Summary
holding that a corporation's CFO had apparent authority
Summary of this case from Merrill Lynch Capital Servs., Inc. v. UISA Fin.Opinion
June 12, 1990
Appeal from the Supreme Court, New York County (Edward J. Greenfield, J.).
This action arises out of losses of $834,504 sustained by plaintiff as a result of unauthorized securities transactions by its treasurer and chief financial officer, defendant William Wallace. Wallace filed with each of 15 different brokerage firms a corporate resolution authorizing him to open trading accounts in the corporation's name. The resolution was signed by the corporate secretary in the belief that Wallace was acting under the authority of the board of directors. However, both the present and former president of Geotel, Inc. deny that any resolution was ever passed authorizing Wallace to engage in risk securities trading. Nevertheless, Wallace issued corporate checks, payable to plaintiff's various brokerage accounts, which were honored by defendant Extebank and Chemical Bank despite the filing of a corporate resolution with those financial institutions requiring that checks in excess of $2,500 be signed by two corporate officers.
Geotel, Inc. asserted causes of action against the banks for wrongfully honoring the checks issued on Wallace's signature, against the brokerage firms for negligence and breach of duty, and against its accountants, Laventhol and Horwath, for failing to discover the unauthorized checks issued by Wallace in their 1985 audit. Supreme Court properly dismissed the claim against the Stuart-James brokerage on the ground that Wallace acted with Geotel's apparent authority, having furnished a corporate resolution to that effect. The risk of loss from an unauthorized act of a dishonest employee falls on the corporation which appointed him to act on its behalf and not on the party who relies on his apparent authority (Rudge v. Laidlaw-Coggeshall, Inc., 96 A.D.2d 837).
Plaintiff's claim against Extebank was also properly dismissed. The proceeds of the checks issued by Wallace were received by plaintiff when they were paid to its accounts at the various brokerage firms. Any loss was a result of the manipulation of those accounts by Wallace over which defendant Extebank exercised no control (McCoy v. Bankers Fed. Sav. Loan Assn., 131 A.D.2d 646, 649; Kosic v. Marine Midland Bank, 76 A.D.2d 89, affd 55 N.Y.2d 621). As we observed in Davis Aircraft Prods. Co. v. Bankers Trust Co. ( 36 A.D.2d 705), "Since plaintiff initially received the proceeds of the checks which defendant paid, it suffered no loss which is recoverable from defendant."
By the same reasoning, plaintiff's claim against its accountants should have been dismissed. If payment of the checks issued by Wallace was not the proximate cause of Geotel's loss, the success or failure of Laventhol and Horwath in detecting the issuance of those checks is not material to the question of that firm's liability for any loss which might have been sustained by plaintiff arising out of the allegedly unauthorized securities trading in which Wallace engaged on its behalf.
Concur — Murphy, P.J., Sullivan, Carro, Milonas and Rubin, JJ.