Court Opinion

ID: 3581268
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:32:20.089102+00
Date Added: 2024-06-11T13:59:17.587950
License: Public Domain

The objection that the cause was improperly referred on the exparte application of the plaintiffs' counsel at the circuit, cannot now be raised. If there was error in such reference, the defendant should have applied to the circuit judge, or at the special term, to vacate the order. After going before the referee and trying the cause upon the merits without objection, it is too late to raise the question in the court of review that the action was improperly referred.
The motion for a nonsuit was properly denied. When it was made the plaintiff had proved the making of these checks, and their acceptance by the indorsement thereon, by the defendant's president, of the word "good;" and also a by-law of the defendant's which impliedly authorized the president to certify checks, and also the due presentment of the checks thereafter and the refusal of the defendants to pay the same. This proof clearly, at least, entitles the plaintiffs to recover upon the $5,000 check made by Thomas Green.
The remaining questions relate to the two checks of Houghton, the defendant's president, of $5,500 and $10,000, made and accepted by him. The power given him by the by-law to certify checks, clearly did not authorize him to certify his own checks. It is a necessary and universal implication in all cases of agency, that the power conferred upon the agent is to be exercised for the exclusive benefit of the principal. It is repugnant to the very nature and essence of such power to hold that it may be used for the benefit of the agent in hostility to the interests of the principal. That a trustee or agent shall not act for his own benefit in any matter relating *Page 297 
to his agency or trust, is an old and familiar doctrine of the court of equity, frequently asserted in the courts of this country and in England.
The rule is applicable to all persons standing in a trust relation. The principal is entitled to the exercise in his behalf of all the skill, industry and ability of his agent, and to his intensest fidelity to his trusts. This rule is well stated and discussed in the opinion of Judge DENIO in the case of The NewYork Central Insurance Company v. National Protection InsuranceCompany (14 N.Y.; 20 Barb., 471).
But it is claimed that these rules do not apply in their strictures to negotiable paper; that, when there is an apparent authority to execute such paper, a bona fide holder is to be protected as in the case with partnership paper in the hands of an innocent holder.
These checks were negotiable, and the certificate thereon, indorsed by the defendant's president, was equivalent in legal effect, if a valid act, to the acceptance of a bill of exchange to the same amount. Judge SELDEN, in the case of the Farmers'and Mechanics' Bank v. Butchers' and Drovers' Bank
(16 N.Y., 128), says of such checks: "Each check, if duly certified, imposes upon the bank an obligation to retain the amount for which the check is drawn, and the obligation assumed is substantially the same as that assumed by the acceptor of an ordinary bill of exchange." Judge DENIO uses very nearly the same language in the same case (14 N.Y., 625).
These checks, after their acceptance in the manner above stated, were transferred to the plaintiffs for their full face, as the referee finds, and he also finds that he received the same in good faith. This consideration presents all the difficulty there is in the case. A bona fide holder of negotiable commercial paper is a favorite of the law, and his rights are always guarded by the courts with great care and liberality, from respect to the great interests of trade and commerce. But I do not think this consideration can be permitted to prevail to sustain the plaintiffs' right of recovery in this case upon these two checks. Clearly, upon well settled principles, Houghton had no power *Page 298 
to accept his own drafts or checks in behalf of the bank. The act was a palpable excess of authority, and any person taking the paper was bound to inquire as to the power of the agent so to contract.
This rule was asserted in the case of Gould v. The Town ofSterling, and Starin v. The Town of Genoa (23 N.Y., 452,464). In these cases the plaintiffs, as bona fide holders of the bonds in suit, had paid the full value for them, but this court held that they were bound to inquire as to the facts upon which the authority of the agents depended to issue the bonds. Judge SELDEN says (p. 464): "One who takes a negotiable note or bill of exchange, purporting to be made by an agent, is bound to inquire as to the power of the agent."
Within this rule the plaintiffs were bound to inquire whether Houghton had authority to accept his own checks in behalf of the bank, so as to bind the bank as acceptor. But I do not think the plaintiffs can properly be called bona fide holders of these checks. The referee finds that he is a holder for value, and that he paid the full amount of the face of the checks in good faith. This is all the referee finds on the facts. In finding as a conclusion of law that the defendants are liable on such checks, he may, perhaps, be deemed to find that they are bona fide
holders thereof within the legal sense of such phrase.
But I think the conclusion of law erroneous: the plaintiffs cannot be truly considered, in a commercial or legal sense, bonafide holders of these checks. A bona fide holder of commercial paper must receive the same in the usual course of business, for value, and without any notice of facts tending to impeach the character or validity of the paper as between the original parties. The plaintiffs cannot claim the protection of this rule. They had distinct notice, by the face of the certificate and the signature thereto, that the acceptance was improper and irregularly made. It was patent on the face of the paper, that the acceptance was a fraud; that the president of the defendant's bank, in accepting such checks, was violating his duty, and using his official character for his personal benefit, and thereby perpetrating an act of dishonesty, in palpable *Page 299 
violation of his trust. No business man of common intelligence could take these checks in good faith, and without suspicion or notice of this fraud. Upon this distinct fact, I would hold that the plaintiffs are not bona fide holders of these checks, and are not entitled to recover the same of the defendants. And the fact, also, that these three checks for $20,500 were taken and held for the period of nearly a year after their receipt by the plaintiffs, without presentation to the bank for payment, and that this large amount of money was thus left in the bank, to the credit of the drawer of the checks, without interest or any arrangement about it, unexplained, is quite conclusive evidence, to my mind, that the checks were not taken in the usual course of business. But evidence may be given, on another trial, explanatory of this delay in presenting the checks for payment, which may be quite satisfactory. Evidence on this point was offered, which, I think, was erroneously excluded by the referee.
That this defence, though in its origin and nature of an equitable kind, is now available in an action at law, upon the instrument improperly executed by the agent or trustee, is fully asserted and distinctly held in the opinion of Judge DENIO, in the case of The New York Central Insurance Company v. TheNational Protection Insurance Company (supra), and is, of course, res judicata in this court.
I think the judgment of the court below should be reversed and a new trial granted, with costs to abide the event.