Western Maryland Railroad v. Franklin Bank

Alvey, J., delivered the opinion of the Court. These three appeals have been heard together, as they present nearly a similar state of facts, and give rise to substantially the same questions. The agreed statement of facts in each case, upon which the trials below were had, refers to and adopts, so far as. relevant, the statements filed in the other two cases. We shall, therefore, treat the three cases together and as one, only noticing as we pass any material facts that may distinguish the one case from the others.

The actions were brought by the several plaintiffs below to recover of the defendant in respect of certain fraudulent coupon deposit certificates issued from the office of the latter, and which were purchased by the ³⁹ former in a regular course of business, bona fide, and with out notice. In the submission of the cases to the Court below, it was agreed that, upon the facts stated, the Court should decide whether the defendant was liable in damages or otherwise ; and that if, on any state of pleadings, on the facts staled, the plaintiffs should be entitled to recover, judgments should be entered for the plaintiffs, with the right of appeal. And the opinion and judgment of the Court being in favor of the plaintiffs, the defendant appealed in each case. By the agreed statements of fact it is made to appear, that the defendant, in the year 1880, and for some time before, was in default in the payment of the coupons on its first mortgage bonds, and its second preferred stock.

Some years before the year 1880, the company had funded such over-due coupons at 8 per cent.; and the time for which such funded certificates ran expired July 1st, 1880. The company still being unable to redeem and take up such certificates by payment, determined to refund them, and the method of such refunding was devised by the company, according to a plan of its own, and not that of the holders of the funded certificates of over-due coupons. The rate of interest on the refunded certificates was six per cent, per annum; and the certificates issued by the company were of uniform tenor and representation. That certificate was in this form: i; Western Maryland Railroad Company.

Ro.-- This certificate witnesseth, that in consideration of'---■ having, at the request of the Western Maryland Railroad Company, this day placed in the custody of the Safe Deposit and Trust Company of Baltimore, the coupons of said railroad company, below stated, as the property of the holder of this certificate, until January 1st, 1890, upon the understanding, that the coupons will then be delivered to said company, if it shall have paid the said certificate, and interest meanwhile, at the rate of six per cent, per annum, on the first day of ⁴⁰ January and July, in each year, on the amount stated in this certificate, on presentation of the same at the office of the treasurer of said railroad company, in the City of Baltimore ; hut that if said company shall make default in payment of interest, or of the principal, at the times and in the manner aforesaid, the holders of the funding certificates may, at once, deliver up the funding certificates and reclaim the coupons so placed in escrow: Payments of interest, when made, to he endorsed on the certificate by the treasurer of said company. “ In witness whereof, J. M. Hood, the president of said company, has subscribed his name, and caused its corporate seal to be hereto affixed, and attested by its secretary. — “Attest:--- President." Secretary.” Such certificate was required to be duly signed by the president of the company, and attested by the signature of the secretary, under the seal of the corporation. Attached to the certificate was the schedule of the coupons, giving the numbers of the bonds, their issue, the amount of coupons, and the aggregate amount thereof, in different columns. And under which schedule was a receipt to be signed by the treasurer of the Safe Deposit and Trust Company of Baltimore. This certificate was the regular form prepared by the company, to be issued to any and all holders of the over-due coupons; and it is the exact form of the certificates involved in this case.

There was a book of these printed forms, from which all the certificates were taken, and there was a stub to correspond with each certificate, showing the party to whom the certificate issued, the number of the coupons, with their amount, and other description; and which was required to be signed by the depositor of the coupons; and which receipt was in this form: ⁴¹ “1 have received certificate No.-, which is a copy of the printed form, at the beginning of this hook, with my name, and the description of my coupons inserted, my said coupons being as follows; (then follows a descriptive table of the coupons, with numbers, amounts, &c.) And 1 hereby assign to the persons who may he the bearers of the said certificate, the said coupons, and my liens and remedies upon the same. “Witness my hand and seal. “Witness:- -----IriUAL. ] ’ It is agreed that it was the custom of the company, in paying the interest on all certificates, admitted by it to be genuine, to pay the same to the bearer of the certificate, without requiring any other written assignment from the person in whose name the certificate was issued, than that on the stub in the certificate hook. As matter of fact, all the owners of genuine certificates, signed the receipt and assignment to bearer on the stub, according to the form already recited. It appears, from the agreed statement of facts, that John 8. Harden, Jr., was a regularly employed clerk in the office of the company, and was‘principally employed in the office of the treasurer,- — his father being the treasurer of the company.

It is shown that during the absence of the treasurer, young Harden was charged with the duties of refunding the coupons, and especially charged at all times during his employment, with the duty of receiving from holders of coupons, who wished to refund the same, such coupons, and the issuing to them the refunding certificates for the same. The regular course and manner of his proceeding would appear to be this: He would receive the coupons to he refunded, and he would take them, together with a certificate regularly signed and sealed, filled up with the numbers and description of the coupons, such as has already been described, to the Safe Deposit ⁴² Company, and upon depositing the coupons, he would procure the signature of the treasurer of that company to-the printed receipt at the foot of the schedule of coupons; and this certificate, thus signed, he would deliver to the owner of the coupons, upon the latter signing the receipt and assignment in the certificate hook, at the office of the company. It appears that during the fall of 1880, both the president and the treasurer of -the company were necessarily absent from the office for some time, but in order that the refunding of the coupons might not be delayed, the president, in the first place, signed the certificates in question and others like them, and afterwards the treasurer signed and duly sealed the same with the corporate seal, and left, them with young Harden, the clerk, to be filled up and used in the usual and ordinary course of the business; and this was with the knowledge and by the assent of the president. But the certificates in question, instead of being properly used, were falsely and fraudulently filled up, the name of the treasurer of the Safe Deposit Company forged to the receipts, and the certificates disposed of by young Harden to the plaintiffs.

One of these fraudulent certificates was fille'd up as for coupons deposited by Samuel McKinstry, and which was a duplicate of a genuine- certificate issued to McKinstry; but both the other certificates were issued as for coupons deposited by John S. Harden, Jr., when in fact he had deposited no such coupons as represented in either of the certificates; and the stubs in the certificate book from which all three of these certificates were taken were left blank. It is admitted that the numbers of the bonds and preferred stock recited in the certificates are within the numbers of the company’s issue; and it is also admitted that while the certifi.cates were in fact signed and sealed by the regular and proper officers of the company, to be used in the business of refunding the coupons, the signature to the receipts of ⁴³ the treasurer of the Sale Deposit Company on each of the certificates was forged hy young Harden. It is further admitted that such like certificates, as those in question were, at the time, being regularly bought and sold in the money and stock market of Baltimore; and that they were treated, by those dealing in them, as passing title by delivery. It is agreed that the plaintiffs in the several cases acquired the certificates from John S. Harden, Jr., in a regular course of business, bona fide, and for value; they being ignorant of the fraud and forgery, and had no ground of suspicion ; but they all knew that young Harden was in the employ of the defendant, and they all knew the nature and scope of his employment.

The fraud was not discovered until shortly after the death of the author of it, which occurred on the 4th of January, 1881; whereupon both the defendant and the Safe Deposit Company refused to honor or adopt the certificates. On these facts, as between these plaintiffs and the defendant, the general question is, who ought to suffer the consequences of the fraud ? Strictly speaking, corporations while acting within the scope of the powers delegated to them, cannot be guilty of wilful fraud: yet it is settled by a great number of decided cases, that corporations, carrying on trade or business of any kind, are equally, and to the same extent, liable for the frauds and wrongs of their agents, perpetrated in the course of their employment, as individual principals would be under like circumstances. This principle was very broadly maintained and applied by this Court in the case of Tome vs. The Parkersburg Branch R. R. Co., 39 Md., 36 , and the doctrine there enunciated must, to a large extent, control in the decision of this case.

In that case the authorities were extensively examined, and in support of the conclusion reached, both text writers and decided cases wore largely quoted. Prominent among the authorities quoted and fully adopted by the Court as ⁴⁴ correctly expounding the law, was the section 452 of the work of Judge Story on the law of Agency. In that section of his work the author lays it down as the settled law, that the principal “ is held liable to third persons, in a civil suit for the frauds, deceits, concealments, misrepresentations, torts, negligences, and other malfeasances, or misfeasances, and omissions of duty of his agent, in the course of his employment, although the principal did not authorize, or justify, or participate in, or indeed, know of such misconduct, or even if he forbade the acts, or disapproved of them. In all such cases the rule applies, respondeat superior ; and it is founded upon public policy and convenience ; for in no other way could there be any safety to third persons in their dealings, either directly with the principal, or indirectly with him through the instrumentality of agents.

In every such case, the