Opinion
Argued May 9
Decided September 13, 1871
Henry R. Selden, for the appellant. George F. Danforth, for the respondent.
As no notice was given, in any way, of the dissolution of the firm of Bradner Carroll, this draft must be treated as if made by Carroll before the dissolution.
Carroll was the active member of the firm, and had authority to make notes and draw drafts in the business of the firm; but not for the accommodation of other parties. If, however, he made such paper for the accommodation of other parties, the firm would be liable upon the paper to a bona fide holder thereof for value.
This has long been settled, and is undisputed. This rule of liability does not rest upon the actual authority which the member who signs the firm name has, but upon the principle that, where one of two innocent parties must suffer from the improper act of a third person, the one must suffer who has clothed such third person with such character and placed him in such position as enabled him to do the act. ( Hern v. Nichols, 1 Salk., 289; Griswold v. Haven, 25 N.Y., 595; Story on Part., § 108.) Bradner had held out Carroll as his partner, and, as such partner, he was the general agent of the firm as to all matters within the scope of the partnership business. Hence, the learned counsel for the appellant concedes that, if Carroll had himself filled up this draft and delivered it to Lowrey, Bradner would, upon the facts of this case, have been liable. He also concedes, within the cases of Russell v. Langstaffe (2 Doug., 514); Mitchell v. Culver (7 Cow., 337); Goodman v. Simons (20 How. [U.S.], 361); Van Duzer v. Howe ( 21 N.Y., 531); Violett v. Patton (5 Cranch, 142); Putnam v. Sullivan ( 4 Mass., 54), that, if Lowrey had taken this blank and filled it up before he went to the bank, and there got it discounted, the firm would have been liable upon it. In such a case, the bank would have taken the paper as a complete negotiable bill of exchange, and would have had the protection of a bona fide taker of such paper. But he claims that, when this blank was taken to the bank, it was not a bill of exchange, nor a contract of any kind; and, hence, that the bank was bound to take notice of the manner of its origin, of the extent and nature of Lowrey's authority, and, in fact, that it was accommodation paper. I cannot doubt that this claim, to its full extent, is without proper foundation.
As before stated, Carroll was the general agent of the firm, and could bind it, by all acts and representations, apparently within the scope of the business of the firm. He could bind the firm not only by his own acts and representations, but he could employ an agent who could do the same thing. In Stall v. Catskill Bank, 18 Wend., 466, the action was upon a promissory note for $1,000, drawn by one Edward Shook to the order of J.I. Stall Co., a firm composed of Stall, Traver and Teats; and Teats, for the accommodation of Shook, indorsed the firm name upon it, without the knowledge or consent of Stall. Shook sent the note to one Outwater, requesting him to get it discounted at the bank. Outwater sent an agent of the name of Reynolds to the bank for that purpose, and it was not discounted. A day or two afterward Traver desired Reynolds to offer the note again for discount at the bank, and requested him to represent that the note was to be discounted for the firm, to buy grain, and he presented the note, made the representation, and got the note discounted, and Shook had the proceeds. Upon these facts, the firm was held liable. Chancellor WALWORTH, in his opinion, says: "So far as the rights of the plaintiff were concerned, Reynolds was the agent of the firm for the purpose of getting the note discounted, although Traver was practicing a fraud upon his co-partner, Stall, as well as upon the bank. The firm are bound by all the representations made by such agent, in connection with the objects of his mission, to the same extent that all the defendants would have been bound if Traver had been there himself, and had made the same representations as a member of the firm." Here the firm was held bound by the false representations of an agent employed by one member of the firm, apparently, but not really, in the business of the firm.
In this case, Carroll had authority to borrow money for the firm. He could do it in person or by an agent, and for that purpose he could entrust an agent with notes properly filled up or in blank. The agent could fill up the blanks, make representations in reference to them, and borrow money upon them, and the firm would be bound, whether the money came to its possession or not. What difference can it make if the blanks are filled up in the presence of the lender? When the blanks are delivered to the agent, within the case of Russell v. Langstaffe and other cases above cited, he is clothed with authority to fill them up and negotiate them, and for that purpose is constituted the agent of the firm, and no one doubts that the firm would be bound if all this is done in its business. But the firm is equally bound, if it is apparently in its business, unless the person dealing with the agent has in some form notice, or what is equivalent to notice, of his want of authority to bind the firm.
Here Lowrey went to the bank with the blank draft signed by the firm name, and he carried with him, by the possession of the blank, an authority from the firm, just as plain and full as if it was fully written out in a separate paper, to fill up the draft for $15,000 and negotiate it to the bank. What notice had the bank of any defect in his authority? There was nothing in the blank or in the circumstances of his possession of it to show that it was made for his accommodation.
The natural inference was, either that the drawers desired to transfer to him so much money due them from the firm of Lowrey, Strang Co., or that they desired him to raise for them that amount of money upon the draft. There was no occasion for the bank to make any inquiry, for here was in law a representation of the firm, and of its agent, that he was authorized, and the bank had a right, without further inquiry, to rely upon it. As Lowrey was authorized, in the name of the firm, by Carroll, to fill up this blank, his act must have the same force and effect as if it had been done by Carroll himself, in which case it cannot be disputed that the firm would have been bound. ( Michigan Bank v. Eldred, 9 Wallace, 544, 552.)
There is nothing so extraordinary in the fact that Lowrey was entrusted with this blank, as to put the bank upon inquiry, for it is an ordinary commercial transaction for an agent or subordinate to be entrusted with such paper, to negotiate and raise money thereon.
I hold the firm to be liable, not upon principles exclusively applicable to negotiable paper, but upon principles regulating the relations of principal and agent; Lowrey, as I claim, being authorized, as to the plaintiff, to do precisely what he did in filling up the blank draft in the apparent business of the firm.
The conclusion which I have thus reached is sustained by principles of law well settled, and is in conflict with no authority, unless it be the case of Hatch v. Searles (2 Smale Giffard, 147), cited by the learned counsel for the appellant. I have not access to a full report of that case. It seems to have been an action upon a draft, which was accepted while in an imperfect state; and Vice-Chancellor STUART, in his opinion, says: "If the holder has notice of the imperfection, he can be in no better situation than the person who took it in blank, as to any rights against the acceptor or indorser who gave it in blank."
This entirely ignores the doctrine of agency, as applied to such a case. An agent can frequently give rights to a third party, which he himself could not enforce against his principal. Lowrey could not, in this case, have filled up the draft and enforced it against the firm; but he came to the bank with what the law recognizes as authority, given in the name of the firm by Carroll, a member thereof, to fill up the blank and negotiate the draft; the whole transaction being one which it was competent for Carroll and Lowrey to do, just as they did it, in the proper business of the firm, and hence being one apparently within the scope of the partnership business. In such case, it cannot be doubted that Lowrey could confer upon the plaintiff a right to hold the firm, which he could not have. Hence the case cited appears to be unsound in principle, and does not impair the confidence I feel in the conclusion I have reached.
The judgment must be affirmed, with costs.
For affirmance, EARL and HUNT, CC., and LOTT, Ch. C. LEONARD, C., was for reversal; GRAY, C., not sitting.
Judgment affirmed, with costs.