Case ID: tex_6/html/0258-01.html
Source: Caselaw Access Project
Author: {"author": "Hemphill, Oh. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Greneaux v. Wheeler.
    Where a principal invests his agent with a general power or with the absolute estate, with a parol or separate understanding; or agreement that the authority is to be exercised or Clio estate to be conveyed for a particular purpose only, the principal will be bound, ns n general rule, by the acts of the agent in fraud of tlio parol or separate understanding or agreement, the exceptions being in case of notice, &c.
    Promissory notes and bills payable to bearer, or payable to order and indorsed in blank, are transferable as cash by del ¡.very and may be reclaimed by a bona fide holder for value as against a former owner from whom they may have been stolen or obtained by fraud. (Note 87.)
    A banker who receives indorsed bills from his customer, to be got when due and carried to his account, may discount, sell, or pledge them in the regular course of trade to a person without notice, 'so as to bind his principal. (Note 88 )
    The mere circumstance that the holder of a note payable to bearer, or payable, to order and indorsed in blank, is an attorney at law is not sufficient to put a person receiving the note imnn inquiry whether the noto belongs to him or is in his possession for collection merely.
    Expiv.-s notice is not indispensable to invalidate the title of the holder of a promissory note «.r hill payable to bearer or payabfe to order and indorsed in blank, who has received it from a person wiio was not the owner. It will be sufficient if the circumstances be of sit'di asi rongand pointed character as necessarily to ea-dashade over the transaction and pul the holder upon inquiry, presenting a case of that gross negligence which is tantamount to had faith. (Nolo 89.)
    A revived in payment of or as security for a precedent debt is taken in the usual course of trade.
    
      Quere as to the rule requiring a note in certain cases to have been taken in the usual course of trade.
    Error from San Augustine. This action was brought by Greneanx to recover damages for (he conversion by the defendant to his own use of a promissory note, alleged to be the property of the ifiaintiff. The note was executed by B. J. Thompson in favor of tire plaintiff or bearer, and, being in the hands of one C. M. Gould, an attorney at law, for collection, was by him for a valuable consideration transferred to the defendant.
    The defendant being- interrogated as lo the amount of the consideration paid by him and the manner and time of its payment, and as to his knowledge of tlie fact that the note was placed in the hands of Gould for collection, and for that purpose only, responded that on or about the 1st day of January, 1844, lie received (lie note from Gould and paid therefor a full, fair, and bona fide consideration. equal to that for which then and ever since lie could have purchased paper against the said B. J. Thompson ; that lie paid fifty cents to the dollar for said'note in groceries and casli to Mrs. Ford, on said Gould’s order and by iiis request, and that a small part of the amount was a balance due him in cash from said Gould ; that at the time of his purchase, transfer, and delivery of the note lie did not know or believe that the note was held by Gould for collection, but, on the contrary, he supposed it to be the bona fide property of said Gould; and that the said nóte was payable, to Greneanx or bearer, and was transferred in the fair and bona fide course of trade. It appeared from the petition that the note was executed on the 13th January, 1844, and became due on the 25th December, 1844.
    B. J. Thompson, one of the witnesses, proved that the note was executed by him as a substitute for a note held upon him by the plaintiff; and that the note in suit was handed by him to Gould as attorney of the plaintiff; and-that Gould told the witness tlie day before lie left Texas that the note belonged to the plaintiff. Two witnesses'testified that noles on good solvent men were at the date of the transfer of this note selling at fifty cents on the dollar.
    D. S. Kaufman thought that Gould left‘Texas in the month of January, 1S44; S. Francis, that lie left in the spring of 1843 or 1844. T. G. Broocks testified that lie had transactions with Gould in February, 1844, and thought he left Texas about the 4lh March, 1S44.
    
    It was in evidence that Gould was a practising attorney, and so held himself out to the world at the date of (he transfer of the note to the defendant; that lie had been, for several years previous, and continued to be until lie left Texas, a practising attornej'.
    The judge charged the 3nry—
    Í. That an attorney at law is a special agent, whose powers are limited to the collection of money upon money (demands) intrusted to him by his client. The general rule that the special agent cannot bind his principal by any act which transcends the scope of his authority is subject to the qualification that, if the principal ostensibly vest in his special agent a legal title to the tiling intrusted, a purchaser for a valuable consideration and without notice of the special authority will acquire a good title; as, for instance, if a principal appoint an agent to dispose of his property in a particular mode, and gives him a full title to the property, and the agent adopt another and different mode, the principal is bound by it as be,tween himself and ionajitZe purchasers. Under this qualification or exception is embraced the ease of a promissory note made payable to bearer and placed in the hands of an attorney at law for collection.
    2. That if the defendant had purchased the note from Oonld for a valuable consideration, without notice that the note did not belong to Gould, he had acquired a good title to the note ; that notice, to Wheeler might be either express or implied; express notice is where there is a direct communication from one party or some one else to the other party as to the ownership of the property; implied nol ice is where the facts which surround the transaction lead the mind of the party purchasing toa knowledge of the ownership of the property ; and that the jury were to determine, from all the evidence before them, whether or not Wheeler had made the pinchase for a valuable consideration wiLhont notice.
    There was a verdict and judgment for the defendant, and a motion for a new trial was overruled.
    The errors assigned were.—
    1st. That the court erred in the first charge to the jury.
    2d. That the court erred in the second charge to the jury.
    3d. That the court erred in overruling the plaintiff’s motion for a new trial.
    
      A. H. JEoans, for plaintiff in error.
    I. The plaintiff ’s counsel assigned in his petition three grounds of error in the ruling of the court below; but as the third or last ground will substantially comprehend the other two, he will confine himself to the argument of that one. It is, “,'1'hat tile court erred in overruling the plaintiff’s application fora new trial.”
    II. In his application for a new trial the plaintiffsrated grounds upon which the same was based :
    1st. “That the court erred in the charge given to the jury, in that the law did not presume a know-ledge of the relation of client aud attorney between Greneaux and Gould.”
    That an attorney is a special agent, whose ordinary powers are limited to the collection of money upon promissory notes, bills, &c., intrusted to him by his client, is not only well-settled law, but was so charged to the jnry by the district judge upon the trial below. The question, then, arises, if this relation of principal and agent (client and actorney) did really exist between Greneaux and Gould, what was necessary notice to Wheeler of that fact? and did not the law presume notice? Justice Story says, that “a person dealing with a factor or broker is bound to know that by law a factor or broker, although a general agent, is not clothed with authority to pledge, deposit, or transfer the properly of his principal for his own debts; and if a person receive such a deposit or pledge, the title is invalid aud the property may be reclaimed by the principal. Aud in such a ease it is wholly immaterial whether the pledgee knew that the party with whom he was dealing was a broker or factor, or not,” as the law presumes a knowledge of the fact.
    
      Then the plaintiff contends, a fortiori, that a person dealing' with a licensed attorney whom, too, he knew to he such and whom he is hound to know, in the language of the district judge, to be a special agent., whose ordinary powers are limited to the collection of money upon notes and bills intrusted to him by his client-; that such person has legal notice of the relation of client and attorney (principal and agent) existing between Greneaux and Gould ; that the law presumes such a knowledge or notice, and that the person dealing deals at his peril, and Is bound by the law applicable to it. (Story on Ag., 22iT; Palcy on Ag., 340-3-12; Liv. on Ag., 129, 130-149, edit., ISIS; 3 Chitty on C. and M. Law, 20-1, 205; 1 Mass. R., 440; fill. & Selw. R., 14.)
    III. The second ground assigned in plaintiff’s application for a new trial is that ‘‘the jury found their verdict contrary to the law and the evidence.” •
    The law being settled that an attorney is a special agent., all the doctrines of special agency must apply, and not the doctrine charged by the court below of negotiable instruments. The latter doctrines were applied, and properly too, in the trial between Wheeler and Thompson, when Wheeler was enforcing the collection of the note; but the court below erred, we conceive, in not discriminating between the principles involved in that suit, and those involved in this. There the doctrine of negotiable instruments applied ; here the doctrine of special agency. It was this confounding of the doctrines applicable to the two cases which forced the court below to charge “ the qualification or exception” noticed in the plaintiff’s first ground of.error, to avoid a conflict in well-settled principles.
    “A special agent, cannot bind his principal if ho exceed his authority,” (15 Johns. R., 44; 3 Conn. R., 172; 1 Esp. R., Til; Story on Ag., 24, 103, 106, 214,) and yet it is admitted that Gould was a special agent, exceeded his authority, and went beyond.his “ordinary powers” in making the transfer to Wheeler. Hence plaintiff contends lie has a right to recover his property, and that the verdict of the jury was contrary to law. (Story on Ag.. 225.)
    “He who deals with an agent deals at his peril when the agent passes the precise limits of his power,-’'’ (2 Kent, 620, 621, 626;) and as-it is admitted that Gonld exceeded the precise limits of his power, according to Chancellor Kent, Wlieeler is at fault and the verdict is erroneous.
    The verdict was even contrary to the evidence and the law, as charged by the court., who said that “ notice to Wheeler may have been either express or implied.” For as Wheeler’s knowledge of Gould’s profession was positively proven we contend that the law implied a notice of his agency and a knowledge of “ his ordinary powers ” as such agent.
    It may be contended that where the principal clothes the agent, although a mere special agent, with all the apparent muniments of title to the property in himself, the' principal would bo bound by the acts of the latter if the purchaser had no notice of the agency. The correctness of this doctrine is readily admitted; but it docs not nor cannot apply to this case, as tiie profession of Gould being known to Wheeler he knew of tire agency, and, according to the charge of the court below, lie was bound to know “ the ordinary powers of tiie agent.” ' '
    ' “An implied agency is never construed to extend beyond the obvious purposes and the general usage, scope, and course of the business of the agent,” (15 East. It., 3S;) and the fact as to whether the agent “is clothed with tiie apparent muniments of tille” depends solely and entirely upon the character of the agency, or, in the words quoted above, “ upon the general usage, scope, and course of the business of the agent.” Por instance : ,
    “If a person intrusts his watcli to a watchmaker to be repaired, tiie owner would not be bound by Iris sale,” (15 East. It., 38 ;) but if the watcli were placed in the hands of an attorney, and lie should sell, the owner would be bound; thus would naked possession of the watch clothe the one, but not the other, with “the apparent muniments of tille.” The. reverse, of this proposition would be true with a negotiable instrument. When in the hands of the watchmaker it would clothe him with ail the apparent muniments of title, but exactly the reverse if placed in the hands of an attorney, as it would come within “tlie usage, scope, and course of his business” as a special agent, whose “ordinary powers are limited to the collection of money upon notes, bills, &c., intrusted to him by his clients.
    
      J. 11. Ardrey, for defendant in error.
    I. Tlie whole question involved in this cause is whether tlie charge of the district judge was correct upon tlie subject of the transfer of tlie negotiable promissory note by Greneaux’s agent, so as to vest a title and right of property in the defendant, wiio was sued in trover for the recovery of it. The authorities relied upon by attorney for plaintiff in error show cases of the, transfer of personal property by the agent, with a knowledge of the fact of •agency, either express or implied, on tlie part of the transferee, and not that of negotiable securities.
    II. By the common law, no man can acquire a title to a personal chattel from any one who has himself no title to it except by a sale in market overt, which we have not in this country. (2 Ad. & El. R.,'595.) But in the ease of Miller v. Race (I Burr. R., 453) an exception to this general rule of law was recoguized to exist in favor of negotiable securities, in which it was decided that the property will pass, like that of coin or bank notes, which are customarily used and received as cash, along witii tlie possession, when they have been put into that state in which, according to usage and custom of traders, they are transferred from one to another by delivery. (Smith’s Leading Cases, 362; Story on Agency, secs. 227. 228; Grant v. Vaughan, 3 Burr. R., 1510; Collins v. Martin, 3 Bos. & Pul. R., 049; Snow v. Sadler, 3 Bing. R„ 610.)
    III. Livermore lays down another qualification to the general rule of law stilted by Mr. Story, as cited by appellant, which is also sufficient to sustain the charge of the court, which is, “ when a factor, by the assent of his principal, exhibits himself to tlie world as owner, and lie lias all the external indicia of title, and by that means obtains credit or transfers the property in due course of trade, tlie principal will be liable to the creditor to the extent of the value of the property or will lose tlie property.” (Livermore on Agency,
   Hemphill, Oh. J.

It will not be necessary to consider separately tlie proposition that the principal who vests his special agent with tlie muni-ments of a legal or absolute title is bound by his acts, though they may transcend tlie scope of his authority. As a general legal truth, this is certainly beyond question.

The proposition is stated in terms of similar import in section 227 of Story on Agency; and the case cited by tlie■ learned jurist as an example of tlie principle is that of a broker employed to purchase, and having ordinarily no authority to sell, still if the principal invest him with the apparent legal ownership, he will be bound by a sale made by tlie broker.

Tlie subject for direct inquiry is whether tlie holder of a note indorsed in blank or payable to bearer, and transferred by a special agent before maturity for a valuable consideration and without notice of tlie right of the real owner, has a valid title?

That lie has such title is settled by almost numberless authorities. One of tlie first cases, and tlie leading one, in which the validity of tiie holder’s title was established is Miller v. Race, (1 Burr. R., 542; 1 Smith’s Leading Cases, p. 441.) Tlie doctrine was there laid down that property in a bank note passes like that in easli by delivery; and a party taking it bona fide and for value is entitled to reclaim it as against a former owner from whom it lias been stolen. This rule has in subsequent cases been extended to all negotiable instruments transferable by delivery. (3 Burr. R., 1516; 3 B. & C. R., 45; 5 Tex. R., 683.) Promissory notes and bills payable, to bearer, or payable to order and indorsed in blank, are transferable as cash by delivery, and have that character of negotiability which brings them within the scope and. operation of tlie rule.

The rule itself is an exception to the general principle of English law that a personal chattel cannot be acquired from one who lias no title to it himself except (in England) by sale in market overt; and negotiable paper is exempted from (lie general rule, to subserve the purposes and promote the objects of commercial exchanges. That the advantages of the. unrestricted circulation of mercantile paper may be obtained, it is held that the property and possession of such paper go together.' In Collins v. Marlin (1 Bos. & Pul. R., 648) it is said that, for the purpose of rendering bills of exchange negotiable, tlie right of property in them passes with the bills themselves. The properly and possession are inseparable.

In this respect they differ essentially from goods of which the property and possession maybe in different persons. Tlie property passing with tlie possession. it is admitted that a banker who receives indorsed bills from his customer, to be got when due and carried to his account, may discount or sell them, why may he not pledge them? Either is a breach of confidence reposed in him; and lie may sell, because tlie property lias been intrusted to him; and may pledge for the same reason, for lie. who has the property has the disposing power. (4 Campb. N. P., 349; 2 Id., 123; 13 East. R., 130, 135; 2 Kent Comm., 626, 627; 4 Mass. R., 45.)

The possession giving the holder of negotiable paper disposing power, he may, although he lias no property in tlie'paper, give title to a third person receiving it bona fide and for a valuable consideration. Good faith and valuable consideration are essential elements of such title, for where the paper comes mala fide into a person’s hands it is in tlie nature of specific property; and if traced, tlie real owner lias the right to recover. (Clarke v. Shee, Cowp. R., 197.)

Tlie remaining inquiry is whether the notes came into the hands of Wheeler bona fide and upon good consideration.

Tlie appellant contends that the defendant is not a possessor in good faith, for tlie reason that Gould, tlie transferrer, was an attorney at law, and that the facts of his holding himself out in that capacity was sufficient to throw doubt upon his right to dispose of tlie note and lead the mind to inquiry. In other words, that his profession is uotiee to all the world that he is a special agent, whose ordinary powers are limited to the collection of money upon notes and bills intrusted to him for collection; that the law presumes notice of tlie relation existing between him and his client; and eveiy person dealing with him deals at his' peril.

If this doctrine be admitted, attorneys would stand as a proscribed class, in whose hands the possession of negotiable notes or bank bills would not, as with tlie rest of mankind, give properly and disposing power — negotiability. IE the fact of his being an attorney should throw discredit on negotiable paper in his hands, it should operate alike on hank bills or even gold and silver. There is just as strong a presumption timt tlie mo.noy in his hands belongs to a client as there is that all the negotiable paper in his hands iias been placed there for collection. Negotiable paper, bank bills, or any species of currency which can be traced, would be comparatively worthless to an attorney, for no one would deal with him on tlie same terms that he would with others if his dealings were at tlie peril of defeat of recovery against the maker or of reclamation from the real owner.

The injustice of such a rule and the embarrassment which it would.throw around negotiable paper need not be further discussed. No decision or authority lias been referred to in tlie argument which authorizes this exception to tlie general rule establishing the title of bona fide holders of negotiable paper. The cases all show that it is immaterial for what purpose tlie notes may have been placed in the hands of tlie vendor or pledgor.

Tlie banker who receives notes from ids customers, to be got when due and placed lo his account, is a special agent, and transcends his authority when lie sells, plelges, or otherwise, disposes of them; yet tlie owner cannot reclaim them from third parties who have received them bona fide and for a valuable consideration. (1 Bos. & Pul. R., 648. 539; Story on Agency, sec. 227, note 3.) And the rule is equally protective of the holder in good faith of negotiable paper purchased from an attorney at law. In either case the tille is derived from the instrument itself, and not from the title which the party has who transfers it. The possession of the note gives the holder disposing power over the same. The note passes as a species of currency, without inquiry as ro the title of the holder. It is immaterial whether the vendor be an attorney at law or not, or whether he has obtained it by theft, by fraud, by finding, or upon trust. The title of the transferree depends upon the possession of the vendor, but on none of the circumstances under whicii it was obtained. This possession gives him authority to sell; and if the buyer has acted in good faith and paid a valuable consideration, his title cannot be impugned. On examining the American Chancery Digest, under the head of Attorney at Law, (p. 20(5, par. 54,) I find it laid down that an attorney cannot legally transfer in payment of his private debts a note placed in his hands for collection, so as to bind his client thereby, either in law or equity; and o Stewart & Porter, 354, and 1 Porter E., 212, are cited as cases from which the principle is extracted. The hooks themselves are not witliiu the reach of the court, and I cannot consider the rule as it appears in the digest’entitled to any weight in the decision of this question. The facts of the cases are unknown. It might appear from these that the holder had notice that the notes were lodged with the attorney for collection, or the circumstances- may have been such as to throw a shade upon the transaction and to put the holder on inquiry, and of course, if such were the facts, the general rule would not apply.

The mere fact, then, that Gould was an attorney at law constituted no notice to the defendant that the note was held by him for collection. Of itself it is not a circumstance sufficient to excite suspicion or impair the title of the defendant.

Under that ground, In the motion for a new trial, which-assumes that the verdict is contrary to the law and the evidence, the inquiry arises whether, on the facts as proven, the defendant holds in good faith and for a valuable consideration.

What circumstauccs shall constitute mala fieles on the part of the holder, or shall he to him notice of defect or infirmity of title, has been the subject of much discussion and of considerable fluctuation of decision. As the reports are not accessible, I shall not attempt to examine the eases. They have been ably reviewed by the editor of Smith’s Leading Cases, in his notes on the case of Miller and Race. Judge Story, in Ills treatises on Bills of Exchange, section 194, and on Promissory Rotes, section 197, thus states the rule as to notice, the doctrines that for some time prevailed, and their final overthrow : It is agreed on all sides that express notice is not indispensable. It will be sufficient if the circumstances are of such a strong and pointed character as necessarily to east a shade upon the transaction, and put the holder upon inquiry. Éor a considerable length of time the doctrine prevailed that if the holder took the note under suspicious circumstances, or without due caution and inquiry, although he gave value for it, yet he was not to he deemed a holder bona fide without noticed But this doctrine has been since overruled and abandoned upon the ground of its inconvenience, and its obstruction to the free circulation and negotiation of exchange and other transferable paper. The doctrine of the case of Gill v. Cubbit, (3 B. & C. R., 546,) and several succeeding cases, was that the holder who had taken a bill under circumstances which ought to have excited the suspicion of a prudent and careful man liad no tille. In subsequent cases, (5 B. & Adol.. 909, 1098,) this was held -not to be the true rule, hut that the circumstances must amount to gross negligence on the part of the holder to invalidate ins title. And in tiie latest cases it has been determined that gross negligence is unimportant, except as it is evidence of mala fides. (Goodman v. Harvey, 4 Adol. & El., 870, and 1 Adol. & EL, E. R., 498, 504.) In this last case Lord Denman said that the owner of a bill is entitled to recover upon it if he has come by it honestly; that that fact is implied prima fade by possession, and that to meet the inference so raised, fraud, felony, or some such matter must be proved. (Story on Agency, sec. 228, p. 273, n. 1.)

Notk 87- — Where anote payable to bearer, just due, is placed in the hands of ail agent for 9 particular purpose, and the agent transfers the note to a purchaser for value, in vio.a:ion oí nis trust, the principal may recover possession of it in an action against the purchaser. (Wheathered v. Smith, 9 T., 622.)

Note 88.—Drowning v. Sledge, 38 T., 192.

Kote 89.—McAnelly v. Chapman, 18 T., 198.

Is there any circumstance in this transaction indicative of fraud oi bad faith on the part of the defendant?

His testimony was taken by the plaintiff, and lie proves that he gave a valuable consideration for the noto; that the amount paid was the market price of notes at the time of the transfer; and that he did not know or believe at the rime of his purchase of the said note that it had been placed in Gould’s hands for collection as an attorney at law, but, on the contrary, lie believed it to bo the, bona fide property of said Gould; and lie farther testifies that the note was transferred in the fair and bona fide course of trade. , There was no evidence to rebut this testimony or to impeach the fairness and honesty of the defendant in the transaction. For aught that appears Gould may have, up to that period, been of unimpeachable character in ills transactions with liis clients. There may have been nothing unusual in his owning notes of tlmt amount in his own right and -his transfer of them to others. In fact there is no circumstance to arouse the suspicion of the defendant and lead him to inquiry.

The defendant testifies that the note was transferred in the fair and bona fide course of trade.

This is rather a question of law than of fact. The rule that to support the holder’s title the transfer must he bona fide and for a valuable consideration was usually expressed in the earliest cases with the qualification that the notes must have been received in the usual course of trade. What is meant by .the usual course of trade has been much discussed, and attempts have been made to limit the description to cases in which the holder has made'an actual advance in money, or its equivalent, for the paper. In New York it has been held that a note taken in payment of a precedent debt was not taken in the usual course of trade, and the holder would not have a valid title as against the real owner, nor could he resist an equitable defense good between the maker and the payee. But the great weight of authority is tiiat a transfer for a precedent debt is in the usual course of trade, and the holder must be treated as a bona fide holder for value. Judge Story, in the case of Swift v. Tyson, (10 Pet. R., 1.) reviews the Yew York cases and the whole doctrine. In his luminous opinion lie states that, assuming it to be true (which, however, may well admit of some doubt, from the generality of the language) that the holder of a negotiable note is unaffected'by the equities of the antecedent parties, of which lie has no notice only where he receives it in the usual course of trade and business for a valuable consideration before it becomes due, we arc prepared to say that receiving it in payment of or as security for a pre-exisling debt is according to the known usual course of trade and business. (3 Kelly R., 47.) A part ojf the consideration in this case was a pre-existing debt, and I have glanced at the subject to show that from the current of authorities such consideration is valuable, and tiiat a note is taken in the bona fide course of trade when transferred on such consideration.

Judgment affirmed.