16 N.Y. 125, The Farmers and Mechanics' Bank, of Kent County, Maryland, v. Butchers and Drovers' Bank

Citation16 N.Y. 125
Case DateSeptember 01, 1857
CourtNew York Court of Appeals

Page 125

16 N.Y. 125




New York Court of Appeal

September 1, 1857

Page 126

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John H. Reynolds, for the appellant.

Henry A. Cram, for the respondent.


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. 1 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

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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 abona 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 Genesee Bank 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

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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

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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. 1

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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...

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