25 N.Y. 293, Claflin v. Farmers' & Citizens' Bank

Citation:25 N.Y. 293
Case Date:September 01, 1862
Court:New York Court of Appeals

Page 293

25 N.Y. 293

CLAFLIN et al.



New York Court of Appeal

September 1, 1862

Page 294


William C. Noyes, for the appellant.

John E. Burrill, for the respondents.

While the cause was under advisement at June term, the then Chief Judge, SAMUEL L. SELDEN, delivered the following opinion:

The only question in this case, which seems to me to require serious consideration, is, whether Mr. Houghton could bind the bank by accepting checks or drafts drawn by himself. It is a well settled rule of the law of agency, to which I apprehend there is no exception, that no person can act as the agent of both parties to a contract, although he himself may have no

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interest on either side; nor can he act as agent in regard to a contract in which he has any interest, or to which he is a party on the side opposite to his principal. In the present case, Mr. Houghton, as the drawer of the checks, was the party with whom the contract of acceptance was primarily made, and stood, therefore, precisely in those opposite relations which the rule referred to forbids. It is not necessary for the principal in such cases to show that the agent has acted unfairly, or that he himself has sustained any injury. The act of the agent is deemed to be unauthorized, and the contract is void.

It is conceded, in the opinion of the Supreme Court in this case, that, as between the bank and Mr. Houghton, the certificate of acceptance of the latter would not be obligatory. But that court supposed that a subsequent bona fide holder could, nevertheless, avail himself of such certificate. The difficulty in the way of this conclusion, however, is, that the want of authority in Mr. Houghton to bind the bank appeared upon the face of the check. There could be no bona fide holder of such an instrument. An indorsee of commercial paper may, it is true, very frequently acquire rights superior to those of the original party; but never, so far as I am aware, when he has notice of the defect. If he knows the facts which would render the paper void in the hands of the party from whom he derives title, he cannot recover.

The Supreme Court seems to have supposed that, to prevent the plaintiffs from being considered as bona fide holders, they must have known that the drawer had no funds in the bank to meet the check. This was clearly an error. The acceptance was void in the hands of the drawer, irrespective of the question whether he had or had not such funds. The double relation in which Mr. Houghton stood alone rendered it void, and of this the plaintiffs were apprised by the check. It could not be necessary that they should have had notice of any other fact, in order to defeat their recovery; as the same facts which render commercial paper void in the hands of the original party, will equally avoid it in the hands of any subsequent holder having notice of such facts.

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It is of no importance that the referee has found, as a fact that the plaintiffs were bona fide holders. This finding is opposed to the plain law of the case, and is therefore nugatory. This reasoning applies to two only of the checks upon which the action is brought. I see no obstacle to a recovery upon the check drawn by Green. The judgment of the Supreme Court should be reversed, and there should be a new trial.


The objection that the cause was improperly referred on the ex parte application of the plaintiffs' counsel at the circuit, cannot now be raised. If there was error in such reference, the defendant should have applied to the circuit judge, or at the special term, to vacate the order. After going before the referee and trying the cause upon the merits without objection, it is too late to raise the question in the court of review that the action was improperly referred.

The motion for a nonsuit was properly denied. When it was made the plaintiff had proved the making of these checks, and their acceptance by the indorsement thereon, by the defendant's president, of the word "good; " and also a by-law of the defendant's which impliedly authorized the president to certify checks, and also the due presentment of the checks thereafter and the refusal of the defendants to pay the same. This proof clearly, at least, entitles the plaintiffs to recover upon the $5, 000 check made by Thomas Green.

The remaining questions relate to the two checks of Houghton, the defendant's president, of $5, 500 and $10, 000, made and accepted by him. The power given him by the by-law to certify checks, clearly did not authorize him to certify his own checks. It is a necessary and universal implication in all cases of agency, that the power conferred upon the agent is to be exercised for the exclusive benefit of the principal. It is repugnant to the very nature and essence of such power to hold that it may be used for the benefit of the agent in hostility to the interests of the principal. That a trustee or agent shall not act for his own benefit in any matter relating

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to his agency or trust, is an old and familiar doctrine of the court of equity, frequently asserted in the courts of this country and in England.

The rule is applicable to all persons standing in a trust relation. The principal is entitled to the exercise in his behalf of all the skill, industry and ability of his agent, and to his intensest fidelity to his trusts. This rule is well stated and discussed in the opinion of Judge DENIO in the case of The New York Central Insurance Company v. National Protection Insurance Company (14 N.Y. ; 20 Barb., 471).

But it is claimed that these rules do not apply in their strictures to negotiable paper; that, when...

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