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MERCHANTS' BANK v. STATE BANK.

December 1, 1870

MERCHANTS' BANK
v.
STATE BANK.



ERROR to the Circuit Court for the District of Massachusetts, in a suit by the Merchants' National Bank against the State National Bank, upon three checks of Mellen, Ward & Co., on the latter bank, marked 'good' by its cashier, and given to the former bank; amounting, the three, to $600,000. The case, as developed by admitted facts and by the plaintiff's evidence alone, was thus: Both banks were associations organized under the National Currency Act of 1864; the State Bank with a capital, as its articles of association seemed to show, of $1,800,000, capable of being increased. Under this National Currency Act the affairs of 'every such association shall be managed by not less than five directors, one of whom shall be president.' The directors during their whole term of office must be citizens of the United States. Three-fourths of them must have resided in the State one year preceding their election, and reside there during their continuance in office. Each must own at least ten shares of stock, and as such owner he is personally liable to twice their value. All are to be sworn to the diligent and honest administration of the affairs of the association. The total liabilities of any person, or firm or association, to the bank, shall never, by section twenty-nine of the act, exceed one-tenth of its capital. Bonds are to be deposited as security for the bills of the bank, which by section twenty-one may never exceed 90 per cent. of the bonds deposited. Section twenty-three enacts that no bank shall issue post notes, or other notes, to circulate as money than such as are authorized by the foregoing provisions of the act, and by various sections*fn1 care is taken to restrain the circulation, and to secure its redemption. The act by its eighth section enacts that each association organized under it may, 'by its board of directors appoint a president, vice-president, cashier, and other officers, define their duties,' &c., &c. And it authorizes the association to exercise all such incidental powers as shall be necessary to carry on the business of banking by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion, &c. The directors are empowered to regulate by by-laws the manner in which its general business shall be conducted. 'And its usual business,' says the same section, 'shall be transacted at an office or banking-house located in the place specified in its organization certificate.' The directors of the State Bank defined the duties of their cashier, no otherwise than that by the 1st article of the by-laws he was to notify corporate meetings, and act as clerk at them; by article 7th was to be responsible for moneys, funds, and all other valuables of the bank; by article 11th 'was–(either he or the president)–to sign all conveyances of real estate voted by the directors; and by article 17th was–(either he or the president again)–to sign all contracts, checks, drafts, receipts,' &c.; and also all indorsements necessary to be made by the bank. Evidence, however, showed that, as matter of fact, the cashier of the Merchants' Bank was intrusted by its directors with large and comprehensive powers in dealing with the funds; so much so that instead of his transactions going regularly, as they occurred, through the books of the bank, and being credited or debited to the accounts to which they severally belonged, there was opened on the books of the bank one general account with the cashier, in which all the debits and the credits arising out of them, were entered to his debit or credit, that these transactions, thus entered on the books, embraced the giving of checks in lieu of bills where discounts were made; giving checks for the purchase of exchange; giving checks for money borrowed of other banks; that the amount of checks thus given for exchange, and in lieu of bank bills on discounts, during the five months prior to the transaction which was the subject of this suit, was $2,500,000, and in addition, that the amount of such checks given for money borrowed of other banks during the same period, was $1,547,000. And that regular printed blank checks were kept by the bank to facilitate these operations of their cashier. So also evidence derived from the officers of twenty-two banks of Boston, in relation to the dealings of such banks with each other, showed a usage by which, without by-law or vote, powers were intrusted to cashiers of such banks to borrow and lend the money of their banks of and to each; to buy and sell exchange of and to each other, and in all such transactions to pledge the credit of their respective banks–usually by cashiers' check, sometimes by certificates of deposit or memoranda; that these transactions were frequent, involving large sums of money, and that they were uniformly conducted in faith of the implied powers of cashiers, without inquiry; but the usage shown with regard to the powers exercised by the twenty-two cashiers failed wholly to show that any one cashier had ever used his powers to the purchase of gold coin, or had ever certified checks to be 'good.' Nor was it shown that the cashier of the State Bank had, either before or since the transactions on which this suit arose, ever certified as good the check of either depositor or stranger. In fact, the Supreme Court of Massachusetts had decided in Mussey v. Eagle Bank*fn2 that a teller could not so certify checks; placing the decision on grounds that seemed general. Such a power, said the court in that case, 'is in fact a power to pledge the credit of the bank to its customers; a power which, by the constitution of a bank, can alone be exercised by its president and directors, unless specially delegated by them, and consequently it cannot be implied as a resulting duty or authority in any individual officer.' Touching the matter of usage, the court said: 'But if a usage had been proved of the certifying by the teller that the check is good, to enable the holder to use it afterwards at his pleasure, such a usage would be bad and could not be upheld. It would give to bank checks, which are intended for immediate use and are the substitute for specie, in the ordinary transactions of business, the character of bills of exchange, payable to the bearer, the bank being the acceptor, and payable at an indefinite time. It would lead to loans to favored individuals, without the usual security. It would substitute checks for cash in the hands of tellers who receive them, and would confer the power upon a single officer to pledge the credit of the bank by the mere writing of his name; a power never contemplated by the legislature, nor intended to be conferred by the stockholders.' On the other hand, Congress, by its Internal Revenue Act of June 30, 1864,*fn3 under the head of 'Banks and Banking,' had laid 'a duty of one-twelfth of one per cent. each month upon the average amount of circulation issued by any bank, &c., including as circulation all certified checks, and all notes and other obligations, calculated or intended to circulate or to be used as money.' In this state of pre-existent laws and usage, or absence of it, the plaintiffs' evidence showed that the Merchants' National Bank of Boston were applied to on the 22d of February, 1867, by Ward, Mellen & Co., brokers, with the statement that they were about to purchase in New York, 'for responsible parties,' three or four hundred thousand dollars of gold, and with the request that the Merchants' Bank would take and pay for the gold as it came from New York at $1.25 in currency (about 15 per cent. below the value at that time in currency); that these responsible parties would be prepared to take it in a few days, and that when thus taken away, it would go through probably some other bank, mentioning, perhaps, the State Bank. There had been previous transactions in gold between the bank and Mellen, Ward & Co.; and the proposition now made was accepted upon the terms previously fixed in them, viz., that the gold should be a purchase by the bank, with a right of repurchase by Mellen, Ward & Co., on repayment of the cost and a premium 'equivalent to interest on the amount invested by the bank on the gold.' Under this arrangement, the Merchants' Bank, on notice from Mellen, Ward & Co., on the 26th and 27th of February, took from the Second National Bank, and paid that bank for the same, $400,000 gold certificates, which, so far as appeared, had never been in the hands of or owned by Mellen, Ward & Co., and added the same to the gold of the bank. No obligation, note or memorandum accompanied the transaction as made; it being, as the direct testimony of the cashier and teller of the Merchants' Bank stated, and so far as the transaction appeared on its face, a sale of gold with a right to repurchase; although both the officers named, in written instruments, spoke of it as a loan. On the 28th of February, Smith, the cashier of the State Bank, came to the Merchants' Bank, in company with Carter, one of the firm of Mellen, Ward & Co., and said to the cashier there, 'We have come in to get an amount of gold,' and that he 'would pay for the gold by certifying the checks when he saw that the gold was all right.' The coin certificates to the amount of $400,000 were by the cashier of the Merchants' Bank, 'passed out to Mr. Smith, cashier of the State Bank.' He counted them, and then handed to the cashier of the Merchants' Bank the two checks of Mellen, Ward & Co., on the State Bank, certified 'Good, C. H. Smith, cashier.' These checks were certified, not at the State Bank, but in the Merchants' Bank, 'on the spot;' and after it was ascertained that the gold certificates received corresponded with the amount for which the checks had been drawn. They had no stamp on them but the usual two cent bank check stamp, that is to say no such stamp as the law requires for an acceptance. On the same day, Smith, the cashier of the State Bank (Carter accompanying him) applied to and received from the teller of the Merchants' Bank $60,000 more of gold, which the bank had previously purchased at the request of Mellen, Ward & Co., upon the same terms as above stated. The cashier was absent, and the teller took from Smith in payment a check for $75,000, similar to ones already mentioned, for the reason, as he says, that 'I delivered the gold to the cashier of the State Bank.' Although it appeared that Mellen, Ward & Co. had been somewhat speculating in a copper stock, and had once obtained a loan on it from the Merchants' Bank, and that the cashier of the bank had a small interest with them in the stock, there seemed to be no proof in the case as it stood before this court, that is to say as it was presented by the plaintiff's evidence alone, that the cashier of the Merchants' Bank, in the delivery of the gold, or the cashier of the State Bank in certifying the checks in payment for it, acted otherwise than with good faith. On or before the 1st of February following, Ward, Mellen & Co. failed. The subsequent history of the checks was thus given by Mr. Haven, the president of the plaintiff or Merchants' Bank. 'The first time I saw these checks was a little after twelve o'clock, on Friday, the 1st day of March, 1867. I took the checks in may hand a little after one o'clock, on that day, and presented them to the cashier of the State Bank. I said to him, 'I thought you were coming in to pay the money for these checks early this morning.' The cashier replied, 'Yes, I am going out now to attend to it, and get the money.' 'Get the money?' said I; 'didn't you have the money–the gold? were not the gold certificates delivered to you?' 'Yes,' said he; 'I had them here, but they are not here now. I am going out to get it, and will come in and attend to it.' I spoke rather abruptly, and said that he should do it immediately. He looked up and said, 'You hold the State Bank.' I came back and laid the checks on the desk of the teller. About a quarter before two o'clock I took the checks into the directors' room of the State Bank. There were three or four gentlemen present. Either Mr. McGregor (who was a former president of the bank) or Mr. Dana, introduced me to the president of the bank, Mr. Stetson. I presented the checks to Mr. Stetson, the president. Mr. Stetson took the checks and deliberately read them, one by one, aloud to his directors, and those gentlemen who were present. He then said to me that they had not authorized their cashier to certify checks. He turned to Mr. McGregor and said, 'Have we, Mr. McGregor?' Mr. McGregor made no reply. I then said, 'He has certified checks, and those checks were given to the cashier of the Merchants' Bank for gold delivered to him, the property of the Merchants' Bank, and I want payment for that gold.' The gentlemen were considerably excited, and I wanted action. I said to them, 'I have just heard that there is trouble at the sub-treasury. I think you had better go down there; perhaps you will find your gold there, and if you wish it, I will go with you.' The gentlemen went, two of them, Mr. Stetson, the president of the bank, and Mr. McGregor, the ex-president, and we entered the room of the assistant treasurer. I think I introduced them, saying to the assistant treasurer, 'These gentlemen have come in to see if there has not been a large amount of gold placed to the credit of the State Bank." Farther than as it was to be inferred from this testimony, it did not appear whether the State Bank had or had not got the use of the gold. No proof was given that it did not go to that bank. However, that particular fact might have been, the State Bank refused to pay the checks of Mellen, Ward & Co., certified 'good' by Smith, its cashier, and the Merchants' Bank sued in assumpsit for the amount; some of the counts being special on the transaction, others on a quantum valebat, money had and received, &c. The case was tried before CLIFFORD, Presiding Justice, and the plaintiff having closed his case, the defendants moved the court to instruct the jury that the evidence was not sufficient to warrant them to find a verdict in favor of the plaintiff, under any of the counts in the declaration, and that as matter of law, the verdict of the jury upon each of them should be for the defendant; and this instruction the court gave. The case being brought here on error, was elaborately argued at the last term.

The opinion of the court was delivered by: Messrs. S. Bartlett, J. G. Abbott, and W. M. Evarts, for the plaintiff in error:

The contest turns, it is submitted, upon the following propositions, which, if successfully maintained by the plaintiff, are decisive on the question whether the case was properly withdrawn from the jury:

1. If in the absence of regulation by charter, by-law, or vote, and with no evidence as to the powers actually exercised by the cashier, and acquiesced in by the bank, nor of the powers usually intrusted to cashiers of banks established in the same community, the court can judicially know what the powers and duties of such cashiers are; yet it is a principle perfectly well settled, that under the foregoing circumstances (and even when by-laws and votes on this subject exist), evidence of the powers habitually or usually exercised by the cashier, with the knowledge and acquiescence of the bank, defines and establishes as to the public these powers, provided that the powers thus exercised may, without violation of the charter, be by the directors or corporation conferred on such cashier.

2. The evidence offered by the plaintiffs at the trial of the cause was competent and sufficient to have been submitted to the jury, on which they might lawfully find that the powers habitually or usually exercised by the defendants' cashier, with their knowledge, embraced the power to make for the defendants, the contracts declared on or some one or more of them, and that such powers might, without violation of the charter or law, be confided to such cashier.

1. The soundness of the first of the above propositions is obvious. To hold that the public may not safely confide in the existence of powers which by charter can be lawfully delegated, and which are openly exercised, but must investigate and find if those powers have been the subject of by-law or vote, and act accordingly, would not only suspend the business of commerce, but tend to make transactions with corporations a snare and a cheat.*fn4 So far as the public are concerned it is immaterial whether the powers thus exercised are in disregard of the by-laws of the corporation or not, provided they are within the corporate powers conferred by the charter.*fn5

2. Then was the evidence offered by the plaintiffs competent and sufficient to be submitted to a jury in support of the claims made by the declaration?

The main original contract (laying aside for the present the question of certified checks), and of which evidence (sufficient at least to be submitted to the jury) was offered by the plaintiffs, was a contract for the purchase and delivery of gold by the plaintiffs to the defendants. The charters of both banks in terms authorized them to carry on the business of banking, by 'buying and selling exchange, coin and bullion,' so that the contract set up by plaintiffs was within the corporate powers of both parties. The transaction then being legitimate, and in its character forming part of the business of both banks, the principal question is, have the plaintiffs lost this large sum of money by improperly trusting in the assumed powers of the defendants' cashier. The buying and selling of gold must of course be intrusted, under general powers, to some officer of the bank. A vote of directors authorizing each daily or hourly transaction would be impracticable. In this attitude of the case, we ask attention to the evidence offered by us as to the powers habitually exercised with the knowledge of the defendants by their cashier, to the end that the correctness of the ruling withdrawing the case from the jury may be determined; and attention also to the evidence of the officers of numerous other National banks established at Boston, as to the powers and duties usually exercised by their cashiers in dealing with the public and with other banks. The competency of this evidence has been thus declared by this court.*fn6

'Considering that all insurance companies in Boston have similar charters, and the same kind of officers to conduct their business, we think that there is competent evidence that presidents of insurance companies in that city are generally held out to the public as having authority to act in this matter, viz., to make oral insurance.'

The legal principles that are to govern the application of the testimony in the case we submit, are these:

Where the authority of an agent is left to be inferred by the public from powers usually exercised by the agent, it is sufficient if the transaction in question involves precisely the same general powers though applied to a new subject-matter. Were this otherwise, the general authority to make purchases in the usual course of the business of the principal, could never be relied on, unless upon proof of previous purchase of the identical article, the authority to purchase which is in controversy.

Thus if it be shown that the defendants' cashier had habitually, with the knowledge of the bank, dealt with the public as authorized to buy and sell exchange, and still more if that power is shown to have been habitually exercised by the cashiers of all other banks established in the same community and 'having similar charters,' then the power to buy and sell gold (the right to do both which is conferred by the same clause of the charter) may be inferred by the jury.

Again, if a cashier is shown to have usually or frequently pledged in writing the credit of the bank in the usual course of business, with the knowledge of the bank, and such is shown to be the usage of other banks, as before stated, it is evidence from which the jury may infer that he is authorized to pledge that credit in all transactions authorized by the charter, and which could lawfully be intrusted to a cashier.

It is not contended by the plaintiffs that a power to buy may be inferred from an exercise of a power to sell, however frequent that exercise may have been, nor that a power to indorse may be shown from numerous instances of signature as promissor. The contracts in such cases are wholly dissimilar; acts distinct in their nature. But when the powers exercised are shown to be of the same character, involving both in form and substance the same identical obligation, and the same consequence to the principal, and in the course of his business, it cannot be necessary to show that in their previous exercise they have been applied to contracts for the same article.*fn7

The American Leading Cases*fn8 thus speak:
'With regard to the limits of the general agency, which is created by a series of acts or course of dealing, the language of Lord Eldon's, in Davison v. Robertson,*fn9 has generally been considered as defining the principle with accuracy. In that case the position had been stated that an indorsement per procuration required a special mandate, but Lord Eldon's opinion was, that no such thing was absolutely necessary: 'for if from the general nature of the acts permitted to be done, the law would infer an authority; the law would say that such an authority might exist without a special mandate."

The author goes on to say:

'This is illustrated in Commercial Bank of Erie v. Norton.'*fn10

In the case thus cited, Cowen, J., states the exact principles thus:

'It is not necessary, in order to constitute a general agent, that he should have done before an act the same in specie with that in question. If he has usually done things of the same general character and effect with the assent of his principals, that will be enough.'

The doctrine thus stated was in that case applied where the agent of a firm, who with their knowledge and assent, was in the habit of drawing bills and making notes and indorsements for them, had made an acceptance, but no proof was offered that he had ever previously made an acceptance. The principal was charged. The case is cited as sound, in Parson's Mercantile Law,*fn11 and Paley's Agency.*fn12 In Watkins v. Vince,*fn13 Lord Ellenborough carried the doctrine so far as to hold that a son who had signed for his father in three or four instances and had accepted bills, could bind the father by a guarantee. In Prescott v. Flinn,*fn14 C. J. Tindall says:

'It may be admitted that an authority to draw does not impart in itself an authority to indorse bills, but still the evidence of such authority to draw is not to be withheld from the jury, who are to determine on the whole evidence, whether such authority to indorse exists or not.'

The evidence to which these principles are to be applied, appears in the statement of the case.*fn15 It shows that the cashier of the defendants was intrusted by them with powers the largest and most comprehensive in dealing with the funds of the bank, giving its checks, pledging its credit, and making its contracts and purchases. Similar powers were openly and habitually exercised by the cashiers of banks in Boston, in the dealings of such banks with each other.

In view of such proofs, we ask if it ought to be determined that there was no legal competent evidence proper to be submitted to a jury, from which they might infer that, as among the wide powers openly exercised by Smith, the defendants' cashier, in numerous instances and for large amounts, was the authority to purchase exchange, he had or not also intrusted to him the power to purchase gold, and thus to find their verdict for the plaintiffs upon the counts framed upon such purchase?

We next submit, that upon the evidence the question, whether the defendants' cashier, clothed as he was with the powers stated in the proofs, had or not the incidental power to certify the checks declared on, was fit to be submitted to the jury.

In discussing this point we assume that there was evidence competent to be submitted to the jury to show the large powers intrusted to the cashier to pledge the credit of the bank–that the jury might well find that he had power to make the purchase of gold from the plaintiffs, and that he might have given a cashier's check on his own bank, a certificate of deposit, or a credit for the purchase-money.

Now, the form of pledging the credit of the bank at the moment the gold was received, viz., by certifying the checks of the parties for whom the arrangement was made, is of the same character and nature as a cashier's certificate of deposit, checks, or memorandums of credit, referred to in the history as to usage. Like these, it is an absolute and not a contingent promise to pay, and in view of the wide powers exercised by the defendants' cashier, the jury had a legal right to infer that this mode of pledging the credit of the bank, suited as it was to the circumstances (the cashier having full authority to make the purchase), was within his delegated powers.

The view of the court below rests on the doctrine, that if a charter prescribes the mode in which the officers of the bank must act or contract, that mode must be strictly pursued, and the power cannot be delegated. But this doctrine has no application in this cause, since the National Currency Act prescribes neither the mode nor the officers by whom the acts or contracts necessary to the course of business shall be made, but merely confines the general oversight and management to a board of directors.

This precise question as to power of the directors to authorize other officers of a bank, by a general vote, to exercise in the name of the bank, at all times, the power to borrow money and give notes, has been raised and carefully discussed in a case where the charter, in terms, provided 'the affairs of the company shall be conducted by the directors,' and the careful judgment of Chief Justice Tilghman, displaying, as it does, the practical difficulties which would arise from a denial of the power, seems conclusive.*fn16

If the power to borrow money, at all times, for the purposes of the bank, and give notes therefor, can be delegated by the directors to the cashier, the power to purchase exchange and gold, in pursuance of the charter, can be so delegated. Whether the power to delegate to a cashier authority to certify checks exist, has nowhere been settled. As to conferring such authority on tellers by usage, the power is negatived in Massachusetts,*fn17 while in New York it is settled that such power may be conferred,*fn18 and a statute of the United States recognizes certified checks, and makes them in common with the circulation subject of taxation.

Whether the control of the great leading business for which a bank is created, viz., loans and discounts, can be delegated, may be doubted. The prevailing practice known and acted upon by the public, is to apply to a board of directors for discounts. But it does not follow that the whole of the other functions of a bank can only be performed by a vote of directors, upon each hourly transaction. The authorities cited above are repugnant to any such doctrine.

But if the power to certify was not under the evidence fit to have been submitted to the jury, still the right to recover the purchase-money for the gold, stands unaffected by the giving of the checks. They were received in the faith that, in dealings of bank with bank, the defendants' cashier had authority to certify them. If they were void, no payment has been made. It is equivalent to a payment in forged bills. The debt remains.

No proof was offered by defendants that the gold purchased of the plaintiffs was not carried to the defendants' bank and placed with their funds; although if it was not so, the onus is on the defendants.

Proof that the gold was so carried and placed is found in the occurrences on the occasion of the demand made at defendants' bank of its cashier and of its directors. The cashier of the defendants admitted that he had had the gold certificates in their bank; and that the State Bank was held. So at the interview of Mr. Haven with the defendants' directors, when he stated to them that their cashier had certified checks, and those checks were given to the cashier of the Merchants' Bank for gold delivered to him, the property of the Merchants' Bank, and that he wanted payment for that gold, there was no denial that the gold had been received by the State Bank, but merely a statement that the directors had not authorized their cashier to certify checks.

Messrs. B. R. Curtis, C. B. Goodrich, and B. F. Thomas, contra, and in support of the ruling below:

The main question is, whether the cashier had authority to bind the defendants in the contracts declared on.

I. Had he authority to certify the checks?

It is clear that no express authority had been given to him to do so. Certainly no such power was conferred upon him by the act of Congress, from which the corporation derives all its powers and functions; for by it the entire control and management of the bank are vested in the directors, and with this view, both as to qualifications and responsibility, their office and trust is most carefully guarded.

If, then, the cashier was authorized in any way to certify the checks, he must have been so through the action of the directors. But no such power was conferred upon him by any by-law; nor by any vote of the directors; no ratification or sanction by the directors as a board, or separately, of the use of such power by him; no evidence that he ever in a single instance, before or since the acts in question, made any certificate upon any check of depositor or stranger.

How then, if at all, have the directors clothed him with the power to make the contracts declared on? They had the power to appoint a cashier and to 'define his duties.' But they had no power to transfer or make over to him the duties and powers of the directors. They had power only to point out, and define what he was to do, not trenching upon but in just subordination to their own powers and duties.

Though the power to define the duties of the cashier is vested by the act of Congress with the directors, we concede that the appointment of a cashier devolves upon him various powers and duties. The inquiry then is as to their nature and extent.

Speaking in general terms, they are executive and ministerial, not discretionary or quasi judicial. His function is to carry into effect the contracts made by the directors, and to execute their orders. If in carrying into execution the contracts and orders of the directors, his acts sometimes assume the form of contracts, they are ancillary and accessory, and not substantive and independent agreements.

It is plain that the appointment of cashier does not confer upon the appointee any power, duty, or function which the courts of law, and especially this court, have said do not appertain to the office.

What, then, has been determined by this court on this subject?

In Fleckner v. Bank of the United States,*fn19 the earliest case, the obligation of a bank for the acts of its cashier is limited to those done in the ordinary course of business intrusted to him.
In Minor v. The Mechanics' Bank of Alexandria,*fn20 it was held that no usage, even under the sanction of the board of directors, would justify a cashier in allowing customers to overdraw. The case at bar is not merely a case of overdrawing by a depositor, but a case of drawing to the amount of $500,000 by a firm who were not, so far as appears, depositors, and who had not and never had had funds in the bank.
In Bank of the United States v. Dunn,*fn21 this court held, that the president and cashier of a bank, acting together, had no power to bind the bank by a representation to an indorser where there was collateral security, that he would not be bound by his indorsement.
The United States v. The Bank of Columbus,*fn22 recognizes and affirms as settled law, that the making of a contract involving the payment of money, or the purchase or sale of property, is not within the ordinary business of a cashier, and that if a party relies upon such contract by a cashier, he must show (at the least) a special delegation of power from the directors. The court say:

'The term, ordinary business, with direct reference to the duties of cashiers of banks, occurs frequently in English cases, and in the reports of the decisions of our State courts, and in no one of them has it been judicially allowed to comprehend a contract made by a cashier without an express delegation of power from a board of directors to do so, which involves the payment of money, unless it be such as has been loaned in the usual and customary way. Nor has it ever been decided that a cashier could purchase or sell the property, or create an agency of any kind for a bank which he had not been authorized to make by those to whom has been confided the power to manage its business, both ordinary and extraordinary.'

It is vain to say that the contract in that case was ultra vires. The case was neither argued nor decided on that ground, but was argued and decided on the power of a cashier to make the contract. The principles involved in the decision are therefore authority in the case at bar.

The leading case in Massachusetts, where the contracts sued on purport to have been made, is Mussey v. The Eagle Bank.*fn23 The case, though arising as to a check certified by a teller, in its reasonings and the principles affirmed, applies as well to those by a cashier. The argument made here,–that this certificate of 'good,' on the check, is but another form of the exercise of a usage, so common in banks, of granting a certificate of deposit of money to the credit of a third person, was made there. What say the court?

'We are of opinion, that usage of the one will not support the practice of the other. The two practices, while having the appearance of resemblance, and although one may be used for the same purpose as the other, in the form of a remittance, are, in their character, essentially distinct.'

And the court show wherein they are so.

The cases decided in New York do not really touch the question of authority. The have no tendency to show that the power to certify checks was inherent in the cashiers of banks in Massachusetts, existing under the laws of the State, or of the United States.

It is true that the 17th article of the by-laws of the State Bank provides that 'all contracts, checks, drafts, receipts, &c., shall be signed either by the cashier or by the president.' But the duty of signing contracts is ministerial and executive, not discretionary. The power to sign, without more, excludes the idea of a power to make. The contracts and the checks to be signed are the checks of the bank and not of third persons.*fn24 The drawer of the check is the debtor to the payee. It is his contract, he standing to the payee as the maker of a promissory note or acceptor of a bill of exchange. The check does not contemplate or require acceptance, and, in the usual course, is not accepted. Smith here put his name upon contracts, which had their existence as contracts when signed by Mellen, Ward & Co. They were in no sense contracts made by the directors, or which had been prepared by them for signature by the cashier.

Nor does the production of a contract signed by the cashier furnish prim a facie evidence that the contract was made by the proper authority. Though such presumption may attach to payments made or received by the cashier over the counter of the bank, or other acts within the scope of his ordinary business and duties, it is limited to them. No rule of law is better settled than that a party contracting with a corporation of limited and defined powers, or the servant or agent of such corporation of limited agency, is always put upon his inquiry as to the extent of the power of both principal and agent.*fn25

The distinction between natural and political persons in this regard is obvious. A natural person may appoint an agent to do what he may do himself. Not so with corporations. They can exercise no powers not delegated, and must use them in the mode prescribed by their charter. He who relies upon a contract as binding upon a corporation, when such contract can be made only by its directors, must show affirmatively not only that the directors made it, but that it is within the scope of their powers and duties.*fn26

But a like rule of agency applies even to natural persons. Under certain circumstances an authority arises to an agent to do a certain act, but you must show the occurrence of the circumstances before you can count upon his act. Familiar illustrations occur. Ex. gr., the master of a ship may give a bottomry bond under certain circumstances; the lender must show the circumstances. The master may sell in case of necessity; the purchaser must show the necessity. The master may give a bill of lading for goods put on board; the holder must show that the goods were on board. So a power to draw and indorse bills for and in the name of the principal will not authorize a drawing or indorsing in his name for the accommodation of thrid persons.*fn27

The plaintiffs argue that the defendants, by putting a cashier into the bank, and not defining or restricting his powers, held him out to the world as the organ of the bank for doing the business of banking, and that, therefore, any acts done by him in carrying on the business of banking, as receiving deposits or buying and selling gold, are at least prim a facie valid. But the directors have done no such thing; they put the cashier into their bank as cashier, they held him out as cashier, and nothing more. The appointment to the office of cashier was a limitation of his powers. Whosoever dealt with the bank was bound to know the law, and especially a bank organized under the same laws, and doing business at its side. The defendants neither did nor could hold themselves out except as a banking association organized under the act of Congress, with the powers given by and to be exercised in the manner prescribed by that act.

That the putting a cashier behind the counter of a bank gives him no power to bind the bank, by representing that he has power to do what he cannot lawfully do, is plain. There could be no effectual definition or restriction of the powers of an agent if his representation of what he is authorized to do is to bind the principal. Though as to statements of facts on matters falling clearly within the agent's sphere of power and duty, he may bind the principal; that is the outside limit. Something more then was necessary to be shown than putting Smith into the bank as cashier, and a failure to define all his duties.

If the power to make these contracts was not inherent in the office of cashier, and the directors have not defined or pointed it out as one of his functions, it could not spring out of their silence. It was not necessary for the directors to negative its existence, because there was neither law nor usage to require them.

Then, have the directors so conducted themselves as to their cashier and third persons, as to warrant them in believing that the cashier had been so authorized? They have not acquiesced in the use of the specific power, for there is no evidence that the cashier ever certified a check before or since he certified those in suit.

The plaintiffs' evidence is offered to show that defendants' cashier had been permitted to make contracts pledging the credit of the bank, and that it was the usage or course of business for cashiers in Boston to make such contracts. From the existence of a power to make the class of contracts testified of, they would infer a power to make the contracts sued upon. So far as the evidence concerns the conduct of the State Bank and its relations with its cashier, it tends to show that the cashier had, before these transactions, been accustomed to borrow money of other banks to make up deficiencies at the clearing-house and give his check therefor; to lend money for the same purpose, and receive a cashier's check therefor; to sell exchange on New York, and to draw on the bank's correspondent for the same; to buy exchange on New York, and give a cashier's check for the same, and (when discounts had been made) to give checks in lieu of bills to customers of the bank. But none of these acts, if proved to have been done by the cashier of his own motion, would have any tendency to show or warrant the jury in finding, that Smith had authority to go to the Merchants' Bank and certify checks of Mellen, Ward & Co., given to it in payment of a previous loan to them, or in payment for gold which the Merchants' Bank was under contract to sell to them. The calling of the cashiers of twenty-two banks to prove the borrowing of other banks and giving checks therefor, and the purchase and sale of New York exchange, and the absence of evidence of the certifying of a single check by a cashier, is the most forcible of negatives pregnant. It shows not merely that there is no evidence in the case, but that none was to be had.

So far as the evidence tends to show a usage or course of business, it clearly marks and defines it, and the line of demarcation falls outside of the class of acts counted upon by the plaintiff.

But it is asserted that the classes of acts shown to have been done by the defendants' cashier, and the acts sued upon, though not alike in form, are alike in principle in this regard, that they both pledge the credit of the principal.

Seemingly there are few agencies, general or limited, which do not more or less concern and involve the credit of the principal; but a power to pledge the credit of the principal for one purpose has no tendency to show the power to pledge it for another and distinct purpose. If A. authorizes B. to buy cotton on time, and he buys wool, or even real estate, all these acts assume to pledge the credit of A., but only the first does pledge it. The law does not extend or expand the powers of agents by analogy. On no subject are its rules of limitation more rigid.

Moreover we object to what constitutes the principal part of the evidence of the plaintiffs, the testimony of the cashiers of banks in Boston, as to the powers exercised by those cashiers, as incompetent and immaterial. The plaintiff cannot show that the defendant bank had conferred a substantive power upon their cashier, by showing that cashiers of other banks used such power; a fortiori not by showing that cashiers of other banks used powers entirely distinct from the one relied upon.

In appointing a cashier, the directors charged him with the powers and duties which the law had declared to be inherent in the office of cashier. As to modes and forms of business, they authorized him to follow the usage and custom of the city of the bank's location, so far as they did not conflict with positive law. But these were the outside limits. To say because cashiers of debtor banks borrow money of creditor banks at the clearing-house to make up their balances, or buy or sell exchange on New York, that therefore the cashier of the defendant bank could by certifying checks pledge the credit of the bank without limit, for persons who were not depositors at the bank, who had no funds there, lending in effect not merely more than a tenth, but nearly one-third of the bank's capital, contrary to the 29th section of the National Currency Act, by acts done outside of the banking-house or office where its business was by law to be transacted, without the knowledge of the directors or any one of them, or of any other officer of the bank, without any consideration to the bank for the responsibility assumed, paid or promised–is not merely to make the cashier the bank, but to take the bottom out of the bank itself.

Mellen, Ward & Co. not being depositors, having no account with the State Bank, had no right to draw a check upon that bank, and its cashier had no power to receive or recognize it. Paying the check of a depositor to the extent of his deposit is but paying as the bank has agreed to pay. Paying the check of a non-depositor, or guaranteeing its payment, is doing just what the bank had never agreed to do. Nor does it follow because the cashier might pay or guaranty the payment of a check where there were funds, he could do it where there were not.*fn28 There is no evidence of any agreement of Mellen, Ward & Co. and the defendants' cashier to place the gold coin or gold certificates in the defendant bank. Mr. Haven, indeed, the president of the Merchants' Bank, testifies that at noon on the 1st of March, in the State Bank, he asked Smith, its cashier, 'if he did not have the money? if the gold certificates were not delivered to him?' and that Smith said: 'Yes, I had them here, but they are not here now.' Giving full force to this testimony, it is, that Smith had the certificates with him in the bank edifice, not that they were ever mingled with the funds of the bank. As the cashier had no authority to buy the gold for the State Bank, or contract for its deposit there, that bank could not be responsible for it, until with the knowledge and assent of the directors it had been mingled with the bank's own funds.*fn29 And as the cashier had no authority to deal with the gold, either by purchase or receiving it on deposit for Mellen, Ward & Co. to draw upon it, he clearly has not the power to bind the bank by any declarations concerning the transaction. In addition to which, when Smith made this declaration he was not acting as agent of the bank.

If it be said that the certificate of the cashier is prim a facie evidence that the drawers were depositors, and had funds to meet the checks, it comes to the same thing, as asserting that a cashier has power to certify where the drawers were not depositors, or had no credit at the bank.

The relation created by depositing money in a bank is that of debtor and creditor,–the depositor, the creditor; the bank, the debtor. The money deposited becomes the money of the bank. The depositor has for it the promise of the bank to pay him so much money on his orders or checks. The relation is the result, then, of contract. When a cashier or teller pays the check of a depositor having credit at the bank, he pays as the bank has promised; every dollar that is thus paid out discharges so much of the debt due the depositor from the bank. The cashier is but executing the contract of the bank. When the cashier accepts the draft or check of a non-depositor, a new and different contract is entered into. The bank agrees to advance or lend so much money to the drawer. The bank becomes the creditor, and the drawer of the check the debtor. It is not enough to say the two things differ; there is no resemblance between them. The bank may be very willing to have A. its creditor, and very unwilling to have him its debtor.

A specific objection to the giving to the cashier the power to accept these drafts, or the exercise of it by the directors themselves, is, that it clearly contravenes the provisions of the 29th section of the Banking Act. It would create a liability of Mellen, Ward & Co. to the defendant bank, exceeding one-tenth part of the capital of the bank; to the extent, indeed, of nearly a third of the capital.

II. Then, as to the sale of gold certificates and coin to the State Bank through its agent and cashier, Smith. The considerations, as to the power of the cashier to enter into contracts by certifying the checks, already suggested, apply with equal force here. The cashier had no authority to make the purchase; none under the act of Congress, none under the by-laws, none under any vote of the directors, none under the oral consent of the directors, or any one of them, none under any practice or any one precedent of his own. There is no evidence that the State Bank ever engaged in the business of buying and selling gold, or so held themselves out to the public. Though the statute permits it does not require ...


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