupon. Ten 
thousand dollars of the proceeds was carried to the credit of the plaintiff, and 
the residue was secured to and obtained by the two Cleveland agents.

The theory upon which the action was prosecuted and tried was that this power of 
attorney did not authorize the bank to receive and act as it did in accepting 
and discounting the paper, but that what it did was without authority, rendering 
the bank liable for the conversion of these checks and drafts. And whether that 
is its legal position is the point, the disposition of which must determine this 
appeal. The power of attorney did, in plain language, authorize William A. 
Shepard, the trustee to whom it was given, to indorse this paper; and if that 
power was legally delegated, the bank is to be protected in acting upon it, 
although in other respects, having no connection with the indorsements to be 
made, the power of attorney may have exceeded the authority which the persons 
subscribing it could exercise on the part of the company, and may have also been 
untruthful in its recitals. If this specific authority was legally delegated by 
the instrument, then the fact that it contained further authority, upon which 
the power to indorse was in no manner dependent, would not, so far as the 
indorsements made under it were concerned, invalidate the action of the agent. 
It was not an illegal instrument, made in violation of a statutory restraint or 
prohibition, but its validity and binding effect upon the plaintiff depended 
entirely upon the power of the two members of the executive committee executing 
it to delegate to the other the authority contained in it. And if they exceeded 
their power in providing for a further substitution of authority, that fact 
would not deprive the agent of the authority to indorse the paper, if these 
persons were in such a relation to the company as authorized them to confer that 
power, or if the use of it was afterwards ratified or confirmed by the company 
itself.

The trustees of the company were five in number. One, however, never qualified 
or acted, and another is stated to have been present at only an early meeting of 
the board. It was stated, in the course of the evidence, that he had not been 
present at any meeting after the first, and had not been notified or required to 
be present when the meetings were held. But upon this subject the testimony of 
the secretary, who was not a stockholder, was that "the meetings of the board of 
trustees were always called by a written notice, or in pursuance of an 
adjournment;" and as he apparently had no other duties to perform than those 
strictly appertaining to his office of secretary, it is probable that his 
statement as to this fact was more reliable than that of the trustee who was 
examined as a witness upon the trial. Each of these witnesses, however, do agree 
that, soon after the plaintiff was incorporated, a motion or resolution was 
carried, by which three of the members of the board of trustees were elected or 
appointed as an executive committee of the company. This committee is shown to 
have consisted of Henry Ellis, the president and treasurer of the company, 
William A. Shepard, the witness, and Samuel P. Smith, another of the trustees. 
And they continued to act as such and to manage the business of the company 
throughout the period of these disputed transactions. Their selection as an 
executive committee had the sanction of the statute, although it was provided by 
section 3 of chapter 40 of the Laws of 1848, that the stock, property and 
concerns of the company should be managed by not less than three nor more than 
thirteen trustees, for by section 26 of the same act the corporation possessed 
the general powers and privileges mentioned in title 3, chapter 18 of the first 
part of the Revised Statutes; and by subdivision 5 of section 1 of that title it 
was empowered "to appoint such subordinate officers and agents as the business 
of the corporation shall require." And the appointment of the executive 
committee was an appropriate exercise of this authority. (Olcott v. Tioga R. R. 
Co., 27 N. Y., 546.) And when it was appointed, even though its authority may 
have been too broadly stated by the witness Shepard, it still did have the 
power, as its appointment was described by the secretary himself, to transact 
the ordinary or usual business of the plaintiff. 

And the indorsement of commercial paper of this description was within that part 
of its business, for a leading object of its organization was the acceptance and 
receiving of funds from subordinate companies incorporated under its authority. 
And the usual mode of transmitting and receiving such funds would be by the use 
and indorsement of commercial paper. (Hoyt v. Thompson's Exr., 19 N. Y., 207.) 
The plaintiff was so far a trading corporation, a part of whose business would 
necessarily be transactions of this description, and they would naturally and 
legitimately fall within the scope of the duties of an executive committee. Not 
only, therefore, did this committee possess the authority of indorsing and 
transferring the paper in controversy, but the treasurer himself, who was also 
president of the corporation, had that power by virtue of his office as 
treasurer. [Narraganset Bank v. Atlantic Silk Co., 3 Metc., 282.)

The stock of the company was substantially owned by the three members of the 
committee, and by Mr. Sheridan, for the employment of whose inventions it was 
incorporated. And where that is the nature of the corporation it is not 
essential that the selection of the committee should be by formal resolution of 
the board of trustees entered in their minutes. For it has been held that "where 
a corporation consists of a small number of persons, like a partnership, they 
may transact all their business by conversation without formal votes. And it 
will be a violation of the plainest principles of justice to hold those who deal 
with them to prove all their acts by regular votes." (Melledge v. Boston Iron 
Co., 5 Cush., 158.) It does not, accordingly, detract from the authority of the 
committee that no formal resolution has been found in the minutes of the 
proceedings of the board defining and declaring the limits of its authority. 
This committee, having itself the power to indorse and negotiate paper payable 
to the order of the company, could delegate the same power by its united action 
to the witness Shepard through the instrumentality of the power of attorney, for 
that involved no exercise of judgment or discretion on his part. The business to 
be transacted is stated, and so the fact has been found, to have been 
communicated by this trustee to the other two members of the committee, and they 
had agreed upon what should be done. That was to accede to the claims of the 
Cleveland agents, allowing them to retain for their own benefit the entire 
proceeds of the checks and drafts over the sum of $10,000 they were willing to 
pay to the plaintiff. That position received the assent and approbation of the 
committee. And after that there was no more to be done than to indorse the name 
of the company upon the paper and receive the sum of $10,000 in its behalf. 
These acts included no exercise of judgment or discretion on the part of the 
agent selected to do the business. And for that reason it was competent for the 
other two members of the committee to empower him to make these indorsements and 
to receive this sum of $10,000 for the plaintiff. (Com. Bk. of Lake Erie, v. 
Norton, 1 Hill, 504; Emerson v. Providence Hat Mfg. Co., 12 Mass., 237; Renwick 
v. Bancroft, 56 Iowa, 527.)

What was to be done was the performance of no more than ministerial acts. And 
the power to perform those acts could, in this manner, be confided by the 
committee to one of their number. The case of People's Bank v. St. Anthony's R. 
C. Church (39 Hun, 498), has been referred to as an authority inconsistent with 
this disposition of the power of the committee. But it has no application to 
their  action for the reason that its members acted together, as a committee, in 
determining and deciding what should be done, and providing the manner in which 
their determination should be carried into effect. Here there was unity of 
action, while in that case the trustees acted individually and separately. In 
receiving the paper, with the indorsement made in this manner, the bank acted 
upon the faith and effect of the power of attorney. And it had the right so to 
act, inasmuch as the power contained this lawful delegation of authority from 
the other members of the committee to the person who conducted the business with 
the bank. He had been legally empowered to indorse and transfer the paper to the 
bank, and it could not be made liable for a conversion of the paper when that, 
was received by virtue of this authority. And that this authority was vested in 
the committee is further authenticated by the proof that the business which had 
previously been done for the company was performed by the committee. The 
agreement made with the two Cleveland agents was made by its members and the 
drafts and checks were obtained in the exercise of that authority. And no more 
than the consummation of the same business resulted from the action of the 
committee through which these drafts and checks were indorsed and disposed of. 
After that was done the evidence of this witness is that the business was 
brought to the attention of a meeting of the board of trustees. This meeting is 
stated to have taken place on the 25th of May, 1882. And it is then said that 
what had taken place was fully discussed by the board; that the transaction was 
talked over, and all the facts in the possession of the witness were laid before 
the trustees, and no dissent whatever appears to have been expressed. It is 
probable that no more than these three members were at the time present, but 
they were a majority of the board of trustees, and, according to the testimony 
of the secretary, notice of the meeting must have been given, and, as a 
majority, their action was binding upon the corporation. (2 R. S. [6th ed.], 
391, § 6.)

It has been insisted that the disposition made of this paper being in violation 
of the rights of the corporation could not be confirmed or ratified by the 
action of the persons through whose conduct it was disposed of. And that will be 
the case as to the accountability or liability of trustees acting in violation 
of their duties to the corporation. But the defendant cannot be made liable by 
reason of such action on the part of the trustees, when it is made to appear, as 
it was upon the trial, that it received this paper in good faith and under the 
exercise of lawful authority for its indorsement. The misconduct of the trustees 
consisted in permitting an appropriation of the proceeds of the paper to the use 
of the Clevland agents, and not in the indorsement or transfer made of the paper 
to the defendant. And it was within their power to ratify and confirm that 
indorsement, even though by their further action they may have rendered 
themselves liable for the misuse or misappropriation of the proceeds, of the 
paper itself. With that the defendant had nothing to do. For its protection, all 
that was necessary was that the power should exist, as it has been held to 
exist, for the indorsement of the paper and its transfer to the bank. The misuse 
of the proceeds after that is an act for which the bank was not accountable, but 
rests wholly between these individuals and the plaintiff. And the conduct of the 
bank cannot be impeached by the further circumstance that out of the proceeds 
received by the Clevland agents they loaned and advanced as a cover for a gift 
to the trustee, acting under the power of attorney, the sum of $2,500.

A further act of ratification arises out of the fact that the company, through 
the indorsements received this sum of $10,000, and it was afterwards 
appropriated to its use and benefit; and it could not receive and dispose of 
this fund, knowing generally, as the trustees and the executive committee did, 
that it was obtained in this manner, and afterwards disaffirmed the transactions 
through which the money was secured. This principle was applied in Castle v. 
Bullard (23 How. [U. S.], 173), to affirm a disposition of property by receiving 
the profits of a fraudulent sale in the shape of commissions. And it was further 
sanctioned in People's Bank v. National Bank (101 U. S., 181), where it was said 
that, "all the parties engaged in the transaction, and the privies, were agents 
of the defendant. If there were any defect of authority on their part, the 
retention and enjoyment of the proceeds of the transaction by their principal 
constituted an acquiescence as effectual as would have been the most formal 
authorization in advance, or the most formal ratification afterwards." (Id., 
183.) Both the power of attorney executed and the approval of what was done by 
the trustees themselves, and the acceptance and retention of this sum of money 
fully exonerated the defendant from liability for the paper indorsed and 
transferred, on the 8th of May, 1882.

The residue of the paper was in like manner indorsed, received by the bank and 
discounted on the 5th of June, 1882. That amounted to upwards of $18,000. As to 
that, the evidence tended to show the understanding of the committee to be that 
the proceeds were claimed by and to go wholly to the Cleveland agents. And when 
that paper was taken to the city of New York it was in like manner indorsed, 
transferred to the bank and discounted, as that which was received and disposed 
of on the eighth of the preceding month. No further or more special action was 
taken concerning the disposition made of the second installment of paper on the 
fifth of June; as to that no direct ratification took place, but there was 
acquiescence on the part of these trustees and this committee in what was done 
for the transfer and indorsement of this paper to the bank; and that remained 
unquestioned until the meeting of the board on the 10th of July, 1882, when Mr. 
Sheridan, who owned the greater part of the stock of the company, insisted upon 
it, that proceedings should be taken to recover the money in this manner 
retained by the Cleveland agents. Even then it was not claimed by him, or any 
other person present, that the bank was liable, but that the persons to whom the 
money had been paid, and who had retained it, should be made accountable for it 
to the company. But even without any further ratification than arose out of the 
acquiescence of the board in what had been done on the fifth of June, the bank 
was exonerated from liability, for it acted under a lawful authority binding 
upon the corporation in receiving and discounting the paper. That was sufficient 
for its protection as to this part of the transaction. Upon neither branch of 
the case was a liability made out against the bank. It had the right to act, as 
far as it did act, upon the apparent as well as real authority delegated to the 
witness Shepard.

It is unimportant to consider the rulings rejecting evidence offered on behalf 
of the plaintiff, or whether other findings of fact assailed by the appellant 
were or were not supported by the evidence, for, as the defendant was protected 
in receiving the paper upon the indorsement of the trustee to whom the power of 
attorney was made, the case would in no manner be changed if the other evidence 
had been received, or if the findings complained of were not founded upon a 
legal measure of proof, and the judgment in the case should be affirmed, with 
costs.

Van Brunt, P. J., and Brady, J., concurred.

Judgment affirmed, with costs.

Additional Comments:
Reports of Cases Heard and Determined in the Supreme Court of the State of New 
York. Marcus T. Hun, Reporter. Volume LIX, 1889, HUN 52. Banks & Company, 
Albany, NY. 1901.

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