The checks payable to the Estate of Anna Hoffman, were as the majority correctly states, clearly not bearer instruments, but were payable to the legal representative of decedent. The payee was the administratrix of the estate, the present plaintiff, and the checks could be negotiated only after endorsement by her (Negotiable Instruments Law of May 16, 1901, P. L. 194, Sec. 30, Sec. 191), or by her duly authorized agent (Sec. 19). She had made William J. Ballen her agent under written power of attorney to endorse checks payable to her as administratrixand to deposit the proceeds in his attorney's *Page 91 account. The undoubted purpose of this authorization was to enable Ballen to collect moneys due the estate and deposit them under a fiduciary label. His right to negotiate such checks was not absolute, but was conditioned upon his depositing the proceeds in his attorney's account. Letters of attorney are to be construed strictly, and when special powers are given, they are not to be enlarged unless clearly so intended:Culbertson v. Cook, 308 Pa. 557, 562; Schenker v. Indem. Ins.Co. of N. A., 340 Pa. 81, 84. Ballen, however, endorsed the checks in question and deposited them to his personal credit, which he was without any authority to do.
Section 23 of the Negotiable Instruments Law provides that a signature which is forged or made without the authority of the person whose signature it purports to be is wholly inoperative.1 An unauthorized endorsement is in legal effect the same as a forgery (Water Co. v. Bank, 123 Tenn. 364,131 S.W. 447), and no title to the instrument passes by reason of such an endorsement (Lindsley v. First Nat. Bank, 325 Pa. 393). InTrust Co. v. Subscribers, Etc., 150 Md. 470, 133 A. 319, where a bank honored checks payable to an insurance company and permitted the latter's agent to deposit them in his personal account, it was held that the bank was liable to the payee insurance company. In Gustin-Bacon Co. v. First Nat. Bank,306 Ill. 179, 137 N.E. 793, one Riddle, a clerk, endorsed checks payable to his employers with the partnership name and then with his own name, and defendant bank credited the proceeds to his personal account. In holding the bank liable to the payees of the check, the Supreme Court of Illinois said (p. 183): "The *Page 92 defendant took the risk of the authority of Riddle to indorse the check and appropriate the proceeds . . . The defendant dealt with Riddle at its peril, and was bound to ascertain not only the fact of his agency but the extent of his authority, and there was an entire failure to make proof that he had any authority. Without any evidence whatever of authority of Riddle the defendant accepted and collected the check and gave the proceeds to Riddle. There was no defense to the suit."
These decisions, decided under the Uniform Negotiable Instruments Law, are in accord with the cardinal principle of the law of agency that one dealing with an agent is, in the absence of greater apparent authority, bound by the terms of his actual authority. In the instant case Ballen had no apparent authority at all,2 and his actual authority was not sufficiently broad to hold his principal bound by what he did. It follows that no title to the checks passed to the bank, which on receiving possession of them was guilty of a conversion. This much is conceded by the majority, as appears from the statement in the opinion that when the bank accepted the deposit to Ballen's personal credit, it took the risk he might not have been authorized to endorse the checks, and "if no such authorization had existed, the bank clearly would have been liable for paying out funds on the basis of an unauthorized endorsement of the payee's name." The endorsement being in fact unauthorized, the bank should be held liable.
The majority, however, finds in section 9 of the Uniform Fiduciaries Act a means of excusing defendant. *Page 93 Under that section, a bank which permits a fiduciary to deposit to his personal credit checks which are payable to his principal is not liable to the principal if the fiduciary is empowered to endorse such checks, unless, inter alia, the bank has knowledge of such facts that its action in receiving the deposit amounts to bad faith. As was pointed out by Mr. Justice STERN in Davis v. Pennsylvania Co., Etc., 337 Pa. 456, 460, section 9 of this legislation "lays down the same test of responsibility in this respect [bad faith] that section 56 of the Negotiable Instruments Law of 1901, P. L. 194, does in regard to notice of an infirmity in a negotiable instrument or defect in the title of the person negotiating it." Before the bank may bring itself within the statutory protection, two conditions must be fulfilled: (1) the fiduciary must be empowered to endorse; and (2) there must be an absence of knowledge on the part of the bank of any fact which would make it guilty of bad faith. Neither of these conditions has been met in the instant case. Ballen was not empowered to endorse the checks; he was only so empowered if he deposited them in his attorney's account. The sole purpose of the authorization to endorse was to enable him to make deposits under a fiduciary label. To ignore this limitation upon the power, as the majority does when it says that he comes within the literal wording of section 9 because he could under some circumstances endorse, is to indulge in unrealistic scholastic reasoning, and plainly and flagrantly thwarts the intention of the giver of the power. But there is even less ground upon which to base a fulfillment of the second condition, which is not even mentioned in the majority's opinion. Ballen presented two checks not endorsed by the payee named on their face. In justification of his right to endorse he showed only naked possession; he appeared before the bank with no better credentials than those possessed by a thief. For the bank under such circumstances to have granted his request to honor the checks and pay him the money certainly amounted *Page 94 to bad faith. It was never the intention of the legislature when it enacted section 9 of the Uniform Fiduciaries Act to free the bank of defenses arising from an infirmity of title appearing on the face of the instrument. This factor differentiates the instant case from that of Safe Deposit Trust Co. v. Bank, 194 Pa. 334, relied on by the majority. There the check was made out to the administrator and endorsed by him as administrator. He had apparent, if not actual, authority to do everything he did up to the point of drawing out the money for his own use, and the bank could not reasonably be expected to divine that when he deposited the proceeds to his personal account he intended later to embezzle them. It was to prevent the assertion of such secret equities, or those difficult of ascertainment, that section 9 was enacted, not to enable one without legal title to create legal title in another, as a thief may do in the case of a bearer instrument. In the present case the endorsement was on its face without authority, and the bank therefore honored it at its peril. For its misplaced confidence resulting in injury to plaintiff it should be responsible.
The point here at issue was passed upon in Main Belting Co.v. Corn Ex. Bank, 325 Pa. 168. In that case the treasurer of plaintiff company, Smith, drew in plaintiff's name checks on defendant bank payable to that bank, and other checks on another bank also payable to defendant, and received cash for them from defendant's teller. They were endorsed neither by defendant nor by Smith. As treasurer, Smith was authorized in writing to deposit checks drawn on other banks to plaintiff's order, and to make payments from the funds on deposit with defendant "upon and according to the checks of plaintiff", signed by himself as treasurer. In holding that the bank was not warranted in permitting Smith to nullify this written order to the bank by substituting his own oral demand to be paid cash, we said, speaking through Mr. Justice LINN (p. 171): "The contract between the bank and plaintiff required the bank to pay *Page 95 plaintiff's checks to the payee designated by plaintiff and to no one else, save on the order of the payee: United SecurityLife Insurance Co. v. Central National Bank, 185 Pa. 586,40 A. 97, and cases following it. The defendant, who was the payee, could therefore apply the proceeds only for the purposes designated by the drawer." In Stroudsb'g Security Trust Co.Case, 145 Pa. Super. 44, the treasurer of a corporation pledged to defendant bank as security for his individual obligation certain negotiable bonds payable to bearer, which the bank knew belonged to the corporation. There being no evidence of the treasurer's authority to pledge his principal's property, it was held that the bank's acceptance of the bonds under these circumstances amounted to bad faith as a matter of law.
In the instant case checks were endorsed by Ballen who was not the payee. The infirmity of his title was known to defendant, being patent upon the face of the instruments, and defendant in accepting the checks without ascertaining the source and extent of his power to endorse was certainly chargeable with bad faith. Therefore it does not come within the protection afforded by section 9 of the Uniform Fiduciaries Act. The consequence of the majority's holding to the contrary is to enable an agent with a limited power of attorney to transform it into a general one, and thereby commit a fraud upon his principal which the latter may be powerless to redress, and it places a bank which makes no endeavor to learn the terms of the power in a better position than one which ascertains its contents.
For these reasons I would affirm the court below in entering judgment for plaintiff.
1 "When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority."
2 Restatement of Agency, Section 177, Comment (a):
"The possession of a document, unless it is endorsed in blank or unless it is a negotiable instrument payable to bearer, does not create in a holder who is not an endorsee apparent authority to transfer it or to collect a claim which it represents. Furthermore, the fact that the possessor is authorized to do something with reference to the document, such as the collection of interest upon a promissory note, does not give him power to deal with the instrument in an unauthorized manner."