servants.

SALEM BANK vs. GLOUCESTER BANK.

That they are liable for such negligence, while acting within the scope of their employment, it is not necessary, in our view of the questions before the Court, to deny.

Another point, to which many authorities have been produced, is that corporations, as well as individuals, are answerable for the negligence of their officers. How far, and in what cases they may be liable, we do not consider it material to consider. It can only be, however, while acting strictly within the scope of their authority derived from some statute, or vote, or act of the corporation. In the case of Gray vs. The Portland Bank, the directors acted under a vote of the stockholders. In Yarborough vs. The Bank of England, which was trover for certain bills, an authority from the bank to detain the bills was presumed to be proved. In Riddle vs. The Proprietors of the Locks, &c., on Merrimack River, there was a breach of a corporate duty, enjoined in the act of incorporation. "If an injury happens to a man in his property by the neglect of another; yet if by law he is not obliged to be [* 20 ] *more careful, no action will lie" (40). The cashier of the Gloucester bank was not required by any law, or by-law, or vote, to keep the blank and unfinished paper in any particular manner or place. The practice of other banks cannot be binding on this. Why should a corporation be responsible, when an individual would not be? Suppose the blank promissory notes of a merchant had been stolen in the same manner, and his name forged, would he be liable for not keeping them more securely?

The plaintiffs contend that, as the negligence of the bank was the cause of the notes being in circulation, they ought not now to be permitted to deny them; in other words, that their negligence amounts to a promise. But how can negligence be the foundation of an action of assumpsit for the injury sustained? How can a tort be converted into a contract?

There was no such negligence in this case as should make the corporation liable in any form of action. The paper was always securely locked up, and its being kept in the desk so long is well explained by circumstances. The bank was not bound to keep a register of the bills issued. The charter prescribes no such duty. Where such a register is kept, it is for the convenience and security of the bank only. The defendants not keeping a register has been no injury to the plaintiffs. It would not have prevented the theft, or the forgery; but would only have been a readier mode of determining what the jury have decided on other evidence. But

(40) Vide Bac. Abr. Action on the case, C.

SALEM BANK vs. GLOUCESTER BANK.

if the bank is required by law to keep a register, no particular form is prescribed, and a register has been kept substantially in the Gloucester bank from the beginning.

*

The declaration in the action for negligence does not set forth a sufficient cause of action; because the alleged carelessness of the cashier was no direct injury to the plaintiffs. The cause of the injury was not the manner of keeping the bills, or the not keeping a register, but the felony of others. The exposure of the bills could have done no injury, except for the theft of [ 21 ] those who stole them, and the forgery of those who inserted the name of the president. They could not have obtained circulation in the state in which they were left in the desk; and to say that because they were kept in an insecure place, and some one stole them and forged the president's name, therefore the corporation is liable, is an inference not warranted by any case. The injury is a remote and disconnected consequence, not an effect of the alleged negligence. To be the foundation of an action, the negligence must be the cause of the injury complained of (41).

The instances cited to illustrate this action, are the keeping of a fire carelessly, so that a neighbor's house is burned; the shooting of a gun in the middle of a town, by means of which a horse starts and throws his rider, &c., where the injury, although not the immediate, is yet the direct consequence of the act. An action will not lie for an incidental damage. Suppose a man leaves his loaded gun exposed, and another takes it and wounds a third, would an action lie against the owner? Yet many arguments urged in the present case would apply to that. A man who keeps his gun is bound to keep it as others usually do. A sufficient answer would be, that the injury was caused by the intermediate act of others.

3. The conduct of the defendants does not amount to an adoption of the notes.

A ratification or adoption of an act, by which a person was not originally bound, must be with a knowledge of all the circumstances. In this case, when Mr. Russell presented the bills, if the directors thought some of them forged, and others not, but were uncertain which, and they postponed the payment of some, being uncertain whether forged or not, they cannot be held to the payment of the bills forged, on the ground of their adoption. They ought to have known the facts, whether forged or not. But as they only knew that counterfeit bills were in circulation, and not the particulars

(41) 3 Wood Lectures, 203.

SALEM BANK vs. GLOUCESTER BANK.

their not denying absolutely to pay them cannot amount to an adoption.

[ * 22 ] *There was nothing on the part of the directors and cashier, when the bills were presented, which should bind the corporation by adoption. Their conduct is explained by the circumstances stated by Mr. Russell. Why did they intimate something about counterfeit notes? Why did they think it prudent to delay payment? Why did they separate the new bills from the old? Because they knew that some forgeries were in circulation, and they suspended payment for the purpose of obtaining further information. Nothing could warrant an expectation in the plaintiff's that the notes would be paid, if counterfeit, but the contrary. When presented the second time, the directors and cashier refused to look at them, and soon after public notice was given that they would not be paid. If the plaintiffs have suffered from delay, it is their own fault. But the notes were taken in the usual course of business, and it could never have been ascertained from whom they were received.

The bank have not adopted these bills by issuing and paying others of the same description. Only one is proved to have been issued from the bank, and that has not been paid. It was issued inadvertently, and it would be a monstrous inference that the bank had adopted all such notes. The principle is, that where a person affirms the act of another repeatedly, as by paying forged acceptances, there he gives an authority to use his name. was the ground of the decision in Barber vs. Gingell. defendant had paid several bills forged by Taylor, who was his son, and connected with him in business. These acts gave a public credit to the bills drawn by Gingell.

*

*

This

The

The want of a register has given no credit to the notes in the case at bar, and cannot make the bank responsible for forged notes by way of adoption. Is it possible to infer that the bank undertook to pay all notes purporting to be theirs? In Price vs. Neale, by payment of the first bill, credit was given to the second, which was negotiated to the same party to whom the first was paid. [ 23] But the great distinction is, that the bill was actually paid, and the action was brought to recover the money back; and, therefore, the rule, Melior est conditio possidentis, applied Smith vs. Mercer was decided on the ground that, by the acts of the plaintiff, the defendant was prejudiced. In both these cases the plaintiff was the party who had paid, and upon whom the negligence, any, rested; and the Court decided that the loss should not be shift ed. In the last, Chamber, J., dissented, and considered the case of Price vs. Neale to be repudiated by the case of Jones vs. Hyde & Al

if

SALEM BANK vs. GLOUCESTER BANK.

No action can be maintained on the notes offered in evidence at the trial, without proof that they were issued by the bank as their notes, and with a view to adopt them as such. But there was no evidence that these notes, or either of them, were ever issued by the bank. The principal reason of the decision in the case of Wyman vs. The Hallowell and Augusta Bank (42), was the want of such proof. The chief justice says, "We are satisfied that no action can be maintained without proof that the bills were issued by the new corporation as their own notes, with a view to adopt them as such, instead of issuing notes of their own.""It would be inadmissible that the new bank should be made responsible for all the notes of the old company, because they had adopted and passed some of them as their own." That was a much stronger case for the plaintiffs than the present.

But if an action could be maintained, we doubt whether it could be on the notes themselves, and whether the party suing must not be the person who received them at the bank. There is no privity between the bank and a third person, to whom the notes were passed.

The corporation would not be liable for these forged notes, even if the directors had adopted them, and promised to pay them. The act of incorporation directs the mode in which notes shall be made, to be binding on the bank; and a body corporate can only act in the manner prescribed by the act creating it. A corporation is a mere * I creature of the law. It derives [ 24 ] from that all its powers, and it is subject only to the duties therein prescribed. A bank note is a contract between the corporation and the holder; but in what manner it shall be made to be binding is contained in the act of incorporation; and the corporation is bound to pay no other. The authority of the officers is limited by that, and the by-laws and votes regularly enacted and passed under it.

No injury can arise from this principle. These acts of incorporation are public laws. Public notice is thus given of the authority of the directors, that they are agents under a limited power, and that the corporations are not bound by any act of theirs, not within the scope of their authority.

By the common law, the contracts of corporations can be proved only by instruments under their seals. In modern times, other modes have been prescribed in acts of incorporation. In the act incorporating the defendants, it is provided, "that all bills issued by the bank, and signed by the president, shall be binding on the

(42) 14 Mass. Rep. 58

SALEM BANK vs. GLOUCESTER Bank.

corporation." This signature is a substitute for a seal, and is as necessary as that would be at common law. The case of Wuman vs. The Hallowell and Augusta Bank goes far to establish these principles.

The case of Head & Al. vs. The Providence Insurance Company (43) is much in point. It was an action upon two policies of insurance, and the question was, whether one of the policies was vacated by a subsequent agreement. This depended on the question whether an unsigned memorandum, delivered by the secretary by order of the directors, was a corporate act, obligatory on the company. Their manner of acting is thus defined in the act of incorporation. "All policies of assurance, and all other instruments, made and signed by the president of the said company, or any officer thereof, according to the by-laws or regulations of the said company, or of their board of [25] directors, shall be good and effectual in law, to *bind and oblige the said company to the performance thereof." Chief Justice Marshall observes, "that a contract, varying a policy, is as much an instrument as the policy itself, and therefore can only be executed in the manner prescribed by law. A contract to cancel it, to become the act of the company, must be executed according to the forms in which by law they are enabled to act."

"It appears to the Court that an act, not performed according to the requisites of the law, cannot be considered as the act of the company, in a case relating to the formation or dissolution of a policy."

How then can an act of the directors and cashier of a bank, not performed according to the requisites of the law, be considered as the act of the corporation, upon a subject, on which the statute contains express provisions?

The same principles are recognized in the case of Beatty vs. The Marine Insurance Company (44). That case decides that a body corporate can act only in the mode prescribed by the law creating such corporation.

PARKER, C. J., delivered the opinion of the Court (45).

The first objection made to the verdict in this case is, that as the notes declared upon were made upon paper belonging to the Gloucester bank, were filled up and subscribed by the cashier, and were in all respects perfect, except in the signature of the president, and as they had got into circulation by means of the carelessness of the officers of the bank, they ought to be

(44) 2 Johns 109.

(43) 2 Cranch. 127. (45) Putnam, J., did not sit in the hearing or determination of this action, being interested in the event.