President, Directors & Co. of Mechanics' Bank v. New-York & New Haven Railroad

This is an action for damages founded on a certificate for eighty-five shares of stock in the defendant’s corporation, issued to Alexander Kyle, upon the security of which the plaintiffs loaned to that person a sum of money; and the first inquiry naturally is, what was the force and effect of the certificate in his hands ? The mode of present ing this inquiry most favorable to the plaintiffs is to consider it as free from the difficulty that there was no power in the corporation, its board of directors, or any of its agents, to create the shares of stock in questiqn. Assuming that the corporation had stock at its own disposal, and that Robert Schuyler, as agent, had full power to sell it in market and issue the proper certificates therefor, it is clear that any person dealing with him in good faith, and paying value, would become entitled to all the rights and privileges of a stockholder, although the agent, by a secret fraud, intended the transaction to be for his own benefit, and used the funds which he received for his own private purposes. In such a case, the acts'of the agent being such as the corporation was competent to perform, and strictly within the powers delegated to him, upon principles entirely familiar, the law would not permit third persons to suffer by a secret abuse of the trust.

But it is equally clear that no rights would be acquired by a party not dealing with the agent in good faith, and receiving a' certificate of stock without paying any value therefor. To say that the original holder of such a certificate could not be admitted to a participation with the • genuine and bona fide stockholders in the property, franchises and revenues of the corporation, is a proposition so plain that it needs only to be stated. Such was the situation of Alexander Kyle, the original holder of the certificate now in question. To what extent he was implicated in the frauds of Schuyler is not material. The certificate is admitted to have been issued fraudulently and he paid nothing for it. On this ground it was in his hands spurious and void ;

The certificate in the hands oí Kyle was also void for the additional reasons which will now be mentioned.

1. Schuyler, as the agent of the company, had no power to issue a certificate for shares of stock, except upon the conditions precedent of a transfer on the books by some previous owner, and the surrender of that owner’s certificate. He was the transfer agent merely, and his powers were expressly limited to that department of the business of the corporation. He had no general certifying power, nor any power at all to certify, except as incidental to a transfer of stock by its owner to some one else, and as an incidental power it could only be exercised upon the conditions named.

2. Neither the board of directors by whom Schuyler was appointed agent, nor the whole body of the corporation had power to create the stock which the certificate issued to Kyle professed to represent; and if the stock itself could not be brought into existence by the whole power of the corporation, the certificate issued as the evidence of its existence and the right of the holder thereto was necessarily void. Upon the premises last stated the conclusion would be the same, even if Kyle had paid to the transfer agent the full value of the stock. He could purchase stock of any person who owned it, but he could not under any conditions obtain it from the corporation or its agents, because there was none to be had, and none could be created.

Thus far I do not understand that my conclusions differ essentially from the views of the counsel who have argued the cause for the plaintiffs; and if I was not mistaken in regard to the general scope of their argument, they conceded the further result, that the plaintiffs, holding the certificate by transfer from Kyle, have no rights as stockholders merely, for the particular reason that the stock cannot exist under

Mr. Justice Hoffman, in the opinion pronounced by him, holds that the certificate was not void as transcending the powers of the corporation in the creation of stock and issuing certificates therefor, or those delegated to Schuyler as the transfer agent. He, therefore, considers the obligation to be one which the defendant can perform and ought to perform, according to its terms. He admits that the effect of an over issue is to increase the number of shares, but not the actual capital; and, according to his view, the spurious certificates are to be made good by a reduction in the actual value of those that are genuine. He holds, therefore, that the defendant was bound to admit the plaintiffs as stockholders, and to register their shares on the books accordingly, and that this suit depends purely and simply on the non-performance of that duty after being requested to perform it. “ Without a demand,” he says, “ and refusal to transfer, there would be no ground of action whatever.”

Directly opposed to these views are those of Chief Justice Oakley. He holds the certificate utterly void, because it transcended the powers of the transfer agent, whose commission, he thinks, was special and not general; and if the action depended on the validity of the certificate, he says the following questions would have to be answered:

1. Whether the plaintiffs, as bona fide holders, could acquire any rights under it superior to those of Kyle, in whose hands it was void ? And—

Justices Bosworth and Slosson, if I do not misunderstand them, both admit that there was no power in the corporation to create the shares of stock which the certificate professes to represent, and that the instrument, considered as a real representation of stock, was void for that reason ; thus discarding the only ground upon which, in the opinion of one of their brethren, the action can be maintained. They nevertheless hold that the suit is not founded upon the notion of misrepresentation and fraud, thus as distinctly rejecting the theory of the other. They appear to me to have found a middle ground of liability, which is perhaps fairly expressed in the following language of Justice Bosworth : “ The certificate,” he says, “ so far as any inferences can be drawn from its terms or appearance purports

The extreme difficulty which has been encountered, in endeavoring to find a principle on which to rest the action, may be further illustrated by reference to the professional opinions which have been submitted to our examination. In one of them—certainly entitled to the very highest

If those who assert that this action can be maintained had been able to agree upon a reason for that opinion-, there would be fewer propositions to discuss than I-shall feel obliged to examine.

But it is important to observe that the question has other relations than those which belong to it as one of simple capacity and power. The thirty thousand shares of original stock, subscribed and paid for by the persons to whom the genuine certificates were issued, belonged to them in their individual right, and were as much their separate and indi vidual property as any other possession which they could acquire. The entire capital was represented in the property and franchises of the corporation, and the owner of each share was entitled to a fixed and Unalterable proportion of that capital. And from this it follows, that any attempts

The conclusion to which I am brought upon this question is not impeached by the consideration (if such is the fact) that there are shares and certificates of stock, beyond the original limit, which cannot be traced to an over-issue by the fraudulent agent of the company. I know not how the facts may be in this respect, nor is it material to the argument. The corporation may be compelled to respond to the holders of certificates, amounting in the aggregate to more than its capital, because it cannot distinguish those which are spurious and those which are genuine. Thus the number of shares to be recognized may be practically increased, not for the reason that all over-issues are not void, but because, in a given instance, the corporation cannot show that the shares claimed are of that character. No question of this kind arises in the case before us.

I have also stated, in general terms, as one of my conclusions, that the certificate issued to Kyle was void in his

It is as well, in this connection as any other, to notice a special feature of the transaction which I think imparts neither strength nor weakness to the plaintiffs’ case. The

In order to keep in view the exact conditions of the general question, I think it proper to state the conclusions which I consider thus far established. They are as follows: I. The certificate was void in the hands of Kyle, the first holder, because it was fraudulently issued, and he paid nothing for it; 2. It was also void in his hands, because issued by an agent without authority, there being no surrender of a previous certificate, and no transfer to him on the books of actual stock, and this want of authority was known to him; 3. It was void, because the stock it professed to represent had no existence, and could not exist under the charter of the company, all the powers of the corporation in the creation and issue of stock being exhausted. In respect to the conclusion last mentioned, it must be, and I think is conceded, as a further result, that the certificate is void under all possible circumstances, so that no person, in whatever situation, can claim under it the rights of a stockholder, or damages on the ground of a refusal .to admit him to rights. As the law will not require the defendant

I will proceed, however, to a more particular examination of the plaintiffs’ rights as the transferees of Kyle; and giving them the most favorable view of the case, will consider the certificate as void in his hands only on the grounds that it was issued fraudulently, without consideration, and without any authority contained in the terms of Schuyler’s appointment as transfer agent. In this view, the defendant’s corporation is regarded as competent to recognize the certificate; and if it is bound to do so, it must respond in damages upon its refusal. The question, therefore, will be, is it so bound ? Or, to state it in another form, are the plaintiffs in a situation to assert any rights against the company which Kyle, their assignor, did not possess ?

By the charter of this corporation, the shares of its capital stock were made transferable in such manner and in such places as the by-laws should direct; and the by-laws declared that all transfers should be made in the transfer book, kept at the proper office, and, where a certificate of the stock had been issued, that the same should be surrendered prior to the transfer being made. The certificate now in question, as all others, declared on its face the same conditions. This certificate has in fact never been surrendered, and no such transfer has ever been made. The plaintiffs, on making their loan to Kyle, took from him an assignment and power of attorney in blank, but paid no regard to the fundamental conditions on which alone a legal title to the stock could be transferred. Of these conditions of course they had notice.

• I am aware it is common to deal in this manner in the stock of corporate companies, and I do not say that any rule of law or of public policy is violated by it. The dealer

So, too, it is common to deal in this manner with respect to obligations of every description. If extreme caution is exercised, the purchaser will inquire of the maker of the obligation, and procure his admission of its validity and his assent to the transfer; and having done so, an estoppel will arise in his favor, not because he has invested his money in the purchase, but because he purchased after procuring such admission or consent and upon the faith thereof. Where there is no estoppel of this sort to rely upon, then the question, whether the transferee of an obligation apparently sound, and from the apparent owner, acquires any better right to enforce it than his assignor had depends on the nature of the obligation itself. The general and familiar rule is, that he does not. If the instrument has negotiable qualities, then he may. In the case of negotiable instruments, the legal title passes by mere endorsement or delivery. When .they are not negotiable, an equitable title is all that can be acquired; and this suggests the further observation that, as between equities merely, the prior one, as a general rule, prevails. The prior equity, as well as the law, is in favor of the party who made the obligation, if for any good and valid reason he ought not to be bound by it. The principle is so familiar that authorities need not be cited.

But aside from the absence of any language of these certificates which can impart to them a negotiable character, both the laws of the corporation and the certificates themselves contain special restrictions, which seem to me to put this question at rest. I do not suppose that a corporation, without something very extraordinary in its charter, can ” place such restraints upon the sale of its stock, that the individual holder may not transfer as good a title in equity as he himself possesses by any mode of assurance good upon general principles of law. But if a natural person has an undoubted right so to express the terms of his obligation that it shall not be negotiable in the commercial sense, or in any sense which can give to the purchaser a title superior to that of his vendor, I see no reason to doubt that corporations possess the same right. Ha.s the defendant so expressed itself in these certificates of stock? I think it has. It has distinctly declared, both in its

I have examined attentively the authorities cited upon the question, but do not find that the doctrine contended for -has in them the -least support. In the case of Kortright v. The Commercial Bank of Buffalo ( 20 Wend., 91 , S. C. in error; 22 Wend., 348 ), it was held that an action of assumpsit will lie against a corporation, in favor of the assignee of a stock certificate, for refusing to permit a transfer on the books. This and the class of cases to which it belongs prove that a transfer not made according to the charter or by-laws of a corporation confers upon the transferee, in an equitable sense, the title of the previous owner; that, being thus clothed with the equitable title, it is the duty of the corporation to permit him to take a legal transfer on the books; and that the law will imply an assumpsit for the performance of that duty. For a breach of this duty, actions of assumpsit and case have been indifferently maintained. In principle, the remedy should have been a special action on the case. Such was the opinion of Chief Justice Nelson in the case referred to ; but he says, “it being once settled (that assumpsit will lie), there is no occasion for disturbing it.” It is only material to observe that the assumpsit is not in the certificate itself, and so passing by

In the case of Fatman v. Loback ( 1 Duer, 354 ), no question arose involving the rights of the corporation. The decision is directly opposed to that of Chancellor Walworth, in Stebbins v. Phenix Fire Insurance Company (3 Paige, 350), and my own impression is that it cannot be sustained. I find in it, however, nothing which can affect the question I am considering. The case was disposed of upon principles which were not asserted as having any peculiar application to dealing in stocks or negotiable securities. The case of Stoney v. The American Life Insurance Company (11 Paige, 635) only held that the negotiable security of a corporation, appearing on its face to have been duly issued, was valid in the hands of a bona fide holder, although, in fact, issued contrary to law. The case of Delafield v. The State of Illinois ( 2 Hill, 159 ) related to state bonds, payable to bearer and strictly negotiable. Such securities are sometimes called stocks, but a confusion of terms should not involve principles in obscurity.

In the case of Fisher v. The Morris Canal and Banking Company ( 3 Am. Law Reg., 423 ), the question was whether the bonds of a railroad corporation, payable to bearer, issued for the purpose of raising money, with interest coupons annexed, also payable to bearer, were negotiable in such a sense that a purchaser for value took them free from any equities between the company and the seller. The decision was in favor of the purchaser, and I fully concur in the doctrine. The distinction between such a security and a stock certificate, which by its very terms is not negotiable,

These are the only authorities cited in favor of the doctrine contended for. It is quite evident that they have no tendency in that direction. I will now mention some which are decisively the other way. In the case of the Union Bank of Georgetown v. Laird (2 Wheaton, 390), the stock was transferable only on the books of the corporation. The precise propositions decided were, that no legal title to shares could be acquired except by a transfer made according to the requirement, and that the equitable title of the transferee was subject to all the rights of the corporation against his assignor. The same doctrine was held by Chancellor Walworth, in Stebbins v. Phenix Fire Insurance Company (3 Paige, 350).

In the State of Connecticut there have been a series of cases going still further. There the registry on the books, when required by the charter or by-laws of a corporation, is deemed the originating act in the change of title to stock, and a transfer not so made is regarded as ineffectual for any purpose. (2 Connect., 529; 3 id., 544 ; 5 id., 246 ; 6 id., 552 .) So rigorous a doctrine has not been followed elsewhere; and I think the established rule now is, that a transfer of stock not made in the manner prescribed is nevertheless valid so as to pass in equity all the rights of the seller, but no greater. See, further, Angell & Ames on Corporations, 352, 353, 3d ed., where the rule is stated and the cases cited.

Looking at the question upon principle, I am not aware of anything in the nature or uses of this kind of property which requires an application of the rules which belong to negotiable securities. Stocks are not like bank bills, the immediate representative of money, and intended for cir culation. The distinction between a bank bill and a share of bank stock it is not difficult to appreciate. Nor are they, like notes and bills of exchange, less adapted to circulation, but invented to supply the exigencies of com

The question is capable of some further elucidation, by attending to the rules which have been settled in regard to the transferability of other instruments and the effect of transfer. A certificate of stock is in some respects like a bill of lading or a warehouse or wharfinger’s receipt. Each is the representation of property existing under certain conditions, and the documentary evidence of title thereto. They are all alike transferable by endorsement and delivery, and the title to the property thus represented passes by such transfer. So far they resemble each other, but there are distinctions to be noted. Bills of lading and wharfingers’ receipts are commercial instruments, and their transferability, or, as it is sometimes termed, their “ quasi negotiability,” depends on the custom of merchants and the conveniences of trade. Certificates of stock are not commercial instruments, and

In the great case of Lickbarrow v. Mason (2 Term Rep., 63 ; 5 id., 367, 683), it was held that the consignor of goods had lost his right of stoppage in transitu, when the consignee, holding the bill of lading indorsed in blank by the consignor, delivered it to a third.person, who received it in good faith and made advances upon it. This has been the settled rule ever since. But in such cases, it is to be ob,served, the legal title to the goods has vested by the sale and consign ment in the consignee, subject qnly to the peculiar and anomalous right of arresting their delivery, in the event of insolvency. If, therefore, before this right is exercised, the consignee transfers the bill of lading to another person who takes it in good faith and for value, the latter acquires the title which his vendor had at the time of the transfer, and which the consignor cannot afterwards take from him by stopping the goods before they have reached their destination. In this doctrine, which was settled after a very remarkable • contest in the courts of England, is contained all the negotiable quality that belongs to a bill of lading, and it requires but little discrimination to see that this is not negotiability in any just sense of that term. On the other hand, -it has been held by the supreme court and the late court of errors of this state (Everett v. Saltus, 15 Wend., 474 ; 20 id., 267), that a bill of lading covering goods shipped, but made without the owner’s authority, cannot affect the owner’s title, into whatever hands the instrument may-come. So it has been lately held in the English queen’s bench (Gurney v. Behrend, 3 Ellis & Bl., 622) that if a bill

It is conceded that Kyle, the first holder of the certificate in question, could assert no title to the stock it appears to represent, and that in his hands it was spurious and void for all the reasons which have been mentioned. Before its transfer to the plaintiffs can be admitted to confer any better title- upon them, it must be shown to have not only all the negotiable qualities of a bill of lading, but others also which that instrument does not possess.

Testing this question therefore in any conceivable mode, whether by the express terms of .these certificates, by their general nature and character, by the authority of adjudged cases, or by the most favorable analogies, I have no hesitation in saying that the doctrine contended for is entirely without foundation. It is mainly by assuming for these instruments the possession in a greater or less degree of the peculiar qualities of negotiable securities, that the plaintiffs claim to have acquired by transfer better rights than their assignor had; arid as that assumption fails, this claim must fall to the ground.

It was also said on the argument that those certificates of stock are in the nature of general letters of credit, on the faith of which any one might act; and upon this idea it

Now, while it may be the effect of a stock certificate to give the holder a credit, -its terms do not request, invite Pr guarantee it. So the possession of property of any description, or of the evidence and muniments of title thereto, in ■ their effect give to the possessor a credit with other men. In this sense every chose in action invites' a credit in favor of him who holds it, and so do the title deeds of his real estate. Innocent parties may deal with him and be deceived. They may lend their -money and lose it. Nothing more than 'this can be said of a certificate of the ownership of stock in a corporation. Regarded as a promissory instrument, imposing obligations to be performed by the artificial person which makes it, it is like arty other chose in action, except as greater restrictions may be placed' upon its transfer and sale. Regarded as a muniment of title merely, it is like any other instrument by which title is manifested. But to say that, like a letter of credit, it contains a request, express or implied, addressed to any -one in particular,-or to

I will now briefly examine the validity .of the plaintiffs’ title in another aspect, still keeping out of -view, however, the absolute want of power in the corporation to create the stock in question. It has been mentioned as one of the reasons why the certificate was void in the hands of Kyle, that Schuyler, the agent, was not acting within the scope of his powers .when he .issued it. The full effect of this particular objection upon the plaintiffs’ rights, as the transferees of Kyle, has not been considered. And I observe now, in the first place, that if upon a vague theory of negotiability (already examined) they could overcome the difficulties arising out of the .fraud of the .agent toward the company as.his principal, and out of the want of consideration, this objection would still have to be removed. It is obvious, upon a moment’s.reflection, that negotiability cau impart no vitality to an instrument, executed under a power where the agent has exceeded his actual or presumptive authority. Whoever proposes to deal with a security of any kind appearing on its face to be given by .one man for another, ,is bound to inquire whether it has,been given by due authority, and if he omits that inquiry he deals at his peril.

It is not denied that the plaintiffs, in taking the certificates in question, were chargeable with notice of,the extent and limit of the powers of Schuyler as transfer agent. All that is claimed in their behalf is, that his act in issuing it was apparently and presumptively, although not actually, within his authority. .Upon this ground it is urged that, according to the rules which govern the relation of principal and agent, the defendant is bound in some way to make the obligation good. The extent of the authority, it is admitted, the

There are in the books many loose expressions concerning the distinction between a general and special agency. The distinction itself is highly unsatisfactory, arid will be found quite insufficient to solve a great variety of cases. It is not profitable to dwell upon that distinction. Underlying the whole subject 'there is this fundamental proposition, that a principal is bound only by the authorized acts of his agent. This authority'may be proved by.the instrument which creates it; and beyond the terms of the instrument, or of the verbal commission, it may be shown that the principal has held the agent out to the world in other instances as having án •authority which will embrace the particular act in question. I know of no other mode in which a controverted power can be established. -But in whichever way this is done, it cannot be limited by secret instructions of the principal on the one hand, nor can it be enlarged by the unauthorized representation pf the agent on the other. These principles, I think, are elementary. .....

But suppose an agent is authorized by the terms of his appointment to enter into an engagemént 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 and hold the principal, 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. There the agent was authorized to draw and endorse notes in the name and for the benefit of his principal. He drew various notes, which in their ap

The distinction is not always attended to between the apparent powers of an agent and his acts apparently but not really within the power. An agent’s apparent powers are those which are conferred by the terms of his appointment, notwithstanding secret instructions, or those with

Cases may often arise which to a casual observation might appear to be within the principles stated, but which really are not. Thus an agent may be authorized to give notes for his principal in order to raise money to be used in the business of the latter. A third person may inspect the power, advance the money in good faith, and the agent appropriate it to his own use. In such a case, I should hold the principal responsible, not because the act of the agent appeared to be within the authority, but because the authority actually included the transaction. A power given to an agent to borrow money, upon notes or otherwise, implies that the money may be paid to him, and so the whole transaction is strictly and literally authorized. But suppose the power to give the note is on its face conditional. It then has no existence until the condition has been fulfilled. To a confiding dealer who believes that the agent would not do an improper act, the note will certainly carry the appearance of due authority; hut if it turns out that the conditions had not occurred on which the exercise of the power depended, then he has trusted to the representation of the agent, and, I think, must look to him alone. As

Connected with the observations last made, it is proper, though perhaps scarcely necessary, to notice another doctrine which has been much urged, under some disguise it is true, but in effect, that the very employment of an agent to situations of trust and confidence is a recommendation and certificate of his character, so that if he deceives others to their injury, the principal must make compensation. If by this it were only meant that where the agent is guilty of fraud or deceit in doing his employer’s business, the latter is responsible, the doctrine is entirely true. (Story’s Agency, § 452, and cases cited.) But in all its other aspects and forms of statement, the doctrine is unsound. If the agent, in dealing for his principal and within the power, commits a fraud, the principal is liable; not upon the ground that he holds the agent out to the world as an honest man, but because the fraud enters into and is a part of the authorized transaction. If the agent deals dishonestly for his principal it is in a just sense a wrong done by the principal himself although unknown and unauthorized. But the dealing itself must be authorized. If the transaction is not within the power, then, as the dealing is imputed to the agent personally, so, necessarily, are all the circumstances attending it, and all the means and instrumentalities by which the fraud is consummated. The power of the agent to charge his principal by doing a wrong must be traced directly to his authority, and it cannot be referred to an increased facility for imposing on the credulity of others, derived incidentally from his appointment to a situation of trust. If the fraud consists in an over representation of his power to act, by which others are drawn into dealing with him, then it is a self-evident proposition that a man can no more enlarge than he can create a power by such a representation.

But such were not the relations between Schuyler and the corporation; nor was he held out to the world as standing in such relations. He 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 conditions precedent, of a transfer on the hooks and a surrender of a previous certificate for the same stock. The authority which he assumed to exercise, therefore, confessedly never had an. actual existence; and within the principles which have been stated it never had an apparent existence. His appointment, in its very terms, which- all dealers are supposed to have been acquainted with, did not include his acts, and there is no pretence that the authority it conferred was ever enlarged by any holding out or recognition of such acts. All that can be said in behalf of the plaintiffs is, that the certificate itself implied a representation or assurance that it was issued within the power; in other words, that the conditions on which the power depended had been fulfilled. Even this representation, when closely scanned, was no more than an inference of the dealer that, as the agent had ■ no authority to certify except under conditions, those had been in fact performed. But the

If any one of the main conclusions at which I have arrived in this discussion is sound, there is no remaining ground on which the action can be sustained. Viewing the certificate in question as unaffected by the want of power in the corporation to create or recognize the stock it appears to represent, we have seen that it was void in its origin, because issued without consideration and in fraud of the defendant’s rights. We have also seen that those objections were equally fatal to its validity in the hands of the plaintiffs, as the assignees of the first holder. It has been further shown that the instrument imposed no obligar tion or duty on the defendant, upon the more special ground that the act of Schuyler, in issuing it, was not within any authority which it ever, in fact or in pretence, conferred upon him as its agent; and, if this objection is sound, the further observation has been made, and I doubt not assented to, that it cannot be overcome by allowing to the certificate the transferable quality and immunity which oelong to negotiable paper. Unless these conclusions can

' The notion of estoppel, which has been advanced in the argument, not as a distinct ground of liability, but blended’ with other principles, deserves, by itself, very little con sideration. Every corporate as well as private obligation or instrument undoubtedly contains an express or implied representation of facts, upon the faith of which innocent parties may deal. If it be a promissory note, value received is a fact expressed or implied; and although the fact may not be so, the maker is bound to pay the obligation in the nands of an innocent third party, not upon any theory of estoppel, but upon principles peculiar to that species of security. Where the instrument is not negotiable, the maker may, as I have heretofore observed, be affected by an estoppel in pais, if it be transferred upon his representation of its validity, and the dealer acts upon that representation. But to say that he is estopped by the instrument itself, simply because he made it and a third party has dealt with it, is only asserting in another form that fraud, mistake, duress, illegality, want of consideration or want of authority, when the act is one of pretended agency, is no defence. This would subvert the settled maxim that the assignee or purchaser takes subject to all equities between the original parties. It would also subvert another maxim which belongs to the doctrine of estoppel itself. That maxim is, that an admission or representation is no estoppel in favor of a stranger to whom it is not made, and whose conduct it was not expressly designed to influence. ( 3 Johns. Cas., 101 ; 6 Hill, 534 ; 3 id., 215; 7 Barb., 644 .) The result is, that before the principles of estoppel can be applied to this controversy, it must be asserted and proved that a certificate of stock, differing from all other modes and forms of obligation used in the transactions of men, contains within itself a representation or admission of facts which any dealer, however remote from the original parties,

As I have once mentioned, a theory of the action prominently urged upon the argument assumed that the corporation had no power to create more than the original three millions of stock, or to issue certificates for a greater amount. That this is so, I think I have demonstrated. But assuming these premises, it was then insisted that the certificate in question was therefore false, and that the action would lie on this ground. The essential principles of the case in this view would be, that as the defendant, for want of corporate power, cannot recognize the certificate as the true representive of stock, and so respond to the engagement which it implies, it must make compensation in damages for the injury sustained in consequence of the representation regarded as false.

Now, by presenting the falsehood alleged in the certificate and the consequent injury as the ground of the action, a plausible appearance is given to this view of the case. But it is essentially illogical. The falsehood, viewed in this aspect alone, really consists in a want of corporate power to enter into the engagement; and that, instead of being a cause of the action, is a serious difficulty to be removed. If an agent, irrespective of all questions arising out of the special limitations of his own authority, as derived from the board of directors, cannot bind a corporation, or affect the rights of its genuine stockholders by the terms of an over-issued certificate, there is great difficulty in affirming that the result may be indirectly reached by thus changing the ground of liability. If a corporation has received the benefit of its agent’s misrepresentation or fraud in a transaction unauthorized by its charter, I will not say there is no mode of redress. I am not an advocate of the doctrine that a corporation cannot be responsible for a wrong, or may not

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stockholders of this corporation are in no wise connected with the misconduct of their agent, nor have they been benefited by it. It is true they trusted him, but it is not alleged that they had not ample reason for so doing. Conceding that Schuyler’s authority, derived from his appointment as transfer agent by the board of directors, might apparently include his fraudulent acts, the difficulty is only, removed one step further back. The directors themselves were not the corporation, but its agents only. It may be granted that they wielded all the corporate powers, but among those powers the one in question is nowhere to be found. It did not even have apparent existence. The argument concedes this absolute want of power, and I have yet to discover the principle on which the genuine stockholders can be made liable in any form for an attempt to exercise it, by any of their agents, for their own individual benefit.

But such a point need not be determined. Before reaching this ultimate question, the action fails upon the special grounds which have been examined at large. Conceding to the defendant the power, if it so elect, to recognize and perform the obligation under which its agent attempted to place it, then, if it is not liable upon its refusal to do so for the reasons which have been stated, it is extremely plain it is not if the power to do so is -wanting. To say that its agent’s false representation of stock which did not and could not exist can render it liable to dealers in the spurious certificates, when it would not be bound to recognize the same dealers if the stock in fact existed, and the representation therefore true, involves a fallacy so-evident that it needs only to be suggested. This is the error in the argument which places the

In concluding, it is proper to say that the case of The Bank of Kentucky v. The Schuylkill Bank (1 Parsons’ Select Eq. Cases, 180) has not- been overlooked. That case has been much relied on as an authority in point upon the general question before us, and it is certainly true that in the opinion delivered on pronouncing the judgment some principles were stated scarcely reconcilable with the conclusion to which we have come. In that case, however, the suit was brought by the corporation against its own fraudulent agent, after it had recognized the spurious issue under an enabling act of the legislature; and in many essential circumstances the controversy differed from the present one. After a careful consideration, we are unable to yield to that decision any controlling influence upon the question now to be determined.

The judgment should be reversed and a new trial ordered.

All the judges, except Selden, J., who took no part in the decision, were in favor of reversing the judgment and granting a new trial.

Judgment accordingly.