Henry v. Allen

— This action was originally commenced against Norman M. Allen and Hoyt M. Allen as co-partners engaged in the business of banking at Dayton, N. Y, under the iirrn name of Norman M. Allen & Son, but since this appeal was taken Hoyt M. Allen died. The action was brought to recover the sum of $27,999, being the amount of thirty-three instruments in writing, each of which was in the following form, omitting dates and amounts

“$-- Dayton, N. Y. ,-, 188—.

“ Norman M. Allen & Son, Bankers.

“ Pay to the order of F. Monson--dollars.

“ N. M. Allen & Son.”

The plaintiff resided in the village of Gowanda, distant about four miles from the residence of the defendants, but had no personal acquaintance with either. One Forbes Monson, the person named as payee in the instruments sued upon, also resided in the village of Gowanda, with whom the plaintiff was intimately acquainted. On the 12th day of March, 1886, the plaintiff was the owner of three certificates of deposit issued by the Bank of Gowanda, one of which was for $1,163.54, and the other two for $1,000 each. Chiefly through the representations of Monson, lie had become suspicious of the solvency of the bank, and decided to withdraw his money therefrom. He accordingly entered into an agreement with Monson by which he was to deliver to him his three certificates of deposit for the purpose of having him withdraw the money from time to time, in such manner as not to create a suspicion on the part of the officers of the bank of his purpose,- or

Some criticism has been made upon the findings. It is said that the plaintiff never agreed to accept the individual check of Mon-son. For the first money derived by Monson upon one of the certificates of deposit delivered to him by the defendants he mailed to the plaintiff his individual check, inclosed in a letter, in which he appears to have apologized'for not procuring it to be certified, pleading as an excuse that he had forgotten to do so. To this the plaintiff replied,- saying : “ There is no earthly need of your having your check certified. Why, what an idea ! I don’t want your checks at all.” Thereafter Monson appears to have procured the defendants’ checks payable to his order, which he indorsed over to the plaintiff. The plaintiff testified that, in his conversation with Monson, Monson wanted to know of him if H. M. Allen’s check would be security; that he told him he would make inquiries, and subsequently told him that he would take H. M. Allen &'Son’s checks, provided he would indorse them; and that they began the businses with that understanding. It is, therefore, apparent that the plaintiff did not agree to take the individual check of Monson, but that the understanding was that he should take the check of the defendants, indorsed by Monson. It appears that Monson paid plaintiff the interest, the referee finds, down to January 1, 1890. That is the, last date of payment shown by the receipts, but it is claimed by the appellant .that it appears from the letters written by the plaintiff to Monson that the interest was paid down nearly to the time that Monson absconded. Under the view taken by us, this variance is unimportant. The plaintiff knew that Monson was paying the interest on his deposits. He testified that he supposed that Monson in some way obtained the interest frtini Allen. But his letters leave this question in some doubt, for he had the defendants’ check for each deposit in his possession, and these checks contained no promise J;o pay interest.

“ Just received yours 6th, mentioning payment to Leonard of §172.50, to my credit, same being interest on my deposits, as understood. I feel rather sheepish in this interest matter, but I presume, as long as you are bound to do it, I shall have to accept it. Inclosed find, my receipt for the same. With every appreciation, believe me, truly, Henry.”

And again, from Perth Amboy, October 5th (the year not given), he writes:

“ I don’t feel right to take interest from you on money that is actually a bother to you. I don’t want your friendship to extend to such matters.”

We shall, however, assume, for the purposes of this review, that the plaintiff supposed that Monson had procured the interest which he paid him from Allen & Son.

It is also claimed that the referee erred in finding that the defendants had no knowledge that the money deposited with them by Mons m. belonged to the plaintiff. It is claimed that Henry wrote a letter to Allen & Son about the time that Monson commenced depositing the money with them, in which he stated, in substance, that Monson had influenced him to withdraw his funds from the bank of Gfowanda, and to place them in the defendants’ bank; that Monson was a great friend of his , and very enthusiastic over his success, but wanted the matter to be strictly a business matter. He, however, kept no copy of the letter ; could not tell at what place he wrote it; his correspondence was very voluminous ; and that he could not be certain as to the exact contents of the letter. H. M. Allen testified that he remembered receiving a letter from the plaintiff ; that he was unable to find it among his files ; that he thought he had passed it over to Monson ; that he could not recall the contents of the letter further than that it conveyed to him no idea that the plaintiff had withdrawn any money from the Bank of Go wan da to be deposited with them through Monson. The referee appears to have believed the defendants’ testimony, and where there is a conflict between two interested parties it is our usual practice to follow the findings. We must, therefore, treat the instruments in suit as memorandum checks issued by the defendants to Monson without consideration, and in his hands creating no liability against the defendants. They could only become liable thereon by a transfer of the checks by Monson to a purchaser in good faith for value in the regular course of business, without notice of the arrangement under which they were issued. Is the plaintiff such a holder? It is not shown that he had actual knowledge of the facts under which they were issued, but it is found as a fact that he had constituted Monson his agent to take his money and deposit it with the defendants, and this we do not understand to be controverted. By delivering his money to Mon-son he invested him with the indicia of title, and thus enabled him to induce the defendants to believe that the money belonged to him. As we have seen, he took the money to the defendants, re

. Story on Agency, at § 140, says:

“ Upon a similar ground, notice of facts to an agent is constructive notice thereof to the principal himself, where it arises from, or is at the time connected with, the subject matter of his agency; for, upon general principles of public policy, it is presumed that the agent has communicated such facts to the principal; and, if he has not, still the principal having intrusted the agent with the particular business, the other party has a right to deem his acts and knowledge obligatory upon the principal, otherwise the neglect of the agent, whether designed or undesigned, might operate most injuriously to the rights and interests of such party.”

And again, at § 419, he says:

“ This doctrine applies, a fortiori, to every case where the agent does not contract in his own name, but solely in the name of his principal; for in such a case the principal is not only the contracting party, but he is the sole contracting party exclusive of the agent, and is alone competent to sue or enforce any other remedy thereon. In all cases of this sort, however, the principal, while he is entitled to all the advantages and benefits of the contract of his agent, must take them with all the attendant btirdens, and subject to all the attendant advantages, counterclaims, and defenses of the other contracting party. Thus, if the contract of

And again, at § 420, he says:

“Neither will it make any difference in such cases * * * that the principal at the time of entering into the contract is known or unsuspected; nor that a third person has dealt with the agent, supposing him to be the sole principal. The only effect of the last consideration is that the principal will not be permitted to intercept the rights of such third person in regard to the agent, for he must take the contract, subject to all equities, in the same way as if the agent were the sole principal. Thus, for example, if the agent is the only known or supposed principal, the person dealing with him will be entitled to the same right of set-off as if the agent were the true and only principal. But,' subject to these rights, and those of the agent himself, the principal may generally sue upon such a contract, in the same manner as if he had personally made it.”

Mechem in his work upon agency, at § 773, says:

“ But if the principal would avail himself of the benefits of a contract made by an agent in his own name without disclosing his principal, he must also assume the responsibilities' of the contract. He must take the contract as it exists at the time he interposes, and subject to all the rights which the other party then possessed against the agent. In the homely but expressive language of a learned judge, the principal must 1 step into the shoes of the agent.’ Hence, where a third person, who has entered into a contract with the agent in ignorance of the fact that he was not the real principal, as he assumed to be, is sued upon the contract by the principal, he may avail himself, as against the principal, of every defense, whether it be( by common law or statutes, which existed in his favor against the agent at the time the principal first interposed and demanded performance to himself. This right is not affected by the fact that the agent, in thus entering into" the contract in his own name without disclosing his principal, acted in contravention of the express direction of his principal.”

In the case of Bank v. Davis, 2 Hill, 451 , the action was brought to recover the amount of two bills drawn by the defendant. It appears that these bills were transmitted by the drawer to Williams, one of the directors of the bank, for the purpose of having them discounted for the benefit of the former; that Williams put his own name upon the paper, and procured it to be discounted for himself, and appropriated the avails. At the time he was one of the five directors of the bank constituting the board of discount. • His associates had no knowledge of his fraudulent use of the bills.

“The general rule is undisputed that notice to the agent is notice to the principal, if the agent comes to the knowledge of the fact while he is acting for the principal in the course of the very transaction which becomes the subject of the suit; for upon general principles of policy it must be taken for granted that the principal knows whatever the agent knows. There is no difference between personal and'constructive notice, except in respect to the guilt; for, if there were, it would produce great inconvenience, as notice might be avoided in every cause by employing an agent. * * * It is said, however, that Williams was but one of the five empowered by the bank to represent it in this , transaction ; that the bank is not, therefore, to be held responsible for his individual fraud_at the time, nor can it be chargeable with his knowledge of the facts under which the paper in question was discount-' ed ; and that such knowledge is chargeable only when the agent has full power to act for the principal in the particular case. It is not to be denied that, if the principal employs several agents to transact jointly a particular piece of business, he is equally responsible for the conduct of each and all of them, while acting within the limit and scope of their power, as completely so as he would be for the conduct of a single person upon whom the authority had been conferred. He cannot shift or avoid this responsibility by the multiplication of his agents. It is also clear that the corresponding responsibility of each of the several joint agents to the principal for the faithful discharge of their duties is as complete and perfect as in the case of a single agency ; and any prejudice to the principal arising from fraud, misconduct, or neglect of either of them would afford gropnd for redress from the party guilty of the wrong. These are general, conceded principles, for which no authority need be cited. One of the grounds for charging the principal with the knowledge possessed by the agent is because the latter is bound to communicate the fact to the former, and is liable for any prejudice that may arise from a neglect in this respect; and hence the law presumes that the principal has actual notice.”

In Hyatt v. Clark, 118 N. Y. 563 , 569; 29 St. Rep. 851 , it is , said by Vann, J., after quoting from Story on Agency:

“In other words, she was chargeable with all the knowledge that her agent had in; the transaction of the business he had in charge.”

In Adams v. Mills, 60 N. Y. 533 , 539, it is said that—

“His notice and knowledge must be regarded as notice to and knowledge of the wife, according to the well-settled principle that a principal is chargeable with all the knowledge the agent possesses in the transaction of the business he has in' charge. ”

See, also, Myers v. Mutual L. Ins. Co., 99 N. Y. 1 -11; Hogan v. Shorb, 24 Wend. 458 ; Laing v. Butler, 37 Hun, 144 ; affirmed 108 N. Y. 637 ; 13 St. Rep. 900 ; Greenfield School Dist. v. Greenfield Nat. Bank, 102 Mass. 174 ; Bank v. King, 57 Pa. St. 202 .

The learned referee is of the opinion that the plaintiff could not

Dwight, P. J., and Lewis, J., concur.

(dissenting).—The plaintiff handed his certificates and money to Monson to deposit in the bank of N. M. Allen & Son. This was to be done for the plaintiff, and such was the authority and direction given by him to Monson. The purpose of the plaintiff was to have the responsibility and liability of those bankers for his money. And by their checks or bills, drawn by them on themselves, which came to the plaintiff, he was advised that the deposits were made; that the amounts thus represented would be paid on presentation of such checks; and that until then na balance would remain in their bank to pay them. This was the import of the instruments, and the situation represented by them to the plaintiff. While the plaintiff may, in the outset, have intended that the money should be deposited to his own credit, he was at liberty, when the bankers’ negotiable checks came to him, indorsed by Monson, to treat the object as practically accomplished. The purpose of Monson’s authority was apparently fulfilled when he had furnished to the plaintiff such evidence of the liability of the bankers to pay the respective amounts so deposited; and the plaintiff had no reason to apprehend that those instruments were intended by the drawers to have another or different legal effect ‘than they, by their terms, purported to give them. But it seems that the bankers had an understanding with Monson that the checks were not to be treated as effectual for any purpose, and that he should be permitted to draw the money from the bank without the production or presentation of them. When the plaintiff afterwards presented those checks for payment to the bank, payment was refused. The question therefore, is whether or not the plaintiff was affected by such understanding between the bankers and Monson.

The case of Bank v. Davis, 2 Hill, 451 , much relied, upon, does, not seem to aid the defense. There Williams was one of a board of directors of a branch bank of the plaintiff at Erie, Pa.,-and to him the .bills in question were sent by the drawer for discount at that branch. He indorsed his name

“But one answer has been made to the Conclusion at which we have arrived, and that is that Williams should not be regarded as a director in the discount of the bills in question. If that could be maintained, then I admit the argument fails ; but * * * that is not true, either in fact or in contemplation of law.”

It was in the scope of the power of the directors to discount paper, and the court said:

“It is not to be denied that if the principal employs several agents to transact jointly a particular piece of business, he is equally responsible for the conduct of each and all of them while acting within the limit and scope of their power.”

In that case, while representing the bank as its director, the bills were transmitted to and received by Williams as such director, to be discounted for the drawer, and by causing it to be done he secured an advantage to himself; and it was held that his relation to the bank was such in the matter of discontinuing the bills that notice of the purpose for which they were received by him was imputed to the bank, as the bills were discounted by it through the action of the directors. The principle of the case, in view of the facts presented by it, is referred to and somewhat exemplified by Judge Gray in Casco Nat. Bank v. Clark, 139 N. Y. 307 ; 54 St. Rep. 590 . It may be observed that in the H. S. Bank case Williams was not the adverse contracting party. He was acting as its director in procuring discount of the paper, although he may have had the purpose of realizing an-advantage to himself from it. In the present case the plaintiff was chargeable with knowledge that the money was deposited to the credit of Monson. Further than that, the drafts of the bankers transmitted to the plaintiff advised him that the amount remained with them, subject to call, on presentation of those instruments, according to the usual custom and course of banking business in such cases. The promise of Monson to retain and return the, checks was made to procure them for the purpose of defrauding somebody, and the issuing them with permission to draw the money from the bank without their production and surrender enabled him to do so. He evidently did not care which — the bankers or the plaintiff — suffered the consequences. He knew it was only through the means afforded by the irregular and inexcusable method which the bankers consented to adopt that he could consummate his fraudulent purpose. It certainly would be a most remarkable

In Allen v. Railroad Co., 150 Mass. 206 , after stating the general rule of constructive notice to the principal of facts within the knowledge of the agent affecting the character to the transaction while acting for him, the court added:

“ There is an exception to this rule when the agent is engaged in committing an independent fraudulent act on his own account, and the facts to be imputed relate to this fraudulent act. * * * It has been suggested that the true reason for the exception is that an independent fraud, committed by an agent on his own account, is beyond the scope of his employment, and therefore knowledge of it, as matter of' law, cannot be imputed to the principal, and the principal cannot be held responsible. Whatever the reason may be, the exception is well established.”

And in Innerarity v. Bank, 139 Mass. 332 , upon the subject of the reason for the exception to the general rule, the court observed:

“ While the knowledge of an agent is ordinarily to be imputed to the principal, it would appear now to be well established that there is an exception to the constructioñ or imputation of notice from the agent to the principal in case of such conduct by the agent as raises a clear presumption that he would not communicate the fact in controversy ; as, where the communication of such a fact would necessarily prevent the consummation of a fraudulent scheme which the agent was engaged in perpetrating.”

It may be stated as a theory or ground upon which notice is imputed to the principal of facts which come within the knowledge of the agent while acting in the scope of his authority, that the duty of the agent is to communicate such facts to his principal, and the presumption is that he has done so. Casco Nat. Bank v. Clark, 139 N. Y. 307 -313; 54 St. Rep. 590 . When the agent is attempting to do that which, if effectual, would be a fraud upon his principal, the presumption that he has communicated to or will advise him of the facts of the transaction certainly cannot be presumed, nor can it be assumed by the person with whom the agent is dealing that such purpose or conduct of the agent is within the scope of his authority. It is quite evident that if H. M. Allen & Son had been advised that Monson was acting for the plaintiff in depositing the money, it would have been apparent to them that an arrangement to the effect that the checks should be nugatory as such, and for that reason Monson might draw out the money without the presentation of them, would be in fraud of the plaintiff, and therefore not within the scope of his authority to Monson.

The proposition upon which the defendent seeks to charge the plaintiff with constructive notice, being that of agency and his relation of principal, is, for the purpose of the question, not other than it would be if the bankers had then known that Monson was acting for the plaintiff in depositing the money for the latter. And it seems quite clear that no support for the defense can be founded

It seems to follow that the defense has no support in the position that notice was imputed to the plaintiff that the bankers’ checks were made pursuant to an understanding, fraudulent on the part of Monson, which would defeat their apparent purpose and effect as such. The plaintiff received those instruments for value,1 and is a holder of them in good faith. They, in fact, were the product, when made, of his money deposited, and were transmitted to him as such. By them was expressed the liability and undertaking of the makers to pay the respective and equivalent amounts so deposited with the bankers who made them. The plaintiff was at liberty to assume that the liability to pay them would continue until they were presented for payment. This, as between them and the plaintiff, the bankers were, in view of the usual methods and course of business, required to understand. Ho reason appears for,apprehension on the part of the plaintiff to the contrary. Hor is it seén that the indiscreet and remarkable confidence of the bankers in Monson’s promise to return the drafts can legitimately be available to prejudice the plaintiff's claim, founded upon them. For these reasons, being unable to concur in the opinion adopted by a majority of the court, I think the judgment should be reversed, and a new trial granted, costs to abide the event.