Gray, J.
It is the contention of the plaintiff that the defendant is liable to it for the loss sustained from the making of a loan upon spurious certificates of -shares. As they were fraudulently issued by one of its officers, it is responsible, it is claimed, for his wrongful act, within the rule of law established by the decision in the case of
New York & New Haven R. R. Co.
v.
Schuyler
(34 N. Y. 30, 49). The argument maintains that, as the defendant had power to issue such certificates and as its charter did not exempt it from liability for the acts of its agents, if they abused their authority, it must be responsible for any injury resulting. The argument rests itself upon the principle that when an agent is clothed with power to do an act, upon the existence of some extrinsic fact, necessarily and peculiarly, within his knowledge, and of the existence of which fact the act is a representation, as to a third person dealing in good faith with the agent, the defendant is precluded, or estopped, from denying its truth to his prejudice. The law of estoppel is, thus, invoked in aid of the plaintiff’s case and whether it is available turns upon a consideration of the powers and duties, with which the statutes have invested the defendant, and of the nature of the transaction with the agent. Its application is involved with the question whether, if the certificates are non-negotiable instruments, the plaintiff could claim exemption from the operation of the rule governing the rights of an assignee of such. The record discloses an issue of certificates of shares by-the defendant, each of which, in terms, was made
“
transferable only on the books of the Cemetery Association upon the surrender of the certificate.” What the
warrant for their issue, what they evidenced and what rights, if any, passed to an assignee, differing from, or independent of, his assignor’s, are questions to be answered by a reference to the statutes and to the rules of law governing dealings in instruments of a non-negotiable character. That these share certificates are, inherently, non-negotiable instruments is conceded and, within the general rule, that a non-negotiable instrument is always subject to the defenses existing between the original parties, the plaintiff should occupy no better position towards the defendant than did its assignor, Knevals, the defaulting officer.
(Bush
v.
Lathrop,
22 N. Y. 535;
Fairbanks
v.
Sargent,
104 ib. 108, 116.) But it is claimed that, conceding the certificates to be non-negotiable, nevertheless, the defendant sought to give them a degree of negotiability and is estopped to deny their authenticity. Is the plaintiff’s case taken out of the operation of the general rule as to that class of instruments and does it fall within that which has been applied to the issue of ordinary certificates of stock by stock corporations, organized for purposes of business gain and profit, and which was asserted in the
Schuyler
case
%
If we hold that it does, then I think it to be evident that we shall be extending, unduly, the doctrine of liability asserted in that case; which decided the responsibility of a railroad company for the damages caused by the acts of Schuyler, its president and transfer agent, in fraudulently issuing and transferring certificates of stock in excess of its authorized capital stock. The corporation was held to be “estopped, by the facts and circumstances of the case, to deny Schuyler’s authority to do the acts.” It was considered that the responsibility of the corporation extended, beyond its shareholders, “ to the commercial community, whose confidence and trade the plaintiff invited ”, and that, as its charter “ created a private trading body having in view pecuniary gains and advantages,” there were duties owing to the public, who might become dealers therewith. The principle of estoppel
in pais
was applied in that case to negative the right of the company to deny the implied authority of its agent to do the acts occasioning the
injury and its application was determined by the consideration of the company’s attitude and duties to the commercial community, whose confidence and dealings in the stock had been invited and facilitated.
This defendant, in no sense, occupies, or can occupy, the position towards the commercial community, which a railroad, or any other corporate body organized for purposes of commercial dealings, may. It is a membership corporation; which is to say, it is not a stock corporation, nor one organized for pecuniary profit, but is one for the more effective accomplishment of some object of mutual interest: in this case, the purchasing of property as a place for the burial of the dead, for the use of a number of individuals, or of their grantees, and the securing of a permanent management, through the instrumentality of trustees of their own appointment.
(Matter of Deansville Cem. Association,
66 N.
Y.
at p. 573.) The defendant was organized as a cemetery association, in December, 1863, under chapter 133 of the Laws of 1847 and amendatory statutes. Under these statutes, such associations were permitted to enter into contracts with the owners of lands for their purchase and therein to agree to pay for the same by the appropriation of not exceeding one half of the proceeds of the future sale- of lots. They provided that the residue of the proceeds were to be used for preserving, improving and embellishing the cemetery grounds and for incidental expenses. They authorized the association to issue corporate “ certificates of indebtedness ” to pay for the land, which were “ to be deemed personal property” and to be “ transferable by delivery.” Twice in each year the trustees were to apply the proceeds of sales upon these certificates. It was, also, provided that
“
no other, or greater, liability shall thereby be imposed upon either Association, or trustees ”, than was necessary to enforce the faithful application of the proceeds of sales to the redemption of the certificates. In this condition of the law, the defendant, in 1864, contracted with a number of landowners, who had conveyed lands to it for cemetery purposes; whereby, among other tilings, it agreed to pay, as the purchase price thereof,
“
one-half the pro
ceeds of all sales of lots and plots made from the said lands ” ; that “ the said half of said proceeds should be divided into 12,500 equal shares” ; that these shares should be distributed among the vendors of the land in certain stated proportions, and that “the half of said proceeds should be divided among the shareholders in proportion to their several interests ”, quarter-annually. Pursuant to this agreement, certificates of shares were issued, in the form of the certificates in question in this case. Subsequent legislation continued the restriction upon the right of the association to apply in excess of one-half of the proceeds of sales to the payment for lands and, at no time, relieved it from the obligation of applying the residue of the proceeds towards the improvement, etc., of the cemetery grounds. In 1879, it may be noted, (Laws of 1879, chap. 107), it was provided that certificates of indebtedness
might be chwnged
into certificates of stock, of a given tenor, and this is the first statutory provision, relating to the issuance of stock certificates. As to them, it was, further, provided that no other, or greater, liability should be construed to have been created by the issuance of such stock, “ than may be necessary to enforce the faithful application of the surplus, or net, receipts of the Cemetery to and among the holders of said stock in manner aforesaid.” Permission to issue certificates of indebtedness for lands purchased for cemetery purposes is . given in the general “ Membership Corporation Act ” of 1895, (Laws 1895, chap. 559), and provision was made for regulating the issue and transfer of certificates of stock, theretofore issued in
conversion of an
indebtedness,
or of certificates of
indebtedness, and fixing the rights of holders to share in the receipts. The limitation upon the creation of any liability thereby was repeated, as hereinbefore quoted, and the act concludes with the provision that “ a cemetery, which has heretofore issued such certificates of stock is a membership corporation and not a stock corporation.” The certificates issued by the defendant were made to carry out its agreement in the contract and there was never any change, or conversion, into the certificates of stock, which later statutes author
ized. It would appear, therefore, that neither statute, nor contract, conferred any power, or right, to issue “ certificates of stock” and that the certificates, which were issued under the contract, can only be regarded as certificates of indebtedness, entitled to the application, at periodical intervals, of one-half of the proceeds of future sales of lots.
It thus appears from a consideration of the statutory provisions, which authorized the incorporation of cemetery associations and which regulated their functions and powers, that they might acquire lands for cemetery purposes; that they might fund their indebtedness for the consideration of the grant in certificates, which imposed a corporate obligation to apply thereupon half of the proceeds of sales, and that they must reserve the other half of the proceeds for cemetery purposes. It is evident that the legislative scheme was two-fold. It enabled such associations to acquire land and to provide for a future and conditional payment of the price, and it secured to the owners of burial plots the creation and the application of a fund for the perpetual preservation, improvement and embellishment of the grounds. In legal effect, the certificates issued by the defendant were promises to pay money ; differing, essentially, from certificates of stock, which a stock corporation issues. As the payment was contingent and indefinite, and as the certificates were transferable only upon the books of the association, they were, of course, non-negotiable. It was not within the corporate powers of such associations to obligate themselves absolutely with respect to the proceeds of sales, or otherwise than by the certificates of indebtedness of the statute. They could not issue certificates of stock, as might stock corporations, for they had no capital stock. They were under restrictions, which entered into the fundamental law of their being. Authority to do acts, which might increase the corporate liabilities, could, alone, be conferred by the legislature of the state and the exercise of an unauthorized power on the part of their officers, honestly, or fraudulently, would be illegal and void. The powers of the corporation could not rise beyond the legislative source and the
wise scheme of the legislature, for a restriction of the corporate liability, by limiting what the corporation might do, and for the maintenance of a fund for the benefit of lot owners, could not be defeated by acts in excess of powers conferred. It is impossible for such corporations, of their own action, to enlarge their privileges and powers by assuming those of an ordinary stock corporation, whose object is the acquisition of profits for distribution among its members. The legislature, in conferring upon associations of that special character, special privileges and certain powers in aid thereof, must have intended to confine their corporate action within their bounds. Unlike the members of railroad, banking, insurance, and other mercantile, or trading, companies, having a capital, invested and managed for purposes of gain, the members of a cemetery association have no such proprietary interest and they derive no advantage from its operations; for what moneys are received from sales of plots are reserved, beyond incidental • expenses, either to discharge its indebtedness, or to preserve and to improve the cemetery grounds. The question of the liabilities, which such associations may incur, is a very serious one and concerns the body of lot owners, for whose protection the legislative scheme was devised, and where a questionable corporate liability is predicated of acts of their officers, the inquiry must be into the extent of corporate powers, as found in the statutes; of whose provisions knowledge is chargeable to all who come into relations with the corporation. Whatever the rules laid down with respect to the business of stock corporations and to dealings by the public in their shares, as, for example, in the
Schuyler Case, (supra),
and cases founded upon the doctrine there announced, I, think that a different principle affects the decision of cases, in which a liability is sought to be imposed upon an association of the nature of the defendant for the unlawful, or wrongful; acts of its officers. In the
Schuyler
case, the company was held to be responsible for the injury caused to others by the acts of its agent, in issuing and transferring spurious certificates of stock, upon the same principle that would have made it liable, if such acts had
been those of the corporation. Incapacity to create spurious stock would have been no defense to an action for the damage caused. But it must be observed that, in that case, the certificates of stock were such as the company might issue. If the company, to subserve any of its business operations, had put upon the market a new issue of stock, it would have been through the agency of Schuyler. But, in the present case, there was no statutory authority to issue certificates of stock at all and the certificates, which were issued, had nothing of the nature of stock certificates. It was in the nature of the stock certificates, which stock corporations, like the railroad company in the
Schuyler
case, issue, and in the negotiable character, exceptionally, given them, in order to encourage public dealings in them, that the court founded the principle of liability. Such corporations were regarded as seeking to promote the enhancement of the monetary value of their capital stock, by entering it upon the market and by inviting the confidence and trade of the commercial community through facilities of transfer. The common-law rule as to the non-assignability of dioses in action became relaxed under the law merchant and, in the furtherance of the interests of commerce, commercial paper was given negotiability. This arbitrary rule of the law merchant was then extended to certificates of stock of stock corporations, in such wise as to invest them with a quasi-negotiable character; to use what is, perhaps, an inexact, but expressive, term. While they are neither in form, or character, negotiable paper, it is because they approximate to it, as well as because they have become the basis of commercial transactions and are sold in open market, the same as other securities, that they are accorded a negotiability like to that of commercial paper. The nature and extent of the dealings in them, in which they are passed from hand to hand like negotiable paper and in so many ways enter into the basis of credit, have influenced courts to accord to them the character of negotiability in order to meet a commercial need of the day. (See
Leitch
v.
Wells,
48 N. Y. 585,
613; Fifth Ave. Bank
v.
42d, St. & G. St. F. R. R. Co.,
131
ib. 231,238 ;
Knox
v.
Eden Musee Am.
Co., 148 ib. 441, 454;
Bank v.
Lanier, 11 Wall. [U. S.] 369, 377.) The substance of the rule of commercial negotiability, which is extended tinder the law merchant to instruments, which usage, or legislation, has brought within it, is that the possessor of such an instrument has power to give, by delivery to a
bona fide
purchaser for value, a good title, notwithstanding any defectiveness in his own. In extending the rule to certificates of stock corporations, there was reason ; for it subserved a business demand. They represent the distinct interests of the holders in the whole of the corporate property; in the capital and in the net business earnings from operations, and the shareholders, as virtual proprietors of the corporate assets, hold and deal in them as articles of trade, whose attractiveness, or value, depends upon the trading advantages and profits of the company and the facilities for the transfer of the shares.
With what reason shall we regard the instruments issued by this defendant in the same light, as we do the stock certificates of a stock corporation, or withdraw them from the operation of the rule governing dealings in non-negotiahle securities? In a sense, only, is a cemetery association a business corporation. It is concerned with the management of the temporal affairs of the associated members and in the adjustment of their relations to third persons and as between themselves. It is not engaged in commerce; nor has it any capital with which to enter upon the commercial markets. There is not one substantial feature of resemblance with corporations organized for the pecuniary profit of its members and if, as seems to have been the fact, the certificates of the defendant had a market value, it is impossible to conceive of any misunderstanding, on the part of dealers, of the defendant’s noncommercial nature and of the limitations upon its powers and activities. In providing for the issuance of certificates of a certain nature and for a certain purpose, the statute, impliedly, prohibited such an association from issuing any others and, as has been shown, these certificates are, in legal effect, but non-negotiable promises to pay money, whatever their disguise
in form, which an assignee takes with no better rights than were possessed by the assignor. They do not differ, in their negotiable character, from the certificate of deposit in
Zander
v.
N. Y. Security & Trust Co.,
(178 N. Y. 208), which was payable to the plaintiff, or her assigns. If there is any difference, it consists in the form and is not of substance. In that case, the certificate of deposit, upon which the plaintiff founded the action, had been lost and the defense of the company was that it was a negotiable instrument, or that, if not negotiable, its amount was made payable upon its return, and that it would be liable to third persons, acquiring it for value, in analogy to the law relating to certificates of stock. Judge Cullen, speaking for the court, pointed out that the claim of negotiability was defeated by the provision, which made the certificate assignable, only, on the books of the company, and, with respect to the other defense, that it lacked analogy to a stock certificate and that “ the two
instruments
differ entirely in character.” It is of no importance that these cei'tificates are proznises to pay znozzey, which may ezzdure for the coz"poz'ate life. That feature goes to their zzegotiability atzd brizzgs them no neaz-er to the marketable' stock certificates, in that respect. The same reasons do not exist for giving currency to these certificates of zneznbership corporations, which cannot have a capital stock in circulation. Their limited powers and functions were calculated to prevent their cozning under an increase of liability, over that which was statutoz-y, or incidental, or under the hazards, which are made possible in the life of a stock coz-poration from the zzature of its relations to and dealings with the comznercial community.
The contention that the power existed to issue these certificates of shares, in a proper case, and that the corporation is liable for the znisconduet of its agents, in issuing them in an improper case, is an effort to apply the rule of agency and, in that way, to evade the legal consequences affecting the possession by an assignee of a non-negotiable instrzzznent. It is tz-ue that a principal is liable for the act of an agent, whezz it is, apparently, if not actually, within the scope of his agency ;
but I am unable to perceive liow that rule applies to the transaction in this case. Knevals had fraudulently filled out in his name blank certificates, which had been confided to him, and had assigned them as security for a loan. There was neither a purported issue, nor a transfer, of shares to the plaintiff by the defendant and the latter was not brought into, nor was concerned with, the transaction. That excessive confidence in Knevals permitted him to embezzle and to make use of the certificates is true; but how can that fact alter the nature of the transaction with the plaintiff, wherein they were accepted as security for a loan? The plaintiff took them, as any other non-negotiable security, subject to all the equities against their assignor. If the rule in the
Schuyler
case is inapplicable, because of the radical differences in the nature of the corporations and of their certificates, for reasons which I have endeavored to point out, the assignment of these certificates put the plaintiff upon its inquiry as to every fact essential to their validity as obligations of the defendant. In our consideration of the plaintiff’s case, we are, always, brought back to the character of these instruments and it makes no difference, legally, that they were expressed in a form calculated to confer the negotiability of stock certificates. The defendant could not change their real character as instruments for the payment of money; for that was its chartered limitation. If negligence is predicable of the defendant, it rendered it no more liable for the fraudulent use by Knevals of the certificates intrusted to his custody, than did the negligence of the defendant in the case of
Knox
v.
Eden Musee Am. Co.,
(148 N. Y. 441, 458).
My consideration of this case has led me to these conclusions: that these certificates were, in law and in fact, but promises to pay money; that they were, necessarily, from their tenor, as from the conditions under which payments were to be made, non-negotiable; that the plaintiff was chargeable with notice of the statutory restrictions upon the powers of the corporation and of its incapacity to issue any. thing under its contract except certificates of indebtedness;
that the principle of estoppel, within the rule in the
Schuyler
case, is inapplicable; that the plaintiff took the certificates from its assignor, Knevals, with no other rights against the defendant than he possessed, and that, consequently, it has no cause of action against the defendant.
I advise the reversal of this judgment and that a new trial be ordered; with costs to abide the event.
Cullen, Oh. J., Haight, Werner, Willard Bartlett and Chase, JJ., concur; Hiscook, J., dissents.
Judgment reversed, etc.