New York Iron Mine vs First National Bank

Also, please see the “Headnotes” as seen at https://cite.case.law/mich/39/644/

a. The NYIM was a corporation featuring only 2 corporators: Tilden and Wetmore.
b. Wetmore was empowered as a general agent of the corporation and did generally all
affairs of the corporation, and was accustomed to indorse the company’s paper for
collection or discount. In doing issuing such papers, he would draw on Tilden’s account.
c. At some point, when the business was not doing well, Wetmore issued 3 notes in the
corporate name (for 5000$ ea) in favor of a partnership to which he was a partner
(Wetmore & Co). The notes eventually reached the holder (who presumably - wala sa
case e – encashed the notes to the partnership’s favor)
d. The holder then filed suit for the same (the NYIM was doing bad at this time); but NYIM
defended that Wetmore had no authority to issue the said notes, thus making the
holder NOT a holder in good faith.
e. The holder further countered that as Wetmore was appointed a general agent, unto him
was conferred to power to make the notes in question. The holder relied on the
following arguments:
i. The existence of implied authority of the general agent
ii. As issuance of notes was in the ordinary course of business of NYIM, their
clients could be considered in good faith in their dealings with NYIM
iii. (Relevant) the defendant corporation is chargeable with negligence in suffering
Wetmore to manage the business independently as he did for so long a period,
and that this negligence was so gross and so likely to mislead as to call for the
application of the familiar and very just principle, that where one of two
innocent parties must suffer from the dishonesty of a third, that one shall bear
the loss who by his negligence has enabled the third to occasion it.
f. The Court disagreed with the Holder and ruled for NYIM, explaining that:
i. The power to use promissory notes is not a power necessarily incident to the
conduct of the business of mining
ii. There was no assent from Mr Tilden (contrary to the Holder’s claim); while he
eventually knew of the practice of Wetmore, he only knew of it not too long
before the suit was instituted by the Holder; his knowledge here, therefore,
does not amount to his assent to the situation. Di lang siya nabigyan pa ng oras
na magreklamo.
iii. (As to the relevant contention of the holder) Any person may be said to put
another in position to commit a fraud when he confers upon him any authority
which' is susceptible of abuse to the detriment of others; but if the authority is
one with which it is proper for one man to clothe another, negligence cannot be
imputed to the mere act of giving it. There is thus neglect of duty on the part of
Tilden – as to w/n he should pay for this is discussed in item H
iv. It is apparent that Wetmore issued the notes not in the interest of NYIM. In fact,
it could be argued that the issuance was in his personal interest.
g. But the plaintiff is not without recourse: The plaintiff is therefore entitled to all that
can be claimed from Mr. Wetmore’s course of business as general agent, so far as it
 was known to Mr. Tilden. Now Mr. Tilden knew that Mr. Wetmore was managing the
business as general agent, with little or no supervision by any one; but it would be
very dangerous to hold that this should charge him with Mr. Wetmore’s frauds.
h. (Also relevant) It being established that Tilden has been negligent in giving Wetmore
such unbounded power, can FNB claim? – Not necessarily.
i. A fair statement of the case for the plaintiff is that both parties have been
overtrustful in their dealings with Mr. Wetmore; the defendant not more so
than the plaintiff. Unfortunately for the plaintiff, the consequences of the
overtrust have fallen upon its shoulders.
ii. there was that on the face of these notes to, suggest special caution; they were
made by Mr. Wetmore in one capacity to himself and his associate in another
capacity, and they indicated, or at least suggested an interest on his part in
making them which was adverse to the interest of his principal.
iii. The notes also bore the largest interest admissible under our statutes; and this
fact, in the case of a corporation whose credit was such that its paper would be
readily discounted, and having its office in the city of New York, might well have
arrested attention.
iv. We do not think that when the bank discounted such paper without inquiry into
the authority of Wetmore, it gave such evidence of prudence and
circumspection as placed it in position to complain of Mr. Tilden’s course of
business as negligent.