Case Name: THE SECOND NATIONAL BANK OF ALLENTOWN, Plaintiff v. THE POTTIER & STYMUS MFG. CO., Defendant
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1888-10-25
Citations: 24 Jones & S. 216
Docket Number: 
Parties: THE SECOND NATIONAL BANK OF ALLENTOWN, Plaintiff v. THE POTTIER & STYMUS MFG. CO., Defendant.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 56
Pages: 216–223

Head Matter:
THE SECOND NATIONAL BANK OF ALLENTOWN, Plaintiff v. THE POTTIER & STYMUS MFG. CO., Defendant.
Principal and Agent. Express and implied authority, etc.; authority to one to act for another, need not be conferred by words.
Authority from a corporation to an agent to sign, indorse and transfer promissory notes, may be inferred and implied from the course of business of such corporation and its employment of such agent, and from the fact that similar transactions of the agent, have been approved and acquiesced in, by said corporation as done by its authority.
It is not necessary, in order to authorize the inference of general agency, that the person who has assumed to act as agent, should have done an act of the same special character as the one on which the principal is sought to be held. It is sufficient, if he has usually done things of the same general character and effect, with the assent and approval of his principal. Commercial Bank v. Norton, 1 Hill, ,501.
This authority to act for another, inferred and implied from appearances, operates only by way of estoppel, and takes the place of real authority, only when some person has acted upon such appearances and has in good faith parted with value. People v. Bank of North America, 75 N. T. 548.
It is not necessary that the appearances on which plaintiff acted, should have arisen from transactions had between the plaintiff and defendant. It is sufficient, if there were transactions from which the authority of Ingersoll to act as defendant’s agent in the indorsement of the note in suit could be inferred, and that the plaintiff had knowledge of such transactions.
"An officer of a corporation may, by the conduct and action of its directors and managers, be invested with capacity to bind the corporation by acts beyond the powers inherent to his office; his authority may be inferred from the manner in which he has been permitted to transact such business. National Park Bank v. German American Mutual Warehousing, etc., Co., 53 Super. Ct. 367. In such case the officer’s authority does not depend so much upon his official title or on the theoretical nature of his office, as upon the duties that are assigned to him, and that he is in the habit of performing. Fifth Ward Savings Bank v. The First National Bank, 7 Atlantic Rep. 318.
Although it is true that one who deals with an officer of a corporation is presumed to know the extent of that officer’s power to bind the corporation, yet when such officer has made in the name of the corporation, what purports to be its contract, and that contract is upon its face one that the corporation has the power to make, and its only defect consists in some extrinsic fact, such as the purpose or object for which the contract was made, such contract is binding upon the corporation, and the person with whom the contract is made is not bound to inquire as to such extrinsic fact. Farmers & Mechanics Bank, etc. v. Butchers and Drovers Bank, 16 Rf. Y. 129, 130 ; 4 American and British Encyclopedia of Law, 227, and cases there cited. ’
Before Sedgwick, Ch. J., and Truax, J.
Decided October 25, 1888.
This action was tried before a judge and a jury. The trial judge directed the jury to render a verdict in favor of the defendant and further directed that the exceptions be heard in the first instance at the general term.
Martin & Smith, attorneys, and George A. Strong, of counsel, for plaintiff, argued:—
I. That the uncontradicted evidence of actual authority to make and indorse notes and other negotiable paper called for the direction of a verdict in plaintiff’s favor. The limits of an agent’s authority may be determined by the power which he is allowed to exercise......In other words, the authority may be shown by circumstances. The recognition by a corporation of acts on the part of an agent, similar in character to those which may be in dispute, tends strongly to establish the agent’s authority. Olcott v. Tioga R. R. Co., 27 N. Y. 560. To the same effect see Meads v. Merch’s Bk., 25 N. Y. 145. In another case it was declared, that evidence as to the habit of one defendant to allow his name to be signed by his co-defendant as maker of notes, was competent on the question of authority. Hammond v. Varian, 54 N. Y 400-1. It is and long has been settled law in New York, that an agent’s authority to do the act in dispute may be shown by instances of his doing the like act in transactions with other persons. Such evidence goes directly to the issue of actual authority. Bennett v. Agricultural Ins. Co., 106 N. Y 248-9; Dunn v. Horbeck, 72 Ib. 88; Wood v. Auburn R. R. Co. 8 Ib. 167; Edwards v. Schaffer, 49 Barb. 292; Mead v. Keeler, 24 Ib. 22; Beers v. Phoenix Co., 14 Ib. 361; Abeel v. Seymour, 6 Hun, 656; Bank of U. S. v. Dandridge, 12 Wh. 70.
II. It was of no consequence whatever that the particular note in suit may have been fraudulently issued, or its proceeds fraudulently misappropriated. The settled doctrine is that where the proper officer issues paper in the proper and usual form, any secret fraud furnishes no defense to his principal. Farmers’ Bank v. Butchers’ Bank, 16 N. Y. 132, et seq; Bank of Genessee v. Patchin Bank, 19 Ib. 319; Bank of N. Y. v. Bank of Ohio, 29 Ib. 631.
Frederick M. Littlefield, attorney for defendant, argued:—
That this note was indorsed without the authority of the defendant company, and was in legal effect a forgery, and the defendant company is not bound by the indorsement. Officers of a corporation are special and not general agents; consequently they have no power to bind the corporation except within the limitations prescribed by the charter and by-laws. Persons dealing with the officers of a corporation are charged with notice of the authority conferred upon them, and of the limitations and restrictions upon it contained in the charter and by-laws. There is no grant of power in the name by which the officer is designated, especially when the authority given is specified in the by-laws. Adriance v. Roome, 52 Barb. 399, p. 411; and see cases cited below.
In McCullough v. Morse, 5 Ben. 567, it was held that a corporation may make a promissory note in the business contemplated in its charter, “ but it must affirmatively appear that it was made in the course of its legitimate business. The fact must not be presumed. A corporation cannot be bound by its agents for acts not within the powers conferred by its charter. Contracts based upon such acts are void. The authority of agents of a corporation must be shown. Proof that a promissory note purporting to be made by it was signed by the president and secretary is not sufficient without proof of their authority to sign it.” We may remark here parenthetically, that it is well-settled law that a manufacturing corporation cannot lend its credit to a third person by indorsing a note for his accommodation or otherwise. Such an act is ultra vires and void. Green’s Brice’s Ultra Vires, 2d ed., pp. 252, 253, 255, 256 and 272-275. In this case the note in suit was undoubtedly indorsed for the accommodation of some third person. We do not rely upon this fact standing alone as a ground of defense, because it is well settled that such a defense cannot prevail against a bona fide holder of a •note, who has taken it for value and before maturity. But where such a fact is combined with the further fact that the indorsement was the wholly unauthorized •act of one of its. officers, it makes an entirely different situation. Here we have the attempt of an officer to bind a corporation by something which was not only beyond his powers, but beyond the power of the corporation itself to do. Morawetz on Corporations, § 423 ; Alexander v. Caldwell, 83 N. Y. 480.

Opinion:
By the Court.—Truax, J.
The action is against the defendant, a corporation, as indorser of a promissory note. It was in fact indorsed by one Ingersoll, the treasurer of the defendant. On the trial the defendant denied that Ingersoll had authority from it to indorse its name. The plaintiff proved that for many years Ing.ersoll had signed the name of. the defendant as maker of notes, and had indorsed its name upon notes to the knowledge of defendant—the defendant recognizing its liability in these instances. This was proof that at the time of those instances, Ingersoll acted as agent of defendant with authority to bind it. This agency, upon the facts in the case, was presumed to continue to the time of the indorsement of the note in suit. The form of the indorsement is the same as that previously used by Ingersoll. Ingersoll being the authorized agent to sign and indorse • and transfer, bound the defendant, by any express or implied representation by him, that the conditions which limited his power as between the defendant and himself, had been complied with.
Authority to one to act for another, need not be conferred in words. Such authority may be inferred from the course of business and employment, and from the fact that similar transactions of the assumed agent have been acquiesced in by the principal as done by his authority. But the defendant contends, and the evidence tends to show, that the note in question is an accommodation note, and that an authority to indorse an accommodation note cannot be inferred from the fact that the alleged agent had the right to indorse business paper. This contention cannot be sustained. It is not neces sary in order to authorize the inference of general agency, that the person who has assumed to act as agent should have done an act the same in specie as the one on which the alleged principal is sought to be held. If he has usually done things of the same general character and effect with the assent of his principal, it is enough. Commercial Bank v. Norton, 1 Hill, 501.
This authority to. act for another, which is inferred from appearances, operates only by way of estoppel, and takes the place of real authority only when some person has acted upon the appearances (People v. Bank of North America, 75 N. Y. 548) and has in good faith parted with value.
It, therefore, became necessary for the plaintiff to show that it had parted with value, and that it had knowledge of the apparent authority of Ingersoll to indorse the note in question in the name of the defendant. Evidence was offered which tended to show that plaintiff had parted with value. The plaintiff then attempted to show that at the time it discounted the note in suit, its president was told that the indorsement on the note was the defendant's regular indorsement—that is, that Ingersoll was authorized by the defendant to indorse notes for it. This evidence was excluded by the court, and the plaintiff duly excepted. This ruling was erroneous. It is not necessary that the appearances on which plaintiff acted, should arise from transactions had between the plaintiff and defendant. It is sufficient that there were transactions from which the authority of Ingersoll to act as defendant's agent in indorsing the note in suit could be inferred, and that plaintiff had knowledge of these transactions. This court has lately held that when a corporation has in many instances recognized that one of its officers was its agent, competent to sign its name in a certain manner, it is estopped from taking, against a holder for value, the position that such an officer had not the power to sign its name in that manner. National Park Bank v. The German American Mutual Warehousing and Security Co., 53 Super Ct. 367.
The case now before us is to be distinguished from the case of the People's Bank v. St. Anthony's &c. Church, 109 N. Y. 512, in which case the plaintiff failed to establish or to give evidence which raised a presumption, that the notes in question were the authorized obligations of the defendant. It is true that the plaintiff in that case did prove that the notes were signed by the president, secretary and treasurer of the defendant, and that said officers constituted three of the five members of defendant's board of trustees. But the defendant proved that the notes were signed by the officers of the defendant acting separately and not at the same time or place or while assembled as a board of trustees. It was held in that case that " the trustees had no separate or individual authority to bind the corporation, and this although the majority or the whole number (of trustees) acting singly and not collectively " as a board, should assent to the particular transaction. This principle.....is.....expressly applied to the action of religious corporations by the act of 1813, which declares that....."A majority of the trustees being lawfully convened, shall be competent to do and perform all matters and things which such trustees are authorized or required to do or perform." But this very case is an authority by implication, for the principle that the authority of the agent to bind his principal may be inferred from other similar transactions, for it is said " A presumption has never been indulged to sustain an allegation that an unsealed contract, executed by officers of a corporation in its name, was a corporate obligation, unless authority was implied from the nature of the office, or from previous similar dealings recognized by the corporation, or a ratification was shown. When an agency is once lawfully constituted the agent may, in some cases, bind the principal by a false representation that a particular transaction of the same general nature with that authorized, is within the power conferred, when in fact it has never been authorized and was a fraud upon the power." An officer of a corporation may, by the conduct of its directors or managers, be invested with. capacity to bind the corporation by acts beyond the powers inherent in his office. Thus, when in the usual course of business an officer of a corporation has been allowed to manage its affairs, his authority may be implied from the manner in which he has been permitted to transact such business. National Park Bank v. German American Mutual Warehousing and Security Co., 53 Super. Ct. 367. In such case the officer's authority does not depend so much upon his title, or on the theoretical nature of his office, as on the duties he is in the habit of performing. Fifth Ward Savings Bank v. The First National Bank, 7 Atlantic Rep. 318.
It is true that one who deals with an officer of a corporation, is presumed to know the extent of his power to bind the corporation. But when an officer of a corporation has made, in the name of the corporation, what purports to be the contract of the corporation, and this contract is upon its face one that the corporation has authority to make, and its only defect consists in some extrinsic fact, such as the purpose or object for which it was made, such contract is binding upon the corporation, and the person with whom the contract is made is not bound to inquire as to such extrinsic fact. Farmers & Mechanics Bank, &c. v. Butchers & Drovers Bank, 16 N. Y. 129, 130; 4 American and English Encyclopedia of Law, 227, and cases there cited.
Since this case was argued before us, the supreme court in the Fifth Department, in an action brought against the above named defendant on a state of facts similar to the facts in this case, has held the defendants as indorser.
The plaintiff's exceptions are sustained, and a new trial is ordered, with costs to abide the event.
Sedgwick, Ch. J., concurred.