Lead Opinion

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 128 The jury in this case have found, upon sufficient evidence and under proper instructions from the court, that the plaintiffs were holders, for value, of the checks in question. Each of these checks, if duly certified imposes upon the bank an obligation to retain the amount for which the check is drawn, and which, by the certificate, it admits it has in hand to the credit of the drawer to meet the check when presented, and to pay the same to the holder on demand. This obligation is substantially the same as that assumed by the acceptor of an ordinary bill of exchange; and the certificates in this case, if authorized, may with propriety be regarded as virtual acceptances of bills, and the bank as liable, if at all, as acceptor.

The first ground upon which this liability is resisted is based, not upon any want of authority in the particular agent by whom the checks were certified, but upon a want of power in the bank to bind itself by the contract sought to be enforced. It is insisted that the bank was not authorized by its charter to engage in transactions purely fictitious, having no connection with its legitimate business, or to pledge its credit for the mere accommodation of third persons.

The defendant is a banking corporation, organized under the general banking law of this state; and it is, I think, a sound position, that such a corporation exceeds its powers when it becomes the mere surety for another, upon a contract in which it has no interest, or lends its credit in any *Page 129 form for the exclusive benefit of other parties. Such a contract is ultra vires, and cannot be enforced against the bank by any person cognizant of the facts. But it by no means follows, when the unauthorized contract is in the form of a negotiable instrument, that the bank can avail itself of the defence, as against one who, without notice, has become the holder of the paper for value. This question appears to have arisen in the case of Stoney v. The American Life Insurance Company (11 Paige, 635), and the decision of the court upon the point is thus stated by the reporter: "A negotiable security of a corporation, which upon its face appears to have been duly issued by such corporation, and in conformity with the provisions of its charter, is valid in the hands of a bona fide holder thereof, without notice, although such security was in fact issued for a purpose and at a place not authorized by the charter of the corporation, and in violation of the laws of the state where it was actually issued."

There is a dictum of the chancellor, to the same effect, in the case of Safford v. Wyckoff (4 Hill, 442), where the defence set up was, that the act of the bank, in issuing the bill upon which the action was brought, was ultra vires. The chancellor there says: "A bill, or any other negotiable security, which is not upon its face illegal and unauthorized, is valid in the hands of a bona fide holder, without notice, who has paid a valuable consideration therefor, except in those cases in which the security is made void by statute." So in the case of The GenesceBank v. The Patchin Bank (3 Kern., 309), recently decided by this court, a similar doctrine is distinctly asserted by DENIO, J., although the point was not passed upon by the court.

I have no hesitation in concurring with these learned judges in the principles thus asserted, and am not aware that a contrary opinion has ever been judicially expressed. A citizen who deals directly with a corporation, or who takes its negotiable paper, is presumed to know the extent of its *Page 130 corporate power. But when the paper is, upon its face, in all respects such as the corporation has authority to issue, and its only defect consists in some extrinsic fact, such as the purpose or object for which it was issued, to hold that the person taking the paper must inquire as to such extraneous fact, of the existence of which he is in no way apprized, would obviously conflict with the whole policy of the law in regard to negotiable paper. I pass, therefore, to the consideration of that branch of the defence which rests upon the want of authority in Peck, the teller, to bind the bank.

In the case of Mussey v. Eagle Bank (9 Metc., 306), the Supreme Court of Massachusetts held not only that such a teller had no original inherent power to certify checks, but that a general custom to that effect among banks would conflict with the public interests, and would be bad. I am not entirely satisfied with the reasoning of the court in that case. The act of certifying a check is simply answering the supposed inquiry, of one about to take the check, whether the bank has funds of the drawer to meet it; and no other officer or agent of the bank would seem to be so competent to give the answer as the paying teller. His duties impose upon him the necessity of knowing the state of every depositor's account. He is charged with all he pays out, and if he pays a check, without funds in hand, he is responsible to the bank for the amount. His knowledge exceeds that of the book-keeper, because, to the information obtained from the latter, he adds a knowledge whether any deposits have been made or checks paid since the last entry in the books. No doubt the cashier, by virtue of his general powers, and his presumed knowledge of all the affairs of the bank, would be competent to answer the question; but he could only do so by first inquiring of the book-keeper and teller. Why should the applicant be compelled to seek the information through this circuitous channel, instead of going directly to the ultimate source of knowledge on the subject? The *Page 131 teller is put in the place of the cashier, to perform a portion of his duties. His appointment is virtually a division of the office of cashier; and that branch of the office which the teller fills embraces those duties which particularly require a knowledge of the state of the accounts of the depositors. Why then should he not be the organ of communication on that subject?

But it is unnecessary in the present case to decide this question, as it clearly appears not only that the teller, Peck, was in the habit of certifying the checks of customers, with the knowledge of the officers of the bank, but that he was furnished with a book for the express purpose of keeping a memorandum of such checks. His authority to certify, therefore, in a proper case, cannot be disputed. But it is insisted that his power extended only to cases where the bank had funds in hand, he having been expressly prohibited from certifying in the absence of funds, and hence that the bank is not bound.

It may be doubted whether such a prohibition adds anything to the restrictions which would otherwise exist upon the powers of the agent. A teller, acting under a general power to certify checks, would be guilty of an excess of authority and a clear violation of duty, if he certified without funds.

The powers of the cashier himself, or other principal financial officer of the bank, would no doubt be subject to the same limitation. To certify, a check when the bank has no funds to meet it, is to make a false representation; and neither the incidental power of the cashier, nor a general power conferred upon any other officer, could be construed to authorize that. Hence, if a bank is holden, in any case, upon a certificate of its cashier that a check is good, when it has no funds of the drawer, it is not because the cashier is deemed authorized to make such a certificate, but because the bank is bound by his representation, notwithstanding it is false and unauthorized. *Page 132

It would seem, therefore, that the defence insisted upon here would have been equally available if the checks in question had been certified by the cashier himself. It might then have been urged, with truth, that the cashier had violated his duty and exceeded the proper limit of his powers in making the certificate; and if the argument be sound, that the principal is in no case bound, unless the act of the agent is within the powers either actually or apparently conferred upon him, the bank would not be holden in such a case. It is no more within the apparent power of a cashier to certify that the bank has funds, when it has none, than it is within that of a teller expressly authorized to certify only when the bank has funds. Every person would be bound to take notice of the limitation imposed by law upon the powers of the cashier, or other general agents, no less than of that which is in terms imposed upon the powers of the teller as special agent. Hence, it cannot be pretended that a person who should take and pay value for a check, with knowledge that the bank had no funds of the drawer to meet it, would acquire any valid claim against the bank, although such check was certified by the cashier himself. He would be presumed to know that it was contrary to the duty of the cashier to certify without funds, and this knowledge would have the same effect as that which every one who should take a check, certified by the teller, would be presumed to have of any express restriction upon his powers.

It will be seen that, if these views are correct, the present case does not turn in any degree upon the rules applicable to special agencies, but that the question would have been precisely the same if the check had been certified by the cashier or other principal financial officer of the bank. As they may, however, admit of doubt, I shall treat the case as one of an agency specially restricted, and shall simply inquire whether a bonafide holder, for value, of a negotiable check, certified by a special agent whose authority is limited *Page 133 to cases where the bank has funds of the drawer in hand, can enforce payment of the check, provided the bank has no such funds.

This is a complex question, depending partly upon the law of principal and agent, and partly upon that of negotiable or commercial paper. The defence assumes that principals are bound only by the authorized acts of their agents, and admits of no qualification of this general rule, except where the agent has been apparently clothed with an authority beyond that actually conferred. But this proposition is too broad to be sustained. Principals have been repeatedly held responsible for the false representations of their agents, not on the ground that the agents had any authority, either real or apparent, to make such representations, but for reasons entirely different. In Hern v.Nichols (1 Salk, 289), the leading case on the subject, where an agent authorized to sell a quantity of silk had made certain fraudulent representations, by which the purchaser was deceived, the principal was held liable. Lord HOLT there said: "Seeing somebody must be a loser by this deceit, it is more reasonable that he that employs and puts a confidence in the deceiver should be a loser, than a stranger." The principle of this case has never, I think, been overruled, but, on the contrary, has been repeatedly approved and confirmed. It will be found directly applicable to the present case. The certificate of the teller is a positive representation that the bank has funds to meet the check. If that representation is false, who ought to bear the loss?

The reasoning of Lord HOLT, in the case of Hern v. Nichols, applies here with peculiar force. The bank selects its teller and places him in a position of great responsibility. The trust and confidence thus reposed in him by the bank leads others to confide in his integrity. Persons having no voice in his selection are obliged to deal with the bank through him. If, therefore, while acting in the business of the bank, and within the scope of his employment, so far as is known or *Page 134 can be seen by the party dealing with him, he is guilty of misrepresentation, ought not the bank to be held responsible? It is worthy of consideration that the fact misrepresented in this case is not only one peculiarly within the knowledge of the agent, but one with which he is made acquainted by means of the position in which he is placed by the bank, and which it is his especial province and duty to know, and which could scarcely be definitively ascertained except by application to him. These circumstances would seem to bring the case decidedly within the principles adopted in Hern v. Nichols, and in the subsequent decisions based upon that case.

This conclusion is in no respect in conflict with that doctrine of the law of agency which makes it the duty of all persons dealing with a special agent to ascertain the extent of his powers. It is conceded that every one taking the checks in question would be presumed to know that the teller had no authority to certify without funds. But this knowledge alone would not apprize him that the certificate was defective and unauthorized. To discover that, he must not only have notice of the limitations upon the powers of the teller, but of the extrinsic fact that the bank had no funds; and as to this extrinsic fact, which he cannot justly be presumed to know, he may act upon the representation of the agent. There is a plain distinction between the terms of a power and facts entirely extraneous, upon which the right to exercise the authority conferred may depend. One who deals with an agent has no right to confide in the representation of the agent as to the extent of his powers. If, therefore, a person, knowing that the bank has no funds of the drawer, should take a certified check, upon the representation of the cashier or other officer by whom the certificate was made that he was authorized to certify without funds, the bank would not be liable. But in regard to the extrinsic fact, whether the bank has funds or not, the case is different. That is a fact which a stranger, who takes *Page 135 a check certified by the teller, cannot be supposed to have any means of knowing. Were he held bound to ascertain it, the teller would be the most direct and reliable source of knowledge, and he already has his written representation upon the face of the check. If, therefore, one who deals with an agent can be permitted to rely upon the representation of the agent as to the existence of a fact, and to hold the principal responsible in case the representation is false, this would seem to be such a case.

It is, I think, a sound rule, that where the party dealing with an agent has ascertained that the act of the agent corresponds in every particular, in regard to which such party has or is presumed to have any knowledge, with the terms of the power, he may take the representation of the agent as to any extrinsic fact which rests peculiarly within the knowledge of the agent, and which cannot be ascertained by a comparison of the power with the act done under it. The familiar case of the giving of a negotiable partnership note, by one of the partners, for his own individual benefit, affords an apt illustration of this rule. Each of the partners is the agent of the partnership, as to all matters within the scope of the partnership business, and can bind the firm by making, indorsing and accepting bills and notes in such business; but he has no more authority than a mere stranger to execute such paper in his own business, or for the accommodation of others. If he gives the partnership note or acceptance for his own debt, it is void in the hands of any party having knowledge of the consideration for which it is given; but when negotiated to a bona fide holder, the firm is precluded from questioning the authority of the partner, and is effectually bound. The cases in this state by which this doctrine is illustrated and established are numerous and uniform. (Livingston v. Hastie, 2 Caine, 246; Lansing v. Gaine, 2 John., 300; Laverty v. Burr, 1 Wend., 529; Williams v. Walbridge, 3 id., 415; Boyd v. Plumb, 7 id., 309;Gansvoort v. Williams, 14 id., 133; Joyce v. Williams,id., *Page 136 141; Wilson v. Williams, id., 146; Catskill Bank v.Stall, 15 id., 364; 18 id., 466, S.C.)

It will be found difficult to distinguish these cases, in principle, from that now before the court. Every person taking the negotiable note or acceptance of a partnership, executed by one of the partners in the name of the firm, is bound to know the extent of the partner's authority to bind the firm, but this obligation does not extend to the consideration for which the note or acceptance was given. If given for the private debt of one of the partners, or for the accommodation of third persons, all the cases agree that the burden of proving the holder's knowledge of that fact rests upon the partnership. That the execution is by an agent is as apparent upon the face of the paper, in such cases, as in that of a certified check; because a partnership can only act in its partnership name, through agents.

The argument resorted to here, therefore, that parties are only bound by the authorized acts of their agents, and that paper issued by an agent without authority is no more obligatory upon the principal than if it had been forged, is just as applicable to partnership notes given by a partner for his individual debts as to these certified checks. The question is not, in such cases, whether the principal is bound by the unauthorized act of the agent, but whether he is estopped, by the representation of the agent, from disputing facts which show that the act was authorized. There is no analogy between these partnership cases, or the case before the court and cases where the paper is forged. The fact of the agency, and the trust and confidence reposed by the principal in the agent, create a broad line of distinction between them; and it is this trust and confidence which constitute the foundation of the liability, and which justify the party dealing with the agent in relying upon his representation in respect to facts especially within the agent's knowledge. The giving of a note in the partnership name, by one of the partners, is a virtual representation that it is given in the partnership *Page 137 business, and, if negotiable, this representation is deemed in law to have been made to every subsequent bona fide holder of the note. The State of Illinois v. Delafield (8 Paige, 527;S.C. in error, 2 Hill, 159) is another illustration of the same principle. An agent of that state was authorized to dispose of certain bonds, but was not to sell them below par or on credit. He sold them to Delafield on time and at a sacrifice. The state filed a bill against Delafield for relief, and applied to the Court of Chancery for an injunction to restrain the defendant from negotiating the bonds, on the ground that if negotiated the state would be liable to pay them. The defendant's counsel insisted that if the bonds were void in the hands of Delafield they would be equally so in the hands of any person to whom he might transfer them. The chancellor, nevertheless, granted the injunction, saying that, if the securities should pass into the hands of a bona fide holder, the state would be equitably and legally bound to pay them. On appeal to the Court for the Correction of Errors, the decision of the chancellor was affirmed by a nearly unanimous vote.

It would be difficult, I think, to discover any valid distinction, in principle, between this case and the one we are considering. The purchaser of the bonds from Delafield would, equally with Delafield himself, be presumed to know the limits of the authority conferred upon the agent; but it must have been held that he would not be bound to inquire as to the extrinsic facts attending the sale or negotiation of the bonds.

The principle is well stated in the following proposition, submitted to and approved by the court, in the case of The NorthRiver Bank v. Aymar (3 Hill, 262): "Whenever the very act of the agent is authorized by the terms of the power, that is, whenever, by comparing the act done by the agent with the words of the power, the act is in itself warranted by the terms used, such act is binding on the constituent, as to all persons dealing in good faith with the agent. Such *Page 138 persons are not bound to inquire into facts aliunde; the apparent authority is the real authority."

The opinion of Mr. Justice NELSON, who dissented from the majority of the court in this case, cannot be reconciled with the principle maintained by the same judge in Boyd v. Plumb andGansvoort v. Williams (supra). The cases are strictly parallel. In that of Aymar, the power of the attorney was limited to the giving of notes, for the use of the principal; in the others, the authority of the partner was limited to the execution of paper, for the use and benefit of the partnership; in both, the plaintiffs were regarded by the judge as equally cognizant of the limitations of the power; and yet, in the cases of Boyd v. Plumb and Gansvoort v. Williams, he held that the burden rested upon the defendants to prove notice to the plaintiff that the paper was not given in the business of the partnership; while in the case of Aymar he held that the plaintiffs were presumed to know that the notes were not given for the benefit of the principal, and that the burden of proving the contrary rested upon them. These two positions are diametrically opposed and cannot be made to harmonize; that taken in Boyd v. Plumb and Gansvoort v. Williams accords with many other cases in this state, and with all the English cases on the subject.

It is true that the decision in the case of The North RiverBank v. Aymar was reversed in the Court of Errors; but the opinions pronounced in that court have never been published, and consequently the views there expressed upon the point in question are unknown. Under these circumstances the principal reason against the reconsideration of a question, which has been passed upon by the court of last resort, viz., that the public needs a fixed and definite rule upon which it can rely in the transaction of business, loses most of its force. The opinion of the Supreme Court, which is published at large in the reports, is more likely to be taken as the rule than that of the Court of Errors, to which attention is rarely directed. The question, therefore, should, I *Page 139 think, be considered as still open for examination; and I have little hesitation in holding that it was properly decided by the Supreme Court.

It is supposed that the cases of Atwood v. Munnings (7Barn. Cress., 278) and Alexander v. McKenzie (6 Mann.,Gr. S., 766) are in conflict with the doctrine here advanced; but, upon a careful scrutiny of the first of these cases, it will be seen that, if the point we are examining was involved, it received no consideration from the court. The general principle laid down in that case is in perfect accordance with the views here expressed. It is, simply, that where an agent accepts a bill, in a form which imports that he acts by virtue of a special power, any person taking the bill is bound to inquire into and is chargeable with knowledge of the terms of the power. This is not denied. But the question is, whether, after inquiring into the terms of the power, and ascertaining, so far as can be done by comparison, that the act of the agent is within the power, he is chargeable, without proof, with a knowledge of extrinsic facts, which show the act to be unauthorized.

This question, which is the only one which arises here, was not decided, or even adverted to, in Atwood v. Munnings. The report of that case shows that the plaintiffs neglected even to call for the production of the power, to which they were expressly referred by the terms of the acceptance, and for this culpable negligence they are held responsible by the court. Justice BAILEY says: "A person taking such a bill ought to exercise due caution, for he must take it upon the credit of the party who assumes the authority to accept, and it would be only reasonable prudence to require the production of that authority."

It seems to have been taken for granted that, if the plaintiffs had informed themselves as to the terms of the power, they would of course have ascertained the object for which the bill was drawn, and the relation existing between the drawer and the defendant. Indeed, for aught that appears *Page 140 in the report of the case, it may have been shown upon the trial that they were actually apprized of these facts. The case therefore is no authority, except for the undeniable proposition that one who deals with an agent, knowing that he acts by virtue of a special power, is bound to inquire into and ascertain the precise terms of such power.

The case of Alexander v. McKenzie has even less bearing upon the point. The report of the case, which is very imperfect, does not show the terms of the special power nor the nature of its limitations. All that the case decides is, that the words "per procuration," affixed to an indorsement or acceptance by an agent, import that the agent acts by virtue of a special power, and are sufficient to charge any one who takes the bill with knowledge of the precise terms of such power. The plaintiff in this case, as in that of Atwood v. Munnings (supra), had neglected to call for the production of the power, and no attempt was made to show that the indorsement corresponded with its terms. The plaintiff relied mainly upon the fact that the bank had paid two other bills indorsed in the same manner. The case, taken as a whole, is a somewhat obscure assertion of the same principle which was adopted in Atwood v. Munnings, viz., that one who takes a bill, so indorsed, is bound to require the production of the special power, and to ascertain by comparison that the bill and indorsement correspond in all respects with its terms.

The cases of Grant v. Norway (10 Com. Bench [70 Eng.C.L.R.], 665); Coleman v. Riches (29 Eng. L. and Eq. R., 323), and The Mechanics' Bank v. The New-York and New HavenRailroad Company (3 Kern., 599), are plainly distinguishable from the present case. In neither of those cases was the document upon which the question arose negotiable. It was sought there to make the principal responsible for a false representation of the agent, not to the person to whom the representation was made, but to one with whom the agent had no dealings, and to whom he had made no representation. *Page 141 Upon a careful examination, it very plainly, I think, appears that this was the real obstacle to a recovery in each of these cases. When Sergeant CROWDER, counsel for the plaintiffs inGrant v. Norway, cited the case of Hern v. Nichols, and invoked the doctrine there laid down by Lord HOLT, Justice CRESSWELL replied: "There the factor entered into a contract with the plaintiff for his employer. Here you are a step further off. You say your agent, with whom I made no contract, has enabled a man, with whom I did contract, to cheat me."

This remark presents, in my judgment, the turning point of the case, and the only obstacle to the plaintiff's recovery, viz., the want of any privity of contract between the plaintiff and the agent. This obstacle was precisely that which the negotiability of the instrument, if established, would have removed; because the maker of a negotiable instrument is deemed in law to enter into a contract with every one to whom it is afterwards negotiated; and where the instrument is made by an agent it is in this way only that privity of contract can be established between such agent and the subsequent holders, without which the principal can never be held responsible for the false representations of the agent. Hence it is that we find the counsel for the plaintiffs in the cases of Grant v. Norway and The Mechanics' Bank v. The New-York and New Haven RailroadCompany (supra) contending so strenuously for the negotiability of the documents in question in those cases.

That the want of privity of contract, between the agent and the party seeking to hold the principal responsible, constituted the real difficulty in those cases is also apparent from the report in the case of Coleman v. Riches (supra), which belongs to the same class. There Bond, the agent of Riches, had given a false receipt, not to the plaintiff but to Lewis, and Lewis had exhibited this receipt to the plaintiff and obtained money upon it. The difficulty in the case was to show the relation between the parties to have been such *Page 142 that the misrepresentation by Bond to the agent might properly be considered as made by him to the plaintiff. To establish this, the counsel for the plaintiff relied upon a course of dealing, which, as he alleged, was known to the defendant. To this the chief justice answered: "I cannot see how the knowledge by Riches of the course of business, according to which Coleman paid on the production of the receipt, would make the showing of the receipt by Lewis, even in Bond's presence, a representation by Riches" (i.e., by the agent of Riches); and Justice WILLIAMS adds: "Suppose Riches himself had given the fraudulent receipt, would that have constituted a representation by Riches to Coleman?" Upon the same argument being afterwards repeated, Justice CRESSWELL said: "There is the vice of the argument; I do not find any evidence of such course of dealing between the plaintiff and the defendant. The course of dealing proved, was that which existed between the plaintiff and the vendors and not between the plaintiff and defendant."

It seems impossible to mistake the purport of these remarks. They show that the difficulty in the way of a recovery, in this case, was that no privity of contract was established between Riches, or his agent, Bond, and the plaintiffs, by means of which the misrepresentations made by Bond could be considered as made to the plaintiffs. Had the receipt been a negotiable instrument, a privity would have been established.

I entertain no doubt that had the stock certificates in question, in the case of The Mechanics' Bank v. The New-Yorkand New Haven Railroad Company (supra), been held to be negotiable, the plaintiffs would have prevailed; and such I understand to be the opinion of two of my associates who took part in the decision of that case.

The judgment of the Supreme Court should be affirmed.

DENIO, C.J., and BROWN, J., delivered opinions concurring in result and general reasoning with the preceding. *Page 143 Both agreed with SELDEN, J., in approving the decision in TheNorth River Bank v. Aymar (3 Hill, 262), and regarding it as good authority, notwithstanding the reversal of the judgment in that case by the late Court of Errors.

Dissenting Opinion

I have not examined the evidence critically, in order to see whether the jury, under proper instructions, might have found that Peck, the teller of the defendants, was authorized to certify checks when the drawers had no funds on deposit. Such an authority, no doubt, might be implied from a general usage, if that had been proved, or from a practice of the kind in this particular bank, known to the directors. But as the law was stated to the jury, no such question arose for their consideration. They were instructed that there was "no doubt of the authority of Peck, the teller, to certify checks in the manner those in question were certified, so as to bind the defendants to pay them to those who took them bona fide in the usual course of business, and for value." They were further instructed that if the plaintiffs had previously held similar checks, certified in the same manner as those were, which had been uniformly paid by the defendants on presentation, without objection, then the plaintiffs were entitled to recover, provided they took the checks in question in good faith, for value, and without notice that the teller had no authority to certify them. The checks previously held by the plaintiffs represented actual deposits of money, and they were, therefore, certified by due authority. The defendants, of course, paid them without objection, as they could have no possible objection to make. The checks in question were false and fraudulent pretences, representing no funds of the drawer. The charge assumed the absence of all authority to certify them, but held the defendants liable on the ground that the plaintiffs received them for value, and without notice of the defect of power. It was also assumed, on the trial, that when the checks in question *Page 144 were presented for payment, about a year after they were certified, there were no funds to meet them.

The Supreme Court, whose judgment we are reviewing, regarded these certificates of the teller as acceptances payable on demand; and for that reason the delay in presentation was considered no objection to a recovery against the bank as the acceptor. In my judgment, the court was clearly right in this construction, and right also in the consequence drawn from it, that the certificates, as acceptances, if duly authorized, were obligatory, as in any other case, until paid, or the statute of limitations should attach as a bar. The question I now propose to examine is, whether the teller had power to enter into these contracts as the agent of the defendants.

In the first and most obvious view of an agency of any description, the principal is bound by such acts as he has authorized, and no others. In a just sense, this is universally and necessarily true, because the proposition is involved in the very idea of agency. If there are apparent exceptions in the books, they are not such in fact, but are merely varieties in the application of the rule, which do not contradict the rule itself. This will appear when we consider the modes in which powers are derived from a principal to an agent so as to bind the former in favor of third parties. An agency may be constituted by writing. When this is the case, the agent takes precisely such authority as the instrument confers, upon a fair construction of the language used, taken in connection with the general or particular purpose of the power. An authority thus derived of course includes, in the absence of special restrictions, all such incidental powers and means as are necessary in the execution of the main purpose. The agency may also be created by a special verbal appointment. I use the word special, not with reference to the powers to be exercised, but to the mode of creating them by special or express words. When the language of such an appointment is once ascertained, it is *Page 145 perfectly obvious that the authority of the agent is precisely what it would be if it were conferred by a writing in the same language.

But there is another, and, for all purposes connected with the present inquiry, only one other mode of delegating power. Without any express or special appointment, an implied agency may arise from the conduct of a party. (Story on Agency, § 54.) Where a person has recognized a course of dealing for him by another, or a series of acts of a particular kind, an implied agency is thereby constituted to carry on the same dealing or to do acts of the same character. Now, the only difference between such an agency and those which are created by express appointment, whether verbal or in writing, is, that the latter may, by the very terms of the power, be confined to a single transaction or act, while the very existence of the former is derived from a course of recognized dealing or a series of recognized acts. This implied agency is therefore never a special one, in the sense in which that term has generally been used. All express agencies may or may not be special, according as they authorize, or do not, more than a single act. Although much has been said concerning general and special agencies, there never was any other intelligible distinction indicated by those terms. Where this distinction does not exist, in other words, where the power is not special in this sense, agencies by express appointment and those implied from conduct are entirely similar in all their characteristics and incidents. In the one class, the authority is manifested by an express delegation; in the other, it is presumed or implied from the conduct of the principal. This presumption is allowed even against the real facts of the case, where the rights of bona fide dealers are concerned. In all this class, it is presumed that the principal has actually delegated power to do the acts which he has been in the habit of recognizing and approving. The power thus presumed is to be judged in all respects as though the *Page 146 delegation were actually shown. It will justify and uphold acts of the same kind, or, in other words, within the presumed authority, but no others.

I have observed that there may be seeming contradictions of the fundamental doctrine, that a principal is bound only by such acts of his agent as he has duly authorized. This presumptive or implied agency is one of these, because a man may have accepted and approved acts which he never authorized, and so be bound, as to third persons, by similar acts. Another and the only other of these apparent contradictions is, where the acts done by the agent are justified, as to innocent dealers, by the authority, whether conferred by express delegation or presumed in the manner indicated, but are opposed to special private restrictions. In such cases the liability of the principal rests upon a just distinction between the power conferred and private instructions as to its exercise. But the power must in all cases be vested either actually or presumptively, and if it be not, the principal cannot be charged.

The principles, so far stated, are simple and elementary, although they have been somewhat obscured by loose and indeterminate expressions in the books. Applying them to the present inquiry, it becomes plainly of no importance whether the power of Mr. Peck, the defendants' teller, to certify checks, was derived from a special appointment or from a recognition of his acts. At the circuit it appears to have been placed on the ground of recognition, and no special appointment was shown. The difference is merely in the mode of constituting the agency. The power in either case is the same. Viewing it as derived or implied from acts recognized and approved, the inquiry at the circuit should have been, what were those acts? If they were confined to the certification of checks drawn upon actual deposits, then the power to be implied or presumed was to do acts of the same character, but not of a character wholly different, although clothed in the same form. In a *Page 147 word, the certifying authority of the teller is to be construed and treated in all respects as though it had been given to him by a written instrument specially defining and restricting it; and viewing the authority in this manner, we are to inquire whether, under a power expressly confined to the certification of checks drawn upon sufficient funds on deposit with the defendants, the teller could bind them by certificates which were fictitious and false. These certificates, as we have seen, are to be regarded as acceptances; and another mode of stating the inquiry therefore is, could the teller, with authority only to accept checks drawn upon actual funds, bind his principals, by accepting for the accommodation of the drawer, when there were no funds on deposit and none in expectancy?

This question, it is proper now to observe, cannot be determined in the plaintiffs' favor on the ground that the limitations upon the agent's power were in the nature of private instructions merely, in regard to its exercise. The difficulty which meets us in this view of the case is, that the power exercised is not embraced at all in the commission. An authority to accept drafts, in the regular business of the principal, upon funds of the drawer, is a precise and well defined authority. It cannot, in my opinion, include acceptances out of the principal's business, and for the accommodation of third persons. So, an authority to accept or certify checks, in the regular course of banking business, would seem to be equally definite. It does not embrace a power to pledge the responsibility of the bank for the accommodation of persons who are not depositors and have no funds. It is urged that the teller is a proper agent or officer to answer questions and give information as to the funds of a person who draws his check. But this is a very different thing from entering into a written engagement which operates to transfer the fund, if there be any, from the depositor, and which, whether there be any funds or not, imposes a pecuniary obligation on the bank, to last until barred by *Page 148 the general statute of limitations. It ought not to be contended seriously that such a power can be derived from the simple practice in a bank of turning to its books and communicating to inquirers, through the teller or book-keeper, the condition of its customers' accounts. There is still another answer to the suggestion. Although such is the practice, it is not one of the legal duties or obligations of a bank to furnish this kind of information to inquiring people, nor does it enter into any engagement with the public to discharge such a function. If this be so, then plainly a bank cannot be made liable because one of its agents, either at the counter or in the street, makes a false and fraudulent statement concerning a matter about which the bank, as such, is bound to furnish no information at all. And this is a further illustration of the soundness of the position already taken, that a bank is bound to pay a certified check only in the character of acceptor. I admit it may accept checks with or without funds, and be bound by that contract; but the obligation to pay them rests, as in any other case, upon the acceptance, and it is not at all derived from any supposed duty or custom of communicating to an individual the condition of another's account.

Nor can the question before us be solved upon any distinction between a general and a special agency. I believe there is such a distinction, valuable in some cases, but in most of no value whatever. The one I have already suggested is the one generally approved. "A special agency," says Judge STORY, "properly exists where there is a delegation of authority to do a single act; a general agency properly exists where there is a delegation to do all acts connected with a particular trade, business or employment." (Story on Agency, § 17.) Now, the only difference in doctrine arising out of this distinction is, that all the restrictions upon the authority of the special agent take effect, while, in the case of a general agent, all acts embraced in the delegation are valid, as to third parties, although directly *Page 149 opposed to private instructions. It still remains true, however, that the acts done must in all cases be within the power, in order to bind the principal. We may, therefore, call the agency of the defendants' teller a general one, according to this distinction, and still the question will return, what were his powers? A general authority to do an indefinite number of acts of a particular kind by no means constitutes a universal agency. The acts specified in the commission can be justified and upheld, but no others.

It is said that a principal is bound by all acts done within the ostensible or apparent scope of the power; and this is true. But what are the ostensible or apparent powers of an agent? The answer is, they are such as are conferred by the express appointment, or implied from recognition and the conduct of the principal; in the latter case, as we have seen the implication being that the acts were authorized which the principal has recognized and approved. In either case the authority is ostensibly and apparently given, although there are private restrictions upon its exercise. These, bona fide dealers are not bound to know. But they are bound to know what the delegation is. If this is to be presumed from acts which have been recognized, then they are bound to know the character of those acts. That being ascertained, the power is brought to their inspection as much as though it were in writing and placed before them. The doctrine of ostensible agency goes no farther than this.

The aphorism sometimes laid down in reference to agency, that "where one of the innocent parties must suffer, he who has employed the agent and enabled him to commit a fraud should be a loser, rather than a stranger," does not aid in solving the present question. It was first applied by Lord HOLT, in Hern v.Nichols (1 Salk., 289). In that case the defendant's factor, being authorized to sell silk, defrauded the vendee by misrepresenting the article. The principal was held liable; "for," said the lord chief justice, "seeing somebody must be a loser by this deceit, it is more reasonable *Page 150 that he who employs and puts a confidence in the deceiver should be a loser, than a stranger." If an agent, in dealing for his principal strictly within the authority, commits a fraud, the principal must answer for it. He cannot adopt the dealing and repudiate the fraud. There is no doubt that he can repudiate the entire act in such a case by restoring the dealer to his former situation. The maxim, therefore, as applied by Lord HOLT, is well enough. But there is a possible construction of his language which would lead to the most absurd results. It would certainly be absurd to hold that a principal is responsible for the general honesty of his agent, and is, therefore, liable for acts attended with fraud, which, although done in his name, are not included within the power.

It should now be observed further, that an agent may clothe his unauthorized acts in the same form as those which are authorized, and still the principal will not be liable. To charge the principal, the acts must be of the same character, not merely in appearance, but in their substance and nature. Thus, an authorized acceptance by an agent upon funds of the drawer is the same in appearance as an unauthorized one for the accommodation of a stranger. In the latter case the false appearance is derived wholly from the false representation of the agent. But as the principal has not authorized the act, so he has not the representation. I admit it is enough if the authority apparently includes the transaction, but that must be taken to mean the transaction as it is, and not its counterfeited appearance. The true rule of agency I take to be, that the principal is liable for such acts as he has authorized, and not for all their possible counterfeits. This is a distinction which I had occasion to notice at some length in the case of The Mechanics' Bank v.The New Haven Railroad Company (3 Kern., 599), and I have nothing further to add to the remarks I then made. *Page 151

If the question before us were a doubtful one upon principle, I should still find it difficult to disregard the authorities which seem to me to control it. In England, the rule appears to be settled in accordance with the views which have been stated. InGrant v. Norway (10 Com. Bench, 665), the master of a vessel in the East Indies signed a bill of lading in the usual form, declaring that twelve bales of silk were shipped on board to be delivered in London to order or assigns. The shippers indorsed the bill of lading, and pledged it for a valuable consideration to the plaintiff. The goods were never, in fact, shipped, and the plaintiffs brought an action on the case against the defendants, who were the owners of the vessel, for the injury they had sustained in giving credit to the bill. It was admitted, as the law certainly is, that the master is the general agent of the owners, with full authority to sign bills of lading. It was nevertheless held, after very elaborate argument, that the plaintiff could not recover, and the decision was placed very explicitly on the ground that the master had no authority to sign bills of lading for goods not shipped. The master, it was said, by general usage had authority to sign bills for goods shipped, but not otherwise; and this usage was deemed notice to all the world that the authority was so limited. It was thereupon held (quoting the language of Chief Justice JERVIS), that "a party taking a bill of lading, either originally or by indorsement, for goods never put on board, was bound to show some particular authority given to the master to sign it." Now, in that case, the bill of lading covered a fictitious shipment of goods. In the present, the agent certified checks to be good which were drawn upon fictitious deposits. In both of the transactions the agents' acts were counterfeited so as to resemble exactly those which they were authorized to perform.

In Coleman v. Riches (29 Eng. L. and Eq. R., 323), the plaintiff was a dealer in grain, and the defendant kept a wharf. It was the custom for the vendors of the grain to *Page 152 deliver it at the wharf and take a receipt from the defendant's servant. On production of this receipt the plaintiff paid the price. For the purpose of getting money from the plaintiff by fraud, the defendant's servant gave to one of the farmers a false receipt, no grain being, in fact, delivered, and the plaintiff paid the price on the receipt being brought to him by the farmer. It was held, upon the want of authority in the agent to give a receipt when no corn was delivered, that the defendant was not liable for the fraud. This case followed and approved that ofGrant v. Norway, and was determined by the same court, the English Common Pleas. The doctrine on which they both proceeded received also the sanction of the Court of Exchequer, inHubbersty v. Ward (8 Exchequer, 330; 18 Eng. L. and Eq.R., 551).

In reference to these cases a suggestion has been made, that the actions being on the case for fraud, the plaintiffs failed because they were not in privity with the defendant in each, whose agent perpetrated the wrong. In Grant v. Norway, a casual remark of one of the judges, while the argument was proceeding, affords some slight countenance to this idea. But when, after the argument, the chief justice came to deliver the judgment of the court, that ground of decision was not so much as alluded to. So in Coleman v. Riches, four of the judges delivered their opinions seriatim, and all of them went on the ground of a want of authority, and none of them on the ground of a want of privity in the dealing. The remark of Chief Justice JERVIS, that there was no evidence that Riches agreed to furnish Coleman with vouchers for corn delivered, was intended by him as one of the arguments showing the want of authority; for he adds as follows: "It was only the case of a wharfinger whose duty it was, on delivery of goods, to give a receipt note. That consideration," he continues, "really disposes of the case, because the agent had authority, on the evidence, only to givereceipts for goods which were, in fact delivered" *Page 153 To show that I am not mistaken as to the ground of decision in either of the cases, I may also refer to the head notes in the reports. Both the reporters were wrong if I am.

It is, I believe, admitted that the present case cannot be distinguished in principle from The North River Bank v.Aymar, decided by the Supreme Court of this state (3 Hill, 266), and afterwards in the Court of Errors. There the agent was authorized by a written power of attorney, amongst other things, to sign and indorse notes and to accept and indorse bills of exchange in the name of the principal. The action was on eleven notes, six of which were signed and five indorsed in the principal's name, by the agent, and in form in all respects according to the power. It was shown on the trial, as to nine of the eleven notes, that they were not signed or indorsed in the business of the principal nor for his use, but for the accommodation of third parties. The plaintiffs' bank had discounted the notes in good faith, and believing they had been given and indorsed in the business of the principal. It was held in the Superior Court of the city of New-York, where the suit was brought and tried, that the plaintiffs were affected by the excess of power, and could not recover on the nine notes. Error was brought into the Supreme Court, where the judgment was reversed upon the opposite doctrine. The opinion for reversal was delivered by Justice COWEN, in which BRONSON, J., concurred. A dissenting opinion was delivered by Chief Justice NELSON. All were agreed that the power of the agent was confined to notes and bills signed, accepted and indorsed in the business of the principal, although not so expressed, in terms, in the letter of attorney; and all were therefore agreed that the power was in fact exceeded, but not in such a sense as to affect the plaintiffs, who were bona fide holders. The distinction made in their favor, it is well to observe, did not rest at all upon the negotiability of the paper, but upon the familiar principle already stated, that *Page 154 third parties dealing bona fide with an agent, who acts within the apparent scope of his power, are not affected by special restrictions, of which they had no notice. It was simply a misapplication of that doctrine to a case not within it; because the power, in its real or apparent scope, did not include the acts done. The apparent power was on the face of the letter of attorney, which the bank had in its possession. The agent's acts were counterfeited, so as to appear by his own representation to be within the power, but the power did not include, or appear to include, the actual transaction; and that was the precise error in the decision. The judgment of the Supreme Court was removed, by writ of error, into the late Court for the Correction of Errors, and was there reversed. The case is not reported in that court, for the reason, as the reporter informs me, that the prevailing opinion was not handed to him at the time by the senator who delivered it, and was afterwards lost or mislaid. I have examined, however, the record, and learn from the reporter and one of the judges whose vote was for affirmance, that the reversal was distinctly upon the question discussed in the Supreme Court. It was held that the plaintiffs, although bonafide holders, could not recover on the nine notes, for want of authority in the agent to sign and indorse them. It was a decision of the highest court in this state, and I hold that we are bound by it. We have never refused to follow a clear and distinct determination of that tribunal.

In the case of The Mechanics' Bank v. The New Haven RailroadCompany, a question, which I think identical in principle with the present one, received the careful consideration of this court. In that case the transfer agent of the defendants' corporation was authorized to sign and issue certificates of stock, on a transfer from one shareholder to another upon the books, and on the surrender of the previous certificates. The agent, for his own purposes, signed and issued certificates to a large amount, when there had been *Page 155 no such transfer or surrender. These unauthorized and spurious instruments were in form precisely like those that were genuine and authorized. Trusting to this false appearance, the plaintiffs took one of them by transfer, and advanced money upon it, which they recovered in the New-York Superior Court. We held they could not recover, and reversed the judgment; placing our decision prominently on the ground that the acts of the agent, in signing and issuing the spurious instruments, were not within the real or apparent scope of the power delegated to him. We certainly did not put our judgment upon the ground that the plaintiffs were not in privity of dealing with the defendants, by reason of the non-negotiable character of the certificates, and therefore could not sue for the fraud. It had been argued that they were negotiable or quasi negotiable. We held they were not; but we further held that, whatever might be their character in that respect, they were void everywhere, because issued without authority. The doctrine asserted was, that whoever deals with a security made by an agent, not less than he who deals directly with the agent, is bound to know the extent and the limit of the authority. This is a plain doctrine. There is no more reason for saying that a principal is bound by an unauthorized bill or note in the hands of a bona fide holder, than for saying he must pay one to which his name is forged, because the holder has paid value, and does not know of the forgery. The only doubt relates to the extent of the power, when construed with reference to dealers who are not cognizant of special restrictions. Negotiability is not of the least importance. Good faith is the only important fact, where it is claimed that the power, in its general scope, includes the transaction, although there may be private restraints upon its exercise. Does an authority to sign a bill of lading, a certificate of stock, a bill, a note or acceptance, when certain conditions arise, as when goods are shipped, when stock is transferred, when the drawer *Page 156 has funds to meet the acceptance, when the bill or note is required in the regular business of the principal, justify the doing of these acts universally, without any regard to the conditions, and for the accommodation of mankind at large? This is the true point of the inquiry when there is good faith in the dealer; and upon this inquiry all the authorities cited are direct and unanswerable adjudications.

The doctrine of the cases cited has received the sanction of the Supreme Court of the United States, in a case which has very recently appeared. I refer to The Schooner Freeman et al. v.Buckingham et al. (18 How., 182). In that case the libellants were the consignees named in two bills of lading, signed by the master of the schooner, declaring in the usual form that certain quantities of flour had been shipped on board to be sent forward to them. In fact, the flour had not been shipped, and the bills were fraudulent contrivances of the supposed shipper for the purpose of obtaining advances from the consignees, who did advance accordingly, and afterwards libeled the vessel for non-delivery of the goods. They failed on the sole ground that the owner of the schooner was not bound by the contract of the master, the goods never having been shipped. The remarks of Mr. Justice CURTIS are so much to my purpose that I quote: "Nor," said he, "can the general owner be estopped from showing the real character of the transaction by the fact that the libellants advanced money on the faith of the bills of lading; because this change in the libellant's condition was not induced by the act of the claimant (the principal), or of any one acting within the scope of an authority which the claimant (the principal) had conferred. A willful fraud, committed by the master on a third person, by signing false bills of lading, would not be within his agency. If the signer of a bill of lading was not the master of the vessel, no one would suppose the vessel bound; and the reason is, because the bill is signed by one not in privity with the owner. But the same reason applies to a signature *Page 157 made by a master out of the course of his employment. The taker assumes the risk, not only of the genuineness of the signature and of the fact that the signer was master of the vessel, but, also, of the apparent authority of the master to issue the bill of lading. We say the apparent authority, because any secret instructions by the owner, inconsistent with the authority with which the master appears to be clothed, would not affect third persons. But the master has no more apparent unlimited authority to sign bills of lading than he has to sign bills of sale of the ship. He has an apparent authority, if the ship be a general one, to sign bills of lading for cargo actually shipped, and he has also authority to sign a bill of sale of the ship, when, in case of disaster, his power of sale arises. But the authority in each case arises out of and depends upon a particular state of facts. It is not an unlimited authority in the one case more than in the other, and his act in either case does not bind the owner, even in favor of an innocent purchaser, if the facts upon which his power depended did not exist; and it is incumbent upon those who are about to change their condition, upon the faith of his authority, to ascertain the existence of all the facts upon which his authority depends."

These remarks apply with great precision to the case under consideration. It was in the usual course of the teller's employment to certify checks for actual deposits of money, as it is in the usual course of the employment of a master to sign bills of lading for goods actually shipped. In both examples, and for precisely the same reasons, the course of employment measures the apparent authority, and, therefore, the whole certifying and signing power of the agent. Simulated and fraudulent instruments may be concocted by the agent, well calculated to deceive. But these are the frauds of the individual who concocts them, for which he alone is liable. It is better, I think, in principle, that the rule should be thus, than to adopt another which *Page 158 would place every person who acts by agents in the power of the latter, and would especially expose to ruin banking corporations, which can act by agents only.

It should not escape observation also that the case of TheSchooner Freeman meets directly the suggestion already noticed, that the English cases of Grant v. Norway, and Coleman v.Riches, and the case here of The New Haven Railroad Company, can be distinguished from the present by the supposed want of privity between the defrauded recipient of the false instrument and the principal. I say the case of the Freeman meets that suggestion, because the defrauded libellant was the consignee and not the assignee of the bill of lading. By the instrument itself, therefore, he stood in privity with the owner of the vessel, provided it had been signed by the master, acting under due authority. It may be added that the English cases were referred to as authorities, and were understood precisely as I have stated them.

The judgment should be reversed and a new trial granted.

All the judges, except COMSTOCK, J., concurring,

Judgment affirmed.