AGENCY IMPUTED FROM " COURSE OF
BUSINESS."

It is generally agreed among writers on the subject that no one is bound by the acts of his agent except upon the theory either of actual authority (express or implied, prior or by ratification) or of estoppel. If the principal has expressly authorized the agent's act, of course he is bound by it. If he has given general instructions to the agent, which instructions by natural, customary or legal implication authorize the act, he is likewise bound by it. If, after the act, he is informed of it and approves of it, the ratification is equivalent to a prior express authority. If it is afterwards brought to his attention and he acquiesces, his acquiescence constitutes a ratification equivalent to a prior implied authority. Furthermore, one may be charged with legal responsibility for the act of another upon the theory of estoppel, although he did not authorize it either expressly or by implication, but even forbade it. The principal may have made some direct representation upon which the party dealing with his agent has relied. Thus, in the common case of general agency he may have clothed the agent with an authority that by ordinary custom embraces a multitude of acts, but has privately forbidden him to do some of those acts. If the agent nevertheless does them, he is responsible to anybody who knew of and relied upon the general agency and did not know of the special instructions. And we have the other cases, also common, which Mr. Ewart has classified under the general title of assisted misrepresentation. "If the ostensible agent is the one who makes the representation of authority, and the supposed principal has merely assisted that representation-done that which has made it credible-he will be as much estopped as if he has himself made the representation."1

When there is no actual authority, either prior or by ratification, the writers have generally agreed that there must be an actual estoppel. The person seeking to hold the principal responsible upon the theory of ostensible agency, 1Ewart on Estoppel, p. 473.

in the absence of actual authority, must show that he knew of the acts or omissions of the principal upon which the latter's responsibility is claimed to be predicated, and "relied in good faith and prudently upon the appearance of authority thus created."1

The third party "must show that the agency did exist, and that the agent had the authority he assumed to exercise, or otherwise that the principal is estopped from disputing it." As was said by Lord Justice James, “Nobody ought to be estopped from averring the truth or asserting a just demand unless by his acts or words or neglect his now averring the truth or asserting the demand would work some wrong to some other person who has been induced to do something, or to abstain from doing something, by reason of what he had said or done, or omitted to say or do."3 Mr. Ewart adds "Change of position to misrepresentation bears somewhat the same relation as consideration to contract."4 Thus in the case of a general agency, the secret restrictions of which the agent has violated, the party dealing with the agent has no ground for complaint against the principal if he did not know of the existence of the general agency, but relied entirely upon the agent's statement that he was authorized to represent the principal in that particular transaction. 'Apparent authority operates only by way of estoppel, and can take the place of real authority only when some person has acted upon the appearances."5

Within the last few years, however, there has been a tendency in certain of our courts to establish a new kind of agency, where there is no authority and no estoppel, namely, an agency imputed from "course of business." A's agent goes to B, introduces himself, informs B that he is

1 Huffcut on Agency, § 103; See also §§ 9, 53, 106; Bowstead on Agency, Art. 85.

2 Lord Cranworth in Pole v. Leask (1862) 33 L. J. Ch. 155, 162 (H. L.)

3

Ex parte Adamson (1878) L. R. 8 Ch. Div. 807, 817-8.

Ewart on Estoppel, p. 131; See Jackson Paper Co. v. Commercial Bank (1902) 199 Ill. 151, 158–9 and auth. cit.

5 People v. Bank of North America (1879) 75 N. Y. 547, 561. This is the principle of the famous Schuyler case, where Judge Davis said "The doctrine of implied agency, when it arises out of negligence, I think has its true basis in the principle of estoppel in pais." N. Y. & N. H. R. R. Co. v. Schuyler (1865) 34 N. Y., at p. 53.

such agent, and says that his authority includes the pledging of his principal's credit in a certain way. B believes him, makes no further inquiry, and gives credit. The agent had no such authority in fact. B sues A. A proves in defense that while the man was his agent for other purposes there was no authority for this transaction. B then proves that the agent had done practically the same thing several times before with other parties. A proves in rejoinder that he himself had never heard of these transactions, and that B never heard of them either, and of course was not induced by them to give the credit; so that there was no actual authority and no estoppel, and the case does not come within any of the old recognized classes of agency. B however says that A was negligent; that, while he did not know of these particular transactions of his agent, he ought to have known them if he had exercised sufficient diligence; and that he should therefore stand the loss as a kind of penalty for his insufficient watchfulness.

The new doctrine is being developed in litigations. arising out of defalcations by officers of corporations, and particularly of banks, for the daily transactions of banks are so large that strict auditing is difficult. The propositions are familiar that a bank cashier, for instance, has general power to certify checks upon his bank or to issue drafts upon other banks; that his official signature is equivalent to the signature of his bank; that, however, his position. as cashier gives him no general authority to certify checks or issue bank drafts for his own benefit; and that his own name as drawer of the check or payee of the bank draft is a "danger signal", putting all takers upon notice that he is probably acting for his own benefit and therefore not binding the bank.1 Cashiers do, however, often sign for their own benefit. For small amounts they do it to save trouble; for large amounts they probably sometimes do it for the same reason, and sometimes also for purposes of embezzlement. The signatures of drafts and certificates for small

1 Park Hotel Co. v. Fourth Natl. Bank (1898) 86 Fed. at p. 744 and cas. cit. As to the particular case of bank drafts an exception has been established in the State of New York by Goshen Bank v. The State (1894) 141 N. Y. 379, a case much discussed, distinguished and criticised, and not as yet followed elsewhere, and which may not be authority even here except after the bank has recognized the draft by paying it.

amounts are not carefully scrutinized by the cashier's superiors. Such minute scrutiny in large establishments would be impracticable. Occasionally, of course, there is such loose management that similar drafts for large amounts pass unnoticed. At last, not infrequently, embezzlement follows. The bank goes into the hands of a receiver, and the cashier is found to have depleted its funds by checking them out for margins to his brokers. When the receiver sues to recover the money, the defense is based on the fact that the cashier had done the same thing several times before.

This development of the doctrine of "course of busiseems to begin in 1884 with certain dicta in Martin v. Webb, where the court, speaking of the duties of directors, says "That which they ought, by proper diligence, to have known as to the general course of business in the bank, they may be presumed to have known in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business." The opinion contains the cautionary statement that its "general expressions" should be "interpreted by the facts of this case "; and thus interpreted, the opinion clearly refers to dealings with persons entitled to assert an estoppel. In Hanover Bank v. American Dock and Trust Co., decided in 1896, the New York Court of Appeals quoted this remark and seemed to go further, as in the absence of any estoppel they said as to the directors' knowledge of prior similar transactions "while it does not appear that they actually knew of these transactions, it was a question of fact for the jury to say whether they ought not to have known, under all the circumstances, as their ignorance was no excuse, unless they were reasonably diligent in supervising the method and details of conducting the business under their control"; but at the close of the opinion they make the case turn upon the jury's plain right, in the absence of any evidence to the contrary, to infer actual knowledge of whatever it was the duty of the directors to know. It remained for sometime doubtful here in New York whether the fact that the directors "ought to have known" of what their employee was doing was, in the (1884) 110 U. S. 7. 2 (1896) 148 N. Y. 612.

absence of an estoppel, to be given greater weight than as evidence tending to show that they did know of it, and therefore presumably authorized or ratified it; but that doubt seems now to have been resolved by the case of Campbell v. Upton, affirming without opinion a decision of the lower courts, which seems to have based a bank's liability for unauthorized acts of the cashier squarely upon the directors' negligence in failing to find out that he had committed similar unauthorized acts before. The "course of business" thus established was not used as presumptive evidence of knowledge on the part of the directors. On the contrary, it had been expressly found by the trial judge that all the directors were ignorant of it. There has never been a clear discussion of the distinction in New York; and a decision of the New Jersey Court of Errors and Appeals upon another transaction of this same cashier, while the opinion points in the same direction, leaves the question in doubt in that State.3 Massachusetts would doubtless vigorously oppose the doctrine.4 In other States it has been little discussed. In the Federal courts it was formerly assumed that any presumption from the past course of business of a corporate officer might be rebutted by affirmative. proof of lack of authority, in the absence of special circumstances making the presumption conclusive -that is, as I understand it, of an estoppel; but recently there has been a tendency toward what may now be called the New York rule, and in a case which has gone twice to the Circuit Court of Appeals for the Second Circuit, the theory of agency by "course of business" was sustained in opinions. from which it is not entirely clear whether or not the court intended to go to the full length of sustaining it where ignorance on the part of the directors affirmatively appears; but after a full argument in the Supreme Court the decision was reversed upon other grounds.

As this new doctrine has not yet made its way into the

1

Corn Exchange Bank v. American Dock and Trust Co. (1900) 163 N. Y. 332.

2 (1902) 171 N. Y. 644.

3 Campbell v. Manufacturers' Natl. Bank (1902) 67 N. J. L. 301.

4 Murray v. Nelson Lumber Co. (1886) 143 Mass. 250.

5 Mining Co. v. Anglo-Californian Bank (1881) 104 U. S. 192, 195.

6

Gale v. Chase Natl. Bank (1900) 104 Fed. 214; (1901) 108 Fed. 987;

S. C. sub. nom. Rankin v. Chase Natl. Bank (1903) 188 U. S. 557.