Hellmann v. Potter

| Cal. | Jul 1, 1856

The opinion of the Court was delivered by Mr. Justice Heydenfeldt.

Mr. Chief Justice Murray and Mr. Justice Terry concurred.

A party who gives his power of attorney to another authorizing the latter in general terms “to manage and transact all business matters of every nature and description in which I may be interested,” and “to make, execute and deliver promissory notes, bills or bonds,” will be held liable for all such securities executed in his name by his attorney, where they have reached the hands of an innocent holder, although they may have been made for the private individual purposes of his attorney. Where one of two innocent parties must suffer, it must fall on him who has trusted most.

The argument against this position rests upon the ground that the letter of attorney which confines the authority to the business of the principal, ought to put on inquiry the person to whom the note is offered. The law, however, requires no one to do a vain thing. In making the note the agent is guilty of falsehood; is it to be expected that he will disclose his falsehood upon being questioned ? Would he not rather add to it by stating some simulated object in behalf of his principal? Shall it be required that the inquiry must extend to an examination of the books of the principal? In many cases the principal has no books; in some cases the examination of his books would result in the defeat of his commercial operations; in none could it disable the agent in committing frauds, for if a certain amount of money was seen from examination to be necessary, the same amount might be drawn from half a dozen different sources.

It is furthermore contended, that if no inquiry is demanded, as a rule of law, it will destroy the usefulness of letters of attorney, as nobody will trust to an extent which may result in ruin; but, on the other hand, the argument is equally cogent that to require so much of commercial men in the way of examination into the lona Jides of a transaction, will equally weaken, if not to a greater degree destroy, the efficiency of such instruments. Not only so, hut it takes away one man’s natural power of implicitly trusting another, and upon every occasion institutes an inquisition into his private business, destructive, may be, alike to his prosperity and independence of action.

The doctrine we here adopt is exactly analogous to that which is universal in cases of partnership; as where one partner having the power to sign the partnership name to a note, uses his power for his own purposes, and in fraud of his partners; the partners have everywhere been held liable to an innocent holder.

Judgment reversed and cause remanded.