New York & New Haven Railroad v. Schuyler (34 N.Y. 30, 1865)

Davis, J.

• The practice in this case has been anomalous, and, to some degree, without precedent. There is little danger, however, that any rule will be extracted from its complications likely hereafter to embarrass the courts. Unless, therefore, substantial rights have been violated by the course of procedure, I am opposed to remitting the case, or any of the parties to it, to another decade of litigation on any ground of mere irregularity.

The plaintiffs, after the discovery of the frauds of Robert Schuyler, found some three hundred persons in possession of supposed titles to portions of their capital stock, each of whom was clamorous that his title should be recognized as genuine, or that he should be compensated for injuries sustained from its falsity. Many of these persons had commenced suits at law to recover damages because of the refusal of the plaintiffs to recognize their alleged rights; ■ and the rest, it was presumed, were about to commence such suits.

In this exigency, the plaintiffs invoked the equity powers of the court to shelter them from the impending storm by gathering all these persons and their claims into a single suit, in order, as they averred, that the duties and obligations of the plaintiffs, and the rights and claims of such persons, might be settled in one suit, and thereby a multiplicity of actions and the delay, expense and litigation attendant thereon, be avoided. They called upon the court to investigate the question of the validity of the certificates and transfers of stock held by the defendants; to separate the good from the bad and cancel the latter-; to stop all actions then pending and consolidate and try the issues joined in them in this action, and to restrain all other parties from commencing actions upon claims growing out of such certificates and transfers; and to accomplish these ends, they asked and obtained process by injunction, under which the defendants have been restrained from prosecuting elsewhere, any claims while this action was pending. It comes, therefore, with an ill grace from plaintiffs, if the defendants have rightly shown themselves entitled to recover damages in any forum, to insist that they can have no remedy in this suit. Having recovered judgment declaring these certificates and transfers spurious, upon a state of facts on which the court held that the defendants were also entitled to be compensated for their injuries, it would seem a hard measure of justice to turn these parties out to seek redress in the very multiplicity of actions which this suit was brought, in part, to avert.

It is a mistake to suppose that this action addressed itself to any single head of equity jurisdiction. It sought, it is true, the cancellation of illegal certificates and transfers, which were prima facie evidences of title to stock, on the ground that they were clouds on the title of the holders of genuine shares ; and chiefly in this aspect it was sustained on demurrer by this court (17 N. Y., 592); but it was also a “ bill of peace ”—to quiet titles, settle rights and prevent a multiplicity of actions; and, as was said by Comstock, J., in the decision referred to, “ the number of parties and the multitiplicity of actual or threatened suits, will sometimes justify a resort to a court of equity when the subject is not at all of an equitable character and there is no other element of equity jurisdiction.” To which he might have added, that wherever those facts did justify such resort, a court of equity would fully dispose of all the rights and questions springing out of the subject matter of the suit as to every party, however multitudinous or complicated they might be. The action sought also to have the pending suits, in which portions of the defendants were plaintiffs, consolidated in this suit and their issues tried with it, and to prevent all of the defendants from prosecuting any claim growing out of the subject matter of this suit in any court of this State or elsewhere, for the reasons already quoted, and because the plaintiffs, as they said, “ could not acknowledge or recognize any of the said false and fraudulent certificates of stock, or any of the said transfers of stock¡ or, as constituting cony claim against the com pany without am, adjudication iy some court of competent jurisdiction requiring them to do so.”

While, therefore, it was, in one aspect, a suit to remove a cloud upon a title and-cancel the instruments creating such cloud, it had a far reaching and broader scope under which the plaintiffs hoped and intended to secure a judgment that would put at rest forever all possible claims against them, growing out of the Schuyler frauds. If it could be maintained to extinguish such claims, surely it can be to uphold them. The court did not err in so adjudging, if, while investigating the facts upon which the plaintiffs sought relief, it found that the same facts that entitled them to a part of what they sought also entitled the defendants to relief against them; and it was no undue stretch of equity jurisdiction to award the relief to both in the same action. The objection that by such a course the plaintiffs have been deprived of trial by jury, is without any sound foundation. The very nature of the action forbade such a trial. It is a primary consequence of a resort to a court of equity that trial by jury is no matter of right, and wherever the equity of the complainant’s bill gives such a court jurisdiction, it draws to the same forum and mode of trial every question, whether its nature be legal or equitable, that can be legitimately considered within its scope. Under the Code, legal and equitable jurisdictions are combined in the same tribunal, but the principles of each remain distinctive and undisturbed. Whenever a plaintiff calls upon the court to exercise its jurisdiction upon principles of equity, he elects thereby his mode of trial and waives any constitutional right of trial by jury that he might at law have demanded, both as to the remedy he seeks and the defense that may be interposed.

Under the peculiar circumstances of this case, the court should not scrutinize, with critical care, the pleadings of the respondents, to see whether there be not some defectiveness in setting forth the nature and grounds of their claims to relief, or in demanding the same. The objections were not raised at the stage of the trial when it was most important to have the defects, if any existed, distinctly pointed out, and when amendments could have been readily allowed; hence, on this appeal the plaintiffs should be regarded as having waived such objections, or the pleadings be considered as properly amended.

- In my opinion, the action of the General Term on the appeal from the judgment entered on the decision of the Special Term, in 1860, is not here to be reviewed, nor is it material to the case, if it were. Since that time the case has gone back to the Special Term, and the trial of the case has been completed by a disposition of all its issues, and another or amended judgment has been entered, from which an appeal was taken to the General Term, and the judgment affirmed. From this last judgment the appeal properly lies to this court. In its practical effect, the decision of the General Term on the first appeal, when considered in the light of subsequent proceedings, amounts to nothing more than a ruling that the case had not been fully tried and a final judgment rendered therein as to all the parties, and under that ruling it ordered the case back, with directions to the judge at Special Term to do what was, in its opinion, requisite to render the judgment complete. The action of the Special Term, in so far as it had gone, was in substance held correct, and pro forma affirmed; but it was instructed that its ruling that defendants could not recover cross-judgments in this suit was erroneous, and therefore the case was remitted to the original court, with directions to proceed in the necessary* assessment, to entitle the defendants to judgments for damages, under the facts already found. If that judgment of the General Term was a final one, it should have been appealed from, within the prescribed time, to this court, by any party seeking to review it. If it üas not final, and not appealable for that reason, then it has ceased to be of any moment, since the Special Term has continued the action, completed the trial, amended the judgment Or entered a new one, from which an appeal has been taken to the General Term, and thence to this court. It is the judgment awarding, the damages that is under review on plaintiffs’ appeal, and not the judgment refusing them. The judgment of the Special Term giving such damages is none the less the judgment of that court, because an appellate tribunal had instructed it that such ought or must be its judgment. It is not uncommon, when cases are sent back for new trial, for the appellate court to indicate the disposition that should be made of them, and for the original court to follow such disposition. And the practice in such case requires a new formal appeal to the General Term, and a new judgment by that court, before an appeal lies to this court.

We can only look at the action of the General Term on the first appeal, as an irregular proceeding by which the cause was got back to the original tribunal for complete judgment. Its effect has been an amended or complete judgment as to all the parties and all the issues, and that has become the final judgment in the case, and is now here for review.

The practice of the court, on the first appeal, was sui generis, and is not to be recommended for general imitation; but if this court should hold it not only to be irregular but wholly erroneous, we should still have the final judgment of the Special Term and the affirmance of that by the General Term, before us for review; because the merits of neither of those judgments can be said to have been affected by the intermediate irregularity, but only the mode of getting at them.

In short, I think, the last judgment of the Special Term is now to be considered the judgment in the action; and any party whose rights were affected by it was at liberty, within the prescribed time, to appeal from it; and the appeal would bring up any question properly arising in the progress of the trial; for, in legal contemplation, there has been but one trial and one judgment. *

It follows, therefore, that the General Term erred in dismissing the appeals of Surget, and of Ketchum and Bement; and that this ease is here for review on all its meritorious questions unprejudiced by mere matters of form or practice.

This somewhat summary disposition of the preliminary points of the case leaves an open, path to its meritorious questions, some of which, however, may be disposed of even more summarily. One of these is the question whether the stock purporting to be created by the false certificates and fraudulent transfers of Schuyler can be valid stock of the corporation and become part of its capital. In the nature of things this is impossible. A corporation with a fixed capital divided into a fixed number of shares can have no power of its own volition, or by any act of its officers and agents, to enlarge its capital or increase the number of shares' into which it is divided. The supreme legislative power of the State can alone confer that authority and remove or consent to the removal of restrictions which are part of the fundamental law of the corporate being; and hence every attempt of the corporation to exert such a power before it is conferred, by any direct and express action of its officers is void; and hence every indirect and fraudulent attempt to do' so is void; for if such a result cannot be accomplished directly by the whole machinery of the corporate powers, it is absurd to suppose that it can be produced by the covert or fraudulent efforts of one or more of the agents of the corporation. The Special Term was, therefore, right in holding that the spurious stock, attempted to be created by Schuyler in excess of the capital, formed no part of the capital stock of the company, but was utterly invalid; and it necessarily followed from the decision of this court when the case was before it on demurrer, that the plaintiffs were entitled to have all certificates and transfers which represented such spurious stock declared void and ordered to be canceled.

Another important legal proposition in the case is so clear upon principle, and so distinctly settled by authority, that nothing but confusion can fiow from its discussion. It will bear no more thait plain enunciation. A corporation is liable to" the same extent and under the same circumstances as a natural person for the consequences of its wrongful acts, and will be held to respond in a civil action at the suit of an injured party for every grade and description of forcible, malicious or negligent tort or wrong which it commits, however foreign to its nature or beyond its granted jpowers the wrongful transaction or act may be. (Life and Fire Ins. Co. v. Mechanics' Fire Ins. Co., 7 Wend., 31; Angell on Corp., §§ 382, 388, 391; Albert v. Savings Bank, 2 Mary. Dec., 169; Goodspeed v. East Haddam Bank, 22 Conn., 541; Bissell v. Michigan Southern and Northern Indiana Railroad Co., 22 N. Y., 305-309, per Selden, J.; 1 Wend. Black, [note], 476; Green v. London Omnibus Co., 7 C. B., 290 [N. S.]; Frankfort Bank v. Johnson, 21 Maine, 490; Philadelphia and Baltimore Railroad Co. v. Quigly, 21 How. U. S., 209, and cases cited by Campbell, J.)

It follows, from this proposition, that if it were established in this case that the corporation itself issued the false certificates of stock and permitted the fraudulent transfers of spurious stock, it would be liable to the party directly deceived and injured by that transaction. The incapacity to create the spurious stock would be no defense to an action for damages for the injury. On the contrary, that very incapacity, since it would render the certificate or transfer a fraud and deceit, would itself be the cause of the injury and the basis of recovery. Ho court would hear the corporation assert that its wrongful act was beyond its chartered powers, and therefore ineffective to charge it with the injurious consequences of the fraud. But in this case the false certificates were issued and the spurious stock transferred by an officer of the corporation. A corporation aggregate being an artificial body—an imaginary person- of the law, so to speak—is, from its nature, incapable of doing any act except through agents to whom is given by its fundamental law, or in pursuance of it, every power of action it is capable of possessing or exercising. Hence the rule has been established, and may now also be stated as an indisputable principle, that /a corporation is responsible for the acts .or negligence of its agents while engaged in the business of the agency, to the same extent and under the same circumstances, that a natural person is chargeable with the acts or negligence of his agent; and “ there can be no doubt,” says Lord Ch. Cbanwobth in Ranger v. The Great Western R. R. Co., “ that if the agents employed conduct themselves fraudulently so that if they had been acting for private employers the persons for whom they were acting would have been affected by their fraud, the same principles must prevail where the principal under whom the agent acts is a corporation.” (5 House of Lords Cases, 86, 87; Thayer v. Barlow, 19 Pick., 511; 4 Serg. & Rawl., 16; 7 Wend., 31; Frankfort Bank v. Johnson, 24 Maine, 490; Story on Agency, sec. 308; Angel & Ames on Corp., sec. 382, 388.)

This brings us to consider the propositions on which the liability of the company to respond in damages to the defendants must depend. They are either general as applicable to all of the defendants, or special as growing out of the particular facts of some one or more of the defendants; and it is impracticable, without danger of injustice, to group the cases of all the defendants together and consider them in mass, however desirable that course might be in order to avoid prolixity. In one general proposition an inquiry is primarily involved into the duties concerning its stock which the corporation owed to the public and especially to all who might become dealers therein. The charter of the company was voluntarily sought and accepted. It created a private trading body having in view pecuniary gains and advantages. The legislature limited the capital and fixed the number of shares into which it might be divided, and declared them to be personal property to be transferred in such manner and at such times and places as the by-laws of the company should direct, and then handed over to the directors a discretion, restrained only by the laws of the State and the United States, to enact by-laws touching the disposition and management of the stock, the transfer of shares, the duties and conduct of officers, “ and all other matters that might appertain to the concerns of the company.” These powers were sought and granted with a view to well known and established commercial usages. It was doubtless a matter of choice to what extent the company would exercise them, but the directors chose to use them in their broadest significance. They proceeded to enact by-laws to regulate the transfer of stock and the issuing of certificates on such transfers. They adopted a form of transfer, of certificate and of assignment and power of attorney indorsed thereon, and gave them every characteristic of negotiability in their power to confer. They sought the commercial center of this continent and there established a transfer office and agency, and thus gave and secured the most unbounded facilities for dealing in the stock. Their purposes, obviously, were to lay hold of the advantages which such facilities were sure to bring to the stock by enhancing its monetary and convertible value. This course was legitimate ; but it brought with it corresponding duties and obligations. I cannot doubt but that upon general and long established principles of law, the corporation became bound to the exercise, in this branch of its business, of such ordinary care and skill as should afford to dealers a safe and reliable mode of acquiring title to its shares in the form of transfers and certificates as provided by its by-laws. “ The law always imposes upon every one who attempts to do anything even gratuitously for another, some degree of care and skill in the performance of what he has undertaken. * * * Mere negligence, where there is no obligation to use care, as where a man digs a pit upon his own land and leaves it open, affords no ground of action, but where there is anything in the circumstances to create a duty to an individual or to the public, any neglect to perform that duty from which injury arises, is actionable.” (Per Selden, J., in Nolton v. Western R. R. Co., 15 N. Y., 444; Coggs v. Bernard, Ld. Raym., 909.)

It is upon this duty that the courts have established the rights which dealers acquire through the certificates of corporations who thus enter their stock upon the market, and the liabilities that flow from a refusal to permit the enjoyment of those rights. (Deary v. Manhattan Co., 2 Denio, 118; Kortright v. Buffalo Commercial Bank, 20 Wend., 94, and 22 id., 368; Pollock v. National Bank, 3 Seld., 276; Davis v. Bank of England, 2 Bing., 393; Mason Iron Co. v. Hooper, 7 Cush., 183; Sargent v. Franklin Ins. Co., 8 Pick., 90.)

I cannot, therefore, subscribe to the idea that the duties of the plaintiffs, in respect to their stock, were limited to themselves and existing shareholders. They extended also to the commercial community whose confidence and trade the plaintiffs invited, and who in turn were entitled to good faith and fair dealing at the hands of the company; and they sprang •into full vigor in behalf of every party who entered upon such dealing.

The next important general inquiry is into the manner in which the plaintiffs discharged those duties at their Hew York agency, with a view to determine whether their conduct has been of such a character that the law, in behalf of innocent parties, and to prevent injustice, will imply authority in the agent to do the acts that have occasioned the injury, on the principle of estoppel in pais. This inquiry was not involved in the case of the Mechanics’ Bank against these plaintiffs (3 Kern., 599), for the facts upon which it arises were not then before the court, and the questions discussed did not embrace them. The only question of estoppel considered in that case was the one arising on the face of the certificate itself, and the learned judge who pronounced the opinion was very careful to define the limits of the authority as they appeared in that case, and to declare that the appointment, by its terms, did not include the acts, and that there was “no pretense that the authority conferred was ever enlarged by any holding out or recognition of such acts? (3 Kern., 636.)

The doctrine of implied agency, when it arises out of negligence, I think, has its true basis in the principle of estoppel in pais. That principle, as said by Wilde, II, in Swan v. The North, British Australasian Co. (7 Hurlst. & Norm., 603), is based on the injustice of allowing a party to be the author of his own misfortune, and then charging the consequences upon others, and “ it all along implies an act in itself invalid, and a person who is forbidden for equitable reasons to set up that invalidity.” The facts on which this__ question arises are in part the same as those upon which the extent of Schuyler’s actual agency is to he determined, and a condensation of them will now be made with a view to answer both purposes. ' Schuyler was president of the company and a director. In February, 184Y, and after the by-laws were adopted, he was appointed transfer agent at Hew York. His appointment was entirely general in its terms, but by necessary implication was subject, as to the mode of executing his duties, to the provisions of the by-laws in cases 'coming within their scope and meaning. The substance of the by-laws was, that all transfers of stock should be made by the shareholder on the transfer book in the form prescribed, at the office where the stock stood to his credit; that certificates for stock, with blank assignment and power of attorney thereon in the form prescribed, might be issued; and when issued no duplicate should be given and no stock be transferred without the surrender of the outstanding certificate (except in case of lost certificates, where special action of the board should be had); and that the stock might be transferred by the holder of a certificate under the power of attorney duly executed. Subject only to these by-laws, the board handed over to Schuyler all the power the directors themselves possessed in respect to the transfer of stock at the Hew York agency. They furnished him with blank transfers, certificates, assignments and powers bound in books, the stock ledger and other account books, and gave into his absolute control the keeping and management of such books and the employment and control of the clerical force necessary to that purpose. For more than seven years they left to him the unchecked and unquestioned management of the enormous business of this transfer office; and it was by no means limited, to the mere duty of permitting transfers and issuing certificates upon transfers. It is found by the court that the stock originally subscribed for was in most, if not all cases, transferred by one of the agents in behalf of the company, and the complaint avers that certificates signed by a transfer agent m the form above mentioned were issued in such cases; that the stock subscribed for “ was not all taken by or issued to parties subscribing therefor, but much of it was sold by Robert Schuyler as trcmsfer agent on behalf of the company, and it was not all sold or issued until the 15th of October, 1849, when the last 28 shares were issued to Bishop & Miller” (finding 185); “that there were during the time while the said Robert Schuyler was transfer agent, transfers of stock made to the transfer agent on the hooks of the company by holders of stock for the account of the company, and the stock so transferred was afterwards disposed of by such agents (finding 11); that the increase of five thousand shares made in 1851 was transferred by the agent to the parties entitled; that Schuyler was authorized by the board to sell, and did sell and transfer, certain small amounts of forfeited stock and fractional amounts not taken by subscribers on behalf of the company; “that the company kept no bank account for the deposit of moneys; that the money received on behalf of said company on construction account from time to time by Robert Schuyler, as president or transfer agent, was deposited by him in the bank accounts of R. & Gi. L. Schuyler;” “that when any payments were made by Schuyler on behalf of the company, the money was obtained by Robert Schuyler; that large amounts were so obtained from time to time and frequently from his firm of R. & Gr. L. Schuyler; that said moneys were drawn out from time to time by their checks as the same might be needed; that the money so obtained by R. Schuyler was raised by the sand Robert Schuyler in, the name of his said firm, indiscriminately, on germine and spv/rious certificates of the stock of the companythat many of the transfers of stock were made by R. <& G. L. Schuyler, by way of hypothecation, as security for loans to them. (Findings Nos. 195, 196.)

From the outset, the firm of R. & Gr. L. Schuyler were large dealers in the stock of' the company; so large, that apparently on the face of the books, more than the entire capital stock of the company passed through their account by transfer. That the by-law requiring the surrender of certificates on transfer of stock was generally observed, but in case of the Schuylers and some other parties they were not adhered to.

It appears also that the frauds of Schuyler' commenced at an early day. On the 1st day of February, 1848, the first false certificate was issued to his firm, and at all times thereafter there was an over-issue of certificates, greater or less in amount, in the stock account of R. & Gr. L. Schuyler, as set forth in the stock ledger. In March, 1848, transfers in excess of stock transferred to them’, were first made on the books; these excessive transfers continued till January, 1849, fluctuating from time to time in amount, as transfers were made to and by them, but the books at all times during that period showed a balance against them. On the 10th of January, 1849, these excessive transfers amounted to 1,191 shares. This excess was occasioned, in part, by the bringing in and surrender of the excessive certificates by holders thereof, who thereupon transferred, under the power of • attorney, to themselves or others, the stock represented by such certificates; between that date and the 31st of January, Schuyler obtained of the company and others shares of stock sufficient to turn the balance of transfers on the books in his favor, although there were then outstanding fraudulent certificates issued in favor of the firm in excess of their balance. In August, 1851, when the increased capital was issued, the books showed a balance of transfers in favor of the Schuylers of 854 shares; but there were then outstanding certificates in excess of this credit to the amount of 1,277 shares. The balance of transfers was, therefore, kept in their favor during this whole interval, by the fact that the holders of certificates had omitted to bring them in and have them canceled and the stock transferred, as rapidly as that firm had received transfers on the books to themselves. But so fast as these certificates did come in, and transfers were made under them, the stock was credited on the books to the transferees, and has ever since been recognized as valid stock. The whole amount thereof did not exceed the subsequently extended capital of $3,000,000 or 30,000 shares, but I am not able to see why it did not at most, if not at all times, exceed the then authorized capital of $2,500,000, or 25,000 shares. In some manner not disclosed, all these excessive issues were remedied, and made good stock; and so was all the stock purporting to be represented by the false certificates, that came in and were canceled on transfers prior to the 17th day of October, 1853. On that day R. & Gr. L. Schuyler had a balance of transfers in their favor of four shares, but there .were outstanding certificates to the amount of 7,042 shares, upon which no transfer had heen made. From that date the excessive transfers again appear, and continue till July 3,1854, at which time they had reached 17,497 shares, while the certificates had run down to 1,684 shares; making together an aggregate of 19,145 shares of spurious stock in excess of the enlarged capital. But from 1848 down to 1854, all these frauds were written down in the books of the company. A proper comparison between the certificate books and the stock ledger and transfer books, would at any time have shown whether the Schuylers were entitled to receive certificates, and when they were not entitled to transfer stock without surrendering certificates; and an examination of the account of R. & Q-. L. Schuyler in the. stock ledger, was sufficient, according to the testimony of experts, by computation to have shown at any time the over-issue of certificates, the certificates were numbered consecutively, and so entered on the books, and there seems to have been no effort at falsification of the accounts. From 1849 to 1854, the clerks in the office knew of the over-issue of certificates. By the usage of corporations in Flew York, the books were not open to the examination of dealers," and by the orders of the agent they were kept shut against inspection.' The court has found that it" does not appear that any other director than Schuyler had personal knowledge of his fraudulent acts; but it has also •found that the directors were guilty of negligence in not making any examination of the books, or of the conduct of the transfer office.

It is apparent that the use of ordinary care and diligence •at any time after March, 1848, would have disclosed that Schuyler’s management was fraudulent both as to the company and the public, and likely to lead to the disasters that have followed upon it. • It is a mistake to suppose that his frauds commenced in October, 1853. They were equally gross in turpitude, though not in amount, for a period of five years before that date; and nothing but the ability of- the company to increase the capital from two and a half to three millions, has prevented all. excesses beyond the'first named sum from falling under the same ban of utter spuriousness. The arrangement, by virtue of which the transfers made on false certificates before the increase of the capital became genuine stock, may have been made in ignorance; but it was an ignorance based on a negligence so gross that the fact becomes as potent as though the truth had been known. It may have been in ignorance that the company received the benefit of “ large sums ” raised by Schuyler indiscriminately on genuine, and spurious certificates. Charity may grant that, but equity cannot disregard the fact, for it was a duty to be wise. It is transparent throughout the case, that the board of directors, by passive submission or active surrender, handed over to Schuyler the substance of all their authority relating to their business in blew York, and then for nearly seven years laid down to sleep in supine indifference at his feet. Aroused by the shock of the calamity which their folly has induced, are they now to look calmly over the wreck with no answer to its innocent victims but that of Macbeth to the ghost of Banquo ? “ If the managers faithfully perform their duty,” said Strong, J., in Beers v. Phœnix Glass Co. (14 Barb., 360), “ they exercise a constant and vigilant supervision over the acts of their officers, and where such acts are unauthorized or in opposition to their will, they should and probably do direct their discontinuance, and in case of willful and palpable violation of duty, dismiss the agent. If the directors of a company, no matter whether through inattention or otherwise, suffer its subordinate officers to pursue a particular line of conduct for a considerable period without objection, they are as much bound to those who are not aware of any want of authority as if the requisite power had been directly conferred.” I cannot file my mind to the belief that equity attaches no consequences to such negligence upon the idea that it is not sufficiently proximate as a cause of the injury. The company placed in Schuyler’s hands the very instrumentalities by which the injury was wrought. They imposed restrictions upon their use, but they omitted the safeguards that ordinary prudence would dictate, to discover or prevent their abuse. A wrong which ordinary care will prevent, is in a legal sense, caused by the omission of that care where it is a duty to use it. At any stage, a discovery of Schuyler’s past frauds would have arrested his career of crime. A discovery would have followed the examination of the books of the office, which were the only records of the vast stock transactions of the company at Hew York. An examination was a duty, because it was the obvious dictate of good sense as the easiest- and safest check upon o the agent’s conduct. The long continued and reckless omission was therefore a culpable negligence, without the concurrence of which Schuyler could not have committed the frauds by which the defendants have suffered; for it was this omission of duty that left him with power to wield the weapons with which the company had armed- him, and therefore it may be said to have led directly to the injurious acts.

In cases where the authority of an agent has been wholly withdrawn, the neglect of the duty to notify parties who have dealt with him, estops the principal from denying the continuance of the agency, although no power in fact exists. And so a retiring partner is bbund by the acts of his former firm if he omit the duty of notice. In these cases, for omitting an act which would have prevented the injury, the truth, to wit, the actual want of authority, is shut out by the negligence; but the neglect does not cause the assumed agent to do the act which occasions the injury; it only suffers an opportunity to do it, to exist, which in law is equivalent. If ordinary care was due from the corporation toward its dealers so to manage its affairs that its agents should have no opportunity to commit fraud which such care would prevent, then the same principle is applicable here to establish the próxima cama which the law demands. It is not in such cases one of two innocent parties who is to suffer. The question is •between an innocent and a culpable party, and, as was said by Denio, J., in- the The Bank of Genesee v. The Patchin Bank, “I see no objection in applying the principle that where a party has, by his declaration or conduct, induced another to act in a particular manner, he will not afterwards be permitted to deny the truth of his admission if the consequence would be to work an injury to such other person.” (3 Kern., 316.) The question .of estoppel is one of ethics (per Bronson, J., in Dezell v. Odell, 3 Hill, 225), and is to be enforced where, in good conscience and honest dealing, it ought to be. (Welland Canal Co. v. Hathaway, 8 Wend., 483.) “The principle,” says Chancellor Kent (2 Com., 620, note c), “ that pervades the distinction on this subject rests on sound and elevated morality. There V must be no deception anywhere. The principal is bound by the acts of his agent if he clothe him with powers calculated to induce innocent third persons to believe the agent had due ^.authority to act in the given case.” “ He who created the trust, and not the purchaser, ought to'suffer.” (Note d.)

■> On the question of privity in any view of. this case, I ■have no difficulty. If the act of the agent can be charged home upon any principle, upon the corporation, then, as was said in the Bank of Kentucky v. The Schuylkill Bank (1 Pars. Eq. Cas., 180), “ the bona fide holder of any' certificate issued by the transfer agents has a primary and direct claim, either to be admitted as a corporator, or if that •is impracticable, from the excessive issue of stock, to be compensated for the fraud practiced upon him.” To entitle the "aggrieved party to sue, in such case, no "privity is necessary, except such as is created by the unlawful act and the consequential injury, because the injured party is not seeking redress upon contract, but purely for the tortious act in the ^commission of which the contract is an accidental incident. (Allen v. Addington, 11 Wend., 374; Thomas v. Winchester, 2 Seld., 397; Scott v. Shepherd, 3 Wils., 403; Gerhard v. Bates, 2 Ell. & Bl., 489; S. C., 20 Eng. L. & Eq., 129; Redfield on Rail., 61; Korkright v. Buffalo Commercial Bank, 22 Wend., ubi sup.)

That the Mechanics' Bank against these plaintiffs was not decided on any question of want of privity, we’have the authority of the judge who pronounced the opinion: “We certainly,” he says, “ did not put our judgment upon the ground that the plaintiffs were not in privity of dealing with the defendants by reason of the non-negotiable .character of the certificates, and, therefore, could not sue for fraud.” (Farmers’ and Mechanics’ Bank v. Butchers’ and Drovers’ Bank, 16 N. Y., 151.)

I am, therefore, of opinion that the plaintiffs are estopped ’ hy the facts and circumstances of this ease, to deny the authority of Schuyler to do the acts from which the injury to the defendants has arisen.

But conceding that the whole question of this case is governed hy the law of principal and agent, it becomes of grave significance to ascertain the scope and extent of the powers conferred on the agent. Herein, I think, the case essentially differs from that of the Mechanics’ Bank. (3 Kern., 399.) The question of that case is stated by Comstock, J., in 16 N. Y., at pages 154, 155, with succinctness and accuracy. He says: “In that case, the transfer agent of the defendants’ corporation was authorized to sign and issue certificates of stock on a transfer from one shareholder to another upon the looks and on the surrender of the• previous certificates. The agent, for his own purposes, signed and issued certificates to a large amount where there had been no such transfer or surrender. These unauthorized and spurious instruments were in form precisely like those that were genuine and authorized. Trusting to their false appearance, the plaintiffs took one of them by transfer and advanced money upon it, which they recovered in the Hew York Superior Court. We held they could not recover, and reversed the judgment, placing our decision prominently upon the ground that the acts of the agent were not within the real or apparent scope of the power delegated to him.”

It now appears that the agent, in addition to the power thus stated, had authority also to issue certificates in precisely the same form, to the original subscribers for the stock, and to some extent did do so; that he had authority to dispose of the stock of the company not taken by the original subscribers (of which there was a large amount), and issue certificates in the same form to the purchasers; that he had authority to dispose of certain forfeited shares, and in such case issue like certificates; that he had authority to receive transfers to himself of stocks on behalf of the company, and transfer the same to purchasers and issue like certificates to them; that before the increase of the capital to 30,000 shares, he did issue to his own firm a large number of false certificates which became the basis of transfers on the books to third parties, and by some arrangement were absorbed into the enlarged capital as genuine stock; that he acted to some extent as financial agent of the company, and through his firm raised large amounts, “ indiscriminately, on genuine and spurious certificates of stock,” which were paid out on the check of the firm on behalf of the company and on its construction account; that to him was intrusted the keeping of all the stock accounts of the company and its dealers at the New York office, and in those accounts- he entered all his 'transactions, both false and genuine; that the books were kept closed to dealers; that his management of the affairs of the office, and of all these various matters, was never investigated or questioned.

It is in all these facts that we are now to seek for “ the real or apparent scope of the power delegated to him.” As we ■ descend from the sharp promontory of the ■ Mechanics' Bank case to this' broad plane of powers and their mode of use, we stand amongst new and far different lights and shadows. We find ourselves quite unable to say, with the able jurist in that case, “ He (Schuyler) had no power to sell stock at all, and none to issue certificates except as incidental to a sale between existing stockholders, ’ and then it depended on the condition precedent of a transfer on the books and a surrender of a previous certificate for the same stock." Nor to say, “ His appointment in its very terms, which all dealers a/re supposed to have been acquainted with, did not include his acts, and there is no pretense that it was ever enla/rged by any holding out, or recognition of his acts"

ík When his certificate, regular in form in all respects, is offered in the market, the buyer is not able to refer it to the narrow restrictions of-the by-law, for how does it appear that it is not one issued to an original subscriber, where there was no transfer to be made, and no prior certificate to be surrendered; or that it is not one issued to a purchaser of the original stock which Schuyler was empowered to sell and certify in this manner; or that it is not of stock that has been transferred to the agent on account of the company and which he was likewise authorized to sell; or that it was not Some of the forfeited shares which he was directed to sell and certify; or that it was not of the kind which, by “ some arrangement,” is absorbable into the capital as genuine, even if it be in fact spurious; or that it is not issued to raise money for the benefit of the construction fund of the company; or that it is not of the spurious kind which the company have heretofore allowed to be cured by a subsequent acquisition of stock by the Schuylers, and a transfer thereafter under the power.

■ Whether it does not belong to some one of these classes there are no earthly means of ascertaining save by the representation of the agent. The books are sealed; but if open and most thoroughly investigated they would not necessarily negative the power to issue for some of the purposes for which authority had been given, directly or by recognition; for even if run down to absolute spuriousness it is still open to say, this is of the kind of spurious, certificates upon which the company raise money for their construction accounts, or the kind which they legitimatize by subsequent arrangements of the capital; or the kind which, by the custom of-...... dealing becomes good, if a transfer be made under it at a moment when the Schuyler firm happens to have so much stock to its credit on the books. And the accounts for seven years show that all these kinds are treated on the same footing as genuine shares.

It is a well recognized branch of the law of principal and agent, that without any express or special appointment, an implied agency may arise from the conduct of a party. (Story on Agency, § 54.) “ Where a person has recognized a course of dealing for him by another or a series of acts of a particular kind, an implied agency is thereby constituted to carry on the same dealing or to do acts of the same character. * * * There may be seeming contradictions of the fundamental doctrine that a principal is bound only by such acts of his agent as he has duly authorized. This presumption or im-, plied agency is one of these, because a man may.have, accepted supposed acts which he never authorized, and so be-bound as to third persons by similar acts.”- (Per Comstock, J.,, 16 N. Y., 145, 146.).

There is nothing gained to the plaintiffs by the fact that the certificates are made to the firm of R. & Q-.-L. Schuyler, for so were all those which, prior to Oct., 1853, became good by a transfer when that firm happened to be in credit on the books of the company; so were those used to -raise, money for construction; and so of those which went in under the in-: creased capital. It is a.general rule that an officer or agent is not to be permitted, under a general power, to certify in. his own favor. (Claflin v. The Farmers' Bank, 25 N. Y., 293.) But in this case that rule is not applicable, for it clearly appears that from the outset this firm were very heavy, dealers in the stocks of the company, that its business was all conducted at this agency, and that Robert Schuyler at all times certified to it as to other dealers. The long acquiescence of the company in this practice, and its actual ratification in some of the cases above mentioned disarm this objection of all force. (Ang. & Ames on Corp., 216; and see Bradly v. Richardson, 2 Blatch. C. C. R., 343; S. C., 23 Vt., 720; Story on Agency, § 54.)

» In this view of the extent of the authority with which Schuyler was clothed by the company,- either by direct appointment or by recognition and ratification, or by actual enjoyments of the fruits of his acts, or by long acquiescence therein from which a presumption or implied agency arises,' I have come to the conclusion that the issuing of the certificates by. him must be held to be within the scope of the real and apparent authority which he possessed; and the remedy, of the defendants is not prejudiced by the fact that he used and intended to use the avails for his own purpose. In short, they stand precisely in respect to the remedy where they would if the board of directors had issued the same certificates in fraud of their powers under the law, and obtained the de-. fendants’ moneys thereon.. .....

But these views do not dispose of a question that has been argued in this case with an elaboration and power seldom equaled in.a court of justice. From the manner in which the decision of the judges is stated in the Mechanics Bank case, it is difficult to tell what precise points were designed to be passed upon by the court. It is open to conjecture that the case may have passed off on the ground of want of privity between the plaintiffs and defendants, as was intimated by Selden, J., in The Farmers’ & Mechanics’ Bank v. The Butchers' & Drovers’ Bank (16 N. Y., 142), or on the ground, as suggested by H. R. Selden, J., in Griswold v. Haven (25 N. Y., 598), “ that Kyle, to whom the certificate issued, being privy to the fraud, had of course no claim against the company, and that his assignees could have no greater rights than himself;” or upon the mistaken idea that the court of errors, in reversing the The North River Bank v. Aymar, has settled the law adversely to the opinion of the Supreme Court in that case.

But whatever may have been the views of other members of the court, there is no mistaldng the ground on which the judge who pronounced the opinion intended to put the liability of a principal for the acts of an agent. It is, in brief, that a principal is bound, only by .the’authorized acts of his agent. The proposition involved was fairly put by the learned judge in this form: “ Suppose an agent is authorized by the terms of his appointment to enter into an engagement, or series of engagements, on behalf of his principal, and while the appointment is in force he fraudulently makes one in his own or a stranger’s business, but in the form contemplated by the power, and which he asserts to be in the business of his employer by using his name in the contract, can the dealer rely upon that assertion, or is he bound to inquire and to ascertain at his peril whether the transaction is not only in appearance but in fact within the authority ? According to the decision of the Supreme Court of this State, in the case of The North River Bank v. Aymar (3 Hill, 262), he can.” The judge then proceeds to show that the case cited had been reversed by the court of errors; and then to discuss the question with his own clearness and vigor, reach-'s ing a conclusion which he expresses in these words: “ The appearance of the power is one thing, and for that the principal is responsible. The appearance 'of the act is another, and for that, if false, I think the remedy is against the agent only. The fundamental proposition, I repeat, is, that one man can be bound only by the authorized act of another. He cannot be charged because another holds a commission . from him and falsely asserts that his acts are within it.”

The counter proposition was again stated by Seldeh, J., in The Farmers’ & Mechanics’ Bank v. The Butchers’ & Drovers’ Bank, in this form: “ It is, I think, a sound rule that when a party dealing with an agent has ascertained that the act of the agent corresponds in every particular in regard to which such party has or is presumed to have any knowledge with the terms of the power, he may take the representation of the agent as to any extrinsic fact which rests peculiarly within the knowledge of the agent and which cannot be ascertained by a comparison of the power with the acts done under it.”

Manifestly, here is an “ irrepressible conflict” between these propositions, and we are. called upon to determine which . expresses the settled law of this State. I think the problem is solved whenever the question whether the decision of the Supreme Court, in The North River Bank v. Aymar (3 Hill, 262), is authoritative as law, is answered; and for this, I have the emphatic assent of Comstock, J., as above quoted.' That case stands altogether upon the doctrine of agency. The bank held the power of attorney under which the agent acted. The paper, on its face, notified the bank that it was made by the agent. The power, by express words, limited the authority to notes made in the business of the principal. The character of the paper was, therefore, of no moment on this point, for its negotiability could not shut out a question which arose on the face of the instruments. (See per Selden, J., in Griswold v. Haven, 25 N. Y., 601, and per Comstock, 16 N. Y., 153, 154, 155.) The paper, in fact, was not made in the business of the principal. The question was, where the peril of that faet rested; and its solution altogether depended upon the question, was the bank “ bound to inquire and to ascertain at its peril whether the transaction was not only in appearance but in fact, within the authority ?” The court appreciated the point, and therefore discussed and decided the question distinctively, on the law of principal and agent.

The further history of that case is shown by Judge Com-stock in his opinion in The Mechanics’ Bank case (3 Kern., 633), and more fully in his dissenting opinion in The Butchers’ and Drovers’ Bank case (16 N. Y., 153, 154). As The Mechanics’ Bank case left The Worth River Bank case, the latter would be deemed not law. But the same question arose in The Rammers’ and Mechanics’ Bank v. The Butchers’ and Drovers’ Bank, and it became essential to determine whether the reversal by the court of errors of The Worth Rimer Bank case had settled the law adversely to the decision of the Supreme Court. Judge Comstock earnestly insisted that it had (16 N. Y., 154), but in this he stood alone. Seldeet, J. (at page 138), assigned reasons for holding the question still open for examination, and after a very full examination declared that the case was properly decided by the Supreme Court. Demo, Ch. J., and Beowst, J., delivered opinions, both agreeing with Selden, J., in approving the decision of the Supreme Court. “ I am clearly of opinion,” said Deeho, Ch. J., “that the case of The North River Bank v. Aymar, was correctly adjudged in the Supreme Court. If the court of errors laid down a different rule in reversing that judgment, they ran counter, as I think I have shown, to a strong course of adjudication in that court and in the Supreme Court, and overturned a legal position which was then well established in this State, and has since been repeatedly acted upon.” In Griswold v. Haven (25 N. Y., 595), the same question arose; and upon the precise point now under consideration—whether the decision of the Supreme Court in The North River Bank v. Aymar, is sound law—I under? stand there was no dissent from the opinion of H. R. Seldeet, J., which held it to be so. In The Exchange Bank v. Monteath (26 N. Y., 505), the question of its authority again very •sharply arose. When that case was first at the bar of the General Term, that court followed The North Hirer Bank v. Aymar, as reported in 3 Hill, regarding it as a decisive authority. After a new trial, the case came again to the General Term, but in the meantime the opinion of Comstock, J., in The Mechanics' Bank case, had been published. The court regarded that as establishing a different doctrine, and as showing also that The North River Bank case had been overruled by the court of errors. It, therefore, reluctantly followed what it regarded as the later- authority. But this court reversed the General Term, and declared that the doctrine of the case of The North River Bank v. Aymar, must now be regarded as established on an impregnable basis. “It is,” said Davies, J., “well sustained by authority, sound reasoning and well established principles, and it should be firmly adhered to by the courts.” If ever a case, discrowned by reversal, was lifted to its feet and restored to authority by adjudication, The North River Bank v. Aymar has been; and its vindication is all the more signal because of the ability with which its chief antagonist has conducted the remarkable warfare against it.

We have already seen what principle was involved in that case, and it is impossible to escape the conclusion that the law of this State, as settled by adjudication at this day, is,'as - put by H. R. Selden-, J., in Griswolds. Mamen, “ That where the authority of an agent depends■ upon some fact outside the terms of his power, and which, from its nat/u/re, rests .particularly within his knowledge, the principal is hound hy • the representation of the agent, although false, as to the »