Farmers' & Mechanics' Bank v. Empire Stone Dressing Co.

By the Court.*—Woodruff, J. The defendants are a corporation, organized under the general manufacturing law of this State, passed in 1848. (Sess. Laws of 1848, ch. 40, 54.) They are sued upon two bills of exchange, drawn upon them by the Hartford Quarry Company, and which were, in terms, accepted by the defendants’ secretary. It is expressly found by the referee, that “ neither of the said acceptances was made in the prosecution of the business of the defendants, but solely for the accommodation of the drawers, and that the defendants never received any consideration for such acceptances.” This finding is in clear conformity to the weight of the evidence. The secretary of the defendants, by whom the acceptance was written, and whose duty it was to keep their books and accounts, testifies that, so far as he knows, there was no consideration for the acceptance; that it was his impression at the time, that the acceptances were made for the accommodation of the drawers solely; that no consideration passed from any one to him, or to the defendants, so far as he knows; that although he cannot testify that he knows, of his own knowledge, that they were without consideration, and accepted for the accommodation of the Hartford Quarry Company, that is his impression and belief; and, it having been suggested that the defendants had accepted drafts in payment for stone shipped to them by the Quarry Company—and this being indeed the only consideration which it was claimed by the plaintiffs the defendants had received—the secretary testifies, of his own knowledge, that “ they were not made for stone.” The president of the defendants, who told the secretary to accept the bills, testifies, in explicit terms, that they were accepted for the accommodation of the Quarry Company. The treasurer of the defendants testifies that, at a date prior to the date of these bills, he was chosen treasurer, and from that time until long after the maturity of the bills he had the sole management of the financial affairs of the defendants, and that — 54 — he did not as treasurer, or in any way, receive any consideration for the acceptances, and that the company did not, to his knowledge. There is no testimony in contradiction of this evidence. The only testimony which in any degree tends to show consideration, is that of Julius H. Pratt, a director of the Quarry Company, and a trustee of the defendants. He knows the general fact that the Quarry Company sent stone to the defendants, but his testimony is chiefly hearsay. He says, in terms, he does not know what was the consideration of these acceptances. He says he did not know what was the state of the accounts between the two companies in the spring of 1854, and he adds that he does “ not think anybody did.” The finding of the referee on this point is, therefore, in accordance with the proofs. The acceptances were without consideration, and for the accommodation of the Hartford Quarry Company. The secretary of the defendants had no authority to accept for the accommodation of third parties. The by-laws authorized him “ to accept bills of exchange in the prosecution of the business of the company.” That business was, “ the business of cutting, sawing, and dressing stone of all kinds, and the business of stone-cutting in all its branches.” It may, perhaps, be conceded that the certificate of incorporation, under the clause last quoted, would authorize the purchase of stone to be cut or dressed, and then that the by-law would authorize the secretary to accept bills in payment for stone purchased. But no latitude of construction would extend the authority conferred, in the language above cited, so as to include an authority to accept for accommodation merely, and without any consideration. The president told him to accept the bills, but the evidence fails to show that either he or the president, or both, had any authority to bind the defendants by such an acceptance. If the report of the referee, that “the defendants duly accepted the bills,” is to be taken as importing that the secretary had authority to accept accommodation bills, then his report is, in this respect, against the weight of the evidence, and the judgment should be reversed on that ground, unless we can now hold, upon the other facts, that the defendants are liable, whether the — 55 — secretary was authorized to accept such bills or not, and alike liable in either case. If the report is not to be taken to find such authority, then there is no finding on the point, and a new trial should be granted, because enough is not found to sustain the judgment, unless, as before, we are prepared to say that the question whether he had authority or not is immaterial, and the defendants are liable, although the secretary was not authorized to accept these bills. This, I apprehend, cannot be correctly held. On the contrary, the right of the plaintiffs, in my judgment, depends primarily upon the question whether the secretary of the defendants had authority to accept bills for the accommodation of a third party. If he had, then the plaintiffs are doubtless entitled to recover; and when this case was before the general term, in January, 1858, there was an express finding by the referee, that the secretary of the defendants was “ duly authorized” to accept these bills. If that were true as matter of fact, the cases which hold that an accommodation acceptor, whose acceptance is given without restriction as to its use, and especially where it is given for the very purpose of securing a third party, is bound thereby, would apply to this case. It is, however, obvious that a finding that the secretary was “ duly” authorized to accept accommodation bills, involves the legal proposition that the secretary of a manufacturing corporation may be duly authorized to accept accommodation paper, that the corporation have legal power to make such an acceptance, and that all things had been done which are requisite to confer such legal authority on the secretary. Although it may be true that a corporation, having authority to accept for the purposes of its business, may exceed their legitimate power, and so accept, that—as against a third person relying on the representations of its agents, or advancing money on the faith of the acceptance—it will not be permitted to allege the true character of the acceptance to defeat a recovery; still it is, we think, quite clear that neither the secretary of a manufacturing corporation, nor any or all of its officers, have, as matter of law, any legal authority so to accept; and that in this case, under the charter, or the general principles applicable to the subject, the secretary of the defendants had no such authority; and if not, then the question will arise, whether he was clothed with — 56 — such authority to accept, for the purposes of the company, that a third person had a right to rely upon his act of acceptance without further inquiry, and by advancing money or giving credit on the faith- thereof, without, notice that the bill was an accommodation bill, would become entitled to hold the company, notwithstanding the secretary had no legal authority from the defendants to accept accommodation bills ? And if this last question be answered affirmatively, then, are these plaintiffs bona-fide holders, without notice that the bills in question were accommodation bills, who have given value, therefore, upon the credit of the acceptance, and in reliance upon the apparent authority of" the secretary ? ■ I. Upon the first question the evidence is clear, and it has already been sufficiently noticed. The by-laws, under which alone the secretary had actual authority to accept any bills, confined such authority to the prosecution of the business of the company. There was no evidence that the powers of the secretary had been enlarged by any other means. Although the secretary states that it is his impression that he had previously made accommodation acceptances for the drawers of these bills, he also states that they were paid, as he supposes, by the drawers, and not by the defendants; and if a previous practice of giving out such acceptances would bind the company to a person who received them for value without notice, it is not shown that the trustees of this company ever sanctioned any such practice. The referee finds that the present acceptances were not made in the prosecution of the business of the defendants. It must be adjudged, I think, that they were made by the secretary without authority. II. Would these acceptances by the secretary bind the company in favor of a bona-fide holder of the bills for value paid upon fhe faith of the acceptances, and in reliance upon any apparent authority of such secretary to bind the defendants ? In The Bank of Genesee a. The Patchin Bank (3 Kern., 309), the action was against the defendants as indorsers of a bill of exchange, discounted by the plaintiffs, and it appeared on the trial that the indorsement was by the cashier of the defendants, for the accommodation of -a third party (a railroad company), and that the defendants had no interest in the bill which was so — 57 — indorsed. It, however, appeared that in that case the proceeds of the discounted bill were sent by the plaintiffs to the defendants’ cashier, from whom the bill was received for discount. The Court of Appeals unanimously held that a charge to the jury, that “if the cashier had special authority from the Patchin Bank, or from the manager of the bank, to indorse the draft in question, the bank was bound by it although it was an accommodation indorsement for the railroad company, and the bill was made to raise money for it,” was erroneous, and the judgment below was reversed for that error. Mr. Justice Denio expressed the opinion, that had the charge annexed a further condition that “ the plaintiff had received and discounted the bill, under a representation of the defendant that it was the owner of the bill, and that it was to be discounted for the defendant’s benefit,” the charge would have been correct, but the other judges declined passing upon that question. That case, therefore, leaves it quite doubtful at least whether any or all of the agente of a corporation can bind such corporation, whose business is limited to the purposes of banking or of manufacturing, by an accommodation indorsement or acceptance made for purposes not within the scope of that business. It is requiring very little of one who deals with a corporation having limited powers, to inquire whether the acts upon which he relies are within the scope of those powers; and I cannot think that a manufacturing corporation has such an unqualified authority to make promissory notes, or draw, indorse, or accept bills of exchange, that a third party may, without inquiry, rely upon their drawing, indorsement, or acceptance, and claim to be regarded as a bona-fide holder for value, protected against any inquiry into the consideration thereof, or into the actual authority of the officer or agent, or whether in truth the note or bill is issued for the proper purposes of the corporation. (Central Bank a. Empire Stone Dressing Co., 26 Barb., 23.) I do not think it necessary to pursue this question, for if the plaintiffs are not bona-fide holders for value paid in reliance upon the defendants’ acceptance, and in faith that the secretary had authority to accept, then upon the case cited it is certain they are not entitled to recover. On the subsequent trial of the case of The Bank of Genesee a. The Patchin Bank, and on a second review thereof in the Court of Appeals, it was held, as — 58 — we are informed, that the discount of the hill by the plaintiffs, oh the application of the defendants’ cashier, and the sending of the proceeds of the discount to the defendants, upon the representation that the defendants desired the discoúnt for their own benefit, or in substance to that effect, and without any notice that the discount was for the benefit of a third party, made the plaintiffs bona-fide holders for value entitled to recover. That having a general power to procure notes held by them discounted, and to indorse them for that purpose, the defendants would not—after having made application therefor, obtained the discount, and received the money—be permitted to allege, as a defence, that in truth the discount was procured for another. III. In regard to the claim of the plaintiffs to be bona-fide holders for value, it should be borne in mind, that to entitle one to enforce an indorsement or acceptance (which is otherwise invalid), on the ground that he is a bona-fide holder for value, it must appear that he parted with value upon the faith of such indorsement or acceptance. He may be a bona-fide holder of the bill for value paid therefor, and be entitled to enforce it against every other party thereto, and yet have no right to recover on such indorsement or acceptance. This distinction is applicable to the present case, and defines the plaintiffs’ relation to the bills here in question. They are bona-fide holders of the bills for value paid therefor to the drawers; and as to such drawers, they have a plain right to recover from them the full amount. But they have paid nothing in reliance on the defendants’ acceptance. The bills were discounted before they were accepted, and upon such discount the proceeds were placed to the credit of the drawers, and made subject to their checks, and the bills themkelves became the property of the plaintiffs, and at that time there was no acceptance upon which the plaintiffs did or could rely. They were, therefore, not discounted upon the faith of the acceptances at all. At the moment when the defendants’ secretary accepted the bills, they were the plaintiffs’ property, and. they were the immediate parties to the contract which, without consideration and without authority, the secretary assumed to make. The plaintiffs, no-doubt, discounted the bills with an expecta — 59 — tion that they would be accepted, but they can in no just sense be said to have discounted the bills in reliance upon an acceptance which had not then been made. They may have been induced to believe that the bills would be accepted, by the fact that they had held similar drafts which were accepted, and may have had the assurance of the drawer that they would be accepted. But relying upon their previous experience, or relying upon such an assurance, is by no means discounting the bills on the faith of the acceptances. It is not shown that any one, who had authority from the defendants, gave them an assurance that the bills would be accepted ; and if it had been shown that Charles T. Shelton, the defendants’ president, had given the plaintiffs an unconditional - promise that the bills should be accepted, the defendants would not have been bound—not merely because he had no authority to bind the defendants by such a promise, but especially because, by our statute, an acceptance must be in writing before it becomes binding as an acceptance, and an unconditional promise to accept must also be in writing, in order to bind the drawer of a bill. (1 Rev. Stats., 768, §§ 6-8.) It is suggested that the plaintiffs would have caused the bills to be protested for non-acceptance-, and have had immediate recourse to the drawers if the defendants’ secretary had not written an acceptance on the bills; and that, relying on the acts of ‘ the secretary, they have omitted such protest, and have waited until the bills became due before proceeding against the drawers, and that this delay is equivalent to discounting the bills, or paying value in reliance on the acceptance. This claim is as ingenious as I think it is novel. If any fraud was practised on the plaintiffs to lull them into an unwarranted security, they may have recourse to the individuals who practised such fraud. But the defendants are not to be held by the unauthorized act of their secretary, merely because the plaintiffs, but for such act would have sought earlier redress. As above suggested the plaintiffs had already become the r holders of the bills, and when the alleged acceptance was writ- * ten, it was an act to which the plaintiffs' were direct and immediate parties. They were hot bound to take an unauthorized acceptance—and they should have seen to it that the acceptance — 60 — if given was' authorized, and was an act to which the agent of the defendants could bind them. It is proper to observe that when the case was before the general term of the court on a former occasion, there was not only a finding, that the secretary had actual authority to accept the bills, but much stress was also placed upon the want of clear proof, that these bills were in truth accommodation bills for which the. defendants had received no consideration, and also on the circumstance that the accounts between the drawers and the defendants were not produced. On the present trial it was proved, without objection, that in proceedings in insolvency, relating to the settlement of the affairs of the drawers of the bills, it was found that the drawers were indebted: to the .defendants. .This may perhaps be deemed to strengthen the other proofs, already, adverted to, that the bills, were accommodation bills. At all events, the finding of.the referee .on that point cannot be disregarded, or be deemed against, the evidence, when as it now appears it is so fully sustained. . . The judgment should, I think, be reversed, and a ne.w trial ordered. Costs to abide the event. Footnotes [*] Present, Hoffman, Woodruff, and Pierrepont, JJ.