Carr v. National Bank & Loan Co.

At the times mentioned in the complaint, the defendant was a banking corporation, organized under the laws of' the United States, and having its principal place of business in the city of Watertown, N. Y. Defendant’s president and manager was-George H. Sherman, who was also a large owner of its capital stocks In the latter part of the year 1892, the plaintiff deposited in the defendant’s bank about $13,00(1, for the purpose of having the same invested by Mr. Sherman for her. At that -time and for many years-prior thereto, Mr. Sherman was regarded by the plaintiff as a true and disinterested friend of herself and of her husband, then lately deceased, and sustained to them close and confidential relations. By reason of such supposed friendship and confidential relations, he was given full power and authority to invest the money deposited by her, to sign her name to checks, to draw the same from the bank, and to-deal with the money in such manner as he might see fit for the purpose of investing the same. The plaintiff, was not acquainted with business methods, had had no experience in the transaction of business,, knew nothing about securities or investments, and so informed Mr. Sherman, and told him that she would, and, as matter of fact, did,, rely entirely upon Mr. Sherman in securing investments for her. She was led to believe by him that his only interest in the transaction in question was to promote and look after her interest. He first represented to her that he could find good, first-class securities for her, and tendered his services to her solely as a matter of friendship. Later he represented that he had found such securities, and, at the time of the transfer of the securities in question, he represented that they were first-class securities in every respect, that they were as good as gold, and led her to believe that he had procured them expressly for her, and that he had no personal interest in the transaction. As matter of fact, the securities transferred to the plaintiff, amounting to $12,000 par value, were, at the time of the transfer to her, the-property of the defendant, and had been for some time prior thereto. This fact was concealed from the plaintiff by defendant’s president. The defendant had purchased the securities for speculative purposes, for at least 5 per cent, less than their face value, and transferred them, through its president, to the plaintiff at their par value. The expense-of the investigation which led the defendant to purchase the securities-in question was paid to it by customers or creditors of the defendant, who were interested in disposing of the same. The securities trans

Considering the relations which existed between the plaintiff and defendant’s president at the time the sale of the securities in question was made, it must be held that the representations made by Mr. Sherman as to the value and character of the securities Were material; that they were relied upon by the plaintiff, and induced her to make the purchases in question. It is further held that the representations so made were not true, and that the plaintiff sustained damage by reason thereof. Mr. Sherman stated to the plaintiff that the securities transferred to her were first-class securities; were as good as gold. Both statements were untrue.

The case of Rothschild v. Mack, 115 N. Y. 1 , 21 N. E. 726 , was an action brought to recover the amount of a note which the plaintiffs indorsed and procured to be discounted, upon the representation made at the time that it (the note) was as good as the Bank of England, and that the plaintiffs would run no risk in indorsing the same. At page 7, 115 N. Y., and page 728, 21 N. E., the court, by Peckham, J., say:

“If he [the party making the representations] did not know its condition [the condition of the makers of the note], he yet assumed to have actual knowledge of the truth of his statement that the note was as good as the Bank of England. * * * He certainly meant to convey the impression of actual knowledge of the truth of the representations he made as to the value of the note; and he either knew such representations were false, or else he was conscious that he had no actual knowledge while assuming to have it, and intending to convey such impression. If damage ensue, this makes an actual fraudulent representation.”-

As to some of the securities, Mr. Sherman represented to the plaintiff that they were first-mortgage bonds. As matter of fact, they were second-mortgage bonds, and so appeared upon their face. The plaintiff did not examine them. They were retained by Mr. Sherman in the defendant’s bank, and she relied implicitly upon the statements of Mr. Sherman. It is held that such a representation was sufficient ground for rescinding the sale as to those securities. In the transactions in question, Mr. Sherman represented the defendant;

In the case of Fairchild v. McMahon, 139 N. Y. 290 , 34 N. E. 779 , the headnote is as follows:

“All persons who act for or in the name of the owner in bringing about the transaction must be deemed his agents where he accepts the fruits of their efforts, and all the methods employed by them are imputable to him. He may not, even though innocent, receive and recover upon a security given on the sale, and at the same time disclaim responsibility for the fraud by means of which the purchaser was induced to deliver it.”

In this case the money of the plaintiff was permitted by her to be paid over to the defendant by reason of the false statements of Mr. Sherman, its president and manager. It has retained such moneys, and its obligations to the plaintiff are precisely the same as Mr. Sherman’s would have been had he been the owner of the securities.

It is further held that the plaintiff is entitled to rescind the contract for the sale of the securities in question, for the reason that Mr. Sherman, wMle assuming to act as the plaintiff’s agent to buy securities for her, procured the securities in question of the defendant, of which he was president and manager and owner of a large amount of its capital stock. His obligation, at the time, to the plaintiff, was to pur chase securities for her as cheaply as possible. It was for his interest to sell the securities, which he did, at the Mghest possible price. It was his duty, as president of and as representing the defendant, to do the same.

In the case of Conkey v. Bond, 36 N. Y. 427 , the headnote is as follows:

“An agent under a general authority to purchase cannot buy from himself without the knowledge or assent of his principal. Such a transaction is a breach of duty, and the contract is subject to rescission, irrespective of any Question of intentional fraud or actual injury.”

And, at page 429, the court say (Porter, J.):

“There is no view of the facts in which the transaction can be upheld. He [the defendant] stood in a relation to his principal which disabled him from concluding a contract with himself without the knowledge or assent of the party he assumed to represent. He undertook to act at once as seller and as purchaser. He bought as agent, and sold as owner. The ex parte bargain thus concluded proved advantageous tó him, and very unfortunate for his principal. It was the right of the latter to rescind it, on discovery of the breach of confidence. It is not material to inquire whether the defendant had any actual fraudulent purpose. The making of a purchase from himself, without authority from the plaintiff, was a constructive fraud, in view of the fiduciary relation which existed between the parties.”

The case of Mayo v. Knowlton, 134 N. Y. 250 , 31 N. E. 985 , was a case in which the defendant agreed to purchase for the plaintiff 4,000 shares of the stock of the Silver King Mining Company. In pursuance of that agreement, the defendant transferred to the plaintiff the stock of the company belonging to himself, and received and retained to his own use the money paid therefor. It was held that, upon the discovery of such fact, the plaintiff had a right to rescind the contract, and recover back the purchase price paid.

A large number of other cases might be cited holding expressly that, where a person assumes to act as agent for another in the pur

It follows that the plaintiff is entitled to judgment against the defendant for the relief demanded in the complaint, with costs. Ordered accordingly.