Case Name: THE PRESIDENT, DIRECTORS AND COMPANY OF THE WESTFIELD BANK, Respondents, v. PETER P. CORNEN, Appellant
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1867-09
Citations: 4 Trans. App. 442
Docket Number: 
Parties: THE PRESIDENT, DIRECTORS AND COMPANY OF THE WESTFIELD BANK, Respondents, v. PETER P. CORNEN, Appellant.
Judges: 
Reporter: Transcript Appeals
Volume: 4
Pages: 442–446

Head Matter:
THE PRESIDENT, DIRECTORS AND COMPANY OF THE WESTFIELD BANK, Respondents, v. PETER P. CORNEN, Appellant.
Principal and Agent— Corporation — Director—Notice.
Wherever the very act of the agent is authorized by the terms of the power, and the act is in itself warranted by the terms used, such act is binding on the principal as to all persons dealing in good faith with the agent. In such case the apparent authority is the real authority.
Notice to a director of a bank that a note discounted by the bank is an accommodation note, is notice to the bank only in cases where the director was ■acting as the agent of the bank at the time of the notice.
It is upon the principle that the agent stands in the stead of the principal only while acting as his agent.

Opinion:
PaeKee, J.
The action is brought upon a promissory note for $3,000, purporting to have been made by the Defendant, by his attorney, H. A. Bartlett, dated 18th September, 1860, payable three months from date, to the order of Carson & Hard, and by them endorsed to Jessup & Laflin, who endorsed it to the Plaintiffs.
It appeared upon the trial that Bartlett, who made the note in the Defendant's name, was his attorney in fact, for him in his name, place, and stead, to sign all notes and checks, and accept all drafts, in conducting his business, as then prosecuted by him in the city of New York ; that the note was, at the request of Jessup & Laflin, discounted by the Plaintiffs before maturity, in the usual course of business, for the benefit of Carson & Hard.
The Defendant offered to show that the note was made as an accommodation for Carson & Hard, and not in the usual scope of Defendant's business, and without his knowledge or counsel. This was objected to by the Plaintiffs, and excluded by the Court, to which ruling the Defendant excepted.
It was shown that Jessup was one of the directors of the Plaintiffs' bank, and that he knew the object for which the note was made, but be bad no power to direct tbe note to be discounted, and did not so direct.
Tbe counsel for tbe Defendant tben renewed tbe same offer, on tbe ground tbat tbe bank bad notice tbat tbe note was an accommodation note through Jessup, a director. This was objected to by Plaintiffs' counsel, and excluded by tbe Court, and tbe Defendant excepted.
When tbe Plaintiffs rested their case, tbe Defendant moved for a dismissal of tbe complaint on the grounds:
1. Tbat tbe evidence in tbe case shows tbat tbe authority of the agent Bartlett was a special authority, and limited to tbe business of the Defendant.
2. Tbat there is no proof tbat Bartlett, in giving the note in question, acted within tbe scope of bis agency, and bad authority to give it.
3. The authority of the agent Bartlett being special and limited, and tbe Defendant having offered to show tbat tbe note was an accommodation note, tbe Plaintiffs must show themselves to be boná fide holders.
Tbe motion was denied, and tbe Defendant excepted.
The Defendant called Jessup as a witness, and asked him tbe following question: "At tbe time tbe note was made, was there another note made for tbe same purpose, and subsequently diverted to other purposes by you ? " The Plaintiffs' counsel objected to the question as immaterial and irrelevant, and tbe objection was sustained, to which ruling tbe Defendant excepted.
The following question was tben put by tbe Defendant's counsel to tbe witness : "Were you and Laflin, at the time tbe note' was made, creditors of Carson & Hard % " The question was objected to by Plaintiffs' counsel as immaterial and irrelevant. The. Court sustained tbe objection, and tbe Defendant's counsel excepted. •
Tbe evidence being closed, the Defendant's counsel asked tbat tbe question, whether tbe Plaintiffs bad notice that tbe note was an accommodation note, should be submitted to the jury, and tbat they should be instructed, tbat, if they found tbe Plaintiffs bad such notice, then tbe Defendant would be entitled to a verdict. Tbe Judge refused tbe request, and directed tbe jury to find a verdict for tbe Plaintiffs, for tbe amount of tbe note and interest, to which the Defendant's counsel excepted. The jury rendered a verdict for the Plaintiffs for $3,063.50, upon which judgment was entered. Upon appeal to tbe General Term tbe judgment was affirmed.
There is no doubt that the Plaintiffs are bond fide holders of tbe note for value, unless they are chargeable with notice of its being an accommodation n'ote, by reason of notice of that fact to Jessup, a director. If they are bond fide holders of the note, for value, under the rule which is now well settled they are entitled to recover against the Defendant, notwithstanding the fact that his attorney exceeded his authority in making it. The principle is, as stated in North River Bank v. Aymar (3 Hill, 262): " Whenever the very act of the agent is authorized by the terms of the power — that is, whenever by comparing the act done by the agent with the words of the power — the act is in itself warranted by the terms used, such act is binding on the constituent, as to all persons dealing in good faith with the agent. Such persons are not bound to inquire into facts aliunde. The apparent authority is the real authority." This principle, although the case was reversed by the Court for the Correction of Errors, has been since recognized and established by numerous cases in this court (Farmers' Bank v. Butchers and Drovers' Bank, 4 Kern, 627; S. C. 16 N. Y. R. 135; Griswold v. Haven, 25 N. Y. R. 595; Exchange Bank v. Monteath, 26 N. Y. R. 505; Bank of New York v. Bank of Ohio, 29 N. Y. R. 619). The note being negotiable, the maker is deemed in law to enter into a contract with every one to whom it is afterward negotiated; so that the Plaintiffs thus stand .in privity with the Defendant, and are within the rule, dealing in good faith with the agent, notwithstanding the payees and their immediate endorsers had notice that the agent was transcending his authority in the making of the note (Farmers and Mechanics' Bank v. Butchers and Drovers' Bank, 16 N. Y. R. 141; Griswold v. Haven, 25 N. Y. R. 602).
Tliis principle disposes of tlie exception to the refusal to dismiss the complaint, and brings us to an examination of the question, whether notice to Jessup, that the note was an accommodation note, was notice to the Plaintiffs. It is to be remembered that Jessup, although a director of Plaintiffs' bank, was not acting as such in the discounting of the note, and, so far as was shown, or offered to be shown, notice of the object for which the note was made was'hot given to him as such director.
He was no agent of the bank in this transaction, and the rule that notice to an agent is notice to the principal, does not apply. It was said by Ch. J. Nelson, in Bank of U. S. v. Davis (2 Hill, 463): " I agree that notice to a director, or knowledge derived by him while not engaged officially in the business of the bank, cannot and should not operate to the prejudice of the latter. This is clear from the ground and reason upon which the doctrine of notice to the principal through the agent rests. The principal is chargeable with this knowledge, for the reason that the agent is substituted in his place, and represents him in the particular transaction; and as this relation, strictly speaking, exists only while the agent is acting in the business thus delegated to him, it is proper to limit it to such occasions." This agrees with the decision of the Court in National Bank v. Norton (1 Hill, 572). In that case one member of the firm, after dissolution, renewed a partnership note held by the Plaintiffs, without authority from, or knowledge of Norton, his late copartner. Before the making of the note in question, one of the directors of the Plaintiffs' bank knew of the dissolution of the firm, and the question was whether such knowledge was notice to the Plaintiffs. At the Circuit it was held that it was, and the Plaintiffs were nonsuited. A motion was made to the Court, in banc, in a case to set aside the nonsuit, and for a new trial, which was granted. The Court say : " In the case at bar the learned Judge held that proof of publishing the notice, and actual knowledge in the director whose duty, as one of the board, it was to pass on the discount and renewal of notes, and who was, therefore, to be regarded as the agent of the Plaintiffs, was sufficient proof of their knowledge. In this we think be erred. The hoard were the agents for tlie purposes mentioned, and they should acquire this sort of knowledge as such — or, at least, the firm should show notice brought home to some other agent specially authorized by the bank, or by the course of their business to receive it." (See also Angell & Ames on Corporations, § 307, 308, and cases cited.)
In the case before us, I think the knowledge of Jessup, that the note was an accommodation note, was not notice of that fact to the Plaintiffs.
The question put to the witness Jessup, whether, at the time the note in question was made, another note was made for the same purpose, and subsequently diverted to other purposes by him, was manifestly immaterial and irrelevant, and, therefore, properly excluded.
The same is true of the question whether Jessup & Laflin were creditors of Carson & Hard, at the time when the note in question was made.
There was no question to be submitted to the jury, and they were properly directed to find a verdict for the Plaintiffs.-
The judgment should be affirmed.
All affirm.
JOEL TIFFANY, State Reporter.