Case Name: The Bank of the State of New York v. The Muskingum Branch of the Bank of the State of Ohio
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1864-01
Citations: 29 N.Y. 619
Docket Number: 
Parties: The Bank of the State of New York v. The Muskingum Branch of the Bank of the State of Ohio.
Judges: 
Reporter: New York Reports
Volume: 29
Pages: 619–633

Head Matter:
The Bank of the State of New York v. The Muskingum Branch of the Bank of the State of Ohio.
A bill drawn payable to an individual as cashier is, in judgment of law, payable to the bank of which he is the officer.
A bill drawn by B. and H.. payable to the order of “D. 0. C., cashier,” after being discounted and owned by the M. bank, of which D. C. C. was cashier, was indorsed by him “ pay to the order of E. L., cashier—D. C. C. cr.,” and was sent, in the regular course of business, to the Ohio Life Insurance and Trust Company, its agent, for collection, which company transferred it to the plaintiff: Held, that the bill'being the property of the M. bank, the indorsement “D. C. C., cr.,” was made by the proper officer, for a proper purpose, and was, therefore, an official and not an individual indorsement, and bound the bank, as indorser, to a bona fide holder.
Held, also, that the bill having been negotiated to the plaintiff, which was the bona fide holder, the indorsement concluded the hi. bank, notwithstanding the Ohio Life Insurance and Trust Co., its agent, acted in bad faith, and disobeyed its instructions by negotiating the bill for its own benefit, instead of collecting it.
That the plaintiff, having become the holder of the hill in good faith, and in the regular course of business, should not be made to bear a loss occasioned by the neglect of the cashier, and the bad faith of the collecting agent of the M. bank.
Appeal from a judgment of the Supreme Oourt.
The action was brought against the defendants as endorsers of a bill of exchange as follows:
“No. 1,305. Zanesville, O., July 21, 1857.
11 Sixty days after date, pay to the order of D. C. Converse, Esq., cashier, twenty-two hundred and forty dollars, as advised, and charge the same to account of “Your obedient servants,
“BEAUMONT & HOLLINGSWORTH.
“To W. R. Eokart, 118 Broad st., New York. $2,240.”
(Written across face.) “ W. R. Eokart.”
(Endorsement.) “Pay to the order of Edwin Ludlow, cashier. “D. C. Converse, Or.
“Edwin Ludlow, Or.”
The complaint averred, that D. C. Converse was and is the cashier of the defendants, and their officer authorised to deal with their funds and negotiable paper; that the bill was actually drawn to the defendants, and endorsed by ' the' defendants to the Ohio Life Insurance and Trust Company, and by the Ohio Life Insurance and Trust Company endorsed in blank, and that before maturity the bill was delivered to the plaintiff, for value.
The defendants, in their answer, denied that D. C. Converse was or is authorised to deal with the negotiable paper in any other manner than as their cashier and special agent. As a further defense it was averred and stated that the defendants were the sole and absolute owners of the bill; that after becoming such owners they transmitted it to the Ohio Life Insurance and Trust Company, to its office in the city of New York, for collection for their account, and for no other purpose, and upon no other account whatsoever. That said company failed, on or about the 24th August, 1857, having been insolvent and embarrassed for four months previous thereto; and that the alleged trans fer of said bill to the plaintiff was made fraudulently, cor ruptly, usuriously, and in bad faith, and without any authority, and in contemplation of the insolvency of the said Ohio Life Insurance and Trust Company; and that the plaintiff did not receive the same in the usual course oí business, but with notice of the premises as aforesaid, or under circumstances to put said plaintiff upon inquiry as t* the right of said trust company and its cashier, to endorse or transfer the same, and as to the right of the defendants thereto. And it is averred -that the plaintiff was chargeable with notice that the said acceptance was riot the property of the Ohio Life Insurance and Trust Company, jbut the property of the defendants. The cause was referred to William Kent, Esq., who gave judgment for the plain- . tiffs. The referee found as'facts that the defendants and the Ohio Life Insurance and Trust Company were corpora tians incorporated by the state of Ohio. That at the time the bill was endorsed and sent to the Ohio Life Insurance and Trust Company, D. C. Converse was the cashier of the defendants, and Edwin Ludlow was the cashier of the trust company. That the bill was discounted by the Muskingum Branch Bank, in the regular course of business, -and was afterwards endorsed by said Converse, the cashier thereof, and transmitted to the Ohio Life Insurance and Trust Company, in the city of’New York, for- collection only. That the defendants did not part with their property in the bill to the Ohio Life Insurance and Trust Company; but that company received it as the agents of the defendants “for collection, and for no other purpose.” That it was transferred by the Ohio Life Insurance and Trust Company to the plaintiff as 'collateral security; that the plaintiff had not, at the time of such transfer, actual notice of the ownership of said bill by the Muskingum Branch Bank, but received the same bona fide, and in the usual course of business.
As conclusions of law, the referee decided that the plaintiff acquired a title to the bill of exchange by virtue of the transfer to it aforesaid; and that the Muskingum Branch Bank had become liable to pay the amount thereof, with interest, to the plaintiff, by reason of the said endorsement thereof by D. C. Converse, cashier of said Branch Bank, and the transfer by the Ohio Life Insurance and Trust Company.
At the close of the evidence the point was taken by the defendants’ counsel, and over-ruled by the referee, that the Muskingum Branch Bank could not be made liable on the endorsement, “D. C- Converse, cashier,” said bank no where appearing on the said bills, and the said Converse having no authority to bind the bank.
Judgment being entered for the plaintiffs on the report of the referee, the defendants appealed to the supreme court, where the judgment was affirmed. The defendants brought the present appeal.
G. C. Goddard, for the appellant.
The defendants are not liable on the draft as endorsers. The endorsement of a draft or note which is made payable to “A. B., cashier,” or to “A. B., agent,” does not prima facie at least, create any legal liability except against the person whose name appears upon it. No person to whom the paper is thus transferred by endorsement has any right to assume, or does assume that any other person than the endorser whose name appears is liable. The endorsee sees that he gets .a good title to the paper, for it is transferred to him by the person to whom it is .payable. The' question therefore sometimes made whether an endorsement can be effectual to pass the title but not to create the liability of endorsee does not arise; Converse, the payee, endorsed it; of course the title passed, and in the* hands of a bona fide holder Converse was liable. As the endorsement stands it deceives no one. The law being settled that such an endorsement prima facie creates no liability against any one whose name does not appear upon it, it is received with that knowledge and understanding. It is begging the question therefore to say that a person taking the draft in good faith and for value, is deceived unless he is permitted to hold liable as endorser some person whose name nowhere appears on the bill. But if the endorsee seeks to go further than the face of the bill and to make liable as endorser a third party not named, the onus of mailing out a case which will thus subject such third party, by proof from without, lies on him. Prima facie there is no such liability. Nor can such liability be established except by such proof, or its equivalent, as was made in the case of the Bank of Genesee v. The Patchin Bank (19 N. Y. R. 312). In that case it was shown that the endorsement was made by the direction of the Patchin Bank for the purpose of getting the note discounted by the Bank of Genesee for account of the Patchin Bank, which received the proceeds of the dis count. In that .case when before this court, as reported in 3 Kern. 309, it appears that the judge'at the circuit charged the jury, that “if the bill was the property of the bank, the cashier had authority to endorse it, and that if the cashier had special authority from the bank to endorse it, the bank was bound by that endorsement, although it was made for the accommodation of other parties.” This court held such direction to the jury erroneous, and reversed the judgment. Judge Denio referring to this charge says: “ my brethren, however, do not now wish to express an opinion upon any other question than that the portion of the charge I have just mentioned as it stands unqualified is erroneous.” Thó decision, 3 Kern., is approved in 19 K. T. B. Judge Denio holding also that the Patchin Bank would have been bound, if the Bank of Genesee had received the paper" on representations from the Patchin Bank, that the endorsement was for their bénefit. That case establishes that such an endorsement of itself imports no liability, except of the person making the endorsement; that the endorsee does not receive it on the faith of any other liability; in conformity to the previously adjudged cases in this and other states. It also shows how and by what proof, a liability may be established against a third party, whose name is not on the bill. If it is open to the plaintiff to go beyond the endorsement as it appears on the paper, and prove by paroi the actual contract between a third party and the endorsee, then such proof in the case now before the court shows that there was no such contract between Converse or the defendants, and their endorsee Ludlow, or the plaintiffs. It was shown and found by the referee that Converse sent the draft to Ludlow for collection only; that Ludlow or the Ohio Life Insurance and Trust Company, received it for collection and for no other purpose; and that the defendants did not part with their property in said draft, and that the plaintiffs did not know that the defendants were the owners of the draft. And there was Ho evidence that the plaintiffs knew the defendants had at any time any interest, in it. No rule of policy requires that such an endorsement of an agent or a cashier of paper payable to them, should, of itself, create a liability against a third party, the owner of the paper. On the contrary, policy requires adherence to the opposite doctrine, which puts the taker of paper on inquiry, if he seeks to hold any one liable except those whose names are on it; and requires him to ascertain, if an agent seeks to make another liable, whether he has due authority to create such liability. The gross breaches of trust of which the agent of the trust company was guilty could not have beer committed, but for the facility with which 'banks and bankers in its neighborhood, knowing the character of its business, received collaterals from it. This facility should not be encouraged. The plaintiffs in this case took the draft, not from Converse, nor from the defendants. The witness for the plaintiffs Says it was received in place of one of the collaterals before given, but from what person it was received is not shown. There is no evidence thai the plaintiffs knew of whom or of what bank D. C. Con verse was cashier; no inquiry or representation was made on that subject. They took the draft simply on the faith of the prior parties to the bill, and of the Ohio Life Insurance and Trust Company,' and of D. C. Converse, and had no knowledge that he represented anybody. On the contrary, the referee finds that-the plaintiffs did not know that the defendants owned the draft. The finding of the referee .that the plaintiffs received the draft bona fide, in the usual course of business, is of no importance. That merely shows that they had a right to recover against the. parties to the bill, but does not advance them a step towards charging the defendants. So that, unless the court holds that an endorsement of a note or draft “A. B., agent,” or “A. B., cashier,” which is payable to “A. B., agent,” or “A. B., cashier,” which draft or note has never been nego tiated, but merely forwarded for collection, subjects a third party, the. owner of the paper, to all the liabilities of an indorser in favor of a holder, who has no knowledge who A. B. represents, or whether he represents anybody, the plaintiffs in this case cannot recover, and the judgment must be reversed. I understand, from the.decisions of this court, that they have never so decided; but have decided that in such case the third party'is not liable, and that this is the current of authorities here and elsewhere. Isolated expressions of a judge, detached from the precise case which he is deciding, do not show the opinion of the court, nor his opinion on the particular case. The case of the Bank of Genesee v. The Patchin Bank, as reported in 19 fí. Y. Bep., shows that this court adheres to the general rule, and also shows whát constitutes an exception to it. It appeared in that case in 19 N. Y. and 3 Kern, that the Bank of Genesee discounted the paper at the request of the Patchin Bank, This fact is stated in the opinion given as controlling. ■ As reported in 3 Kern., all the judges concurred in reversing the judgment on. the special ground that the charge was erroneous in not adding thereto n the qualification that the plaintiff had received and discounted the bill under a representation of the defendant fchat it was its bill which the cashier forwarded to be discounted for the defendant’s benefit,” and that it was not sufficient, and that the cashier had special authority to endorse it. The judges refer to the close of Judge Denio’s opinion as containing the true rule. And the opinion of the same judge, as reported in 19 N. Y. in the same case, in pages 320 and 321, is to the same effect. According to the position of the plaintiffs, it was sufficient for them to prove the single fact that Converse was the cashier of the defendants. Nor. can plaintiffs maintain this action unless that position is correct. The case of the Bank of Genesee shows that such is not the law as decided by this court, Otherwise the reversal in 3 Kern, was wrong; and the reasons given by the court on both occasions are superfluous. .If such had been the law, the charge of Judge Marvin, in 3 Kern., was perfectly correct. But this court held it.was erroneous, and stated wherein.
In the case before the court there was.no evidence that the plaintiffs had any knowledge of the defendants’ connection with the draft. A vast amount of negotiable paper is thus transmitted from one part of the country to another, by banks, brokers and others, and endorsed by an .officer or agent, to whom it is made payable, and sent for collection solely, and on which the name of the owner of the paper does not appear. Why should such owner be held liable as an endorser, except to some person who has taken the paper on the faith of such ownership? What reason? of sound policy require it? In the case of Gould v. The Town of Sterling (23 N. Y. R. 462), it is said “one who takes a negotiable note or bill of exchange, purporting to be made by an agent, is bound to inquire as to the powei of the agent.” In the case before the court, if the plaintiff1* had relied on the endorsement for their security, they would have inquired as to D. C. Converse, cashier, whom he represented; and what the draft was sent for from Ohif - to New York. The slightest inquiry would have informed them of the truth. The word “cashier” of itself shows n want of authority to create the liability- of endorser against the bank whose cashier he is. It is not within the scope of his official powers. If claimed to be, it must be proved; here it was disproved. He may have the power conferred on him, as in the case of the Patchin Bank; if he is thus authorized, and negotiates paper for. the bank to a party who so receives it, his principal is liable, not himself.
The case of The Bank of the State of New York v. The Farmers' Branch Bank (36-Barb. 332), in the first district, presented this question. The complaint was dismissed at the circuit, on. this ground, and judgment approved at general term. On appeal to the court of appeals this judg ment was reversed. I have understood that no written opinion was given in this court, and that the court intimated that the facts should be passed upon by a jury; that the dismissal of the complaint was erroneous; and that the court did not decide the question now presented. If the court held, that the liability of the Farmers’ Branch Bank depended on the facts, other than the mere fact that the person who endorsed the paper was the cashier of that bank, then they decided that the mere proof of the latter fact did not create such liability. If Converse was sued by the plaintiffs, and it should appear, as it appears in this case, that the plaintiffs did not know whom he represented, and did not take the draft on any representation or knowledge on that subject, would they not recover? Judge Gbeene, in the case in 19 hi. Y. B., states the general rule: “as a general proposition it is undoubtedly true that one who signs a writing as agent, trustee or president, is regarded as merely describing himself, and hence is held to be personally liable. And the exception to the rule is thus stated: “ but when a writing is thus executed with full authority from a principal, and is received by the payee as the obligation of the principal, the party on whose account it is executed is alone liable.”
A. W. Clason, for the respondent.
The bill drawn to D. C. Converse, cashier, was in judgment of law payable to the bank of which he was the officer. (1 Denio; 608.) The endorsement, “D. C. Converse, cashier,” was made by theproper officer, for a proper purpose., It was, therefore, an official endorsement, and bound the bank as endorser.
I. Because the ¿ashier is legally the recognized general agent of a bank (11 Barb. ,196); and, in the diversified exercise of the- duties of a general agent, the liability of the principal depends, not upon form! hut upon two facts, viz: that the act was done in the exercise and within the limits of the powers delegated. (5 Wheaton, 326.)
IT. D. C. Converse, prima facie, was the owner and endorser. Upon proof of his official position, discount by the bank, and transmission for collection, his personal liability ceased. (1 Kern. 200.) Therefore, the words “D. C. Converse, cashier,” under the evidence, means “ the Muskingum Bank.” They mean that, when, as an official, he is payee; therefore, they must mean that, when, as such, he is endorser.
III. The words necessary to the intention of the language used may be supplied. As a bank can only act through an agency, when the agent acts and signs as such, the name of the principal may be added at any time, or will be intended to have been added. (3 Kern. 318.) It seems useless to argue this case since the publication of 19 N. Y. B. 312. A subtle distinction, however, is claimed to exist between that case and this, viz: in that, *the bill was sent for discount, in this, for collection; therefore, in that case, the intention of the endorsement was fulfilled—in this, not. The position is incorrect, as a matter of fact. The intention in each case, to make tho bank a party to the paper, is equally carried out, and the fallacy consists in confounding the intention of the endorsement with the expectation of its result. The object of the endorsement was to create a privity between any holder and the parties to the paper, and accomplished it; but there was not anything on the face of the endorsement which would convey to the world knowledge of the hopes of the endorser, nor was the world bound to ascertain that extrinsic fact. The Muskingum Bank reposed confidence in the caution of its cashier, and in the honesty of its agent. The cashier neglected to add the restrictive words which would have limited the negotiability of the bill, and the agent abused the trust. It now asks that the plaintiff, not itself, shall bear a loss occasioned by the negligence of the one and the bad faith of the other agent. The law has too long been settled the other way to need a citation of authority!

Opinion:
Wright, J.
The question in the case, on the facts, is a narrow one. The defendants discounted a bill of exchange in the regular course of business, which was endorsed by one Converse, their cashier, and transmitted to the Ohio Life Insurance and Trust Company, in the city of New York, for collection only. Before the bill matured the trust company transferred it- to the plaintiffs as collateral security for borrowed money. The plaintiffs, at the time of such transfer, had no actual notice of the ownership of the bill by the defendants, but received the samé bona fide, and in the usual course of business. The bill was made payable to the order of D. C. Converse, cashier, and endorsed "pay to the order of Edwin Ludlow, cashier, D. C. Converse, Cr," The only question is, whether this was the endorsement of the Muskingum Branch Bank, or of Converse individually. If it was an official and not the private act of Converse, in fact done on behalf of the bank, as the bill was negotiated to the plaintiffs, who are bona fide holders, the endorsement would conclude the bank in favor of them, though the Ohio Life Insurance and Trust Company, its agent, acted in bad faith, and disobeyed its instructions, by negotiating the bill for its own benefit instead of collecting it.
It seems to me, on the facts, that but one interpretation can be given to Converse's acts; Converse was the defendants' cashier. A bill drawn to " D. C.?Converse, cashier," was discounted by the defendants. The facts are- found, and it is not controverted, that the Muskingum Bank owned the draft, and that it was sent to the Ohio Life Insurance and Trust Company for collection.- The trust company received it from the bank with the endorsement "D. C. Converse, Cr." Now, how can it be pretended that this was the individual and not the official act of Converse ? Although " D. C. Converse, cashier," was the payee of the draft, the bank claimed it as its property, and to deal with it as such. Indeed a bill .drawn to " D. C. Converse, cashier," is¡ in judgment of law, payable to the bank of which he is the officer. Being the property of the bank, the endorsement " D. C. Converse, Cr." was made by the proper officer, for a proper purpose. It was, therefore, an official endorsement. Had there been nothing in the case to connect- the bill with the defendants' bank, Converse would have been regarded as the payee and the endorser individually, and the abbreviation affixed to his name considered as a descriptio personae; but when his official position is shown, connected with the facts that the bill was the property of the bank, and in the regular course of business was transmitted to its agent for collection, it is then shown that the endorsement is an official one. The case of The Bank of Genesee v. Patchin Bank (19 N. Y. R. 312), is, on this question, a controlling authority. In that case, S. B. Stokes, the cashier of the Patchin Bank, sent to. the Bank of Genesee, to be discounted, a bill of exchange payable to the order of " S. B. Stokes' Cas.," endorsed by him with the same addition to his signature, and enclosed in a letter dated at the banking house, and signed " S. B. Stokes, Cas." It was held that these circumstances imported that the endorsement was that of the Patchin Bank, in the regular course of-business, and not that of S. B. Stokes individually. There is this difference only in the cases! In the one cited the bill was sent for discount, in this for-collection; but plainly that could not affect the question. The intention in each case to make the bank a party to the paper is equally carried out.
I think, therefore, the endorsement in this ease was that of the Muskingum Bank, and bound it as such to a bona fide holder of the bill. Its liability as endorser certainly cannot be qualified by the consideration that the bill was sent to its agent not to be negotiated, but for collection only. The object of the endorsement was to create a privity between any holder and the parties to the paper, and it accomplished it. There was nothing on the face of the endorsement to convey to third parties knowledge of the single purpose for which it was made, nor were they even bound to ascertain that extrinsic fact. The bank reposed confidence in the caution of its cashier, and in the honesty of its agent. - The cashier neglected to add the restrictive words which would have limited the negotiability of .the bill, and the agent abused the trust. I do not think that the plaintiff, who became "a holder in good faith, and in the regular course of business, should bear a loss occasioned by the negligence of the one and the bad faith of the other agent.
The judgment of the supreme court should be affirmed.
Ingraham, J.
The facts in this case show that this note, payable to the order of the cashier of the defendant, and •endorsed by him as cashier, was sent to the Ohio Life and Trust Company for collection, and was by them fraudulently discounted with the plaintiffs. The question is whether the defendants are liable as endorsers,
It is conceded that under the case of The Bank of Genesee v. The Patchin Bank (19 N. Y. Rep. p. 309), the bank would not be liable on such an endorsement, if made is an accommodation endorsement, and known to the party taking it to be such. In Babcock v. Beman (1 Kern. 200), it was held that such an endorsement by the cashier was not the endorsement of the cashier individually. And the subsequent decision in The Bank of Genesee v. The Patchin Bank (19 N. Y. Rep. p. 312), established the liability of a corporation on such an endorsement where the party discounting it was informed or had reason to believe the proposed discount was on behalf of the bank for whom the cashier acted. "The endorsement of Stokes (Denio, J., says), the facts being shown, was the endorsement of the bank, and not Stokes' individual act, and is just as available as though it had been perfect in form."
These cases dispose of the questions as to the liability of the defendants, both as to the form of the' endorsement and as to the extent of the defendants' liability when the note is discounted for the benefit of the bank.
The only remaining question is whether the bank is liable on such an endorsement where the note has been fraudulently put in circulation by an agent of the bank without any authority to do so.
Upon the trial of this cause it was found by the referee that the plaintiffe were bona fide holders for a good con sideration, in the usual course of their business, of this paper; that the note was passed to the plaintiffs by thy Ohio Life Insurance and Trust Company without authority, and that the note was sent to that company by the bank fox collection only.
In the cases of The Farmers' and Mechanics' Bank of Kent v. The Butchers' and Drovers' Bank (16 N. Y. 125) and Meads v. The Merchants' Bank of Albany (25 N. Y. 143), the bank was held liable to a bona fide holder upon, a certificate of its officers, although such certificate was false, upon the ground that the officer so certifying way authorized to do similar acts for the bank and the holder was justified in relying thereon. This case differs from those only in the fact that the note here was received by the bank as collateral security for money then advanced. The trust company had authority to discount notes, and there is nothing to show that the bank had any reason to suppose this note was not taken by them in the ordinary course of business. '
After it is settled that the bank would be liable if the note had been discounted for the use of the corporation, and that, they had authority to make stich a contract, I can see no good reason why the same liability should not exist to a bona fide holder for value as in the case of any indi vidual whose paper is fraudulently put in circulation. The principle upon which an individual is held liable, viz: that of having employed an agent and enabled him to pass the paper away and receive the proceeds by trusting him with it, applies just as strongly to the bank in the present case. The bank employed the trust company as its agent to cob lect the note, and placed it with the company for that purpose. By having the possession, they were enabled to pass it to the bank and receive its value from them. Under the cases above cited, I see no reason why the bank should not be held liable. It is said that where a note is signed or endorsed "A. B.,'agent," the person taking it is bound to inquire as to the authority of the agent. That would be so far as to ascertain the fact of agency. If, in the present case, Converse, who endorsed the note as cashier, was not in fact such officer, the plaintiffs could not recover. They would have been bound to ascertain that fact before trusting to his acts in that capacity; but when that is shown, then, according to the cases, his power as cashier authorizes him to transfer paper by endorsement, and it is not necessary to make any .special inquiry as to his authority to endorse any particular note.- (Mechanics' Bank Association v. N. Y. and Saugerties White Lead Co., 23 How. Pr. p. 74; Merchants' Bank v. McColl, 6 Bosw. 473; Belmont Branch Bank v. Hoge, 7 Bosw. 543); but only as to his official character and authority.
The judgment should be affirmed.
All the judges concurring, judgment affirmed.