Central Bank v. Empire Stone Dressing Co.

By the Court, Peabody, J. In this case a note made by Shelton was indorsed by the defendant for his (Shelton’s) accommodation. The indorsement was made by Sherman, the secretary of the defendant, of his own motion, and without authority other than his general authority, which was to in-. dorse notes and bills “ in the jcrosecution of its (defendant’s) business.” The question arises, was this act of the secretary so far authorized as to bind the company as to third persons. Ho question was made on the argument of the authority of the company to indorse, under the circumstances; of which it would seem there might well be a reasonable doubt, not at all diminished by the recent case of The Bank of Genesee v. The Patchin Bank, (3 Kernan, 314.) The power itself of the defendant to indorse this paper is not made the subject of a point on the argument, and needs not to be considered here, unless it be in determining the authority of the secretary to bind the company. His authority was supposed to depend on the terms of the resolution declaring the j)owers of the secretary. It must, however, in the nature of things, be subject to another limitation. It — 33 — must be restricted to the business which the company itself was authorized to do. Within the scope of the business which the company was authorized to do, he, as its agent, may be authorized to act for it, but beyond that he could not be authorized; for beyond that the company itself could not act, and of course could not authorize him to act for it. In the case of The Bank of Genesee v. The Patchin Bank, (3 Kernan, 309,) it was decided that the defendant, by virtue of its general powers of banking, was not authorized to indorse, for the accommodation of another, paper in which it was not interested; because such a transaction was not within the scope of the business for which it was constituted and in which alone it was empowered to act. The business of the defendants was the dressing or manufacturing of stone, in which indorsing of negotiable paper for accommodation would seem at least to be no more necessary or legitimate than in that of banking ; and I think that under the reasoning and decision in that case the defendant itself had not power to indorse in this case. Of comse its agentuould not be authorized, for as it had not the power it could not confer it on him. As a partner, whose power to bind the partnership within the scope of its business is unlimited, cannot bind it beyond the scope of such business, so, in this case, as the business of indorsing negotiable paper for accommodation was not, according to the case above referred to, within the scope of the purposes for which the defendant existed, it was not within its powers to do, and no agent of the defendant was or could be empowered to act for it in that business. If this transaction with the plaintiffs was with Shelton, and for his benefit, and the plaintiffs so understood, or had no reason to understand it to be otherwise, the defendant is not bound by this indorsement. The notes in suit, however, had their origin in a transaction in 1852. That transaction was a loan by the plaintiff to Shelton of its bills for circulation in Hew York. Shelton was then president of the defendant, and as president had had at least one transaction of the same character, with the plaintiff — 34 — before, and the officers of the plaintiff knew of it, and knew that it was for the benefit of or “with the company.” No other transactions between Shelton and the plaintiff are shown, and there is no reason to suppose that they‘had ever had any except the one testified to by Shelton, in which he, as the plaintiff knew, (although he dealt in his own name,) ácted for and in behalf of the company. When this transaction occurred, as when the previous one did, he was president of the defendant. With this previous acquaintance and business intercourse, the transaction out of which the present suit grew, commenced on the 22d of April, 1852, by a letter from Shelton to the plaintiffs, stating to them that he was solicited to take some more money for circulation, but had declined, supposing that the plaintiff “ might wish to furnish $5000 more on same terms as last, according to our (their) understand-i ing.” He proceeds : “ Please inform me what your wishes are, (and as your president stated your charter did not allow yoic to loan more to one firm,) you can make the loan to me individually, and I will give you the indorsement of the company. P. S. I wrote you yesterday about paying our orders for freight.” The answer to this bears date the next day, (April 23,) and proceeds: “Yours of 22d is before me. I wrote you yesterday in reply to yours of the 21st. We will make you a loan on the same terms as we made the other. We prefer to make it to you personally, with Co.’s indorsement, to avoid all question about legality. Shall the bills be marked like the others ?” These two letters embrace the contract out of which these notes sprang; and they show it to have been a contract to repeat a previous transaction. The request is for a loan of “ $5000 more on same terms as last according to our understanding,” and then proceeds to provide a mode of avoiding the limitation of the charter ; to do which he says: “You can make the loan (the new one) to me individually, and I — 35 — will give you the indorsement of the company.” The answer, after alluding to a previous letter, which, so far as we are informed, must have related to the business of the company, consents to make the loan on the same terms as the other, and proceeds to suggest a single modification as to form: “We prefer to make it to you personally, with Co.’s indorsement, to avoid all question about legality.” The letter of the bank is, to be sure, addressed to Shelton, who was not only president but was in fact the principal stockholder, and pretty much all of the company. They show, it seems to me, an intention to repeat a former transaction, with a variation only to suit the terms of the plaintiffs’ charter, by making it to Shelton in form, rather than to the company for whom it is evidently understood by the plaintiffs that it was in fact made. It was made on the credit of the defendant, as the previous one was. Other matters with the company are treated of in the same letters, and in the same terms, showing that other business of the plaintiffs with the company was done with Shelton in the same manner as this. The plaintiff, in dealing with the defendant, was bound to see that the dealings were within the scope of the defendant’s business ; and if it did use reasonable care and diligence to be informed on this subject and was misinformed by the defendant or its agents, the defendant is not discharged, even though the fact should be that the defendant was acting as it should not have done. From the correspondence above, which embodies the contract, in connection with the previous intercourse between the parties, for whom could the plaintiff have thought this loan was made? Is it not apparent that it was understood to be for the benefit of, and in fact made to the defendant, although in form it was made to Shelton on the security of the defendant? If otherwise, what means the arrangement in both the above letters to have it, for the sake of legality, in form with Shelton, rather than the company? If it had been understood to be with and for Shelton, why was there a thought of having — 36 — it in any other name than his; which alone has made' this special provision on the subject necessary? The jDlaintiffs had reason to suppose that this transaction was with and for the defendant, and if it had been, the defendant would have been liable on it. The company had authority to make such a transaction (to borrow money) for itself in the prosecution of its business, and if (as the plaintiff supposed) it had been so made, the indorsement of the secretary would have been clearly within the powers of the defendant and within -his authority. On the ground then that the transaction was in fact with the defendants, or if not really so, that the plaintiff ivas misled by Shelton, the agent of the defendant, to the opinion that it was so, in effect at least the defendant is liable on this indorsement. Tor this also, the case of The Genesee Bank v. The Patchin Bank, above referred to for another purpose, is an authority. The next objection is to the charge of the judge, that the repeal of the act prohibiting the circulation of bank bills of a denomination less than five dollars, repealed also the consequences of the act, as to contracts entered into while it was in force. This principle applies only to those acts of the legislature which are measures of public policy merely, not to those which are intended primarily to establish or affect the rights of parties as to each other. The legislature deeming it wise as a measure of public policy, to restrain the circulation of notes of denominations less than f>5, made the act unlawful, and prohibited it, under the consequence, among others, of refusing enforcement of any contract based on such consideration. That law had its day, and was repealed when a change in the wants of society or new light as to its real interests arose. By that repeal the law is decided to be unwise for the present at least, and the contracts made under it, whose consideration was always morally good as between the parties, are now without the legal impediment of being contrary to legally established public policy, (contraband of law,) and are valid. This principle is understood to be fully estab — 37 — lished in the celebrated case of Curtis v. Leavitt, rec’r, and Leavitt, rec’r, v. Blatchford, growing out of certain transactions of the North American Trust and Banking Oo. (1 Smith, 9.) In those cases usury was insisted on as a defense to some claims against the company, and pending the litigation, a law was passed forbidding the interposition of that defense by a corporation. It was passed long after the occurrence of the transactions, and after the defense had been pleaded ; but the supreme court in this district held that it deprived the company of the defense, even as to the transactions which were entered into while the law utterly invalidating contracts for usury was in force, and available to corporations as well as natural persons. This decision has been affirmed by the court of appeals, and is now the settled law of this state. The charge in this respect, therefore, was correct. Another objection to the recovery was that it was not shown that the plaintiff, a foreign corporation, was authorized to enter into a contract with the borrower to keep its notes in circulation, by redeeming them as they were offered for redemption, from time to time. It appeared, however, that the plaintiff was a banking corporation, and such a contract is within the scope of any banking business of whivk we have any knowledge. A bank is bound to redeem or pay its notes when called on for the purpose. It may surely make a contract with a third person, and (whether he be a borrower or not, is unimportant,) to do it, or furnish funds for the purpose. It would not be easy to imagine a corporation lacking the powers to contract with third persons to furnish it funds with which to pay its debts, or to redeem its obligations ; and especially one whose chief end and most legitimate business was the issuing and procuring credit and circulation for its obligations. _ This was a contract by the plaintiffs to loan its notes, which is surely not illegal, and added to that, a contract by the defendants or Shelton (as the case may be) to re — 38 — deem them, which is almost as surely not contrary to law, and is within the power of a bank [New York General Term, November 2, 1857. The judge was asked to charge the jury, (1.) That if the notes were indorsed by the secretary without authority, or for a purpose foreign to that for which the defendant was incorporated, the defendant was not hable; and (2.|'/That if the indorsements were made for the benefit of Shelton, the defendant was not liable; which he refused: Those requests were not either of them entirely correct, and neither could properly have been complied with literally. Each, however, ivas proper, with some qualification. To the first should have been added the qualification, “ unless the plaintiff was misled by the defendant or its agents, to the opinion that they were made for a purpose "within the scope of the business for which the defendantywas created, and within which it was authorized to act and to the second should have been added the qualification, “ if the plaintiff hnew that they were made for Shelton.” The case is relieved, however, of the question suggested here by the subsequent charge at fol. 166,' where he did charge as nearly according to the request as was proper, “that if the notes were indorsed for Shelton’s private benefit and accommodation, and not for the uses of the company, and the plaintiff had notice that they were so indorsed, then the plaintiffs could not recover.” This disposes of all the objections made by the defendant, and leaves the judgment to be affirmed. Judgment affirmed. Mitchell, Roosevelt and. Peabody, Justices.]